State and federal industry groups sued the U.S. Department of Labor in federal court this week, saying expanded financial disclosure rules targeting anti-union activities are unconstitutional and go beyond the scope of existing labor law.
The suit, filed Wednesday in Little Rock, was the first in the nation to challenge the new disclosure requirements.
Similar suits were subsequently filed in Minnesota and Texas.
The Labor-Management Reporting and Disclosure Act (LMRDA) of 1959, as interpreted by previous administrations, required businesses to file reports whenever they hired consultants to "directly persuade" employees. But spending on "indirect persuasion" didn't have to be revealed.
A consultant could be paid to write anti-union talking points and the transaction could remain secret as long as management -- instead of the outsider -- was the one reading the message to employees.
Under the new rules, that type of indirect persuasion would also be subject to disclosure.
The plaintiffs in the initial case are the Associated Builders and Contractors of Arkansas, Associated Builders and Contractors Inc., the Arkansas State Chamber of Commerce/Associated Industries of Arkansas, the Arkansas Hospitality Association Inc., the National Association of Manufacturers, the Coalition for a Democratic Workplace and the law firm of Cross, Gunter, Witherspoon & Galchus P.C. The defendants are Labor Secretary Thomas E. Perez as well as Michael J. Hayes, director of the department's Office of Labor-Management Standards.
They maintain that the new rules violate their First Amendment rights of free speech and association. They say the rule would undermine attorney-client privilege, noting that it doesn't include a blanket exemption for communications between businesses and their attorneys.
They also argue that the rule goes beyond the scope of the 1959 law, contradicts its plain language and disregards the intent of the congressmen who crafted it. In addition, they say the law -- which carries potential criminal penalties -- is too vague and ambiguous to enforce.
They're seeking a preliminary injunction to block the rules, which were published March 24 and are scheduled to take effect April 25.
In a two-page overview, the Labor Department says the old rules "created a huge loophole where employers could hire consultants to create materials, strategies, and policies for organizing campaigns -- and could even script managers' communications with employees -- without disclosing anything. ... Workers weren't getting important information about who was behind the message that they were receiving."
Under the updated rule, the Labor Department would have to be notified whenever consultants:
"1) Plan, direct, or coordinate managers to persuade workers;
2.) Provide persuader materials to employers to disseminate to workers;
3.) Conduct union avoidance seminars; and
4.) Develop or implement personnel policies or actions to persuade workers."
Labor Department officials insist the change is needed.
"Workers should know who is behind an anti-union message. It's a matter of basic fairness," Perez said last week.
Randy Zook, president and chief executive officer of the Arkansas Chamber of Commerce, said the new rule is designed to assist organized labor and undercut private businesses.
"Without question it clearly is a very aggressive move to try to tilt the playing field and tilt the playing field in favor of the unions. It's clearly an effort in that regard. It's the only way we can interpret it," he said.
A Labor Department spokesman declined to respond, saying "we cannot comment on the lawsuit."
If the rule revisions are allowed, businessmen and the attorneys who assist them "could be facing jail time and a fine based upon an ambiguous definition and that's just unconstitutional. Straight out," said J. Bruce Cross of Cross, Gunter, Witherspoon and Galchus.
In addition, speech that is legal for union organizers would be illegal for union opponents, he said.
"I'm sure unions have pressed for something like this. ... It's certainly to their advantage," Cross added.
The proposed restrictions are tough, "especially for small businesses. They don't know. They don't deal with this stuff regularly. They're having a hard time just making their payroll, making sure they're trying to make a profit and maybe grow their business. That's the vast majority of businesses in the state of Arkansas, let alone the country."
The Arkansas lawsuit, thus far, has received backing from a couple of major national business organizations.
Asked why her group had chosen to sue in Little Rock, Associated Builders and Contractors Vice President Donna Reichle said there's already case law in Arkansas that bolsters their arguments.
"The Arkansas federal court previously decided a very important case on the meaning of the advice exemption that led to a holding by the Eighth Circuit Court of Appeals flatly contradicting the faulty reasoning underlying the new Rule. Under the Eighth Circuit's decision, DOL's new rule plainly violates the LMRDA," she wrote in an email.
Zook said the new rule is "really an overreach" by the Labor Department.
"There's nothing more critical to the success of just about any business I can imagine than having a good solid relationship between management and the employees of a business. A lot of people, for reasons good and valid, prefer to operate without the third party involvement of a labor union," he said.
Others say the new rule is an improvement.
Craig Holman, an official with Public Citizen, said the disclosure rule is similar to the disclosure requirement on campaign donations and on lobbyist activities.
"It just provides workers with more information on how to judge the merits of the messages they're receiving. ... It's a reasonable disclosure step," Holman said.
Critics are overstating the impact of the change, he said. "It's not going to end the world for either side -- union or corporation. It just helps enlighten workers so that they can make up their own minds."
Business on 04/02/2016