Federal Overreach Is Smacked Down by a Texas Judge

The Labor Department wanted to curtail attorney-client privilege

The Supreme Court’s abortion decision wasn’t the only judicial news about Texas on Monday.

In a slap at executive branch overreach, Senior U.S. District Judge Sam R. Cummings in Lubbock, Texas, stopped the U.S. Department of Labor from enforcing its new “persuader” rule. In his June 27 order, Cummings wrote: “DOL’s New Rule is not merely fuzzy around the edges. Rather, the New Rule is defective to its core.”

The rule would have taken effect July 1. Without the injunction in the case, “National Federation of Independent Business et al. v. Perez, et al.,” companies would have been required to make public the names of outside attorneys who advised them on certain aspects of labor law. The labor attorneys would have been required to make public all their other labor clients, and their income from those clients.

It’s hard to describe how significant this Texas ruling is to small businesses. It dwarfs the abortion ruling in terms of importance. Without Judge Cummings’ injunction, labor attorneys would have been deterred from offering their services, with the burden falling most heavily on small businesses that do not have the in-house staff of large corporations.

Cummings’ order follows a June 22 opinion from U.S. District Judge Patrick Schiltz in Minnesota in “Labnet v. Perez et al.,” which states: “The Court therefore concludes that plaintiffs have a strong likelihood of success on their claim that the new rule conflicts with the plain language of the statute.”

Michael Lotito, a critic of the rule and co-chair of Littler’s Workplace Policy Institute, told me: “The Labor Department’s overreach according to two federal judges is breathtaking. The Department should do the obvious: abandon an inherently flawed rule, thereby preserving the confidentiality between lawyers and their clients, which has been a bedrock principle of accepted jurisprudence.”

How is it that the Labor Department wants to allow firms to get confidential legal advice on matters ranging from taxation to sexual harassment to zoning, but not on labor-related problems?

The Labor-Management Reporting and Disclosure Act of 1959 included a requirement that employers report the names of consultants who directly address their employees, so that these employees know who the consultants actually represent. Those were called “persuaders,” because they might have “persuaded” workers not to join unions.

But for over half a century, employers have never been required to report the names of consultants who did not interact with workers. The 1959 law states: “Nothing in this section shall be construed to require any employer or other person to file a report covering the services of such person by reason of his giving or agreeing to give advice to such employer.”

However, in 2011, the Labor Department claimed that this needed to change, because “the distinction between activities properly characterized as ‘advice’ and those that go beyond ‘advice’ has not been made clear.” It stated that if an attorney advises firms, which then implement the advice, the department regards this as if the attorneys were interacting with employees. On these grounds, it issued a proposed rule in 2011 to require reporting by labor attorneys, and a final rule in April 2016, effective July 1.

Judge Cummings issued the injunction halting the rule because he concluded, in a scathing 86-page order, that the plaintiffs will likely succeed in their case that the Labor Department rule “violates free speech and association rights protected by the First Amendment.” He said that the rule is “unconstitutionally vague in violation of the due process clause of the Fifth Amendment.”

The rule would have required three forms to be filled out, one by employers (Form LM-10) and two by lawyers and consultants (LM-20, the agreement with the employer, and a new, modified LM-21, listing their labor-relations clients and all receipts). The Labor Department says the LM-10 and LM-20 would cost about $826,000 annually. This is absurdly low.

Using a more realistic number of firms and hours of compliance, I estimate that costs would be between $7.5 billion and $10.5 billion in the first year, and between $4.3 billion and $6.5 billion in future years. This is a conservative estimate, because it does not include the potential legal costs if there are reporting errors in the forms.

The motivation for this rule is plain. Union membership has declined by 1.3 percentage points during President Obama’s tenure, more than during President George W. Bush’s two terms. To reverse the decline of this important political constituency, the administration sought to cripple the ability of firms to present reasons their workers might vote against union representation.

No matter that the rule does not apply to consultants offering advice to unions. So unions can hire attorneys to provide confidential labor law advice, but companies cannot.

At the same time that the Labor Department is discouraging attorneys from advising firms on labor matters, the department and the National Labor Relations Board have issued multiple rules that needed legal interpretation, from rules on who must be paid overtime to who can be an independent contractor.

One rule decreased the time between a petition for union representation and the election from about 40 days to 20 days. Another allowed the formation of “micro-unions,” unions that represent a small share of the workforce, such as shoe salesmen at Bergdorf Goodman’s or cosmetics workers at Macy’s. In order to comply with these shorter time periods and smaller organized groups, businesses need legal counsel.

William Robinson, former president of the American Bar Association, testified against the persuader rule in the Texas trial, because it interfered with the confidential client-attorney relationship and the firms’ right to legal advice. In addition, the rule conflicts with all state laws regarding client confidentiality. Under state rules, attorneys are not allowed to disclose names of clients or client advice — yet the persuader rule requires this information to be made public.

Judge Cummings concludes: “Because the scope of the irreparable injury is national, and because the DOL’s New Rule is facially invalid, the injunction should be nationwide in scope.”

Executive overreach costs the private sector millions of dollars in legal fees and wasted time, all of which could be spent on more productive activities. It is to be hoped that the Labor Department regains its senses and abandons the ill-advised persuader rule.

This piece originally appeared on WSJ's MarketWatch

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Diana Furchtgott-Roth is a senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter here.

This piece originally appeared in WSJ's MarketWatch