Today is the July 1, the date the Department of Labor’s “persuader” rule was to go into effect. But in case you haven’t heard, it won’t be changing policies today after all.

That’s because the agency’s controversial rule was halted by a federal court in Texas. In some respects it’s no surprise; it was facing challenges in several courts, and it seemed like only a matter of time before the rule would have to face scrutiny at a federal appeals level, if only statistically speaking. For now the injunction marks a victory for employers, but will it hold?

The rule has been long-sought by organized labor, but faced challenges in its enforcement since the agency issued it in March. If enacted, it would narrow the “advice” exception to the disclosure requirement for employer activities that are intended to influence unionizing by employees. The “persuader rule” says that employer-consultant agreements need to be disclosed even if a retained third-party is only working behind the scenes and influencing, even if there hasn’t been any face-to-face contact with employees. Before employer communication with outside labor attorneys or consultants didn’t have to be reported to the DOL if there was no in-person contact with employees. 

Photo Credit: cc
Photo Credit: cc

Under the new rules, things like conducting union-avoidance seminars, providing materials to distribute to and persuade workers, and drafting personnel policies dealing with union issues were all things that would need to be reported after the “persuader rule” went into effect on July 1.

Until this week, when the rule was blocked with a preliminary nationwide by a Northern District of Texas court. According to the judge who halted the implementation, if the rule was allowed to proceed plaintiffs—which at this point is several states and business associations—would suffer irreparable harm absent any injunctive relief. As Christopher W. Kelleher writes for Employer Labor Relations Blog:

Not only does the Rule reduce access to comprehensive legal advice and representation, but it also chills First Amendment rights, “including the right to express opinions on union organizing and to hire and consult with attorneys.”  Moreover, the regulation “conflicts with the promulgated rules of every State regarding an attorney’s ethical obligation to maintain client confidences.”

The Court determined that the DOL lacks the authority to promulgate and enforce such an arbitrary and capricious regulation.  The Court further concluded that the harm associated with depriving employers of access to legal counsel and burdening their constitutional rights outweighs any potential harm to the DOL.

It’s a bold move, if only because no court had gone as far as to file an injunction against the rule yet.

But that’s not for lack of effort. The agency’s new rule has seen opposition from Congressional Republicans, the American Bar Association, and law firms in Minnesota who all objected to enforcement as unlawful and unconstitutional.

But though a Minnesota federal judge expressed similar concerns, he declined to issue an injunction last week, specifically saying that the plaintiffs failed to show that they would suffer irreperable harm without one. There was a bright side to that case for opposers though, even if the plaintiffs ultimately lost their bid—and it may end up rearing its head in the Texas case.

“The silver lining is that the Court noted plaintiffs are likely to eventually ‘succeed in their claim that portions of the new rule conflict with the LMRDA.’  Providing a lengthy analysis of the merits of the action, the Court explained ‘the root of the DOL’s problem is in its insistence that persuader activity and advice are mutually exclusive categories,’” reported Shar Bahmani on Employment Law Worldview.

For now the ball is in the DOL’s court; it’s up to the agency to file an appeal, and the Labor Department hasn’t signaled either way if it will. Even still, Sonni Fort Nolan on Technology, Manufacturing, & Transportation Industry Insider says employers should hedge their bets today:

…amended engagement agreements for legal services are still advised to take advantage of the exception to the potential reporting requirement.  The deputy director of the Office of Labor-Management Standards at the DOL, recently said, “Services and payments made pursuant to a multi-year agreement, even if they occur after July 1, are not required to be reported on the new Form LM-20, so long as the agreement was signed prior to July 1.”  Although the grandfathering of engagement agreements prior to July 1 was written into the new regulations, it wasn’t until more recently that the DOL provided clarity on the reporting exception leading law firms to amend their client engagement agreements.

If the preliminary injunction becomes permanent and survives any appeals, the new persuader rule doesn’t take effect and indirect persuader activity won’t be reportable, for now.

However, if the preliminary injunction doesn’t stand, the grandfather provision provides an exception to the persuader rule reporting requirement.  Accordingly, we continue to advise clients to amend their engagement agreements before July 1, as insurance.