What the ‘Persuader Rule’ Means for Franchise Businesses

“Persuader Rule” could overturn decades of legal precedent and labor practices forcing employers to divulge their activities concerning unionization.

By Michael Lotito

The U.S. Department of Labor has once again hit businesses and employers with a burdensome rule that places them at a disadvantage when dealing with organized labor.

I refer, of course, to the monumental changes to the “advice” exemption of the Labor Management Reporting and Disclosure Act. The so-called “persuader” rule would overturn 50 years of precedent and labor practices. It will force both employers and their consultants to publicly divulge any and all advice they exchange on the topic of unionization.

First, some background

The rule was initially proposed in June 2011 and remained dormant until December of last year when the DOL announced in its Regulatory Agenda that the final rule would come out in the first half of 2016.

The rule in its final form broadens the scope of an employer’s reporting obligations under the LMRDA by substantially narrowing the “advice exemption” in Section 203(c) of the LMRDA. For decades, this advice exemption excluded from the reporting requirements circumstances in which a person or entity provided advice to an employer regardless of whether that advice included a “persuasive” component i.e., recommendations that would influence whether an employee should or should not join a union.

The rule vastly expands what has to be reported as persuader advice. For more than 50 years, if the attorney or consultant did not talk directly to employees and the employer was free to accept or reject the opinion being given, there was no “persuadable” event.  Under the proposal, if “an object” of the opinion might be to “persuade,” then it is reportable. This re-worked definition therefore renders virtually all communications between an employer and its consultant reportable events.

For example, if a consultant is hired to conduct a wage and benefit survey that includes union rates, one might assert “an object” of this survey is to preserve the employer’s union-free status. When engaging a PR firm for assistance in messaging, there is arguably a motive in remaining union-free. And then there are those who actually talk to employees to avoid unions and law firms that provide support to avoid unfair labor practices under the NLRA.

What if a trade association, as a service to its paying members, holds a seminar dealing with union matters and avoidance? Would the association have to report and list all of the attending members as clients with all the reporting obligations that go along with it? That certainly seems to be within the scope of the final rule.

Impact on Business

So what does this mean for businesses? Employers engaging with outside counsel to assist them with their union organizing activities would have to file publicly available reports detailing almost all labor work that the counsel and their firm does for the employer.

Theoretically, the only employer-attorney labor interactions that would not be considered reportable are those that involve no employee involvement at all, such as an attorney assisting the employer with an executive non-compete matter. Handling a matter before the board in a representation context or assisting in a ULP trial are examples of non-persuader activity that would not be reported on the Form LM-20 but would be reported on the Form LM-21 as “other labor relations advice and services.”

In order to be in compliance, three forms must be filled out: Forms LM-10, LM 20 and LM-21. Form LM-21: Receipts and Disbursements Report is slated to be changed later in 2016, meaning that employer’s reporting obligations would change before the form, a major part of the rule, is finalized.

That the form is incomplete highlights the fact that the government’s estimated cost of compliance, about $800,000 per year, is clearly inadequate. How can it possibly estimate the compliance cost and time when the necessary form has not yet been finalized? In December 2015, a group of 90 trade associations — including the International Franchise Association — penned a letter to Howard Shelanski, administrator of the Office of Information and Regulatory Affairs, underscoring this discrepancy.

Additionally, the rule’s estimate is based on an assumption that each employer and law firm would only spend one to two hours a year filling out the forms, failing to take into account the amount of time spent figuring out what should go on the form in the first place.

More important, the substantive changes made by the proposed rule would have a drastic impact on the confidential nature of the attorney-client relationship, as it would expand the types of union-related activities that would trigger reporting requirements from both employers and law firms. If, for example, an employer consults with legal counsel about union organizing activity or other “persuader” activity, including potentially items such as a handbook and policy review, it could also fall under the rule’s purview.

Both the law firm and client will have to reveal the nature of the contract and the signatories, how much was paid, the particulars of the areas covered, the salaries of everyone who works for the law firm, and all other income received from all clients for “other labor relations advice,” even if no persuader advice was given to the other clients.

Who Stands to Gain?

The DOL must have created this rule with the intent of assisting organized labor, because they’re the only people who stand to benefit from it. Certainly not small businesses, who will be hit the hardest by this as they typically lack in-house counsel and rely on outside consultants. Larger employers have in-house counsel and experienced HR departments. As the rule does not apply to in-house folks, these large organizations may not be as impacted as frequently as smaller businesses with none or few of those in-house resources.

The true beneficiaries are unions, because they can use the publicly available forms to demonize businesses engaged in normal labor practices. Some firms, not willing to risk bad publicity, may simply exit the business, making it more difficult for companies, especially small ones, to obtain competent advice. Smaller companies that are not as well-versed in the law may then refrain from taking any action in the face of organizing, maintaining a “neutral status” which makes it easier for unions to be successful. In addition, companies that are not able to avail themselves of labor counsel are at risk of inadvertently committing unfair labor practices not out of malice, but because they are unaware of the NLRA’s complexity.

And remember, there is no obligation for unions to follow the same reporting requirements.

The persuader rule has been a gift to organized labor from the administration. Obviously, they needed it on top of the new joint employer standard, ambush elections and the proliferation of micro-units.

Michael Lotito is co-chair of the Workplace Policy Institute of Littler Mendelson law firm.