Two Federal Courts Issue Guidance on DOL’s “Persuader Rule”


Recent  Department of Labor (DOL) rulemaking proceedings and compliance letters have been successfully challenged in the federal courts. These cases are important because the work of the DOL, in enforcing and interpreting the law, is of fundamental importance to both employers and employees and their counsel. A few days ago, the U.S. Court of Appeals for the DC Circuit, in Rhea Lana, Inc., et al., v. Department of Labor, held that a “DOL “warning letter” was a final agency action that could be reviewed by the federal courts, and the U.S. Supreme Court, in Encino Motorcars, LLC v. Navarro, held that a Fair Labor Standards Act interpretive rule was not entitled to Chevron deference. Now, the new “persuader rule” subjecting the advice that attorneys provide employers to new reporting requirements appears to be inconsistent with the basic statutory framework according to two new rulings by federal district courts.

Two federal district court have issued rulings regarding the Department of Labor’s new rule regarding the “persuader rule” in the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA). The law was enacted to protect employee rights to organize by requiring unions and employers to follow the disclosure and reporting obligations mandated by the law. Persons engaged by employers to advise them on employee’s collective bargaining rights are referred to as “persuaders.” However, the law contains an exception for the rendition of “advice” usually provided by attorneys to their clients. In 2015, the NLRB promulgated an “accelerated election rule” which reduced the time in which union representation elections must be held. In 2016, the Department of Labor promulgated its revised interpretation of the “advice” exception provision of the law, which has now been challenged.

On June 22, the U.S. District Court for Minnesota denied the plaintiff’s motion for a temporary restraining order or preliminary injunction in Labnet Inc., et al. v. U.S. Department of Labor et al. The plaintiffs, a group of law firms that represent employers argued that the new rule represents a significant departure from the interpretation the Department has accorded the exception for many years. The District Court observed that the new interpretation appears to conflict with the statutory text, and the Department “ends up drawing lines that are simply incoherent.” However, while the plaintiffs convinced the District Court they have a strong likelihood of success on this argument, they have not satisfied all of the requirement needed to warrant the issue of immediate injunctive relief.

A few days later, on June 27, the U.S. District Court for the Northern District of Texas granted the plaintiffs the injunctive relief they sought in National Federation of Independent Business, et al., v. Perez. Indeed, the District Court issued a nationwide stay of the rule, pending a trial on the merits. Surprisingly, the District Court remarks that the defendants “called no witnesses, and introduced no exhibits into the record,” meaning that that the witness testimony and documentary evidence presented by the plaintiffs was “uncontroverted.” As a result, the District Court granted the requested relief on statutory and constitutional grounds (First and Fifth Amendments). The opinion includes a discussion of the Department’s defense to the claim that the new interpretation of the advice exception places attorneys in an untenable position by compelling them to make public reports of the advice they give when such reporting would be contrary to state rules of professional conduct; in the Department’s view, the reporting requirements of the LMRDA are federal law, and as such they preempt state legal ethics rules. Cases involving the advice that tax attorneys are cited for the proposition that there is a federal common law of privilege which preempts state rules of professional conduct.