The Final Persuader Rule: What You Need to Know About the New Reporting Requirements

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

On March 23, 2016, the U.S. Department of Labor (DOL) issued final regulations revising the “advice exemption” and requiring employers and consultants (including lawyers) to report labor relations advice and services under the Labor-Management Reporting and Disclosure Act's "persuader activity" regulations. The effective date of the new regulations is April 25, 2016. The rule will be applicable to arrangements and agreements as well as payments (including reimbursed expenses) made on or after July 1, 2016.

The new regulations greatly expand the scope of reportable persuader activity for employers and outside labor relations consultants, including lawyers, and significantly limit the advice exemption from reporting contained in the LMRDA.

Public Disclosure of "Persuader Activity"

“Persuader activity” as defined by Section 203(b) of the LMRDA must be reported by labor relations “consultants” (including lawyers, law firms, public relations firms, and even trade associations) on Form LM-20 within 30 days of the engagement or agreement to provide persuader services, and by “employers” on Form LM-10 within 90 days after the end of the fiscal year in which the employer engaged persuader services. Failure to file, or the filing of false or incomplete information, exposes the consultant and employer to civil and criminal penalties.

The History of Reportable "Persuader Activity" and the Advice Exemption

The final regulation significantly narrows the LMRDA Section 203(c) “advice exemption” from mandated disclosure and reporting by employers and outside labor relations consultants. The final regulation dramatically expands the scope of reportable persuader activity far beyond its original meaning when the LMRDA was enacted in 1959.

For over 50 years, the LMRDA persuader activity regulations required reporting only when labor relations  consultants were hired to communicate directly with employees to persuade them concerning unionization. The regulation, consistent with the original intent of Congress, was designed to prevent the deceptive practice whereby "middlemen" were hired to pose as employees—when, in fact, their role was to "persuade" fellow employees not to join a union—in order to report the results back to the employer.

The former persuader activity regulations worked—they prevented undisclosed persuader activities where outside consultants communicate directly with employees.

Congress also included Section 203(c), which exempted the reporting of "advice" to employers by outside consultants. This “advice” included legal services by lawyers, which did not involve direct communications with employees and which an employer was free to accept or reject.

What's Reportable Now

The new revisions to the persuader regulations now require consultants that were formerly exempt from reporting under Section 203(c) to report a broad scope of labor relations advice and services, even though they do not involve direct communications with employees. Reportable advice and services now include:

I.                Direct Persuasion

According to the final rule, “[t]he obligation to report direct persuasion by consultants remains.” An example of direct persuasion is direct communication with an employee with an object to persuade the employee about how to exercise his or her representation or collective bargaining rights.

II.              Indirect Persuasion

1. Planning, Directing, or Coordinating Supervisors or Managers. According to the final rule, it is a reportable activity for a consultant to plan, direct, or coordinate activities (including meetings or less structured interactions with employees) that supervisors undertake if the consultant’s object was to persuade.

2. Providing Persuader Materials. The final rule states that it is a reportable activity for a consultant to provide materials to or communicate with an employer, with an object to persuade, for dissemination or distribution to employees.

  • Reportable Examples:
    • drafting or selecting persuader materials for an employer to disseminate or distribute to employees; and
    • revising (including editing, adding, or translating) employer-created materials “only if an ‘object’ of the revisions is to enhance persuasion, as opposed to ensuring legality.”
    • Nonreportable Examples:
      • The use of persuader materials, which were not created specifically for the employer, “such as videos or stock campaign literature” is not reportable unless the consultant helps the employer select materials.
      • The use of literature that a consultant created previously, without any knowledge of the employer, labor union, industry, or employees is not reportable if the consultant also does not have a role in disseminating the literature.

3. Conducting a Seminar for Supervisors. The final rule includes a number of reporting rules related to seminars that cover a “labor-management relations matters, including how to persuade employees concerning their organizing and bargaining rights.”

  • Reportable Examples:
    • Labor relations consultants are required to report their activity if they develop or assist employers attending such seminars “in developing anti-union tactics and strategies for use by the employer, the employers’ supervisors or other representatives.”
    • Trade associations are required to report their activity surrounding seminars “if they organize and conduct the seminars themselves, rather than subcontract their presentation to a law firm or other consultant.”
    • Nonreportable Examples:
      • The final rule does not impose a reporting obligation on employers whose representatives attend such seminars.
      • The final rule does not impose a reporting obligation on consultants who conduct a seminar without developing or assisting employer-attendees in developing a plan to persuade their employees.
      • The final rule does not impose a reporting obligation on consultants who “merely makes a sales pitch to employers about persuader services it could provide.”

