New labor rule spawns fight over attorney-client privilege

Management-side lawyers claim the new federal rules bolstering disclosure requirements for third parties that advise employers in opposing union-organizing campaigns impermissibly interfere with the attorney-client relationship.

The U.S. Department of Labor last month announced long-awaited amendments to its so-called “persuader rule,” which apply to certain arrangements, agreements and payments made on or after July 1.

The current rule allows employers to hire attorneys and consultants to provide union avoidance guidance without disclosing the engagement, as long as the attorney or consultant does not directly contact employees.

But the amended rule reverses long-standing regulatory interpretation of the Labor-Management Reporting and Disclosure Act by eliminating the “direct contact” limitation, meaning management lawyers will be required to disclose the identity of a client, their fee arrangement, and the scope and nature of a persuader agreement — even when they limit themselves to “indirect” activity, like drafting anti-union talking points for a client.

“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,” Secretary of Labor Thomas E. Perez said in a statement released by the DOL. “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.”

Veteran union lawyers are hailing the rule change as a long-needed move toward transparency in the organizing process.

“The additional disclosure is a benefit to collective bargaining,” said Edward C. Roy Jr., an attorney in North Kingstown, Rhode Island.

But Boston lawyer Michael F. Kraemer, who represents employers in a variety of labor matters, including union avoidance, said he thinks the true objective of the rule has nothing to do with transparency.

“The stated reasons for the [persuader rule] change are hogwash,” Kraemer said. “This is all about negating attorneys providing advice in union avoidance situations, and if the rule [is found to be] valid, it may very well do that.”

Timothy F. Murphy, a labor attorney in Springfield, Massachusetts, took a similarly dark view.

“What’s behind it is a cynical attempt to drive some law firms out of the business of providing advice to employers on [union avoidance] issues, and probably to deter employers — particularly smaller employers — from seeking out advice,” Murphy said.

Murphy practices at Skoler, Abbott & Presser, a plaintiff in one of the growing number of lawsuits filed across the country by business groups and law firms intent on blocking the implementation of the DOL’s new rule.

Closing a loophole?

The new rule interprets the advice exemption to §203 of the LMRDA, which governs the reporting of persuader activities and agreements.

Section 203(b) requires employers and consultants to report agreements under which the consultant undertakes activities with the object of “directly or indirectly’’ persuading employees concerning their rights to organize and bargain collectively.

Section 203(c) exempts the provision of “advice” from the reporting requirement.

Under the DOL’s original interpretation of the advice exemption after the passage of the LMRDA in 1959, consultants were required to report arrangements to draft speeches or materials to be disseminated to employees for the purpose of persuading them against unionization. But in the early 1980s, the DOL revised its persuader rule to eliminate the reporting requirement for attorneys and consultants who had no “direct contact” with employees.

In 2011, the DOL proposed modifications of the rules concerning the LMRDA’s advice exemption, which are the basis for the changes adopted in the final rule.

According to the DOL, the new rule closes the direct contact “loophole.” The amended persuader rule provides that an agreement or arrangement is reportable “if a consultant undertakes activities with an object, directly or indirectly, to persuade employees to exercise or not to exercise, or to persuade employees as to the manner of exercising, the right to organize and bargain collectively through representatives of their own choosing.”

In deference to the attorney-client privilege, the rule states that, “as a general principle,” no reporting is required for an agreement “to exclusively provide legal services.”

By way of example, the rule states that reporting is not required if a lawyer revises persuasive materials, communications or policies for an employer “in order to ensure their legality rather than enhancing their persuasive effect.”

Alan J. McDonald, a union-side lawyer in Southborough, Massachusetts, said the new persuader rule is 50 years overdue.

“The Department of Labor has not been following the law as written,” he said. “Section 203(a) of the LMRDA explicitly says that any persuader activity, either direct or indirect, needs to be reported. It hasn’t been reported because of a couple of fictions created by the DOL.”

Springfield’s Murphy said the fact that lawyers have 30 days to file reports on any agreements they enter into undercuts much of the DOL’s transparency rationale for the rule changes.

“The problem is none of these disclosures will be done in real time,” he said. “When you consider that employees now have expedited election procedures that allow voting within 25 days of the filing of an [election] petition with the National Labor Relations Board, none of these [persuader rule] disclosures will have been made before voters cast their secret ballots.”

Legal challenges

Business groups and management-side law firms wasted no time in waging efforts to block the amended persuader rule. At least three federal lawsuits have been filed since the DOL announced its final rule on March 23.

