Labor Organization Annual Financial Reports, Forms LM-2, LM-3,
LM-4.
[01/26/2007]
Volume 72, Number 17, Page 3735-3742
[[Page 3735]]
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DEPARTMENT OF LABOR
Office of Labor-Management Standards
29 CFR Part 403
RIN 12157-AB34
Labor Organization Annual Financial Reports, Forms LM-2, LM-3,
LM-4.
AGENCY: Office of Labor-Management Standards, Employment Standards
Administration, Department of Labor.
ACTION: Policy statement; interpretation.
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SUMMARY: On December 22, 2002, the Department of Labor (Department)
proposed revisions to Forms LM-2, LM-3, and LM-4, which are used by
labor organizations to file annual financial reports required under
Title II of the Labor-Management Reporting and Disclosure Act of 1959
(LMRDA or Act), 29 U.S.C. 401 et seq., with the Employment Standards
Administration's Office of Labor-Management Standards (OLMS). A portion
of the proposed rule stated the Department's intent to revise its
interpretation of an aspect of the definition of ``labor organization *
* * deemed to be engaged in an industry affecting commerce'' under the
LMRDA. After receiving and considering comments, the Department
published its final rule on October 9, 2003.
The interpretation in the final rule stated that intermediate
bodies that are subordinate to a national or international labor
organization that includes a labor organization will be covered by the
LMRDA, even if the intermediate body's constituents are solely public
sector local labor unions not covered by the Act. This interpretation
of the LMRDA was challenged in federal district court by labor unions
affected by the interpretation, and the court granted summary judgment
in favor of the labor unions. Alabama Education Ass'n v. Chao, 2005 WL
736535 (D.D.C. Mar 31, 2005). On appeal, the U.S. Court of Appeals for
the District of Columbia Circuit reversed the grant of summary
judgment. Alabama Education Ass'n v. Chao, 455 F.3d 386 (D.C. Cir.
2006). The court of appeals held that the Department's interpretation
was reviewable under deference principles established under Chevron
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984), and that the statutory definition of ``labor organization * * *
deemed to be engaged in an industry affecting commerce'' is ambiguous
and subject to more than one permissible interpretation, including the
Department's interpretation. 455 F.3d at 393, 396. The court also
concluded, however, that the Department had failed to provide a
``reasoned analysis supporting its change of position'' and remanded
the rule to the Department to provide such analysis. Id. at 396-397.
The Department issues this Policy Statement in response to the court's
remand order.
DATES: Effective Date: January 26, 2007.
FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director, Office of
Policy, Reports, and Disclosure, Office of Labor-Management Standards
(OLMS), U.S. Department of Labor, 200 Constitution Avenue NW., Room N-
5605, Washington, DC 20210, olms-public@dol.gov, (202) 693-1233 (this
is not a toll-free number). Individuals with hearing impairments may
call 1-800-877-8339 (TTY/TDD).
SUPPLEMENTARY INFORMATION:
Statutory and Regulatory Background
Congress enacted the LMRDA after an extensive investigation of
``the labor and management fields * * * [found] that there ha[d] been a
number of instances of breach of trust, corruption, disregard of the
rights of individual employees, and other failures to observe high
standards of responsibility and ethical conduct.'' 29 U.S.C. 401(b).
Congress intended the Act to ``eliminate or prevent improper
practices'' in labor organizations, to protect the rights and interests
of employees, and to prevent union corruption. 29 U.S.C. 401(b), (c).
As part of the statutory scheme designed to accomplish these goals,
Congress required labor organizations to file annual financial reports
with the Secretary of Labor. 29 U.S.C. 431(b). Congress sought full and
public disclosure of a labor organization's financial condition and
operations in order to curb embezzlement and other improper financial
activities by union officers and employees. See S. Rep. No. 86-187
(1959), reprinted in I NLRB, Legislative History of the Labor-
Management Reporting and Disclosure Act of 1959, at 398-99. Under the
Act, labor organizations must file reports containing information such
as assets, liabilities, receipts, salaries, loans to officers,
employees, members or businesses and other disbursements ``in such
detail as may be necessary accurately to disclose [their] financial
condition and operations for [the] preceding fiscal year.'' 29 U.S.C.
