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Employment & labor law Solutions Worldwide M

January 26, 2016

Littler Mendelson, PC 650 California Street 20th Floor San Francisco, CA 94108.2693

Michael J. Lotito Co-Chair Littler's Workplace Policy Institute and Shareholder 415.677.3135 direct 415.433.1940 main 415.743.6506 fax [email protected]

VIA MAIL AND EMAIL The Honorable Howard Shelanski Administrator Office of Information and Regulatory Affairs Office of Management and Budget 725 17th Street, NW Washington, DC 20503 Re:

DOL's Failure to Comply with Executive Orders 13132 and 12988 in the Course of Proposing Persuader Advice Exemption Rule (RIN: 1215-AB79 and 1245-AA03), 7-6 Fed. Reg. 36178 (June 21, 2011)

Dear Administrator Shelanski: The Department of Labor C'DOL'~ sent its proposed persuader advice exemption rule referenced above to your office on December 7, 2015. As an executive agency, DOL must follow certain procedural requirements when formulating a proposed rule. An agency's adherence to these requirements Is of paramount. importance where, as here, its rule could effectively preempt or conflict with State law. Executive Orders 13132 and 12988 impose special consulting and drafting requirements for agencies proposing a rule that preempts or conflicts with State law. We write to express deep concern about DOL's failure to comply with these orders, and we respectfully request that the proposed rule be returned to DOL with instructions that the rule be modified to comply with these requlrements. 1 , , . By way of background, DOL's proposed rule seeks to narrow the Department's longstanding interpretation of the "advice" exemption under section 203(c) of the Labor-Management Reporting and Disclosure Act of 1959 C'LMRDA'~. The proposed rule removes the. curr~nt, bright-line objective reporting test of direct communication with employees and replaces··it with a vague subjective test involving the intent of the agreement between the employer and its attorney or consultant. There is wide concern that this rule's onerous reporting scheme and penalties will lead to a decrease in the labor-related legal services available to employers. 2 An equally serious concern is the threat that the proposed rule poses to a State's rights to regulate 1

This letter more thoroughly explains a point that we raised during the Executive Order 12866 Regulatory Review meeting last Thursday, January 21. In attendance at this meeting was the undersigned (Michael Lotito of Littler Mendelson PC), as well as James Plunkett and Ronald Bird of the U.S. Chamber of Commerce, and Larson Frisby of the American Bar Association. 2 Ninety trade organizations representing millions of employers across the United States sent a letter to your office on December 18, 2015, expressing this concern.

littler. com

The Honorable Howard Shelanski January 26, 2016 Page 2

attorneys licensed within the State and to protect its legal consumers. For example, in a State such as California, an attorney's duty of confidentiality has been statutorily codified. California Business and Professions Code section 6068(e)(1) requires an attorney "[t]o maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client." An attorney's duty to preserve the confidentiality of client information in California involves "public policies of paramount importance."3 Similarly, as the American Bar Association (''ABA'') pointed out in its September 21, 2011 comments to DOL, "the Proposed Rule is inconsistent with ABA Model Rule of Professional Conduct 1.6 dealing with 'Confidentiality of Information' and with the many binding state rules of professional conduct that closely track the ABA Model Rule." ABA Model Rule 1.6, the ABA comments further explained, "states that 'a lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent[]' or unless one or more of the narrow exceptions listed in the Rule is present.'14 In direct conflict with this duty of client confidentiality adopted by virtually every State in the country, and similar State public policies that have been codified by individual States such as California, DOL's proposed rule requires disclosure of a substantial amount of confidential information such as the identity of the client, the nature of an attorney's representation of a client, and the amount of legal fees paid by the client. If implemented as proposed, the rule could effectively preempt California law and the similar client confidentiality laws or court rules adopted by virtually all other States. Preemption of State law is something that cannot be lightly undertaken under our Federal system, which ensures a strong role for both the national government and the States. Soon after President Barack Obama assumed office in early 2009, he noted that State law and national law operate concurrently to provide independent safeguards for the public. In accordance with this recognition, President Obama announced "the general policy of my Administration that preemption of State law by executive departments and agencies should be undertaken only with full consideration of the legitimate prerogatives of the States and with a

