This week the Department of Labor (“DOL”) submitted a proposed rulemaking that would rescind the regulation commonly termed the “Persuader Rule” to the Office of Management and Budget’s Office of Information and Regulatory Transparency (“OIRA”) for review. The DOL, through its Office of Labor-Management Standards (“OLMS”), promulgated the Persuader Rule during the last year of the Obama Administration and received vehement opposition from the employer community due to its impact on access to legal advice and counsel. If OIRA approves the proposed rulemaking, the next step is for the DOL to publish it in the Federal Register for public review and comment. The DOL will then consider and evaluate the comments it receives and decide how to proceed with the rulemaking. Although the outcome is not guaranteed due to the pending comment process, this is an essential step toward eliminating the Persuader Rule.
As we discussed in a prior post, the Persuader Rule imposed stricter reporting requirements on employers under the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA”). Specifically, the rule aimed to close a loophole in the reporting requirements, known as the “advice exemption,” which permitted employers to hire a consultant solely for advice without making a related report. Thus, in the past, the LMRDA required an employer to file a report if it hired a consultant to directly persuade employees on organizing or bargaining issues, but did not mandate an employer file a report if the consultant hired only used “indirect” persuasion, such as advising employers on what to say to employees. With the Persuader Rule, however, the DOL has essentially eliminated the advice exemption as it now requires employers and their labor relations consultants, including outside attorneys, to report any activities by the consultants that could be construed as an attempt to “persuade” employees regarding their rights to organize and bargain.
This rule is problematic for many reasons. For instance, the rule could discourage employers from seeking legal advice to ensure they are complying with applicable labor laws during organizing campaigns and/or negotiations. Additionally, it threatens the confidential nature of communications between an employer and its outside counsel related to labor issues as protected by the attorney-client privilege. Despite these issues that clearly undermine an employer’s right to counsel, as well as other significant challenges created by the Persuader Rule, it became effective 30 days after its publication on April 25, 2017.
In response, several industry groups and 10 states promptly filed a challenge to the Persuader Rule in the U.S. District Court for the Northern District of Texas, claiming it violated the First and Fifth Amendments, the Administrative Procedure Act (“APA”), the LMRDA, and the Regulatory Flexibility Act. Two other suits were also filed against the rule in Minnesota and Arkansas. In June 2016, a U.S. District Court Judge in Texas, Judge Sam R. Cummings, granted a preliminary injunction barring the DOL from enforcing the Persuader Rule. Subsequently, on November 16, 2016, Judge Cummings granted summary judgement for the plaintiffs and converted the preliminary injunction into a permanent nationwide injunction blocking the Rule’s implementation. Judge Cummings determined that the DOL exceeded its authority in passing the Rule and that the Rule undermined the attorney-client relationship, among other findings that led to his decision in favor of the plaintiffs. The DOL appealed Judge Cummings’ ruling to the Fifth Circuit in January 2017, before President Trump’s inauguration, but has been largely inactive in the matter since filing the appeal.
Instead, it appears the DOL under President Trump has decided to pursue the rulemaking process to address this controversial Rule. In light of the permanent injunction, the act of rescinding the Persuader Rule would not currently have much practical impact. However, rescinding the rule assures employers that they will not be subject to its requirements no matter the outcome of the pending litigation (which will likely be dismissed as moot if this proposed rulemaking becomes final). The permanent injunction may have been reversed on appeal or resulted in additional legal action, creating uncertainty in the employer community. Alternatively, if the Rule is completely revoked pursuant to the current rulemaking, the DOL would have no authority to attempt to expand the information to which it is entitled under the LMRDA now or in the future.
If approved and published in the Federal Register, the public will have the opportunity to submit comments supporting or opposing rescission of the Persuader Rule. We will continue to keep you apprised of any changes or further action in this process.