Federal Court Orders Stop to DOL’s Persuader Rule

By Stephanie Dodge Gournis, Gerald Hathaway, and Mark Foley

On June 27, 2016, a Texas federal court granted a preliminary injunction preventing the Department of Labor (DOL) from moving forward on a nationwide basis with the July 1st enforcement of its Final Rule Interpretation of the “Advice” Exemption to Section 203(c) of the Labor Management Reporting and Disclosure Act (LMRDA) (also known as the DOL’s “Persuader Rule”). The court order was based on findings that plaintiffs in the case of National Federation of Independent Business, et al. v. Perez, 5:16-cv-00066-C, were likely to succeed on the merits of their claims in establishing that the DOL’s Persuader Rule is inconsistent with federal law and exceeds the DOL’s statutory authority.

The LMRDA requires employers and labor relations consultants (including attorneys) to report certain agreements and arrangements (and payments made pursuant to such agreements/arrangements) under which a consultant performs activities that have “an object … directly or indirectly to persuade employees concerning their rights to organize and bargain collectively.” The statute expressly exempts from its reporting requirements consultant activity that involves a consultant’s mere giving of “advice” to the employer. The DOL historically has interpreted this LMRDA “Advice Exemption” as not requiring employers or consultants to report “indirect” consultant persuader activity – meaning activity in which the consultant works behind-the-scenes, but never directly communicates with employees. With the publishing of its new Persuader Rule on March 24, 2016, the DOL announced its rejection of the prior Advice Exemption  interpretation and directed employers and consultants to begin reporting indirect persuader activities, including activities in which a consultant drafts or revises employer policies and communications, assists management in developing coordinated responses to organizing and collective bargaining, and/or conducts seminars or management training which assists the employer in developing anti-union strategies or action plans. Under the LMRDA reporting requirements, officers of employer and consultant companies are required to maintain necessary records to support DOL filings for at least 5 years, and are subject to criminal penalties and prosecution for false or incomplete reporting, or failure to file a required report as required under the DOL’s rules.

The DOL’s new Persuader Rule technically went into effect on April 24, 2016, but was scheduled to apply only to consultant agreements and arrangements made after July 1, 2016. This meant that starting July 1, 2016 employers and consultants faced increased reporting obligations requiring them to report all consultant agreements/arrangements, and activities and payments made pursuant to such agreements/arrangements. Consultants (including law firms) also were required to report on an annual basis all receipts and disbursements arising in connection with any labor relations advice or services rendered to employers without limitation to the consultant’s “persuader clients.” In other words, consultants (and law firms) that engaged in persuader activity for a single client would be required to report labor relations advice and services for all clients (even when no persuader activity was involved for those other clients).

The National Federation of Independent Business case is just one of three federal lawsuits pending in various jurisdictions seeking to prevent the DOL’s Persuader Rule from taking effect. In this case interested business groups and ten states joined together to pursue an injunction against the DOL in the United States District Court in Northern Texas. The outcome of the case was influenced by expert testimony of labor attorneys, bar association representatives and business associations regarding the anticipated economic business costs of implementing the new reporting requirements, as well as concerns regarding restrictions on employer free speech rights and opportunities to obtain adequate legal representation for labor relations matters.

Based on the evidence presented, Senior District Judge Sam R. Cummings concluded that the DOL failed adequately to explain its reasoning for abandoning the prior, longstanding interpretation of the LMRDA Advice Exemption, and thus the DOL should not be afforded the usual deference in its agency interpretations. The Court found the DOL’s Persuader Rule arbitrary, capricious, and an abuse of the DOL’s discretion on the basis that the rule unreasonably conflicts with state rules regarding the practice of law, including attorney duties to protect client confidentiality, exercise independent professional judgment and render candid advice. The Court found the DOL’s Persuader Rule imposes content-based burdens on employer First Amendment rights to express opinions regarding union organizing, and to consult and hire attorneys to speak on an employer’s behalf. The Court found substantial likelihood that the plaintiffs would succeed on claims that the Persuader Rule is “void-for-vagueness” under the Due Process Clause of the Fifth Amendment. In the words of the Court, “[h]ere DOL replaced a long-standing and easily understandable bright-line rule with one that is vague and impossible to apply.” The Court found there to be “a substantial risk that associations, employers and consultants, including attorneys, will not be able to determine with reasonable certainty whether their actions require reporting.” Finally, the Court found substantial likelihood that the Persuader Rule violates the Regulatory Flexibility Act (RFA), on the basis that in promulgating the new rule the DOL “artificially excluded important costs of its implementation from consideration,” including significant costs incurred by consultants in having to file annual reports detailing expenditures of their individual clients. The Court granted the plaintiffs’ petition for temporary injunction, finding that the plaintiffs would suffer irreparable harm in absence of injunctive relief.  With this decision the DOL is enjoined on a national basis from implementing “any and all aspects” of its Persuader Rule pending full resolution of the case merits or until further Court Order. The decision calls into serious question whether the DOL’s Persuader Rule can be legally enforced. At a minimum, and assuming the injunction is not lifted by an emergency appeal, it will be many months (if not years) before the DOL can move forward with its new-found interpretation of the law.

EEOC More Than Doubles the Fine for Failure to Comply with Notice-Posting Requirements

By Noreen Cull

The Equal Employment Opportunity Commission (EEOC) has published a new rule in the Federal Register that will more than double the monetary penalty for employers that violate the notice-posting requirements of Title VII and other nondiscrimination statutes. Click here to view the rule on the Federal Register’s website.

