Texas Federal Judge Blocks Enforcement of Union Persuader Rule
On June 27, 2016, U.S. District Judge Sam R. Cummings issued a nationwide injunction blocking enforcement of the Union Persuader Rule which was to take effect on July 1, 2016. This Rule would have required employers and management law firms and consultants to publically report payments for certain advice and consultation that was protected from disclosure for over a half century under the Advice Exemption. Many business and legal organizations, including the American Bar Association, vigorously objected to this new rule because they claimed it would create ethical and confidentiality issues for lawyers and companies required to disclose lawyers’ advice. In fact, several law firms have announced they would no longer provide union avoidance training or advice based on the new disclosure rules. This recent decision marks the second ruling in less than a week by two separate federal district courts. Last week, the U.S. District Court in Minnesota refused to enjoin enforcement of the new rule although the court did find that the plaintiffs (an association of various law firms) were likely to succeed, “in their claim that portions of the new rule conflict with the (Labor-Management Reporting and Disclosure Act of 1959 (LMRDA)).”
The district court in Texas went considerably further, however, when it issued a nationwide injunction blocking enforcement of the new rule.
What the Court said…
In its 90-page opinion, the court spent the first 30 pages detailing the evidence that was presented, including eight witnesses presented on behalf of the consortium of business groups and a number of exhibits. Interestingly, the Department of Labor chose not to call any witnesses or introduce any evidence. The witnesses included practicing lawyers, a former Board Member from the National Labor Relations Board, the former President of the American Bar Association and other specialists. The court specifically referenced the American Bar Association’s lengthy opposition to the proposed Persuader Rule and pointed to the ABA’s discussion on the conundrum that lawyers would be faced with in deciding whether to disclose the “advice” given to its employer/clients or choose not to give any advice at all. The court also noted that the estimates of the cost of compliance in the first year alone ranged from $7.5 billion to $10.6 billion with annualized costs thereafter of $4.3 billion to $6.5 billion, far in excess of the $826,000 calculated by the Department of Labor. Finally, it concluded that the new Persuader Rule failed on several legal grounds because, the Court found, it is likely that:
-DOL lacked statutory authority to promulgate and enforce the new Advice Exemption Interpretation of the Persuader Rule;
-The new rule is arbitrary, capricious and an abuse of discretion;
-The new rule violates free speech and association rights protected by the First Amendment of the United States Constitution;
-The new rule is unconstitutionally vague in violation of the Due Process Clause of the Fifth Amendment of the U.S. Constitution;
-The new rule violates the Regulatory Flexibility Act; and
-The plaintiff associations have shown the substantial threat of irreparable harm.
The court thus concluded that a nationwide injunction requiring enforcement of the new rule was appropriate and that such preliminary injunction would stay in place until further order of the court or final resolution of the merits of the case.
What Does This Mean for Employers and Law Firms?
Many law firms and employers were faced with a decision as to whether to enter into new engagement letters before July 1st covering activities that were to be regulated under the new Persuader Rule or, as some law firms decided, to simply get out of the business of providing advice and strategy on union avoidance. Fortunately, the district court’s order removes that immediate deadline although it is expected that this case will be appealed to the Federal Court of Appeals. Thus, it is likely we have not heard the last of this particular case or the challenge over the validity of the new Persuader Rule. Additionally, there is one more case pending in the U.S. District Court in Arkansas and we are awaiting a ruling from the court which may come very soon.
Employers and practitioners are encouraged to keep a close eye on the court challenges. It may be prudent to move forward and enter into engagement letters specific to union avoidance training and advice out of an abundance of caution although it is unlikely that the DOL will seek to enforce the rule in light of the district court’s ruling in Texas until legal challenges are complete. We will continue to keep our readers advised as further developments occur.
For more information on this and other matters, please contact Mansour Gavin’s Labor and Employment Practice Group.