4. Developing or Implementing Personnel Policies or Actions. The final rule states that reporting is required if a “consultant develops or implements personnel policies or actions for the employer with an object to persuade employees.”

  • Reportable Examples:
    • Consultants must report their identification of employees for discipline, reward, “or other targeting” on the basis of the employee’s “involvement with a union representation campaign or perceived support for the union.”
    • Consultants must report their “development of a personnel policy during a union organizing campaign in which the employer issues bonuses to employees equal to the first month of union dues.”
    • Nonreportable Examples:

The final rule clarifies that a consultant’s activity will only be considered reportable if the consultant’s object is to persuade employees, “as evidenced by the agreement, any accompanying communication, the timing, or other circumstances relevant to the undertaking.” Thus, the final rule states that the following activity would not be reportable:

  • “[A] consultant’s development of personnel policies and actions are not reportable merely because they improve the pay, benefits, or working conditions of employees, even where they could subtly affect or influence the attitudes or views of the employees.”

Once a  labor relations consultant reports on Form LM-20 a single instance of “persuader” advice or services, the consultant then must disclose “all labor relations advice and services” on Form LM-21, filed annually, even though the advice and services do not involve persuader activity.

The employer will also have to file its own report. The employer’s report must be filed on Form LM-10 within 90 days of the end of the employer’s fiscal year. It must disclose:

  1. the date of each reportable arrangement and the date and amount of each transaction made pursuant to that arrangement;
  2. the name, address, and position of the person with whom the agreement or transaction was made; and
  3. “a full explanation of the circumstances of all payments made, including the terms of any agreement or understanding pursuant to which they were made.” This includes attaching a copy of any written agreement between the employer and the persuader.

Undefined "Labor Relations Services" Under Form LM-21

Although the final regulation provides examples of the broadened definition of "persuader activity" reportable on Form LM-20, it does not define “all labor relations advice or services,” which form the basis for receipts and disbursements that are reportable on Form LM-21. The final regulation did not comment on the scope of reporting for Form LM-21. Instead, that issue will be addressed in bifurcated rulemaking to revise Form LM-21 currently scheduled to start in September 2016. Until then, it will be difficult for consultants, including lawyers, who engage in what is now classified as persuader activity to know the extent that they must provide information pertaining to receipts and disbursements relating to labor relations advice and services.

Attorney-Client Confidences

The American Bar Association (ABA) and the Association of Corporate Counsel, as well as numerous state attorneys general, strongly opposed the DOL revisions to the advice exemption because the mandated disclosure would force lawyers to reveal attorney-client confidences in violation of their ethical obligations under the ABA’s Model Rules and Annotated Model Rules of Professional Conduct and would interfere with access to legal counsel.

The U.S. Department of Labor insists that the new "persuader regulations" do not require the disclosure of attorney-client confidences and that the attorney-client privilege is protected by section 204 of the LMRDA. Yet disclosing a client's identity, financial arrangements, and services rendered are all attorney-client "confidences," which attorneys are not at liberty to disclose pursuant to their ethical obligations under state bar rules, without the client's informed consent. This ethical concern and the federal government’s interference with the attorney-client relationship, both of which result from the new rule, are the reasons the American Bar Association strongly opposes the new persuader regulations.

Problems for Small Business

To the extent that the persuader regulations impose a burden on small businesses that do not have in-house legal and labor relations staff, these businesses may have difficulty responding to a union organizing campaign and lawfully communicating with their employees. This difficulty with access to counsel poses a problem especially within the shortened seven-day time frame for an employer's response to a union petition for a representation election imposed by the National Labor Relations Board's new R-Case (Representation Election) rules. Employers should note that legal advice provided by their attorneys continues to be protected and is not reportable.

One-Sided Application

Unions, their law firms, and their outside consultants are not covered by the persuader activity reporting and disclosure requirements. Even if a union was to engage in the types of deceptive practices that the LMRDA originally targeted in 1959, the final rule would not require it to disclose the identity of its paid "salts" or the existence of a "union front organization".

What's Next?

The new “persuader activity” rule, which will apply to arrangements and agreements as well as payments made on or after July 1, 2016, will be challenged by employers and attorneys in Congress and the courts. DOL’s regulatory agenda lists September of 2016 for proposed rulemaking to revise Form LM-21.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

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