November 16, 2016
As previously reported, on March 23, 2016, the U.S. Department of Labor (DOL) issued its reinterpretation of the “persuader” rule in the Labor Management Reporting Disclosure Act of 1959 (LMRDA), originally scheduled to be effective April 25, 2016. However, a federal court in Texas has now permanently enjoined the rule, making permanent its June 27, 2016 nationwide preliminary injunction.
The persuader rule would, among other things, require financial reporting and disclosure by employers and their consultants of any agreement or arrangement by which the consultant will undertake activities, directly or indirectly, to persuade employees on whether to exercise their right to organize and bargain collectively. Contrary to decades of precedent (and the sanctity afforded the attorney-client relationship), the persuader rule would require extensive reporting by employers and their lawyers regarding the nature of their relationship and the content of the legal services provided. In its June 2016 temporary injunction order, the U.S. District Court for the Northern District of Texas branded this new rule “not merely fuzzy around the edges,” but rather “defective to its core….” Nat’l Federation of Indep. Businesses et al. v. Perez, 5:16-cv-66 (N.D. Tex. June 27, 2016).
The DOL filed an interlocutory appeal to the Fifth Circuit challenging the preliminary injunction order. Plaintiffs — business federations, national trade associations and other employer organizations — filed for summary judgment, seeking an order declaring the new persuader rule unlawful and a permanent injunction against the defendants on a nationwide basis, preventing them from enforcing the rule. Ten states who intervened as plaintiffs in the action also filed a motion for summary judgment seeking a permanent injunction against the rule. In their motion for summary judgment briefing, the states argued that the new rule unconstitutionally invades a state’s right to regulate the practice of law:
[T]he New Rule goes well beyond what Congress ever envisioned and presents the classic case of an administrative diktat in search of a problem that the law never sought to solve. In a time of labor relations far removed from the 1950’s, the New Rule turns LMRDA on its head and now functionally enjoins the guarantees of confidentiality, loyalty, and candor that are central to the very existence of attorney-client relationships. Though LMRDA expressly exempts from its scope an intent to interfere with the attorney-client relationship, the New Rule breaches that accord by classifying as public the information shared only between attorney and client, creating impossible circumstances of conflict, and transforming lawyers into vending machines of law rather than the confidants, counsellors, and advisors required by the canons.
In its quest for “transparency,” the New Rule runs roughshod over the foundations of the legal profession and the fundamental right ofeveryoneto be able to confidentially consult with counsel aboutanything….
In its Nov. 16, 2016 Order, the Fifth Circuit denied the DOL’s motion and granted summary judgment to the plaintiffs and intervenors. Incorporating its preliminary injunction order by reference, the Court ruled that the March 24, 2016 “Persuader Advice Exemption Rule” should “be held unlawful and set aside,” and converted the injunction into “a permanent injunction with nationwide effect.”
Presumably, withdrawal of all appeals by the incoming Trump administration would effectively terminate the rule once and for all. However, either way, for the time being, there is no need for employers — or their counsel — to comply with the enjoined regulations.
For further information or questions about the impact of the permanent injunction ruling, please contact the authors, your McGuireWoods contact, or a member of the firm’s labor team or labor and employment group.