DOL’s ‘Persuader Rule’: An Unpersuasive Boost for Union Organizing

Department of Labor logoAttorney-client privilege is a basic protection of liberty. Yet this Friday, people may begin to find out how little the Obama administration thinks of it. That’s when a Labor Department rule, issued in March and launched in April, fully kicks in, forcing employers to divulge the identities of outside legal help on how to avoid unionization. This “persuader rule,” as it is called, also requires such consultants to reveal their own client rosters. Union officials laud the rule as a blow for transparency and a corrective to “union-busting.” In reality, it is a power play designed to minimize the opportunities for nonunion workers to hear an employer’s side of the story during a union organizing drive. Conveniently, the regulation doesn’t apply either to unions or their consultants. As employers gear up to comply, they’ve gotten unexpected help from federal judges.

Union Corruption Update described this rule back in June 2011, when the Department of Labor (DOL) initially proposed it. For decades, unions had seen their representation of the nation’s workforce steadily diminish. During the mid-1950s through the early-1960s, the peak years for unionism in the U.S., more than 30 percent of all nonfarm private-sector employees belonged to a union. A half-century later, that figure had dropped to less than 7 percent. Various reasons lay behind this decline. To some extent, unions were their own worst enemies. But organized labor officials to this day cite one explanation above all others: “union-busting.” They have insisted that employers, advised by greedy, high-priced lawyers, systematically are depriving workers of their right under the National Labor Relations Act to form or join a union. And while they know they can’t outlaw the dissemination of advice outright, they can make the process time-consuming and costly. If only employers were required to reveal the identities of their legal consultants, union argued, these consultants might not be willing to give advice in the first place. What would be needed here was a partisan administration.

The Obama administration was the answer to union prayers. While a presidential candidate, Barack Obama had made his pro-union leanings unmistakeably clear. “It’s time we had a president who didn’t choke saying the word ‘union,’” he told an AFL-CIO audience in Philadelphia in April 2008. “A president who knows it’s the Department of Labor, not the Department of Management. And a president who strengthens our unions by letting them do what they do best – organize our workers.” In the ensuing years, the Obama administration provided union with a long list of favorable initiatives. One of them was a proposed rule change to discourage consultation to union-averse private-sector employers. Under the Labor-Management Reporting and Disclosure Act of 1959, Title II, Sections 203(a) and 203(b), employers must report to the Labor Department any and all information about their business relationships with outside parties seeking to influence employee representation or collective bargaining. Yet Title II also contains an exemption: Section 203(c). This states that neither an employer nor a hired consultant has to divulge the nature of mutual communications if the consultant makes direct contact with employees. Though this exemption was rooted in the principle of attorney-client privilege, unions called it a loophole. And they were determined to get rid of it or, failing that, severely limit its application.

The campaign to undo Section 203(c) bore fruit in June 2011. That month, the U.S. Labor Department published a proposed Persuader Rule in the Federal Register. It read:

With respect to persuader agreements or arrangements, “advice” means an oral or written recommendation regarding a decision or a course of conduct. In contrast to advice, “persuader activity” refers to a consultant’s providing material or communications to, or engaging in other actions, conduct or communications on behalf of an employer that, in whole or in part, have the object directly or indirectly to persuade employees concerning their rights to organize or bargain collectively. Reporting is thus required in any case in which the agreement or arrangement, in whole or in part, calls for the consultant to engage in persuader activities, regardless of whether or not advice is also given.

Employer groups saw through the legalese and raised enough of a ruckus to persuade the Department of Labor to shelve the effort. Last year the DOL revived the proposal, its Office of Labor-Management Standards on December 7 having submitted a revised rule to the Office of Management and Budget for review. On March 23, the DOL issued its final rule, which took effect on April 25. The regulation will apply to contracts and payments established on or after July 1.

