On June 27, 2016, in National Federation of Independent Business v. Perez, Judge Sam R. Cummings of the United States District Court for the Northern District of Texas issued a nationwide preliminary injunction precluding the United States Department of Labor (“DOL”) from enforcing its recently introduced rule interpreting the Labor-Management Reporting and Disclosure Act’s (“LMRDA”) “advice” exemption. 81 Fed. Reg. 15,924 et seq.
As discussed in our previous blog, the LMRDA requires employers and labor relations consultants, often referred to as “persuaders,” to file reports with the government detailing expenditures, activities, agreements, and arrangements undertaken to persuade employees regarding their rights to join or refrain from joining unions, but these requirements are waived if the consultants do nothing more than “giv[e] or agree to give advice to [the] employer.” Under the DOL’s previous interpretation of this “advice” exemption, employers and their consultants were not required to publicly disclose their arrangements unless a “persuader” made direct contact with company employees. The new rule reinterprets the meaning of “advice” so that employers and consultants must file reports whenever “[a] consultant undertakes, or agrees to undertake, ‘persuader activities’” – even if the consultant “has no face-to-face contact with employees” and has limited his or her engagement to “indirect persuasion.”
The Court’s Ruling
Judge Cummings based his preliminary injunction against enforcement of the new rule upon finding that the plaintiffs were likely to succeed on the merits for a variety of reasons:
(1) The DOL’s new rule, which purports to clarify the “advice” exemption, in fact effectively eliminates the exemption. As the court noted, “[t]he LMRDA imposes a reporting obligation on ‘activities where an object thereof, is directly or indirectly . . . to persuade employees’ regarding union organizing[,]” but “also plainly, explicitly, and unambiguously creates an exemption from such obligation for ‘advice.’” According to Judge Cummings, “by treating ‘advice’ and [p]ersuader [a]ctivities as mutually exclusive and without any possible overlap, [the] DOL’s new [a]dvice [e]xemption [i]nterpretation makes [LMRDA] Section 203(c) entirely superfluous.”
(2) The new rule is arbitrary and capricious because (a) the DOL failed to adequately explain why it is abandoning a bright-line interpretation of the advice exemption of more than 50 years duration left untouched by Congress, and (b) the new rule unreasonably conflicts with state rules governing the practice of law, such as the Disciplinary Rules of Professional Conduct, which hold attorneys to high standards of loyalty and confidentiality.
(3) The new rule imposes content-based burdens on speech, and is therefore subject to strict judicial scrutiny, which calls for a rule’s invalidation unless the Government can prove that the rule serves a compelling government interest and is narrowly tailored to achieve that end. The DOL, however, had identified only “vaguely described, speculative benefits” in the form of “transparency[,]” without pointing to “any investigation, findings, or studies to show that its alleged interest . . . is compelling or that there would be a causal relation between [the] [n]ew [r]ule and the speculative outcomes it asserts.” Moreover, given the recent adoption of the “quickie election” rules, it is possible that workers will rarely see the information made available by the new rule until a given election is complete. In such a case, speech would be chilled at no benefit to workers.
(4) The new rule is vague and thus violates the Fifth Amendment’s Due Process clause. The rule’s lack of clarity could render affected parties unable to determine with reasonable certainty whether their actions require reporting.
(5) The DOL “understated the economic impact of its [n]ew [r]ule, . . . failed to provide an adequate factual basis for its cost estimates, and . . . failed to meaningfully consider and address the weight of the comments and cost estimates submitted in response to proposed rulemaking.”
In so ruling, the court adopted each of the arguments asserted by the plaintiffs, who, in addition to the National Federation of Independent Business, are the Texas Association of Business, the Lubbock Chamber of Commerce, the National Association of Home Builders, and the Texas Association of Builders. A number of states intervened on the plaintiffs’ behalf.
Although Judge Cummings has not yet set a date for a final hearing, in light of his multiple and emphatic criticisms of the DOL’s new “persuader” rule, it will come as no surprise if the Judge ultimately converts his preliminary nationwide injunction into a permanent one, leaving the DOL to appeal to the United States Court of Appeals for the Fifth Circuit.
For answers to any questions regarding this blog or the DOL’s new persuader rule generally, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department. We will continue to update you on future developments.