On November 16, 2016, the United States District Court for the Northern District of Texas (Lubbock Division) entered an order holding that the Department of Labor’s Persuader Advice Exemption Rule is unlawful and should be set aside pursuant to 5 U.S.C. § 706(2). The Persuader Rule regulations are now subject to a permanent nation-wide injunction and the DOL will be prohibited from enforcing the regulations unless and until the district court’s order is revised or reversed on appeal. This order is significant because: (1) it is unclear whether the DOL will pursue an appeal once the new administration takes office in January of 2017; and (2) it may be a harbinger for the fate of other DOL regulations that are currently subject to legal challenge in Texas federal district courts, including the new FLSA overtime regulations that are scheduled to go into effect on December 1, 2016. In fact, Judge Mazzant of the United States District Court for the Eastern District of Texas announced yesterday that he planned on issuing a ruling on whether the new FLSA overtime regulations will be preliminarily enjoined by November 22, 2016.
As was previously reported by Spencer Fane Human Resource Solutions (DOL Issues New, More Expansive, Interpretation of Persuader Rule), the Office of Labor-Management Standards issued the new Persuader Rule regulations in March of 2016 with an anticipated effective date of July 1, 2016. However, shortly after the new regulations were issued, a variety of industry groups and several state attorneys general filed suit against the DOL in the Northern District of Texas. See National Federal of Independent Businesses et al v. Perez et al., Case No. 5:16-cv-00066 (March 31, 2016).
The Industry Group Plaintiffs argued that the new regulations were unlawful and therefore unenforceable because: (1) the new regulations contradicted the plain language of the LMRDA; (2) the DOL did not adequately explain why it was abandoning its previous long-standing interpretation of the LMRDA’s Advice Exemption; (3) the new regulations violated the free speech and association rights protected by the First Amendment; (4) the new regulations violated the due process clause of the Fifth Amendment; and (5) the new regulations violated the Regulatory Flexibility Act. The State Plaintiffs argued that the new regulations were unlawful and therefore unenforceable because: (1) they did violence to traditional notions of attorney-client privilege, loyalty and candor; and (2) the new regulations violated separation of powers principles by impermissibly encroaching on each state’s ability to regulate the attorneys practicing law within their borders.
The United States District Court for the Northern District of Texas granted the Plaintiffs’ motion for summary judgment and ordered that the new Persuader Rule regulations be enjoined on a nation-wide basis. Unfortunately, the Court was terse when explaining its reasoning in its Order: “For the reasons thoroughly set forth in the Plaintiffs’ and Intervenor-Plaintiffs’ briefing, and those stated in the Court’s Preliminary Injunction Order entered on June 27, 2016, the Court is of the opinion that the Department of Labor’s Persuader Advice Exemption Rule . . . should be held unlawful and set aside . . .”
Therefore, the best source of guidance as to the legal reasons accepted by the Court for implementing the injunction can be found in its lengthy preliminary injunction Order.
Key Takeaways
- Unless and until the district court’s order is revised or reversed on appeal, the DOL will be unable to enforce its new interpretation of the Persuader Rule.
- Other DOL regulations that are currently subject to legal challenge may also be preliminarily enjoined and subsequently declared unlawful.
- Even if they survive legal challenge, it is unclear whether other recently implemented DOL regulations will continue to be enforced by the incoming administration.
- Employers should carefully monitor these events.
This blog post was drafted by Brian Peterson. He is an associate in Spencer Fane’s Kansas City, MO office. If you have questions and would like to speak to a Spencer Fane attorney then please contact Paul Satterwhite, Dave Wing, Ron Fano, George Freedman or Sue Willman. For more information, visit spencerfane.com.