The Labor Department has made several changes to the original version, especially in the area of identification of persuader activities that trigger reporting. Employers and consultants will have to report covered mutual interactions on three separate forms: LM-10 (employers); LM-20 (the employer-consultant agreement); and a modified LM-21 (labor-relations clients and related receipts). They also will have to report planning, direction and coordination of activities by supervisors or other employer representatives, including face-to-face interactions with workers. Moreover, they must disclose all materials or communications disseminated to employees, including those involving seminars. They also must reveal how they and their consultants developed or implemented personnel policies, practices or actions. And to cap it off, a consultant who gives legal advice to even one employer must file separate reports on all other employer clients. A critic of the rule, James Sherk, labor policy analyst with The Heritage Foundation, notes that this goes way beyond standard rulemaking. “The government imposes many costly regulations, but rarely does it deliberately make it harder for companies to comply with them,” he observed. “Usually the government wants businesses to consult with lawyers to ensure they are following the law.” It would appear that the Obama-era Labor Department doesn’t like consulting – at least when it is requested by an employer.

The DOL sees the new regulation as a matter of economic justice. “This rule is about disclosure, and more disclosure here means more peaceful and stable labor-management relations,” said Michael Hayes, director of the Labor Department’s Office of Labor-Management Standards. Labor Secretary Thomas Perez explained his support this way:

Workers should know who is behind an anti-union message. It’s a matter of basic fairness. This new rule will allow workers to know whether the messages they’re hearing are coming directly from their employer or from a paid, third-party consultant. Full disclosure of persuader agreements gives workers the information they need to make informed choices about how they pursue their rights to organize and bargain collectively. As in all elections, more information means better decisions.

Organized labor officials, of course, are delighted. AFL-CIO President Richard Trumka said: “This long-awaited rule will increase transparency about employers’ activities when they hire outside third parties to do their union-busting,” Trumka said. “It takes great courage for working people to come together to form a union. Working men and women deserve to know who their employer is hiring and exactly how much they are spending to discourage workers from forming a union.” Joe Earlywine, organizing director for the United Food and Commercial Workers, also laid down the line: “Using union-busting law firms to intimidate workers is one more tool in the toolbox that the global elite uses to keep workers from exercising their rights to improve their working conditions by joining a union.”

Employer groups are taking a different view. David French, senior vice president of government relations for the National Retail Federation, noted: “DOL’s new rules would trigger reporting requirements for any communications that could even indirectly persuade workers regarding collective bargaining. NRF is concerned that the new standard will discourage employers from seeking advice of counsel in a broad swath of areas that have nothing to do with traditional persuader activities.” Beth Milito, senior legal counsel for the Small Business Legal Center, a project of the National Federation of Independent Business, says the rule is legally unsound. “The Department of Labor would require an attorney labeled as a persuader to disclose their other clients, which is a breach of confidentiality,” said Milito. “They have to realize that this would make it virtually impossible for most lawyers to offer advice to business owners.” Michael Lotito, co-chairman of the Workplace Policy Institute at the San Francisco-based employer litigation firm of Littler Mendelson, called the persuader rule “an unprecedented intrusion into the attorney-client relationship.” He vowed the rule would be challenged in court.

And legal challenges have come – three of them, in fact. About a week after the March 23 publication, opponents of the rule filed suit in various federal courts to enjoin the rule, pending a decision on merit, and ultimately to vacate it. Here are brief summaries:

Eastern District of Arkansas. The National Association of Manufacturers, other industry groups and a law firm filed suit asserting that the persuader rule: 1) “infringes on the right of those who seek to give labor relations advice to employers, including the Plaintiff associations, attorneys, and other third-party consultants…to render such advice without fear of criminal penalties for failing to file the reports newly required by the Rule”; 2) violates the plaintiffs’ First Amendment rights of freedom of speech and freedom of association; and 3) infringes on the right of attorney-client privilege.

District of Minnesota. Several labor and employment law firms filed suit (Labnet, Inc. v. U.S. Department of Labor) challenging the persuader rule as “an impermissible viewpoint-based regulation of speech” which “singles out for regulations communications that are ‘anti-union.’” They’ve won a procedural victory. On June 22, the court ruled that the plaintiffs had a good likelihood of winning on merit, though it did not issue a preliminary injunction.

Northern District of Texas. The National Federation of Independent Business, joined by the National Association of Manufacturers and other groups, filed suit to block enforcement of the persuader rule. The plaintiffs used strong language: “[The new rule] is without statutory authority, is in direct conflict with specific existing statutory provisions, is contrary to Constitutional provisions, and usurps, without legal authority, the right of States to regulate the attorney-client privilege.” The court was persuaded. Two days ago, on June 27, U.S. District Judge Sam Cummings (Lubbock Division) issued an 86-page preliminary injunction barring promulgation of the rule. Ruling in NFIB et al. v. Perez et al., Judge Cummings opined: “The chilling of speech protected by the First Amendment is in and of itself an irreparable injury.”

