The New “Persuader Rule” and Its Impact on Manufacturers

25 April 2016 Manufacturing Industry Advisor Blog

The federal Office of Labor-Management Standards (“OLMS”) in the Department of Labor issued a Final Rule, on March 24, 2016, that significantly reinterprets the so-called Persuader Activities Rule. This rule represents the administrative implementation of provisions in the National Labor Relations Act that require (1) employers to annually report agreements that have the object of dissuading employees from supporting unions (“persuader activities agreements”), (2) consultants to report such persuader activities agreements within thirty days, and (3) consultants who enter any persuader activities agreements to annually report payments from employers for all “labor relations advice and services.” (the “LM-21 Report”)

From 1959 until last month, OLMS applied a bright line test for what qualified as “persuader activities.” If the consultant had direct contact with the target employees, it was acting as a “persuader” and the employer and the consultant had to file reports. If the consultant had no direct contact with employees, it fell under the “advice” exemption and was not reportable.

Setting aside for the moment the question of whether this direct/indirect contact interpretation was a valid interpretation of the law, it did have the virtue of clarity and, as a simple litmus test, it worked well. Employers, consultants, attorneys, and presumably the OLMS, all knew where they stood and all knew what was, and was not, reportable. However, in keeping with a recent pattern of rethinking long-established norms relating to the rules governing unions and employers, after 56 years of certainty and consistency, in 2011 the OLMS announced that for all these years it had misapplied the statute. In fact, according to the agency, the direct/indirect contact test was not an accurate interpretation of the law. Instead, it stated it would now examine the services provided by the consultants to see if they fell within the definition of “advice” (not reportable) and, if not; the activities would be generally reportable, even if there was no direct contact with the target employees.

The Effect of the New Rule

This will affect manufacturers and other employers in multiple ways. While the rule is complex, a broad summary of the changes is provided below.

Employers will be required to report agreements covering the following activities, when there is “an object to persuade employees”:

  1. A consultant engages in direct contact or communication with any employee; or
  2. A consultant, without direct contact with employees, undertakes any of the following activities:
    1. Plans, directs, or coordinates activities by employer representatives, including meetings and interactions with employees;
    2. provides written material or communications for distribution to employees;
    3. conducts seminars for supervisors or other employer representatives; or
    4. develops personnel policies etc. for the employer.

Not only will this impose a burden on employers and require them to disclose information which until now has been confidential, employers may have difficulty finding consultants and especially attorneys who are prepared to engage in “persuader activity” because this will greatly expand the consultants’ obligations to file the LM-21 Reports; that is they will have to disclose information on all of their labor relations advice and services, even for those clients for whom they performed no reportable “persuader” activity. Interestingly, the OLMS quickly issued a “Special Enforcement Policy” that, in effect, places a moratorium on any attempt to enforce the obligation to file any LM-21 reports. There are some who wonder whether this administrative self-restraint is a defensive move to avoid the involuntary restraint of a court injunction (see below).

Effective Date and Compliance

While the new rule “takes effect” on April 25, it applies to agreements and payments made on or after July 1, 2016.

Challenges and Next Steps

Already, lawsuits have been filed in three separate U.S. District courts, (Arkansas, Minnesota, Texas) challenging the validity of the new rule and seeking to enjoin continued enforcement of the rule. Manufacturers and other affected entities should follow these cases closely to determine the extent to which employers and consultants will be required to comply with the new obligations. Stay tuned to Manufacturing Industry Advisor for more updates.

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