November 18, 2016

Permanently Barred: ‘Persuader' Rule Not Persuasive to Texas Judge

The U.S. Department of Labor’s (DOL) “Persuader” Rule is unlawful and should not become law anywhere in the United States. That is the holding of an order issued on November 16, 2016, by United States Senior Judge Sam R. Cummings in the U.S. District Court for the Northern District of Texas. Judge Cummings’ permanent injunction could be appealed, but the federal government’s appetite to sustain an appeal may evaporate with the changing of the guard from President Barack Obama to President-elect Donald Trump.

The “Persuader” Rule would have changed the DOL’s interpretation of the Labor Management Reporting and Disclosure Act of 1959. Since its inception, that law has required employers and their labor relations consultants (including attorneys) to report to the federal government any activities “undertaken with an object, directly or indirectly, to persuade employees about how to exercise their rights to union representation and collective bargaining.” Many of the required disclosures are financial in nature. For example, employers must disclose payments to labor consultants hired to persuade employees about union membership and collective bargaining. Consultants who provide these services must disclose the identities of their clients, the dates they entered into contracts to provide these services, the terms and conditions of these contracts (including the amount each client paid them), and a description of the services they performed. The DOL publishes the information on its website.

However, “advice” has always been exempted from this reporting requirement. For nearly 40 years, so long as consultants did not have direct contact with employees, the information they imparted to employers was considered “advice” and, therefore, was not subject to reporting. The “Persuader” Rule eliminated this exception, making such activities subject to reporting.

As we reported previously, on June 27, 2016 Judge Cummings temporarily blocked the “Persuader” Rule nationwide with a preliminary injunction. In that ruling, Judge Cummings found that business groups that filed the case were likely to succeed on their claims that:

  • the DOL lacks authority to issue and enforce the rule;
  • the rule is arbitrary and capricious;
  • the rule violates First Amendment rights to free speech and association;
  • the rule violates the due process clause of the Fifth Amendment because it is vague; and
  • the DOL failed to follow the rules of the Regulatory Flexibility Act concerning its impact on small businesses.

On November 16, Judge Cummings issued a short order converting his preliminary injunction to a permanent one.

Two similar cases in other federal courts remain pending – one in Minnesota, the other in Arkansas. Those courts could still rule on the issue, but even if they disagree with Judge Cummings, the Texas decision has nationwide effect unless a higher court overturns it. That is where the recent election enters the equation. While a Clinton administration may have been inclined to go to bat for a labor union-friendly regulation published by the Obama DOL, the Trump administration is unlikely to make preserving the “Persuader” Rule a priority. And while others could intervene to try to keep the “Persuader” Rule alive through the appeals process, there is a strong chance that the new Republican-controlled White House or Congress will make sure any attempts to reinstate it are blocked.

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