Effective July 5, 2016, the maximum penalty for violating the notice posting requirements will be $525 per violation, a substantial increase from the previous penalty of $210 per violation.

Employers covered by Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act are required to post notices in the workplace that describe the key provisions of these statutes. According to the EEOC, “[s]uch notices must be posted in prominent and accessible places where notices to employees, applicants and members are customarily maintained.”  

The increased penalty is the result of the Federal Civil Penalties Inflation Adjustment Act Improvement Acts of 2015, which requires the EEOC and other federal agencies to issue annual regulations adjusting for inflation the maximum civil penalties that can be imposed. The EEOC stated in the final rule that “[t]he purpose of the adjustment is to maintain the remedial impact of civil monetary penalties and promote compliance with the law.”

The increased penalty will apply only to fines assessed after the rule’s effective date.

The EEOC’s “Equal Employment Opportunity is the Law” poster is available on the EEOC’s website at https://www1.eeoc.gov/employers/poster.cfm. The EEO poster is available in English, Spanish, Chinese and Arabic.

Split Circuit Court Decisions Create Uncertainty on Class Action Waivers and likely Supreme Court Review

By Vik Jaitly

Last week the 7th Circuit U.S. Circuit Court of Appeals, in Lewis v. Epic-Systems Corp., held that a company’s arbitration agreement, which prohibits employees from participating in “any class, collective or representative proceeding,” violated an employees’ right to engage in concerted activity under the National Labor Relations Act (NLRA).  The ruling creates a circuit split on the enforceability of class action waivers because the 2nd, 5th, and 8th Circuits each have held that class action waivers do not violate an employee’s rights under the NLRA.  Because of this circuit split, it is likely that the Supreme Court will visit this issue in the near future.

Background on Enforceability of Class Action Waivers

In recent years, federal courts have largely upheld arbitration pacts with class or collective action waiver language that provides that not only must an employee bring his or her claim exclusively in arbitration, but also that he or she must do so on an individual, and not on a class-wide basis. Specifically, in AT&T Mobility v. Concepcion (2011), the Supreme Court ordered the enforcement of arbitration agreements in a dispute involving an arbitration provision in cellphone contracts.  In the process, Concepcion generally held that the Federal Arbitration Act (FAA) preempts state bans on class action arbitration waivers.  The case however, did not directly address the viability of class action waivers in the employment context.

Shortly thereafter, in January 2012, the National Labor Relations Board (NLRB) ruled that an employer could not force its employees to sign arbitration agreements with class waiver provisions because such agreements were unlawful under the NLRA. See D.R. Horton, Inc., 357 NLRB 184 (2012).  On appeal, the 5th Circuit rejected the NLRB’s holding that class waivers in mandatory arbitration agreements are unlawful, joining the 2nd and 8th Circuits, which had issued similar rejections.

Seventh Circuit Opinion

In Lewis v. Epic-Systems Corp., the plaintiff had entered into an arbitration agreement with his employer in which he had waived his “right to participate in or receive money or any other relief from any class, collective, or representative proceeding.”  Lewis later filed a suit in federal court on behalf of himself and other employees alleging that the company had violated the Fair Labor Standards Act (FLSA) by misclassifying the employees and depriving them of overtime.

The employer moved to dismiss plaintiff’s claims and compel arbitration on an individual claim basis. The plaintiff argued that the agreement’s class and collective action waiver was unenforceable because it interfered with his right to engage in concerted activity under Section 7 of the NLRA.  The district court agreed with plaintiff and denied employer’s motion to dismiss, relying primarily on a prior decision the district court had issued adhering to the D.R. Horton’s decision.  The district court believed the 5th Circuit’s majority opinion “never persuasively rebutted the board’s conclusion that a collective litigation waiver violates the NLRA and never explained why, if there is tension between the NLRA and the FAA, it is the FAA that should trump the NLRA, rather than the reverse.”  The employer subsequently appealed the district court’s decision to the 7th Circuit.

In its analysis, the 7th Circuit adopted the NLRB’s reasoning (as stated in D.R. Horton) that engaging in class, collective or representative proceedings is “concerted activity” and a protected right under Section 7 of the NLRA.  Therefore, the court concluded, it would be an unfair labor practice under Section 8 of the NLRA for an employer “to interfere with, restrain, or coerce employees in the exercise” of this right.

Surprisingly, the 7th Circuit rejected the argument that the arbitration agreement must be enforced under the FAA—an argument adopted by all the other circuits that have ruled on this matter. In its ruling, the court focused on the FAA’s savings clause, which provides that arbitration agreements are enforceable except if the agreements themselves are unlawful.  Thus, the court found that Epic’s arbitration agreement is illegal under the NLRA, and because an illegal agreement is not enforceable under the FAA’s savings clause, there is no conflict between the FAA and the NLRA.

General Takeaways for Employers

The Lewis decision leaves employers with several takeaways:  First, employer need to know that class and collective action waivers will not be enforced in federal courts sitting in Illinois, Indiana and Wisconsin, which are the states within the Seventh Circuit’s jurisdiction.

Second, these same agreements will likely continue to be enforced in federal courts sitting in the circuits that have rejected the NLRB’s reasoning in D.R. Horton (for now, 2nd, 5th, and 8th Circuits).

Third, this circuit split will likely involve the input of the Supreme Court in the future but perhaps not between the Presidential election, and the appointment of a ninth Justice, given the desire to avoid a 4-4 split. If the case is brought before the Supreme Court before a new Justice is confirmed by the Senate, and the Supreme Court decision is split 4-4, each of the Circuit’s decisions will remain in effect.