Labor Department's changes to persuader agreement rules have uncertain future

by John M. Lichtenberg
Rhoades McKee

Earlier this year the U.S. Department of Labor (DOL) revised its rule concerning how “persuader activity” must be reported under the federal Labor-Management Reporting and Disclosure Act.  Under both the old and new rule, if an employer hires a third party consultant to persuade its employees in connection with union organizing and election activities, the employer and “persuader” must both file disclosures with DOL.  In the past, however, where the “consultant” was the company’s legal counsel, virtually any indirect persuader activity was exempt from disclosure under the Act’s so-called “Advice Exemption” that protected attorney-client communications.  The new rule expands the amount of information that must be reported and no longer exempts from reporting “indirect” persuader activities engaged in by lawyers for an employer. 

“Direct” persuader activity is basically any direct communication with an employee – a conversation, email, letter, etc. – by which the consultant tries to persuade the worker to do something (or refrain from doing something) in connection with union organizing efforts.  “Indirect” persuader activity is essentially any other activity that has a similar object or purpose.  If the consultant tells Henry, “Don’t unionize,” that is direct persuader activity; if the consultant ghost authors a letter from the CEO to Henry that says, “Don’t unionize,” that is indirect activity.

Prior to the new rule, there was a fairly broad exemption for work performed by lawyers that might otherwise have been deemed “indirect” activity and subject to disclosure.  Such protection makes sense if one is concerned about avoiding the loss of the attorney-client privilege.  Employers frequently ask their lawyers to review proposed communications during an organizational campaign.  Employer communications are always scrutinized and frequently challenged by workers, unions and the NLRB (National Labor Relations Board) for statements that might promise good things if workers do not unionize or threaten bad things if workers do unionize – promises and threats that are prohibited by law.  Lawyers may be consulted about whether a certain group of workers should be included in a proposed bargaining unit that will vote on whether to unionize.  The scope of the bargaining unit can have both a legal component (do the workers share an appropriate community of interests with one another) and a strategic one (if we add this group in that opposes the union, or carve this group out that supports the union, it’s more likely the election will go the employer’s way).  Lawyers are often asked to train supervisors during organizational campaigns – and invariably the purpose is to teach supervisors how to respond effectively to union propaganda and provocations without violating the law, a mixed purpose in almost every instance.  Lawyers may be asked to review and revise policies to address employee concerns and, at the same time, avoid or eliminate an unlawful infringement on employee rights under the NLRA – again, a mixed purpose.

The problem with any rule that compels disclosure of the work performed by legal counsel is that it invades the sanctity of the attorney-client relationship, a relationship rooted in the absolute confidentiality of communications protected by the attorney-client privilege.  Once the door to those communications is kicked open, it is difficult to limit the scope of what is examined.  The result – clients stop communicating candidly with their lawyers because the communications may be subject to discovery and publication.  That, however, did not deter the DOL from bringing the work of attorneys within the scope of compulsory disclosure under the new rule.  Under the new rule drafting the CEO’s letter to employees is deemed always reportable; revising the CEO’s letter to employees may still be subject to disclosure if the edits are aimed at enhancing its persuasive effect as well as assuring its legality.  Training supervisors, editing handbooks, suggesting policy changes – all of these are potential “indirect persuader activities” that may require disclosures.  How does one tease out the underlying purpose of these activities except by examining them? And the risk of examination alone is enough to chill an employer’s willingness to consult legal counsel. 

The DOL did a curious thing, however.  It issued an advisory memo indicating that it would not enforce the new rule with respect to agreements entered with persuaders prior to July 1, 2016.  This rather odd – and quite possibly very temporary – grandfathering of certain persuader agreements led to a mad-dash by many employers and law firms to enter open-ended “agreements” under which the employer and law firm agreed that the firm was “engaged” to provide largely undefined persuader activities when, if and as the employer might ever require such assistance. No fees were set, no specific work was requested and no duration was placed on the agreements. The theory is that whatever the firm does in the future for the employer that may be in the nature of persuader activities will be reportable only if and to the extent it was reportable under the older rule. In essence, so long as the employer never changes law firms, it will never be subject to the new rule.  In fact, some employers sought to avoid even that limitation, signing such agreements with multiple firms, none of whom they had ever worked with, insuring that even if they currently worked with Firm A, they could jump to Firms B through Z in years to come and still be under a pre-July 1, 2016 agreement and exempt from the new disclosure requirements.

 Regardless of whether these seemingly never-ending agreements will actually provide the protection touted, the DOL’s advisory on this issue can be erased with the stroke of a pen.  It is not a law or regulation; it is simply the enforcement policy du jour of the DOL.  It seems unlikely that DOL intended to permit the complete evisceration of its new rule through adoption of clever, if illusory, agreements. 
Since all it needs to do to remedy this earlier ham-handed “advisory” is to withdraw it and announce that it is going to enforce prospectively the new rule with respect to all agreements, the value of such agreements seems dubious. 

The good news for employers and their lawyers is that DOL may never get the chance to unring that bell.  On the eve of the July 1 effective date, a federal court in Texas issued a nationwide preliminary injunction against any enforcement of the new rule.  That case remains pending but is apt to be appealed the Court of Appeals before the end of the year. Given the level of interest in the rule by employer and union groups, to say nothing of a large segment of the legal profession concerned with government erosion of the centuries old attorney-client privilege, the fate of the rule may be decided by the Supreme Court.

For now the role legal counsel can play in helping employers facing union organizing drives and elections without triggering a reporting requirement remains unchanged from what it has been for several decades.  But if the DOL’s new persuader rule is ultimately upheld by the courts, that role is likely to become diminished or the source of on-going litigation – or both. 

John Lichtenberg is an Employment Attorney with Rhoades McKee.   He assists businesses and health care organizations manage their relationships with their employees including but not limited to contract drafting and negotiation, benefit planning, and guiding clients through the employment regulatory maze.  He has extensive experience in complex commercial contract litigation in cases involving unfair competition, as well as defending class and collective action suits under state and federal law.

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