A district court in Texas has issued a nationwide injunction prohibiting the U.S. Labor Department (DOL) from implementing the new “persuader” rules that were set to take effect July 1, marking a significant victory for employers.

The rule would have greatly expanded the information employers are required to disclose to the federal government when they engage with outside consultants and attorneys in regard to union organization, including the existence of the relationship itself. Currently, employer communication with outside consultants doesn’t have to be reported unless the consultant has direct contact with the employees themselves.

In the case of National Federation of Independent Business, et al. v. Thomas E. Perez, et al., Civil Action 5:16-cv-00066C (N.D. Tx., 6/27/16), in an 86-page decision, the Northern District of Texas found that the rule is in conflict with the plain language of the Labor-Management Reporting and Disclosure Act’s Advice Exemption, which states that when a consultant provides only advice to an employer, no reporting to the DOL is required. As a result, the district court found that the “DOL’s new rule is not merely fuzzy around the edges,” but is “defective to its core.”

The injunction came after a factual hearing that included expert testimony from trade organizations, labor management attorneys, and officials from the American Bar Association on the impact of the rules. Several states had also intervened as parties in opposition to the rules.

The court held: 1) that the plaintiffs would likely succeed in proving that the defendants exceeded their authority in promulgating the rules; 2) that the rules were likely void for being vague; 3) that the disclosures likely violated the First Amendment and Fifth Amendment rights of the plaintiffs; 4) that the DOL failed to consider the true cost of the implementation of the rules and the financial and other effects upon small businesses; and 5) that the rules placed attorneys in ethical conflicts of interest with state ethical statutes and codes that require attorneys to keep client information confidential.

The court was critical of the fact that “the DOL replaced a long-standing and easily understandable bright-line rule with one that is vague and impossible to apply” and of the apparent lack of understanding of the role of an attorney, especially a labor attorney, whose advice often goes beyond just a simple explanation of the law.  

Small businesses were especially prejudiced by the new rules, the court stated, and would not have sufficient access to legal advice to guide them in handling complex union organization campaigns. This conclusion was supported by the unopposed testimony from several attorneys, including lawyers from a national law firm, who indicated that they would cease providing services of this nature because the required disclosures would force them to violate their ethical obligations to keep attorney-client communications confidential.

The court distinguished the case from Labnet Inc. d/b/a Worklaw Network v. United States Department of Labor (Case No. 0:16-cv-00844), decided June 22, 2016, in which a district court in Minnesota determined that plaintiffs in that case, a group of 11 law firms, had shown a strong likelihood of success on their challenges to the rules, but had not demonstrated irreparable harm. The district court in Texas noted that unlike the court in Labnet, the court in National Federation held a factual hearing on the request for the preliminary injunction that produced evidence of irreparable harm to the plaintiffs.

While the DOL can appeal the granting of the injunction, the court’s decision stands as a victory for employers, and reaffirms the importance of the ability of employers to obtain unfettered legal advice on sophisticated issues such as union organization. 

If you have any questions about this ruling or its impact on your business, please contact:

• Caroline J. Berdzik (609.986.1314; cberdzik@goldbergsegalla.com)
• Kristin Klein Wheaton (716.710.5805; kwheaton@goldbergsegalla.com)
• Or another member of Goldberg Segalla’s Employment and Labor Practice Group