Labor Disclosure Rule Is Unfair To Business

On Thursday, the U.S. labor committee will consider the nomination of Thomas Perez for labor secretary. Perez is now in charge of the civil rights division of the Justice Department.

One question for Perez: Should businesses be required to disclose the names of attorneys from whom they seek advice on union-related issues? And should those attorneys have to disclose the names of all their clients?

The issue is relevant because this spring, the U.S. Department of Labor is expected to issue a new interpretation of the "advice" exemption to the Labor Management Reporting and Disclosure Act. The Labor Department’s new interpretation would require businesses to do just that, report to the Labor Department the attorneys or consultants who advise them on union-organizing activities.

If firms consult lawyers about tax issues, sex discrimination, whistleblowing, they can do so in private. But if they seek legal advice on unionization issues, the name of their attorneys, and all their attorneys’ other labor-related clients, become public.

In so doing, the administration will sweep away over 50 years of precedent and contravene the express language and intent of the law originally passed by Congress.

The paperwork burden raises the cost of doing business The reporting requirement is one more thing companies have to spend time and money on. I calculate, based on the number of firms in America, that the cost of the proposed rule could be in a range of $7.5 billion to $10.6 billion during the first year of implementation, and between $4.3 billion and $6.5 billion per year thereafter. The total cost over a 10-year period could be approximately $60 billion. This does not include the indirect economic effects of raising the cost of doing business in the United States. Costs of the plan are detailed here.

This is many multiples of the administration’s own, much lower estimate, $826,000 per year, which notably (and perhaps conveniently) falls below the level required for mandatory cost-benefit review.

By compromising companies’ ability to seek advice on compliance with federal labor law, the proposed rule would jeopardize both firms’ and workers’ statutory rights. By raising the cost of doing business in America, the proposed rule would drive some businesses offshore and discourage others from locating here, harming economic growth.

The Labor Department’s June 2011 proposal to require businesses to report any contact with advisers on union-related issues derives from the Labor-Management Reporting and Disclosure Act of 1959. The proposal has gone through the notice of rulemaking and comment period, and is shortly due to be issued as a final rule.

The law’s broad objective was to improve transparency in the unionization process by establishing uniform reporting requirements for unions and employers, as well as for hired consultants who make presentations directly to firms’ employees.

Section 203 of the Act provides a general labor-consultant disclosure rule as well as an express exemption to that rule. Under Section 203(b), consultants who enter into agreements with employers to influence workers’ decisions to join unions

But Section 203(c) exempts from this reporting requirement various activities, including the providing of "advice" to firms on labor-related issues: "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…"

When the law clearly states that attorney advisers are exempt from the reporting requiring, why does the Labor Department seek to make this advice public?

Two key facts are essential to understanding the economic and political context of the Labor Department’s proposed new interpretation: the steady decline of union membership in the United States and the Obama administration’s efforts to reverse this trend.

Union membership is declining steadily in the United States, as can be seen from the accompanying graph. In 1983, 20% of American workers belonged to unions. Between 2000 and 2008, union membership declined by a full percentage point, from 13% to 12% of the labor force. Membership declined by another percentage point, to 11% of the labor force, during President Obama’s first term. Only 6.6% of private sector workers belonged to unions in 2012.

With union membership down, unions are eager to sign up new members in order to swell their ranks, replenish their treasuries, fund staff salaries, and infuse new money into union-sponsored pension plans, many of which are underfunded. The proposed rule would likely assist them in this effort because it would arguably discourage labor lawyers from advising firms.

The Labor Department’s proposed new LMRDA interpretation is consistent with previous pro-labor actions taken by the Obama administration. Whether by coincidence or not, the Department first proposed the new rule six months after the so-called Employee Free Choice Act (EFCA) failed to pass the Democrat-controlled 111th Congress in 2009-2010.

The EFCA would have taken away workers’ right to a secret ballot in elections, as required since the 1935 National Labor Relations Act, and allowed workers to choose to join unions by checking a card circulated and retained by the union — hence the popular name "card check." It also would have imposed mandatory arbitration for contract disputes between unions and newly-unionized firms.

With the failure of EFCA, the Obama administration took other steps to support organized labor. In April 2011, the National Labor Relations Board’s acting general counsel, Lafe Solomon, investigated Boeing for opening a plant to build Dreamliner aircraft in South Carolina rather than in Washington State, the site of an existing plant. (The case was dropped in December 2011 after the Machinists’ union settled with Boeing.)

The NLRB, an independent agency whose governing board is appointed by the president, issued two rules later overturned by the courts. One, on Aug. 30, 2011, required employers to post a notice informing workers of the right to unionize (but not the right to decertify a union). The other would have reduced the time for a workplace election for union representation from an average of 38 days to an average of 15 days after the union filed a petition, leaving little time for the employer to communicate with the employees about unionization issues.

Finally, in January 2012, the president invoked his recess-appointment power to appoint three NLRB officials while the Senate was still technically in session — appointments subsequently declared unconstitutional by the U.S. Court of Appeals for the D.C. Circuit.

The NLRB is already working with the Labor Department to make sure the new reporting requirement is fulfilled. Now, when a law firm represents a firm before the NLRB, the NLRB — an independent agency — sends the name over to the Labor Department — an executive branch agency — and the Labor Department contacts the lawyer to ask if he should be filing reporting forms.

Legal and ethical rules prevent firms from revealing their clients without prior permission. There are many good and honest reasons why confidentiality between a lawyer and a client is preferred. The government is chilling the free exercise of citizen rights when it seeks to invade the confidentiality of the attorney-client relationship.

A change in the interpretation of the LMRDA advice rule would have a substantial effect on the cost of doing business in America. Employers would have to study the new rule to determine if they needed to fill in the forms. Many firms would need to file, whether or not their employees were considering joining a union, because they receive advice on a regular basis. The indirect costs would include making it more difficult for employers to get advice when unions attempt to organize a workforce.

The Department did not take into account negative indirect effects of the proposed rule. These include firms making errors and poor decisions because they do not ask for advice. Some advisory firms may leave the advisory business, some may lose business, and some may close or consolidate. We do not add estimates of these costs either — but the qualitative existence of such costs is noteworthy.

This discouragement of the use of attorneys’ advice in legally complex situations has effects that reach further than those employers who seek advice as to how to approach union organization.

Indirect costs of the proposed rule include the lost productivity and drag on economic growth from a loss of labor-market flexibility and from a loss of jobs to overseas competitors. No other industrialized country requires disclosure of the names of law firms offering labor advice.

Firms can receive private advice if their CEO is charged with embezzlement or sexual harassment, or if charged with malpractice or tax fraud. But if any firm wants to know how to deal with a union organizing drive, or any other union issue, the new interpretation would make all dealings public.

Senators, as you consider the nomination of Thomas Perez, you should ask him why the Labor Department wants to take away firms’ rights to private advice.

This piece originally appeared in WSJ's MarketWatch

This piece originally appeared in WSJ's MarketWatch