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Latest News - July 2013

July 1, 2013
DOL proposal could force choice between confidentiality and compliance
Source: Inside Counsel Magazine
By: Mary Swanton

A proposed rule pending in the Department of Labor (DOL) has the legal community in an uproar. The rule would upend 50 years of precedent that generally exempted lawyers from a law requiring those helping employers deal with unions to disclose those client relationships and related fees. Management-side labor lawyers claim the proposed change would create a Hobson’s Choice: risk censure and possible disbarment for violating attorney-client confidentiality, or risk criminal prosecution for failing to file disclosure reports.

The Labor Management Reporting and Disclosure Act (LMRDA), passed in 1959, requires disclosure of fees paid to and services provided by “persuaders,” consultants hired to influence employees not to unionize. Lawyers traditionally have been exempt as long as they didn’t directly communicate with employees, under a provision known as the advice exemption.

“For 50 years, our obligation as attorneys has been pretty well established,” says Steven Bernstein, a Fisher & Phillips partner. “The understanding is that so long as we don’t deal directly with employees who are called on to decide on representation, fees are exempted from disclosure under the advice exemption.”

But labor unions have worked for years to change that, nearly succeeding when the outgoing Clinton administration proposed a rule, only to have it immediately rescinded by the Bush White House. In 2011, the Obama administration revived the idea. The proposed rule changes the advice exemption so any lawyer who drafts, revises or provides a persuasive employee communication for a client could be deemed a persuader, even if he has no direct contact with employees.

“Almost any activity undertaken by counsel whose end result is persuasion is now reportable,” Bernstein says.

The burden falls on in-house counsel too, because the rule would require employers who consult law firms on labor matters to report to the government the nature of the relationship with the firm, the fees paid and the category in which the advice falls. Outside counsel would have the same obligation, according to Littler Mendelson Shareholder Michael Lotito.

“This rule would limit the ability of employers to obtain legal counsel during union organizing, essentially chilling the company’s ability to communicate effectively with its employees about unionization without fear of violating the law,” Lotito says.

After the Department of Labor (DOL) issued the Notice of Proposed Rulemaking in July 2011, approximately 7,000 law firms, associations representing lawyers, companies and other interested parties filed comments. The American Bar Association protested the rule as a violation of attorney-client privilege, saying it imposes “an unjustified and intrusive burden on lawyers and law firms and their clients.” The Association of Corporate Counsel urged the DOL “to resist undermining the attorney-client relationship.”




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