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In re Jordan, 526 P.2d 523, 526 (cal. 1974). In accordance with california's public policies, the State of california imposes a higher duty of confidentiality on attorneys than most other States. For example, while New York Rule of Professional Conduct 1.6 allows an attorney without informing a client to disclose confidential information to prevent the client from committing a crime, california Rule of Professional Conduct 3-100 requires an attorney first to make a good faith effort to persuade a client not to commit a crime and to inform the client of the attorney's decision to reveal confidential information. 4 ABA's detailed comment letter discussing its disapproval of the proposed rule and the extent to which the proposed rule intrudes on the attorney-client relationship and undermines the lawyer's ethical duties to preserve client confidentiality under State law can be found online at: http://www .americanbar.org/contentldam/aba/ uncategorized/20 11/20 11sep21 dolpersuaderrule c.authc heckdam.pdf


sufficient legal basis for preemption.'15 President Obama instructed heads of executive agencies to be "mindful that in our Federal system, the citizens of the several States have distinctive circumstance and values, and that in many instances it is appropriate for them to apply to themselves rules and principles that reflect these circumstances and values."6 This instruction reaffirms the necessity that executive agencies comply with Executive Orders 13132 and 12988. Executive Order 13132 imposes detailed requirements for agencies proposing a rule that preempts or conflicts with State law. 7 Specifically, Executive Order 13132 requires "[a]ny regulatory preemption of State law shall be restricted to the minimum level necessary to achieve the objectives of the statute pursuant to which the regulations are promulgated." Where there is a possibility of a conflict between State law and Federal interests, the agency must "consult, to the extent practicable, with appropriate State and local officials in an effort to avoid such a conflict." Executive Order 13132 additionally requires that an agency proposing to act through rulemaking to preempt State law must "provide all affected State and local officials notice and an opportunity for appropriate participation in the proceedings." In line with these requirements, Executive Order 12988 requires that an agency formulating a proposed regulation make every reasonable effort that a proposed rule "specifies in clear language the preemptive effect, if any, to be given to the law.'18 Despite the direct conflict that DOL's proposed rule has with California's codified duty of confidentiality and the similar client confidentiality laws or court rules adopted by virtually all other States, DOL has made no effort to restrict the rule to the minimum level necessary to achieve LMRDA's objectives. Before sending the proposed rule to your office, DOL to our knowledge did not consult with the appropriate State officials to avoid this conflict. Nor did it specifically provide State officials with the appropriate notice and opportunity to participate in the rulemaking proceedings; DOL's mere passive receipt of public comments on the proposed rule was insufficient, given the threat the rule poses to California's rights to regulate Californialicensed attorneys and to protect its legal consumers, as well as to the similar rights of all other States to regulate the attorneys they license and to protect legal consumers in those States. The proposed rule also does not articulate the preemptive effect to be given to the rule. As such, DOL violated the procedural requirements of Executive Orders 13132 and 12988. If DOL's rule as proposed were to be finalized, this action would in effect endorse future violations of such procedural requirements. Accordingly, we respectfully request that the proposed rule be returned to DOL, along with instructions that DOL modify and correct the rule to comply with these requirements.

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Preemption: Memorandum for the Heads of Executive Departments and Agencies, 74 Fed. Reg. 24693, 24693 (May 20, 2009). 6 Ibid 7 Executive Order No. 13,132, 64 Fed. Reg. 43255 (Aug. 4, 1999). Section 4 of this order enumerates the "Special Requirements for Preemption." Id. at 43257. 8 Executive Order No. 12,988, 61 Fed. Reg. 4729, 4731 (Feb. 7, 1996).


Thank you for your attention to this matter. Please do not hesitate to contact us with any questions.

Sin~ Michael J. Lotito Co-Chair Littler's Workplace Policy Institute and Shareholder cc:

The Honorable Lamar Alexander Chairman, Senate Committee on Health, Education, Labor, and Pensions 428 Senate Dirksen Office Building Washington, DC 20510 The Honorable John Kline Chairman, House Committee on Education and the Workforce 2176 Rayburn House Office Building Washington, DC 20515 The Honorable Phil Roe Chairman, House Subcommittee on Health, Employment, Labor, and Pensions House Committee on Education and the Workforce 2176 Rayburn House Office Building Washington, DC 20515 Molly Elizabeth Conway Labor and Pensions Counsel, U.S. Senate 835 Hart Senate Office Building Washington, DC 20510 molly [email protected] Ed Gilroy Director of Workforce Policy, Committee on Education and the Workforce 2181 Rayburn House Office Building Washington, DC 20515 [email protected] James Plunkett Director, Labor Policy U.S. Chamber of Commerce 1615 H Street, NW


Washington, DC 20062 [email protected] Ronald Bird Senior Regulatory Economist U.S. Chamber of Commerce 1615 H Street, NW Washington, DC 20062 [email protected] R. Larson Frisby Associate Director of Governmental Affairs American Bar Association 740 15th Street, NW Washington, DC 20005 Larson. Frisby@americanbar .orq