DOL just issued a controversial 'persuader activity' rule

On March 24, the Department of Labor issued a final rule that will require employers to file public reports with the DOL when they use consultants (including lawyers) to provide labor relations advice and services that have the purpose of persuading employees regarding union organizing or collective bargaining. The consultants will also be required to file similar reports containing the details of advice and services provided and the amount received for that advice and service. These changes impose significant new reporting requirements on employers and their consultants.

The LMRDA's Reporting Obligations Applicable to Employers and "Persuaders"

The Labor-Management Reporting and Disclosure Act (LMRDA) is a federal statute that, among other things, contains reporting provisions that require unions to disclose information about their structure and financial condition. The statute also contains reporting provisions that apply to employers and persons who are "persuaders."

Specifically, the LMRDA requires the filing of annual public reports by consultants (including law firms) who engage in activities intended, directly or indirectly, "to persuade employees to exercise or not exercise, or persuade employees as to the manner of exercising, the right to organize and bargain collectively through representatives of their own choosing." Consultants who engage in such activities must disclose, among other things: (1) the terms and conditions of their agreement or arrangement to provide persuader services; (2) the consultant's receipts on account of labor relations advice or services, designating the sources thereof; and (3) the consultant's disbursements in connection with such services and the purposes thereof. The DOL also requires the consultant to report the names and addresses of all of the employers for whom the person provided labor relations advice or services during the consultant's fiscal year - regardless of whether the consultant engaged in persuader activity for those employers - and all receipts and disbursements from those employers in connection with those services.

Similar reporting requirements exist for employers who use consultants to provide persuader services on the employers' behalf.

Any person who "willfully violates" the applicable provisions of the LMRDA is subject to a fine of up to $10,000 and/or up to one year's imprisonment.

The "Advice Exception"

The LMRDA includes an "advice exception" from these reporting requirements. Specifically, the advice exception provides that the statute does not impose reporting requirements when a consultant's services are confined to providing advice to an employer.

From 1962 until the issuance of the final rule, the DOL utilized a bright-line standard to determine whether particular activities are exempted from reporting obligations due to the advice exception. Under this test, an employer and consultant providing advice regarding persuader activities do not incur any reporting obligation so long as: (1) the consultant providing advice does not directly deliver or disseminate persuasive material to employees; (2) the employer has the ability to reject or modify persuasive material prepared by the consultant providing the advice; and (3) there is no deceptive arrangement between the employer and the consultant providing the advice.

The DOL's New Rule

Pursuant to the DOL's final rule, advice intertwined with persuader activities triggers reporting obligations for both the employer and the consultant providing the advice. In the rule, the DOL referenced as an example of an activity that would trigger a reporting obligation a consultant providing "with an object to persuade" material or drafted communications to an employer for dissemination or distribution to employees. Beyond that, the DOL noted that a consultant "revising employer-created materials, including edits, additions, and translations" with "an object" to "enhance persuasion, as opposed to ensuring legality" would also prompt a reporting obligation. Similarly, preparing a campaign speech or giving supervisors a seminar on lawful campaign activity or tactics would be reportable.

The DOL's final rule noted that no report is required with respect to an agreement or arrangement to "exclusively" provide advice to an employer. According to the final rule, a consultant who "exclusively" counsels employer representatives on "what they may lawfully say to employees," ensures a client's compliance with the law, offers guidance on employer personnel policies and best practices or provides guidance on NLRB practice or precedent, is providing "advice" and thus, need not report such activities.

The final rule will become effective April 25. However, the rule is applicable only to arrangements and agreements and payments (including reimbursed expenses) made on or after July 1, 2016.

The final rule included modest revisions from the proposed rule that the DOL issued regarding the advice exception in June 2011. These revisions were intended to address concerns raised regarding the legality of the proposed rule. Despite these revisions, there are significant questions as to whether the final rule violates the First and Fifth Amendments, is inconsistent with the LMRDA, and improperly interferes with attorneys' ethical obligations not to disclose confidential client information. Accordingly, it is anticipated that there will be immediate litigation regarding the final rule.

Congress is also expected to act in light of the new rule by way of introducing riders; reviewing the rule pursuant to the Congressional Review Act; and otherwise maintaining an ongoing spotlight on the rule. House Committee Chairmen Rep. John Kline, R-Minn., and Rep. Phil Roe, R-Tenn., issued a statement announcing their intent to "push back" against the rule. Seventy-three House representatives signed on to a letter to the chairman and ranking member of the House Appropriations Committee urging the committee to include provisions within a bill addressing the rule, which they deemed "harmful to employers and employees alike." In a statement, Sen. Lamar Alexander, R-Tenn., criticized the rule because he believes it "discourage[s] employers from seeking legal advice," which especially impacts small business.

These anticipated challenges to the final rule notwithstanding, until any litigation or congressional action challenging the rule is ultimately resolved, employers who seek advice regarding labor issues should consult with counsel regarding the extent to which such activities could trigger reporting obligations and determine how they wish to proceed in light of the rule.

Michael Lotito is co-chair of Littler Mendelson's Workplace Policy Institute and a firm shareholder.

Michael Pedhirney is a shareholder in the San Francisco office of Littler Mendelson.