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Trump Administration Ends Flawed and Costly Labor Rule

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Trump Administration Ends Flawed and Costly Labor Rule

July 24, 2018

The Department of Labor has rescinded the harmful and unnecessary persuader rule put in place by the Obama administration in 2016. 

The persuader rule would have forced employers to report to the Labor Department all contact with attorneys regarding labor-related matters. Those attorneys would have been required to report all other labor-related clients and the amounts that those clients paid them. Both are a violation of attorney-client privilege. 

Employers never had to comply with the rule because a preliminary injunction was issued in June 2016, before it was due to go into effect. In November 2016, U.S. District Judge Sam R. Cummings permanently blocked the rule and the Trump administration did not appeal his decision. Now the rule is rescinded. 

Rescission of the persuader rule reduces future compliance costs and increases potential GDP growth. When the Obama DOL proposed the rule, it estimated it would cost about $826,000 annually in compliance. However, the Department only counted the time it would take for the affected companies to fill in the forms. In reality, many more companies would have to spend resources to calculate whether they had to comply with the rule, and what information had to be entered on the forms. 

In its decision, DOL cited former Manhattan Institute Senior Fellow Diana Furchtgott-Roth’s estimates as an example of a comprehensive cost analysis of the rule. 

Furchtgott-Roth’s more comprehensive cost analysis concludes that the persuader rule could impose a cost between $7.5 billion and $10.6 billion in the first year, and between $4.3 billion and $6.5 billion each subsequent year. This means that the persuader rule’s cost would be enough to buy a $97 ticket to Disneyland to every one of the 58 million American children aged 3 through 17.

Rescission of the rule is a victory for the rule of law since, according to Judge Cummings, the rule compromised attorney-client privilege. A rule that requires private individuals to report and make public their contacts with lawyers on any matter blatantly violates this principle. In the landmark case Upjohn Co. v. United States (1981), the Supreme Court ruled that attorney-client privilege “extends two-way protections that cover not only the lawyer's guidance but also information provided by the client to the lawyer that assist the lawyer in offering that guidance.” 

Streamlined and straightforward regulations are essential for the rule of law and therefore for economic growth. Countries with a more efficient justice system and stronger protection of fundamental rights do better economically than those that do not enforce the rule of law. 

The Rule of Law Index of the World Justice Project measures the effectiveness of the rule of law across eight factors for more than 100 countries and scores them from 0 to 1. One of the factors is regulatory enforcement, which encompasses whether regulations are applied and enforced without improper influence, that administrative proceedings are conducted timely, that due process is respected in administrative proceedings, and that there is no expropriation of private property without adequate compensation. Taking the scores from all the countries surveyed on regulatory enforcement and their real GDP per capita in U.S. dollars shows that a 0.1 improvement in this category is associated with a nearly $10,000 increase in real GDP per capita.

Regulation.GDP

The damaging persuader rule is one of many rules ended by the Trump Administration. Executive Order 13771, issued by the president on January 30th, 2017, prohibits government agencies from proposing a regulation without identifying two other regulations to repeal. Furthermore, the order requires agencies to fully offset the cost of all new regulations by repealing others. These two provisions are reinforced by guidance from the Office of Management and Budget which set annual regulatory cost reduction goals for government agencies. 

As is the case with the persuader rule and many others, regulations frequently impose a large burden on Americans with little benefit. The Trump Administration should build on the current momentum to work even faster to repeal more costly and unnecessary regulations, increasing opportunities for all Americans.

Daniel Di Martino is a contributor to Economics 21. Follow him on Twitter @DanielDiMartino

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