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.

In a two page Order issued yesterday, Senior District Court Judge Sam R. Cummings of the U.S. District Court for the Northern District of Texas ruled that the Department of Labor’s (“DOL”) controversial new Persuader Rule issued in March 2016, and its new Advice Exemption Interpretation, are “unlawful,” and Judge Cummings made permanent his earlier June 27th Preliminary Injunction Order.

The Rule and Interpretation, which now appear to be permanently struck down, would have imposed dramatic changes in longstanding precedents, by requiring public financial disclosure reports concerning payments that employers make in connection with “indirect persuader activities” that were not reportable under the long standing rules, but that would have, if the new rule had not been struck down, would have, for the first time, been considered reportable as persuader activity.

Judge Cummings Has Adopted The Preliminary Injunction And Made it Permanent

In a brief two page Order, Judge Cummings has adopted and incorporated the findings and conclusions in his earlier Preliminary Injunction, in which the Court concluded:

[The DOL is] hereby enjoined on a national basis from implementing any and all aspects of the United States Department of Labor’s Persuader Advice Exemption Rule (“Advice Exemption Interpretation”), as published in 81 Fed. Reg. 15,924, et seq., 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 scope of this injunction is nationwide.

District Court Order Provides Employers Comprehensive Victory

The Court’s Order here gives employers a comprehensive victory, finding that the employers and organizations that brought the lawsuit had succeeded in establishing:

  • The DOL exceeded its authority in promulgating its new Advice Exemption Interpretation in the new Persuader Rule;
  • The new Advice Exemption Interpretation is arbitrary, capricious and an abuse of discretion;
  • The new Advice Exemption Interpretation violates free speech and association rights under the First Amendment;
  • The new Advice Exemption Interpretation is unconstitutionally vague; and
  • The new Advice Exemption Interpretation violates the Regulatory Flexibility Act.

This Injunction Appears Likely to Stand

While it is theoretically possible that the DOL could appeal from the issuance of the Permanent Injunction, given the election of Donald J. Trump and the Republican’s continued majority in both the Senate and the House, it appears unlikely that such an appeal will be pursued or that the new Congress would be supportive of the objectives of the now repudiated rule.

Stop Sign CrosswalkToday, 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, previously discussed here and here.  The Rule and Interpretation marked a dramatic change by requiring public financial disclosure reports concerning payments that employers make in connection with “indirect persuader activities” that were not reportable under the long standing rules, but that would, if the new rule were to take effect, for the first time, be considered reportable as persuader activity.

Injunction Issues Just In Time

The injunction was issued in advance of the July 1, 2016, enforcement date, which the DOL had stated employers, and labor relations consultants, including attorneys, would need to start reporting engagements covered by the new Rule and Interpretation.  Employers and attorneys have raised concerns about the impact on the attorney-client privilege, including the chilling effect and interference with their ability to obtain/provide advice traditionally exempt from disclosure.

In granting the injunction, the Court concluded:

[The DOL is] hereby enjoined on a national basis  from implementing any and all aspects of the United States Department of Labor’s Persuader Advice Exemption Rule (“Advice Exemption Interpretation”), as published in 81 Fed. Reg. 15,924, et seq., 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 scope of this injunction is nationwide.

District Court Order Provides Employers Comprehensive Victory

The Northern District of Texas went one step further than the United States District Court for the District of Minnesota, which last week ruled that the DOL’s Persuader Rule exceeded the agencies authority under the LMRDA, but stopped short of issuing an injunction.  The Court’s Order here gives employers a comprehensive victory, finding not only a substantial threat of irreparable harm but also that the Texas plaintiffs will likely succeed in establishing:

  • The DOL exceeded its authority in promulgating its new Advice Exemption Interpretation in the new Persuader Rule;
  • The new Advice Exemption Interpretation is arbitrary, capricious and an abuse of discretion;
  • The new Advice Exemption Interpretation violates free speech and association rights under the First Amendment;
  • The new Advice Exemption Interpretation is unconstitutionally vague; and
  • The new Advice Exemption Interpretation violates the Regulatory Flexibility Act.

Preliminary Injunction May Only Be Temporary Reprieve for Employers

Obviously a preliminary Injunction is just that, preliminary and temporary in nature.  It is anticipated that the DOL will file an appeal and, depending on the results of the Presidential Election later this year, this could be a looming threat for employers for some time.

Accordingly, employers should first do all they can, including signing long-term agreements with law firms and/or labor relations consultants before July 1, to be prepared in the event the Rule ultimately becomes effective, so as to potentially shield themselves from the obligation to report and disclose so-called indirect persuader activity that has been exempt from reporting under the former rules.

As we noted in “First Kill All The Lawyers“, last November the DOL announced its intention to move forward this month with the Administration’s Proposed Rule change which would eviscerate the Advice Exemption to the Persuader Rule .  Yesterday, the DOL again delayed its timeline for finalizing the Rule.

In November the DOL’s announcement asserted that it intended to publish a Final Rule in March.  On March 6, according to Bloomberg BNA, a DOL spokesman asserted that the Proposed Rule would NOT be made final this month.  The DOL did not give a new target date for finalizing the Rule, rather it stated it would provide a new date in its Spring Regulatory Agenda which is not scheduled to be released for some months.

The Proposed Rule Would Eviscerate the Advice Exemption and Attorney-Client Privilege

The Proposed Rule radically alters the regulations implementing the “Advice Exemption” to the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA.”). 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 Proposed Rule intentionally 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.

Postponement Possibly Prompted By Opposition/Election Concern

The Proposed Rule was originally proposed in June 2011 but drew immediate criticism of everyone from Senators, to both employer and employee rights groups, to the American Bar Association raising serious ethical, economic and practical concerns.  Until November the Proposed Rule was seemingly put on the back burner as the President focused reelection and other issues.

As the stated March deadline approached, the opposition intensified with a slew of major employer groups expressing opposition  to the Proposed Rule and urging the DOL to withdraw it or in the least postpone it to be considered in conjunction with the potential changes to DOL Form LM-21 (one of the required disclosure forms related to persuader activity).  As the DOL has stated it does not plan on making changes to the Form LM-21 until  October 2014, the employer groups argued that changes to the Persuader Rule should at least be postponed so it could be considered together with the closely related LM-21.

Though the DOL has yet to confirm, it is possible this opposition has led to the postponement.  It is also possible that Congressional and Senate Democrats, under pressure from these employer groups and others, have sought help from the Administration to postpone the controversy until after the 2014 elections.  Either way, what seems clear is that while Employers and the traditional Advice Exemption may have a temporary stay, at least for the time being, the DOL still seems intent on “Killing All the Lawyers.

Management Memo will keep readers updated with further developments on the Proposed Rule and will provide Management Missives on how to cope should the Final Rule resemble the Proposed Rule.