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The honeymoon is over. Just last month, Elaine Chao smoothly danced around questions about labor-management disputes during her confirmation hearings, avoiding answers that would squarely plant her in one camp or the other. Now that she is secretary of labor, Chao has to choose sides. And her first big test comes thanks to an 11th hour maneuver by the Clinton administration that has sparked the ire of companies and their lawyers. In an unheralded move last month, the Labor Department issued a new interpretation of its rules for law firms and consultants who help company management fight union drives. Under the new guidelines, anyone — including a lawyer — who produces documents and other materials to help a management client in an ongoing labor dispute will be required to disclose to the federal government the names of all management-side clients, and the money the firm has been paid to represent them. Willful failure to disclose could carry criminal penalties. Under a previous interpretation of the rules, law firms representing management were effectively exempt from such disclosures. Organized labor, which asked the Clinton administration to review the rule, is fully behind the new interpretation, saying it will cut down on behind-the-scenes abuses by outside consultants and law firms brought in to “bust a union.” “We think it is the interpretation that is correct,” says Larry Gold, associate general counsel of the AFL-CIO. “It lifts a veil on an arrangement that employers take great pains to keep secret.” But corporations and management-side attorneys are howling. Unconsulted and taken unawares by the interpretation released on Jan. 11, they are livid about what they see as an infringement on the shielded relationship between attorney and client. They already are fighting to get the interpretation pulled as soon as possible. “You are putting law firms and clients in this incredible position of not being able to give and receive legal advice,” says Lawrence Lorber, a former GOP Labor Department official and a partner in the Washington, D.C., office of New York’s Proskauer Rose. Harold Coxson, a partner in the D.C. office of South Carolina’s Ogletree, Deakins, Nash, Smoak & Stewart, is spearheading the formation of a coalition of law firms and business associations to shoot down the new interpretation. No matter how Chao and the department come down on the issue, they are likely to face a fight. If the Labor Department doesn’t change the interpretation, it may face a legal challenge from lawyers saying it violates attorney-client privilege. If it does change course, unions may sue the department for improperly interpreting and enforcing the law. “I think at some point this will be up to a judge to decide,” says Jonathan Hiatt, general counsel of the AFL-CIO. “I think [the Bush administration] will have an easy time deciding to change it themselves — whether it will stick is another thing.” SPIRIT OF ’59 The Labor-Management Reporting and Disclosure Act of 1959 requires unions to file reports with the Labor Department that reveal how much money the union collects in dues, where it is spent, and what union officers are paid. Disclosure requirements on employers have been less strenuous. Management must disclose financial arrangements with outside consultants or lawyers who help them persuade their own employees not to join a union. Those disclosures also apply to consultants or lawyers who perform certain types of work in connection with a collective bargaining agreement or labor dispute. Those consultants must also file reports, documenting how much they were paid by the client and how much money their company makes providing labor-management services. For most of the law’s history, the disclosure rules were interpreted rather narrowly by the Department of Labor. Only management consultants brought in to address company employees directly about the drawbacks of unions were required to file financial disclosures. Traditionally, most law firms avoided engaging in that kind of activity because they did not want to open their books. Unions have long chafed at the Labor Department’s view. In a union campaign, it is not uncommon for the company to use the disclosed information to rail against the unions and its paid organizers. Organizers’ salaries are publicized by the companies as evidence that the union is really only interested in getting workers’ dues, according to union members. To counter these revelations, union organizers have long wanted to be able to publicize information on what the company is paying outside lawyers and consultants to block the union. “It’s important because working people are more often than not shocked when they find out their employer is spending tens of thousands — if not hundreds of thousands — of dollars to retain companies whose sole purpose is to create dissension, lie, break the law, and raise tension in the workplace,” says Chris Townsend, political action director of the United Electrical, Radio, and Machine Workers of America. The new interpretation, which is widely viewed among employers and law firms as a Clinton sop to Big Labor, significantly narrows the advice exemption that protects companies, especially law firms, from having to file financial disclosures. Law firms now frequently draft memos, letters, and speeches, and prepare videotapes for their clients, helping them convey a message that questions the benefits of a union. Under the new rules, attorneys will no longer be able to prepare such material. “Often the first drafts are written by the attorney because there are so many traps,” says Dannie Fogleman, senior counsel in the D.C. office of Atlanta’s Ford & Harrison. “It’s easier to let the attorney draft it and then let the employer look at it. Now, of course, that would be a reportable activity.” Advice will now have to be limited to reviewing drafts the client writes, or else counsel will be required to report their firm’s financial details. That, say the lawyers, is not going to happen. ‘A HUGE CHILLING EFFECT’ If the new interpretation stays in place, firms will back off providing certain services to their clients, says Peter Chatilovicz, managing partner of the D.C. office of Chicago’s Seyfarth Shaw. “It has a huge chilling effect on all the law firms who engage in this work,” he says. “It’s a firm policy — we do not want to engage in persuader activities. We don’t want to disclose that information.” Right now, most firms are uncertain as to whether the rule will go in effect in February, as slated. It is unclear if President George W. Bush’s 60-day moratorium on implementing regulations passed in the waning days of the Clinton administration is applicable, since the new interpretation does not constitute a formal regulation. A Labor Department spokeswoman declines comment. But lawyers familiar with the issue say implementation will likely be postponed. When a new head of the Employment Standards Administration — the part of the Labor Department that issued the interpretation — or a solicitor of labor is appointed, either could review the interpretation. If the Labor Department doesn’t pursue violators of the new interpretation, it would be effectively null. But that might prove a risky strategy, because a union or other group could sue the department to make it enforce its own regulations and interpretations. “The new administration is coming in — we just have to wait and see what they will do,” says Coxson. Organized labor is sure the Bush administration will want to dismantle it. “I would hope they would take a long, hard look at it and not make any precipitous changes,” says Peter Ford, assistant general counsel for the United Food and Commercial Workers Union. “Realistically, I am not overly optimistic that they are going to leave it alone.” But they are promising to battle for the interpretation, making it as difficult as possible for the administration to do away with it. “We will see,” says Gold of the AFL-CIO. “It’s not so clear to me that this can be retracted so easily.”

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