Opposition also is coming from Congress. On April 18, Rep. Bradley Byrne, R-Ala., introduced a Resolution of Disapproval (H.J. Res. 87) under the Congressional Review Act to repeal the rule. The House Committee on Education and the Workforce approved the measure on May 18 by a 21-10 margin. In an official statement, Rep. Byrne had remarked: “The well-established ‘advice’ exception of the Labor-Management Reporting and Disclosure Act has been effect during the Kennedy administration, the Johnson administration, the Carter administration and the Clinton administration. But now, decades later, the Obama administration is working around Congress and ultimately rewriting the law.”

The legality of forcing an employer to reveal the identity of outside advisers is a major obstacle to enforcement. Yet should the rule prevail in the courts, it is hard to see how employees any more than employers would benefit. For compliance costs likely would be far higher than what DOL calculations suggest. The department recently estimated the combined cost imposed by Forms LM-10 and LM-20 at $826,000 a year. Yet a recent report by the House Committee on Government Oversight and Reform concluded that the annual tab would be at least $200 million. And Diana Furchtgott-Roth, former DOL chief economist and currently a senior fellow at the Manhattan Institute, thinks even that is well on the low side. In an Institute report titled, “The High Cost of Proposed New Labor Law Regulations,” as condensed in a Wall Street Journal article, she argued that the true figure is in the billions:

The Labor Department estimates that it would receive forms from 3,414 employers and 2,601 advisers. Employers would spend two hours a year completing their LM-10, and advisers would spend one hour completing their LM-20. However, the department’s estimate of employers represents about half of 1% of the 5.73 million U.S. firms, and the new rule applies to any firm that faces a union drive on questions on labor matters. The total number of advising firms estimated by the Labor Department, 2,601, is far below the Census Bureau’s 6,461 human-resource consulting firms and 165,435 law firms.

Law firms and employers might spend one or two hours a year filling in the forms. But an employer would need far more time calculating what information – such as whether a particular company qualifies as a persuader – to add to the form. Suppose a firm puts in a gym at the same time a rival is unionized. The gym could be construed as an attempt to fend off a union drive and the designer could qualify as an adviser – and be forced to declare its other clients.

Using a more realistic number of firms and hours of compliance, I estimate that costs would be between $7.5 billion and $10.5 billion in the first year, and between $4.3 billion and $6.5 billion, in future years. But my estimate is too low because it does not include the potential legal costs if there are reporting errors in the forms.

From the foregoing, the Department of Labor’s annual estimate of $826,000 looks absurdly low. And the burden of compliance would fall most heavily upon smaller covered firms; i.e., the ones least able to afford high-priced legal advice.

A third argument against the persuader rule, and perhaps the most crucial, is that it inhibits worker liberty. The Department of Labor, by denying employers the right to solicit and receive union-avoidance advice in confidence, effectively would be denying a voice to workers who might wish to remain nonunion. By exposing virtually every written or oral communication between an employer and an outside union consultant, unions would be discouraging their opponents from conveying information to employees. Needless to say, the rule is selective: It does not apply to unions or their own consultants. Whether one calls this hypocrisy or the pursuit of self-interest, unions are not about to abide by any rule they readily would impose upon others. They certainly have a friend in the Department of Labor.

The persuader rule, at bottom, is an unpersuasive attempt by labor unions to undermine the right of a nonunion employer and its employees to remain as such. By design, it will undermine the confidentiality among those who seek legal advice and those who provide it. Unions understandably seek more members, something that translates into more revenues, bargaining power and political influence. But the decision to join a union ultimately rests with individual workers. By making it difficult, if not impossible, for employers to receive sound legal advice in confidence, unions effectively are preventing workers from getting the full range of facts about an organizing campaign. Hopefully, the courts will recognize the new persuader rule for the coercion that it really is.

Postscript: On November 16, the U.S. District Court for the Northern District of Texas made its temporary injunction against the persuader rule permanent. Judge Sam Cummings wrote: “The Court’s preliminary injunction preventing the implementation of that Rule should be converted into a permanent injunction with nationwide effect.” With Donald Trump’s election as president last week, it is highly likely that the Department of Labor, under new leadership, will rescind the rule.