One of the more controversial actions of the United States Department of Labor during the Obama Administration was its 2016 issuance of a Final Rule that was intended to radically rewrite the rules concerning the “Advice Exemption” to Labor Management Reporting and Disclosure Act of 1959 (“LMRDA”).  The 2016 Final Rule was hotly contested because it would have required employers and their labor law counsel to report concerning advice the lawyers provided even when the lawyers did not directly communicate with their client’s employees. For almost 50 years such attorney-client communications and dealings were exempt from reporting so long as the attorneys did not speak or otherwise communicate directly with their clients’ employees.

The 2016 Final Rule Would Have Eviscerated the Advice Exemption

That Final Rule would have, for the first time, require employers and their outside law firms to file frequent reports concerning their relationships more frequently than under current law. Until then, as long an employer’s lawyer or consultant did not communicate directly with employees and as long as the employer remained free to accept or reject any draft materials prepared by them (speeches, letters, written communications, etc.), they were covered by the Advice Exemption and not subject to disclosure or reporting by the employer or the counselor.

The 2016 Final Rule was widely recognized as being designed to assist unions by requiring employers and third-party lawyers and other labor consultants to disclose their relationships more frequently than under current law. The Final Rule would have required employers and their consultants to file reports even if the consultants are giving certain guidance to the employer without communicating with employees directly.

At the time, then-Secretary of Labor Thomas Perez commented that “The final rule.  . .  is designed to ensure workers have the information they need to make informed decisions about exercising critical workplace rights such as whether to form a union or join a union.”

The DOL Was Enjoined from Enforcing the 2016 Final Rule

Numerous legal challenges were brought before the 2016 Final Rule was to take effect on July 1, 2016.  On June 27, 2016, the United States District Court for the Northern District of Texas issued a nationwide preliminary injunction halting the Department of Labor’s (“DOL”) controversial new Persuader Rule and its new Advice Exemption Interpretation.

On November 16, 2016, one week after the presidential election, the Court made permanent its earlier injunction, “pending a final resolution of the merits of this case or until a further order of this Court, the United States Court of Appeals for the Firth Circuit or the United States Supreme Court.”

The DOL Has Now Withdrawn the 2016 Final Rule

Since that time, while there has been wide speculation that the Trump DOL would not defend the 2016 Final Rule and that it would ultimately abandon it and return to the prior rules and interpretations of the LMRDA that recognized that communications with and advice from counsel that did not involve direct communications with clients’ employees would be recognized as communications and advice protected by the privilege for attorney-client communications, it was not until this week that the DOL formally acted.

On July 17, 2018, the DOL issued a formal notice rescinding the 2016 Final Rule. As a result the cloud that has existed over attorney client communications and the privilege that they have enjoyed has cleared. As the DOL noted in its News Release:

The Persuader Rule impinged on attorney-client privilege by requiring confidential information to be part of disclosures and was strongly condemned by many stakeholders, including the American Bar Association. A federal court has ruled that the Persuader Rule was incompatible with the law and client confidentiality.

For decades, the Department enforced an easy-to-understand regulation: Personal interactions with employees done by employers’ consultants triggered reporting obligations, but advice between a client and attorney did not. By rescinding this Rule, the Department stands up for the rights of Americans to ask a question of their attorney without mandated disclosure to the government.

Steven M. Swirsky
Steven M. Swirsky

U.S. District Court Judge Patrick J. Schiltz “has found that aspects” of the Department of Labor’s Amended Persuader Rule “are likely invalid because they require reporting of advice that is exempt from disclosure under Section 203(c)” of the Labor Management Reporting and Disclosure Act (LMRDA).

The Amended Persuader Rule Makes Distinctions Between Materially Indistinguishable Activities

In his 34 page opinion denying the plaintiffs’ application for a temporary restraining order and/or a preliminary injunction that would keep new reporting obligations for employers and labor relations consultants, including attorneys from taking effect on July 1, “The Court has also questioned the manner in which the DOL has construed the term “advice,” pointing out that the DOL makes distinctions  between activities that are materially indistinguishable and struggles to place certain common activities on one side or the other of the untenable divide that it has created between persuader activities and advice.”

The Court Denied an Injunction Because It Did Not Find Irreparable Harm

Although the Court found that “the plaintiffs have shown a likelihood of success on one of their claims—specifically their claim that the new rule requires the reporting of some activities that are exempt from disclosure under Section 203(c), a critical element of any application for an injunction, the Court denied their request for an injunction because it found that they had not established that they are likely to suffer irreparable harm if the new rules are to take effect.

In finding that the plaintiffs’ “minimal showing of threat of irreparable harm is not sufficient to warrant the extraordinary relief of a preliminary injunction,” the Court noted that the Amended Rule “has multiple valid applications” and that the DOL had “identified thirteen types of conduct to which the rule applies, only some of which seem to require the reporting of advice that is exempt under ¶ 203.”

