Court Denies Injunction to Keep Amended Persuader Rule from Taking Effect – Finds DOL Exceeded Authority Under LMRDA

[caption id="" align="alignright" width="98"] Steven M. Swirsky[/caption]

U.S. District Court Judge Patrick J. Schiltz “has found that aspects” of the Department of Labor’s Amended Persuader Rule “are likely invalid because they require reporting of advice that is exempt from disclosure under Section 203(c)” of the Labor Management Reporting and Disclosure Act (LMRDA).

The Amended Persuader Rule Makes Distinctions Between Materially Indistinguishable Activities

In his 34 page opinion denying the plaintiffs’ application for a temporary restraining order and/or a preliminary injunction that would keep new reporting obligations for employers and labor relations consultants, including attorneys from taking effect on July 1, “The Court has also questioned the manner in which the DOL has construed the term “advice,” pointing out that the DOL makes distinctions  between activities that are materially indistinguishable and struggles to place certain common activities on one side or the other of the untenable divide that it has created between persuader activities and advice.”

The Court Denied an Injunction Because It Did Not Find Irreparable Harm

Although the Court found that “the plaintiffs have shown a likelihood of success on one of their claims—specifically their claim that the new rule requires the reporting of some activities that are exempt from disclosure under Section 203(c), a critical element of any application for an injunction, the Court denied their request for an injunction because it found that they had not established that they are likely to suffer irreparable harm if the new rules are to take effect.

In finding that the plaintiffs’ “minimal showing of threat of irreparable harm is not sufficient to warrant the extraordinary relief of a preliminary injunction,” the Court noted that the Amended Rule “has multiple valid applications” and that the DOL had “identified thirteen types of conduct to which the rule applies, only some of which seem to require the reporting of advice that is exempt under ¶ 203.”

The Court’s Other Findings

The plaintiffs in the Labnet case also challenged the Amended Rule on the grounds that it interfered with their First Amendment Rights, it is void for vagueness, arbitrary and capricious, overbroad and violated the Regulatory Flexibility Act.  The Court concluded that the plaintiffs were not likely to prevail on these claims.

What Happens Next?

As we have reported, there are two other challenges to the Amended Rule pending in the U.S. District Courts for the Northern District of Texas and the District of Arkansas.  Hearings have taken place in both those actions, in which plaintiffs are also seeking to enjoin the enforcement of the Amended Rule’s new advice reporting requirements.  Rulings are anticipated in both prior to the July 1 effective date.

Employer Options and Alternatives

As we reported, earlier this month the DOL described what may be a meaningful way for employers (and law firms) to avoid the potential obligation to file public disclosure reports concerning identifying payments that employers made in connection with “indirect persuader activities” that were not reportable under the long standing rules, but that will, for the first time, be considered reportable as persuader activity.

At a recent compliance assistance seminar, representatives of the DOL stated that no persuader payment reporting will be required as a result of payments made after July 1 so long as those payments are tied to an agreement made prior to that date.  This interpretation by OLMS is considerably different from how many envisioned enforcement of the rule when the amendment was issued and it remains to be seen whether the DOL will stand by these statements and how it will interpret and apply them going forward. Until now, most employers and law firms understood that post-July 1, any agreements or arrangements—as well as any payments related to indirect persuader activity—would trigger reporting, regardless of whether the agreements or arrangements were entered into before July 1.

Given this new information, some employers may wish to sign long-term agreements with law firms or consultants now. At this point, it appears that so long as those agreements are made prior to July 1, any payments made under those agreements—even payments made later in 2016 and beyond—will not trigger reporting, according to the DOL.  If the DOL stands by these statements, it appears that entering into agreements with labor counsel prior to July 1 should protect advice and assistance provided by counsel from reporting and disclosure to the DOL and would apparently give employers and labor consultants, including attorneys, a strong defense against any claims that they willfully failed to file reports under the Amended Rule.