Michael Lotito

If an attorney representing an employer engages in certain activities that might persuade employees to not exercise certain rights and also provides the employer with advice based on those activities, does it need to be reported to the U.S. Department of Labor? According to new rules published on March 24, 2016 interpreting the “advice” exemption under the Labor-Management Reporting and Disclosure Act, the answer is almost always “yes.”

The new rules provide that “persuader activity” is expanded to “any actions, conduct, or communications with employees that are undertaken with an object, explicitly or implicitly, directly or indirectly, to affect an employee’s decisions regarding his or her representation or collective bargaining rights.” In short, if the consultant engages in both advice and persuader activities, the entire agreement must be reported. 

However, many labor and employment lawyers, as well as the American Bar Association, argue that the new rules will destroy the traditional attorney-client privilege provided in the Model Rules of Professional Conduct in these situations. As a result, multiple lawsuits have been filed in various U.S. District Courts challenging these new rules in order to protect this most sacred of legal privileges.

Michael Lotito, a shareholder and co-chair of Littler Mendelson P.C.’s Workplace Policy Institute in San Francisco, spoke with Bloomberg BNA about the significance of the new rules and how they affect the use of the attorney-client privilege in labor and employment law.

Bloomberg BNA: How do the new rules significantly change the reporting requirements under the LMRDA?

Lotito: The so called "advice exemption" under Section 203(c) has consistently been interpreted as excluding from reporting advice mixed with persuasion as long as the company was free to accept or reject or modify the advice and the consultant did not speak directly to employees. However, the new rule rejects this bright line test by essentially saying that whenever there is persuasion, even if given as advice, then a report has to be filed.

The rule suffers from many infirmaries but the basic premise that a lawyer must separate legal opinion from any type of persuasion to be exempt from reporting ignores what lawyers do, what the expectations of clients are, the professional obligations lawyers have under Rule 2.1 of the model rules and turns 55 years of accepted interpretation on its head so that now persuasion always trumps advice instead of advice trumping persuasion as is set out in Section 203(c) of the statute. 

The rule sets forth 4 buckets of activity that generally fall within reportable activity. But the forms to be completed go much further by setting out 13 specific types of activity that may fall in any of the buckets. The DOL says the rule is clear and easily understood even though category 13 of the enumerated activities is labeled as "other" which is perhaps one of the vaguest words in the English language.

Bloomberg BNA: What is the most significant impact on those who might be subject to these requirements?

Lotito: Small businesses will be prejudiced in obtaining advice dealing with issues that arise under the NLRA.  They lack sophisticated and experienced counsel familiar with the ever changing rules set out by the NLRB. Confronted with complex reporting obligations that carry criminal penalties they may well forgo the counsel they need to make intelligent decisions on matters of great importance often with urgency attached to the decision making.
In addition, law firms may decide the risk of criminal penalties and complex reporting rules do not justify engaging in the practice of labor law, and public relations and other consulting firms may exit the practice of providing counsel for fear of running afoul of the new rules. 

Unions and their lawyers and advisors suffer no such concerns. They have no obligation to distinguish between advice and persuasion and have no obligation to complete comparable forms for each client served. As such, many believe that they are really behind the rule in the first place. This administration has been consistent in giving unions whatever advantage they may have at the expense of employers and this new rule is but another example.

Bloomberg BNA: On what basis do those who are challenging the new rules in federal court argue that the federal government cannot make these rule changes?

Lotito: First, the rule contradicts the statute by ignoring 55 years of consistent interpretation. The rule requires lawyers to abandon their ethical responsibilities under Rule 1.6 of the model rules as set out convincingly in the amicus brief filed by 10 attorneys general in the Arkansas case (Assoc. Builders & Contractors of Ark. v. Perez, No. 4:16-cv-00169). 

Further, the testimony of the former ABA president along with the statement by the current ABA president submitted at the recent House hearing makes clear the DOL is seeking to do what few have tried to do before: directly interfere in the way a lawyer interacts with clients as confidentiality is no longer sacred.

Bloomberg BNA: Based on federal court precedent, as well as actions by previous administrations on this issue, what are the chances of the plaintiffs in these lawsuits prevailing?

Lotito: The 8th Circuit in the Rose Law Firm case (Donovan v. Rose Law Firm, 768 F.2d 964, 8th Cir. 1985) clearly held that the interpretation of Section 203(c) set out above is correct. The DOL makes virtually no effort in distinguishing the case from the rule saying in a footnote that the case is an "outlier." We will see what the district court judge and the 8th Circuit have to say about that. 

There are other strong grounds asserted for overturning the rule. There is a first amendment issue due to the compelled speech required. The economic analysis done by the DOL to support the rule is absurd in its simplicity. The fact that the DOL is attempting to bifurcate the rule making for the LM-21 from the LM-10 and LM-20 is another serious concern.

Bloomberg BNA: Why are these rules considered so contentious that multiple federal lawsuits, as well as congressional action, have been filed to challenge them?

Lotito: Simply stated, the confidence between a lawyer and client as part of the relationship between the two is the oldest of all privileges. The strict concept of privilege has been expanded dramatically to include confidences that extend way beyond what might be privileged. While the rule is complex and not easy to message, its reach goes way beyond changing overtime requirements or NLRB election time tables. This rule says the government has a right to know what the attorney and client are talking about within the labor-management context. If this rule prevails, where does the government intrude next?

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