On March 24, 2016, the U.S. Department of Labor’s (“USDOL”) Office of Labor-Management Standards (“OLMS”) published its highly controversial “persuader” regulation, which requires employers and labor relations consultants, including legal counsel, to publicly disclose relationships that have traditionally been permitted to remain confidential under the Labor-Management Reporting and Disclosure Act (“LMRDA”). Although the new persuader regulations took effect on April 25, 2016, the new rule will not apply to agreements entered into before July 1, 2016. This presents an invaluable opportunity for employers and their labor consultants to be “grandfathered” out of much of the required reporting under the new regulations.
Where We Were
The current LMRDA requires employers and their labor relations consultants to report any arrangement, the purpose of which is to either directly or indirectly “persuade employees to exercise or not to exercise, or persuade employees as to the manner of exercising, the right to organize and bargain collectively through representatives of their own choosing, or undertakes to supply such employer with information concerning the activities of employees or a labor organization in connection with a labor dispute involving such employer. . . .” It requires that such “persuader” relationships be disclosed to OLMS via the submission of Form LM-10 (“Employer Report”) and Form LM-20 (“Agreement and Activities Report”).
However, the current LMRDA carves out a key exception to its reporting requirements for relationships that are restricted to the provision of “advice” to the employer. Traditionally, the “advice” exemption has been interpreted to mean that, in the absence of direct contact with employees, labor relations consultants and attorneys could provide employers with unreportable advice, including much of the advice regularly provided to employers throughout the union organizing and bargaining processes.
Where We Are Now
However, the OLMS’ new final rule – which largely adopts the rule it first proposed nearly 5 years ago, in June 2011 – significantly narrows the “advice” exemption by defining “advice” to mean “an oral or written recommendation regarding a decision or a course of conduct.” As a result, the new rule will trigger LMRDA reporting of any persuader activity, irrespective of whether an employer’s labor relations consultants and attorneys have direct contact with employees.
More specifically, an arrangement between an employer and a consultant and/or attorney will be reportable when a consultant/attorney directly engages employees in “persuader activities” – which will be defined to include actions or communications intended to “affect an employee’s decisions regarding his/her representation or collective bargaining rights” – or, in the absence of direct contact, when a consultant/attorney: (i) plans or coordinates persuader activities for supervisors or other employer representatives; (ii) provides oral, written, or electronic persuader materials to employers for distribution to employees; (iii) conducts seminars for employer representatives that include information regarding persuader activities; or (iv) drafts/implements personnel policies or actions for employers with an object to persuade employees.
Within 90 days following the end of an employer’s fiscal year, employers are currently required to file Form LM-10, disclosing the use of any persuader. Under the new rule, employers will now be required to make the same report regarding their relationships with counsel, including: (1) the date and amount of any reportable arrangement; (2) the name, address, and position of the individual with whom the arrangement was made; and (3) “a full explanation of the circumstances of all payment made, including the terms of any agreement or understanding pursuant to which they were made.”
Additionally, labor consultants/attorneys will now be required to file Form LM-20 within 30 days of entering into a reportable engagement with an employer, disclosing: (1) the parties to the arrangement; (2) the “object” and terms and conditions of the arrangement; and (3) the activities that will be, or have been, performed pursuant to the arrangement. The detail required in such a report is an open question, but will undoubtedly lead to disputes.
Any labor consultant/attorney required to file Form LM-20 is also required to file Form LM-21, within 90 days following the end of the fiscal year. Form LM-21, also known as the Receipts and Disbursements Form, requires the disclosure of all fees received from clients for “labor relations advice or services[,]” whether or not the services rendered are related to persuader activity. In other words, Form LM-21 significantly increases the breadth of disclosure required by labor consultants by mandating the disclosure of the identity of all clients and the fees received for any labor relations advice or services.
Notably, the punishment for failing to comply with the LMRDA’s disclosure requirements is high. The LMRDA imposes criminal liability on employers and consultants/attorneys who willfully fail to file a required report or file a false report.
The USDOL’s new rule threatens to compromise the attorney-client privilege and mandates the release of information that law firms are still bound by ethical rules to protect. Consequently, the new rule has been met with substantial resistance from business groups such as the American Bar Association as well as the Attorney Generals of several states. Lawsuits have been filed in Arkansas, Texas, and Minnesota challenging the new interpretation of the advice exemption. However, rather than waiting for lawsuits that may ultimately be unsuccessful, there are proactive measures that labor consultants and their clients may take now.
Fortunately, in Associated Builders and Contractors of Arkansas, et al. v. Thomas E. Perez, the USDOL issued a statement clarifying its position on the enforcement of the new rules on agreements made before July 1, 2016. The USDOL “will not apply the Rule to arrangements or agreements entered into prior to July 1, 2016 . . . . Consequently, . . . no employer, labor relations consultant, or other independent contractor will have to report or keep records on any activities engaged in prior to July 1 that are not presently subject to reporting[.]”
Furthermore, the USDOL has confirmed, through internal emails, that services or payments made pursuant to pre-July 1, 2016 agreements are not subject to the new disclosure requirements. In other words, services and payments made pursuant to a multi-year agreement will not trigger either employer or labor consultant reporting as long as the agreement was entered into before July 1, 2016.
Therefore, employers and their labor consultants should seize this fleeting opportunity to memorialize or extend their business relationships before July 1, 2016 to take advantage of the significantly reduced and/or nonexistent disclosure requirements under the old persuader rule.
Please contact the authors or your SMRH labor attorney for assistance.