Employment Law Update
June 29, 2016
The U.S. Department of Labor (DOL) recently announced significant revisions to the “persuader” rules set forth in the Labor Management Reporting & Disclosure Act of 1959 (LMRDA). The new rules impose increased disclosure requirements for employers and any “labor relations consultants” they hire to provide direct or indirect “persuader” advice regarding unionization and other labor-related issues. While the current legal status of the rules remains in flux, employers should consider their potential disclosure responsibilities and related options.
Background on Persuader Rules
Many employers seek the assistance of outside labor consultants and attorneys in crafting policies and communications to employees regarding labor issues. Since its enactment in 1959, the LMRDA has required employers and consultants to file reports with the DOL that describe, among other disclosures, the nature and terms of their relationships and the compensation exchanged to support those relationships. The purpose of these rules, commonly known as the “persuader” rules, is to require public disclosure of certain type of labor “consulting” relationships, so that employees and unions have access to information regarding the source of the materials that employers use to “persuade” employees regarding labor rights protected by the National Labor Relations Act (NLRA).
However, the LMRDA includes a significant exemption to disclosure requirements for consultants who merely provide indirect “advice” to employers regarding labor issues. For over 50 years, the DOL interpreted the advice exemption to mean that, so long as the consultant does not directly communicate with employees on the employer’s behalf to “persuade” them about labor rights (including, for example, whether they should join a union), neither employers nor their consultants or attorneys were required to disclose the nature of their relationships to the DOL.
This longstanding interpretation of the advice exemption has allowed employers to engage consultants and attorneys to assist them with employment policies, management “talking points,” and other labor-related communications or strategies designed to “indirectly” persuade employees that unionization is not in their best interests, without the necessity of disclosing those relationships publicly to the DOL.
The DOL’s New Proposed Persuader Rules
The DOL’s proposed revisions to the persuader rules significantly narrow the “advice” exemption to disclosure requirements. Under the new rules, employers and consultants must disclose the nature of their relationships, and the compensation exchanged pursuant to those relationships, even when the advice involves only “indirect” persuading activities that previously did not have to be disclosed.
For example, the new rules require all parties to disclose the consulting relationship to the DOL if the consultant helps the employer: (a) plan activities or meetings with employees regarding labor issues; (b) draft material or communications to employees; (c) develop personnel policies or practices; (d) train supervisors on labor issues; (e) establish employee committees; or (f) coordinate other “union avoidance tactics and strategies,” among other activities. The only “advice” that remains exempt from disclosure under the revised rules is consultants’ or attorneys’ provision of “recommendations regarding a decision or course of conduct.”
While employers and consultants may be tempted to consider their relationships to be limited to the provision of “advice” rather than indirect persuading activities, the consequences for failing to make a required disclosure are significant, including criminal penalties, imprisonment, and personal liability for company officers. Therefore, the vague distinction between exempt “advice” and the newly-reportable “indirect” persuading assistance significantly limits, if not eliminates, employers’ ability to safely engage labor consultants without having to publicly disclose the details of those relationships.
Legal Challenges to New Rules
The new rules were set to become effective on July 1, 2016. However, in the months preceding that date, a series of lawsuits was filed against the DOL by various employer organizations, law firms, employers, and other interested parties throughout the country, seeking to block the enforcement of the new rule. These lawsuits generally allege that the DOL’s proposed rules are inconsistent with the text of the LMRDA, chill employers’ ability to obtain effective counsel and protect their rights, and undermine the confidentiality that is the hallmark of the attorney-client relationship, among other issues.
On June 27, 2016, just four days before the new rules were set to become effective, a Texas federal court issued a nationwide preliminary injunction, preventing the DOL from enforcing the revised rules anywhere in the United States until their legality is fully explored by the courts. The DOL is expected to appeal this decision, and the legal battle over the legality of the new rules may drag on for months or years.
Recommendations for Employers
Although the enforceability of the DOL’s new persuader rules is currently in dispute, employers must be aware that the new rules may eventually require public disclosure of many of the labor consulting relationships that employers have relied on for many years to help develop lawful labor-related communications and policies.
The DOL issued a clarification shortly before the original July 1, 2016 effective date of the revised rules, providing that the new disclosure requirements will not apply to multi-year consulting agreements between employers and consultants entered on or before the date the revised rules became effective. In anticipation of a potential future effective date of the revised rules, employers should promptly consider their options, including whether their consulting or attorney-client relationships would fit within the exception for multi-year agreements entered before the revised rules become effective.