The first action, Associated Builders & Contractors of Arkansas v. Perez, was filed March 30 in the U.S. District Court for the Eastern District of Arkansas. In that case, several business groups and an Arkansas law firm allege that the new persuader rule “upsets more than 50 years of settled law regarding the meaning of ‘advice’ and departs from the plain language and stated intent of Congress to broadly exempt such advice from the reporting requirements of the LMRDA.”

In addition to violating the LMRDA’s advice exemption, the lawsuit includes claims that the DOL’s rule violates due process on vagueness grounds, the First Amendment rights of freedom of speech and association, and the attorney-client privilege.

In addition to the common law privilege, the lawsuit cites §204 of the LMRDA, which provides that nothing in the statute “shall be construed to require an attorney … to include in any report required to be filed pursuant to the provisions of this Act any information which was lawfully communicated to such attorney by any of his clients in the course of a legitimate attorney-client relationship”

The plaintiffs in Associated Builders & Contractors of Arkansas are represented by Washington, D.C. lawyer Maurice Baskin. He said that the persuader rule is important to employers for the simple reason that it will prevent them from getting the kind of advice they need to deal with the complicated issues involved in union organizing.

“The rule for 50 years has been that, as long as the employer is doing the communicating, then no report has to be filed just because of where [the employer] gets their advice from,” he said.

Baskin added that a lack of clarity in the new rule places attorneys in an untenable situation.

“[The DOL keeps] coming back to the notion that anything that is indirectly persuasive is potentially reportable, and with criminal penalties on top of it,” he said. “It makes it awfully tough to make the wrong guess.”

Two similar lawsuits were filed in separate U.S. District courts on March 31. Five business organizations are suing the DOL in the Northern District of Texas in National Federation of Independent Business v. Perez. And in Labnet, Inc. v. U.S. Department of Labor filed in the District of Minnesota, the employer legal network Worklaw is joined by 11 law firms from the across the country, including Springfield’s Skoler Abbott, in challenging the amended persuader rule.

Murphy said the plaintiffs chose Minnesota as the forum for Labnet partly because of favorable precedent from the 8th U.S. Circuit Court of Appeals. He added that the next development to look for in the cases is whether a judge will grant a preliminary injunction to prevent the rule from going into effect July 1.

Chilled communication?

When the DOL proposed to modify the persuader rule in 2011, the American Bar Association submitted a letter outlining its concerns about changes to the department’s interpretation of the LMRDA’s advice exemption.

In the letter, then-ABA President William T. Robinson III expressed the view that the proposed changes were inconsistent with ABA Model Rule of Professional Conduct 1.6 dealing with confidentiality of information.

“Because the Department’s Proposed Rule would require every lawyer who directly or indirectly engages in any persuader-related activities in the course of representing an employer client to disclose the identity of their clients, the nature of the representation, the fees received from the clients and other confidential client information, the proposal is clearly inconsistent with lawyers’ existing ethical duties outlined in Model Rule 1.6 and the binding state rules of professional conduct that mirror the ABA Model Rule,” Robinson wrote.

Professor Michael J. Yelnosky, dean of Roger Williams University School of Law in Rhode Island, said he is not overly impressed with the claims he has seen challenging the DOL rule, though he admits he is troubled by the extent to which the rule could interfere with the attorney-client relationship.

“Unless you have a pretty bright line as to when that [disclosure] obligation is triggered, I do think it could interfere in some way with the type of advice employers get from their lawyers or the type of relationships they set up with their lawyers,” he said.

Even Roy, a proponent of the rule change, acknowledged the possibility that the disclosure requirement could chill some attorney-client relationships.

“What you’re probably going to see is more in-house counsel and in-house labor negotiators to avoid the negative results that might occur [from having to comply with disclosure requirements],” he said.

Kraemer said he has steadfastly stayed away from persuader activities since he started practicing labor law in the 1970s for the simple reason that he never wanted to deal with the disclosure requirements.

“My law firm is a private entity,” he said. “I don’t report my fees; I don’t report my clients.”

According to Kraemer, the new rule will certainly drive a number of management lawyers away from the traditional union avoidance work they have been doing.

But Yelnosky said that, because the stakes are so high in labor disputes, he does not think the rule will prove to be a real disincentive to employers engaging legal counsel when faced with an organizing campaign.

“You lose that election, and you’ve got to bargain with the union. The cost of business just went up considerably,” he said.