A Texas court ruled the Labor Department’s new “persuader rule” unconstitutional, effectively killing one of President Obama’s major efforts to rewrite employment law.
The ruling caps a bad few months for the Obama administration on labor law, with courts also rejecting attempts to expand overtime rules and to “blacklist” federal contractors accused of employment law violations.
The terse, two-page ruling issued Monday by the District Court for the Northern District of Texas upheld a permanent injunction against the persuader rule issued by a judge last month. The judge had earlier said that the rule, which put vast new financial disclosure requirements on lawyers who advise employers on labor law, was “defective to its core” because it was far too broad.
Last month, a separate Texas court blocked a new Labor Department rule that would have expanded overtime eligibility to an estimated four million workers. The previous month, another Texas court invalidated a rule that would have required bidders on federal contracts above $500,000 to report any labor violations within the last three years, including cases that were still being contested in court. In all three cases, the courts ruled that the administration had overstepped its authority and usurped Congress’ role in writing laws.
Beth Milito, attorney for the National Federation of Independent Business, which had sued the administration over the persuader rule, called the decision “more nails in the coffin” of the Obama administration’s regulatory agenda.
“It is looking very good from our perspective in terms of rolling back the major rulemakings,” Milito said. There was an outside chance that the overtime rule could be revived in court, but with the Trump administration taking over next month, time for the Obama administration is rapidly running out. “The clock is working in our favor.”
Also facing a court challenge is the Labor Department’s new fiduciary rule, would impose a new legal standard requiring investment advisers to act in their clients’ best interests. The rule has been finalized by the administration but not taken effect. A coalition of business groups including the Chamber of Commerce is challenging the rule, claiming it imposes excessive burdens on financial advisers.
The various rulemakings reflect the White House’s efforts to create a tougher regulatory environment for business without going to Congress to pass new legislation. The administration attempted the moves by having federal departments and agencies create new interpretations of existing laws. The administration’s persuader rule, for example, was an expansion of a long-standing disclosure rule.
Under current federal law, all lawyers who are contracted by management to discuss labor matters with employees must publicly disclose the details of those financial arrangements. The lawyers are typically hired to try to dissuade workers from unionizing, hence the term “the persuader rule.” However, lawyers who merely advise employers on labor law but never interact with employees are not required to disclose their contracts.
In March, the Labor Department announced it was expanding the rule to encompass all labor law consulting regardless of whether the lawyers spoke with employees. The administration argued it was a necessary update to keep pace with workplace trends. The update was widely expected to drive many law firms out of labor law consulting altogether.
Trey Kovacs, labor policy analyst for the libertarian Competitive Enterprise Institute, said that large employers were unlikely to have been affected since they typically hire specialist attorneys who already disclose their contracts or already have in-house counsel who can do it. The rule would have had its biggest impact on small and medium-size employers.
“These companies are far less likely to have inside counsel to guide them through the dos and don’ts of what actions an employer may take during a union organizing campaign. And legal counsel during an organizing campaign is even more necessary now because of the recent regulatory changes made by the National Labor Relations Board that impose extremely short deadlines to file motions during union elections,” Kovacs said. The labor board is the main federal labor law enforcement agency.
Labor unions supported the expanded persuader rule, arguing that the old version made it too easy for management to skirt the law. Business groups said the change was little more than an effort by the administration to tilt the playing field in favor of its labor allies. The American Bar Association also opposed the new version of the rule, saying it would “seriously undermine both the confidential client-lawyer relationship and the employers’ fundamental right to counsel.”
Texas District Court Judge Sam Cummings agreed, ruling in June that “the new rule is defective to its core because it entirely eliminates the … [legal] advice exemption,” and therefore violates the First Amendment. He also found that the department had exceeded its regulatory authority in issuing it. Monday’s ruling affirmed those findings.
The Labor Department did not respond to a request for comment.