The Court’s Other Findings

The plaintiffs in the Labnet case also challenged the Amended Rule on the grounds that it interfered with their First Amendment Rights, it is void for vagueness, arbitrary and capricious, overbroad and violated the Regulatory Flexibility Act.  The Court concluded that the plaintiffs were not likely to prevail on these claims.

What Happens Next?

As we have reported, there are two other challenges to the Amended Rule pending in the U.S. District Courts for the Northern District of Texas and the District of Arkansas.  Hearings have taken place in both those actions, in which plaintiffs are also seeking to enjoin the enforcement of the Amended Rule’s new advice reporting requirements.  Rulings are anticipated in both prior to the July 1 effective date.

Employer Options and Alternatives

As we reported, earlier this month the DOL described what may be a meaningful way for employers (and law firms) to avoid the potential obligation to file public disclosure reports concerning identifying payments that employers made in connection with “indirect persuader activities” that were not reportable under the long standing rules, but that will, for the first time, be considered reportable as persuader activity.

At a recent compliance assistance seminar, representatives of the DOL stated that no persuader payment reporting will be required as a result of payments made after July 1 so long as those payments are tied to an agreement made prior to that date.  This interpretation by OLMS is considerably different from how many envisioned enforcement of the rule when the amendment was issued and it remains to be seen whether the DOL will stand by these statements and how it will interpret and apply them going forward. Until now, most employers and law firms understood that post-July 1, any agreements or arrangements—as well as any payments related to indirect persuader activity—would trigger reporting, regardless of whether the agreements or arrangements were entered into before July 1.

Given this new information, some employers may wish to sign long-term agreements with law firms or consultants now. At this point, it appears that so long as those agreements are made prior to July 1, any payments made under those agreements—even payments made later in 2016 and beyond—will not trigger reporting, according to the DOL.  If the DOL stands by these statements, it appears that entering into agreements with labor counsel prior to July 1 should protect advice and assistance provided by counsel from reporting and disclosure to the DOL and would apparently give employers and labor consultants, including attorneys, a strong defense against any claims that they willfully failed to file reports under the Amended Rule.

The US Department of Labor has finally issued its long awaited Final Rule radically reinterpreting the “Advice Exemption” to the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA.”).  The Final Rule eviscerates any meaningful use of the Advice Exemption, which would be swallowed up by the new expansive definition of persuader activity which could include discussion regarding strategy, reviews of employer drafts and myriad other ways labor attorneys currently aid their clients including essentially any meaningful advice or counsel provided by labor counsel. The move comes just over two years to the day from the DOL’s 2014 postponement of its issuance of the Final Rule.

The Advice Exemption

For over 50 years this Advice Exemption has been properly, effectively and simply administered by distinguishing direct communications with employees from an attorney’s counsel to an employer-client.  The existing regulations have provided a clear line of demarcation; as long an employer’s lawyer or consultant did not communicate directly with employees and as long as the employer remained free to accept or reject any draft materials prepared by them (speeches, letters, written communications, etc.), they were covered by the Advice Exemption and not subject to disclosure or reporting by the employer or the counselor.

The Final Rule will, for the first time, require employers and their outside law firms to file frequent reports concerning their relationships more frequently than under current law. Employers and their consultants must now file reports only when consultants have communicated directly with workers. But under the new rule, they will have to file reports even if the consultants are giving certain guidance to the employer without speaking or otherwise directly communicating with employees.

Although the most visible impact of the Final Rule is likely to be in connection with union organizing efforts and employer attempts to counter union promises and messages, the Final Rule is potentially much broader and may ultimately be deemed by the DOL to require employers to disclose information about a much wider range of consultants and others who they rely upon for training, communication and other activities.

Why Has the DOL Issued This Final Rule?

While the DOL claims the rule is necessary to provide workers with information it believes they need, many others believe the real goal is to assist unions in organizing.

According to Secretary of Labor Thomas Perez, “The final rule  .  . .  is designed to ensure workers have the information they need to make informed decisions about exercising critical workplace rights such as whether to form a union or join a union.”

The rule, first proposed by the Labor Department in 2011, will require employers and third-party lawyers and other labor consultants to disclose their relationships more frequently than under current law. Employers and their consultants must now file reports only when consultants have communicated directly with workers. But under the new rule, they will have to file reports even if the consultants are giving certain guidance to the employer without contacting employees directly.

What Comes Next

The new Final Rule, which was first proposed by the Obama Administration in June 2011, has been the subject for the past five years of intense criticism of everyone from Senators, to both employer and employee rights groups, to the American Bar Association raising serious ethical, economic and practical concerns. One consistent objection was the fact that the altered Advice Exemption contained first in the Proposed Rule and now in the Final Rule seriously interferes with and compromises the attorney-client relationship and mandates the release and disclosure of information long understood to be protected by the attorney-client, work product and other legal privileges.

It is almost certain that there will be immediate challenges in the Courts to the Final Rule as going far beyond what Congress had in mind when it passed the LMRDA almost 60 years ago, and as unwarranted and impermissible intrusion on the attorney-client relationship.