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Texas Judge Stays Labor Department ‘Persuader’ Rule

July 6, 2016
A federal judge in Texas has granted an injunction blocking the Persuader rule, saying Labor Department’s action was arbitrary, capricious and an abuse of its discretion under the law.

A federal judge in Texas granted an injunction blocking the Department of Labor’s “Persuader” rule just three days before it was supposed to go into effect on July 1.

Adopted earlier this year, the rule requires companies to file public annual reports with DOL revealing any arrangements and payments they make with outside consultants who supply advice on dealing with unions and organizing campaigns. Under the rule, employers’ reports must be filed electronically and would be available to the public, including how much they paid for all of the “labor relations advice and services” they received.

Prior to the new rule, employers were only required to file reports regarding outside firms who communicated directly with workers on the employer’s behalf, not for other outside advice on labor relations. As written, the rule was seen covering even seminars and workshops on labor issues held by industry associations.

The new rule drew fire from employer groups and attorneys who claimed it violated their First Amendment rights and standards for maintaining attorney-client confidentiality. Legislation was introduced in Congress by Republicans and lawsuits were filed in three states seeking to overturn the new regulation.

In Texas U.S. District Court Judge Sam R. Cummings was blistering in his appraisal of DOL’s behavior when he granted the injunction, which was based in part on his belief that the plaintiffs—which include the Attorneys General for 10 states as well as employer and attorney groups—ultimately will prevail. The judge found the department’s action arbitrary, capricious and an abuse of its discretion under the law.

Cummings said that DOL never adequately explained the rationale for changing its 50-year old interpretation of established labor law, accusing the federal regulators of “drawing lines that are simply incoherent.” He also said the rule “unreasonably conflicts” with state rules for the practice of law by undermining the attorney-client privilege and confidentiality, and likely violates the First and Fifth Amendments as well.

In addition, the federal district court judge held that the new rule likely violates the Regulatory Flexibility Act because the DOL grossly understated its economic impact on small businesses. Testimony from a former DOL chief economist estimated that the total compliance costs for employers could total as much as $60 billion over 10 years.

After the injunction was granted, Allen J. McKenna of the law firm of Ford & Harrison observed, “This decision represents a full-scale rejection of the DOL’s new regulation on all fronts.”

DOL is expected to appeal the judge’s decision, and ultimately legal proceedings could continue as far as the Supreme Court.

Employers should continue to closely monitor progress of the new rule through the courts and be prepared to take protective steps in the event the preliminary injunction is overturned, warns attorney M. Scott McIntyre of the law firm of Baker & Hostetler.

A few days before the Texas ruling a federal judge in Minnesota had declined to grant an injunction in a similar case, but he also stated his belief that the DOL rule would eventually be overturned.

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