Texas Federal Court Permanently Enjoins DOL “Persuader Rule”

It has been a busy month for the federal courts in Texas, and a long one for the United States Department of Labor (the “DOL”). As we blogged here last week, on November 21, 2016, the United States District Court for the Eastern District of Texas blocked implementation of the DOL’s rule that would have nearly doubled the minimum salary level for the “white collar” exemptions. That ruling somewhat overshadows the fact that, just 6 days earlier, the United States District Court for the Northern District of Texas permanently enjoined enforcement of the DOL’s so-called “Persuader Rule,” leaving the viability of this rule in grave doubt, in light of the likely policy shifts in the administration of President-Elect Donald J. Trump. (See here for our blog entry of potential policy shifts under the new administration.)

As we previously blogged here, here, and here, the thrust of the “Persuader Rule,” a regulation first proposed by the DOL in 2011, and enacted in April of this year, is to essentially eliminate the “Advice Exception” to the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA”). The enactment of the “Persuader Rule” precipitated the filing of multiple lawsuits in federal District Courts across the country by employer-business associations and others. In a significant victory for employers, on June 27, 2016, the Court granted a nationwide, preliminary injunction against the DOL and others, preventing the enforcement of the new Persuader Rule. With the Court’s November 16 ruling, that permanent injunction is now permanent.

The Persuader Rule modifies the “Advice Exception” under the LMRDA, in place since the Kennedy Administration, which allowed employers to receive confidential and privileged counsel from attorneys on union organizing and election efforts. The Advice Exception was and is consistent with state law interpretations of the confidential attorney-client communications privilege, and also consistent with an attorney’s duty of confidentiality to his/her client under state law and rules of professional conduct. The only caveat to this bright line that no disclosure was required under the LMRDA was that, in providing such counsel, the attorney had no direct contact with employees and the employer was free to accept or reject any recommendations. Although billed as a modification of the Advice Exception, in this case, Plaintiffs and notably, the American Bar Association (which filed a “friend of the court” brief), saw the Persuader Rule as creating an irreconcilable conflict: forcing lawyers to document and disclose their advice to employer-clients, in violation of their duties under state law and professional rules of conduct, in order to comply with the new DOL rule. Plaintiffs also argued that the new Persuader Rule violated their First Amendment rights to free speech and association: specifically, that the Persuader Rule would impose a content-based burden on speech about union organizing. They further argued that the rule was impermissibly vague and violated their right to due process under the Fifth Amendment.

In the Court’s 86-page ruling of June 16, the Court agreed with and expanded on all of these positions, but most significantly found that the changes to the Persuader Rule “effectively eliminate[ed]” the Advice Exemption to the disclosure requirements of LMRDA. On November 16, 2016, in a mere two pages, the Court referred to and incorporated the reasoning of its preliminary injunction order, and ruled that the Persuader Rule “should be held unlawful and set aside.”

What comes next is not certain, but the chances of the Trump Administration adopting the Obama Administration’s position on the Persuader Rule seem remote. The DOL has appealed the preliminary injunction order to the 5th Circuit, and it may well be that the DOL abandons that appeal in the next administration. Importantly, for the present, for employers who seek advice of counsel on union organizing and election matters, this permanent injunction means that the content and other details of such advice will be kept confidential, and will not be disclosed, on the same terms that existed prior to the April 2016 implementation of the final Persuader Rule; however, employers would be well advised to stay abreast of this issue over the coming months.

-Monte Grix

Expect Big Changes in Labor and Employment From the Trump Administration

Since at least the 1920s, Republicans have been viewed as the party of commerce, small government and less regulation. And, to be sure, most Republicans still are. But Donald Trump challenged all of those assumptions by running a populist campaign directed to the working class in which he has often touted “yuge” government. Indeed, Trump garnered more votes from union households than any Republican candidate in decades.

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United States District Court Issues Nationwide Injunction Halting Implementation of New “White Collar” Exemption Regulations

On November 22, 2016, the United States District Court for the Eastern District of Texas blocked implementation of the Department of Labor’s rule that nearly doubles the minimum salary level for the “white collar” exemptions. This means that the rule is not going into effect as planned on December 1, 2016, unless a higher court lifts the injunction.

For many years, the minimum salary level for the so-called “white collar” exemptions – those covering qualifying executive, administrative and professional employees – has been set at $455 per week. In May 2016, the Department of Labor (DOL) issued new regulations increasing the minimum salary level to $913 per week ($47,476 annually), with scheduled increases every three years beginning January 1, 2020.

In October 2016, the State of Nevada and 21 other states filed an emergency motion for a preliminary injunction to halt the implementation of the new minimum salary regulations, arguing that the DOL exceeded the authority delegated by Congress in adopting the new salary level. The suit was filed in U.S. District Court in Texas, and consolidated with another lawsuit challenging the rule brought by over 50 businesses and the U.S. Chamber of Commerce. Yesterday, Judge Amos Mazzant, an appointee of President Obama, granted the states’ motion and imposed a nationwide injunction preventing the regulations from going into effect. The court agreed that although the FLSA gives the Department “significant leeway” to establish the job duties that may qualify an employee for a “white collar” exemption, it did not authorize the DOL to define the exemption with respect to a minimum salary or to limit it with respect to salary.

This is surprising reasoning, given that the DOL “white collar” regulations have imposed minimum salary levels since 1949 that have never been challenged. But the court cited a report issued in conjunction with the original 1949 regulations, explaining that the salary level had been “purposefully set low to screen[] out the obviously nonexempt employees, making an analysis of duties in such cases unnecessary.” Indeed, at that time the DOL admitted that it had no authority to create a test based on salary alone. Yet because the new salary level is set so high, the court explained, it “creates essentially a de facto salary-only test,” noting that the DOL itself has estimated that 4.2 million workers who are currently exempt will lose their exemption under the new rule. Because Congress did not intend that salary alone exclude employees from exempt status, the court held, the DOL had exceeded its authority and the rule was invalid.

The preliminary injunction stays the implementation of Department of Labor’s new “white collar” exemption regulations for all employers covered by the FLSA nationwide, pending further proceedings in the District Court. An immediate appeal to the Fifth Circuit Court of Appeals is almost certain. However, given the election results and certainty of a shift in direction and priorities at the Department of Labor, it is doubtful that the agency will seek to defend the rule after Inauguration Day.

In the meantime, employers who have previously announced salary increases to maintain exempt status under the new rule face the very real dilemma of whether to go forward with the increases or put them off, given employee morale issues as well as the fact that already-announced increases could constitute a contractual promise. Employers considering withdrawing such an announced increase should consider this issue carefully in conjunction with counsel.

Felicia Reid and Christin Lawler