431(b).
``Labor organizations'' subject to the financial reporting
requirements of the LMRDA are defined in the Act. Section 3(i) of the
LMRDA , 29 U.S.C. 402(i), defines a ``labor organization'' as (1) any
organization ``engaged in an industry affecting commerce * * * in which
employees participate and which exists for the purpose, in whole or in
part, of dealing with employers concerning grievances, labor disputes,
wages, rates of pay, hours, or other terms or conditions of
employment,'' or (2) ``any conference, general committee, joint or
system board, or joint council so engaged which is subordinate to a
national or international labor organization other than a State or
local central body.'' The first clause of Section 3(i) applies to
entities that exist, at least in part, to deal with employers
concerning terms and conditions of employment. The second clause of the
definition applies to conferences, general committees, joint or system
boards or joint councils--entities that are known as ``intermediate''
labor organizations. See 29 CFR 451.4(f).
Section 3(j) of the LMRDA, 29 U.S.C. 402(j), sets forth the
circumstances under which labor organizations will be ``deemed to be
engaged in an industry affecting commerce'' under the Act. In
particular, Section 3(j)(5) of the Act provides that an intermediate
labor organization is deemed ``engaged in an industry affecting
commerce'' if it is ``a conference, general committee, joint or system
board, or joint council, subordinate to a national or international
labor organization, which includes a labor organization engaged in an
industry affecting commerce within the meaning of any of the preceding
paragraphs of this subsection, other than a State or local central
body.'' 29 U.S.C. 402(j)(5).
Although ``employer'' is defined broadly in the Act, the United
States, States and local governments are expressly excluded from this
definition. 29 U.S.C. 402(e). Thus, an organization is not covered
under the first clause of Section 3(i), which requires that the
organization deal with a statutory ``employer,'' if it deals only with
federal, state or local governments. However, an ``organization''
covered by the second clause of the definition (a ``conference, general
committee, [etc.] subordinate to a national or international'') need
not deal with employers at all. 29 U.S.C. 402(i). Instead, such an
intermediate labor body is covered by the Act so long as it is
subordinate to a national or international labor organization and is
``engaged in an industry affecting commerce.'' Id.
The LMRDA authorizes the Department to promulgate rules and
regulations to enforce the Act's financial reporting requirements.
Under the Act,
[[Page 3736]]
Congress broadly delegated authority to the Secretary ``to issue,
amend, and rescind rules and regulations prescribing the form and
publication of reports required to be filed under this subchapter and
such other reasonable rules and regulations * * * as [s]he may find
necessary to prevent the circumvention or evasion of such reporting
requirements.'' 29 U.S.C. 438; American Fed'n of Labor and Congress Of
Indus. Orgs. v. Chao, 409 F.3d 377, 386 (D.C. Cir. 2005) (``[t]here is
no serious dispute'' that Congress ``delegated authority to the
Secretary to promulgate rules to enforce Section 208 [29 U.S.C.
438]''). The Secretary also has express authority to enforce the Act's
reporting requirements by initiating a civil action. 29 U.S.C. 440. The
Department's interpretation of Section 3(j)(5), which ``clarifies the
meaning of `labor organization * * * engaged in an industry affecting
commerce[,] * * * comes within its express authority in Sec. 208 to
promulgate rules'' under the LMRDA. Alabama Education, 455 F.3d at 393.
The Department's LMRDA Rulemaking
The Department issued a Notice of Proposed Rulemaking on December
27, 2002, that proposed revisions to the forms labor organizations use
to file annual financial reports required by the LMRDA. Labor
Organization Annual Financial Reports, 67 FR 79,280 (Dec. 21, 2002)
(NPRM). As part of this rulemaking, the Department stated its intent to
modify its interpretation of Section 3(j)(5). As noted, the Section
provides that an intermediate labor organization is deemed ``engaged in
an industry affecting commerce'' if it is:
A conference, general committee, joint or system board, or joint
council, subordinate to a national or international labor
organization, which includes a labor organization engaged in an
industry affecting commerce within the meaning of any of the
preceding paragraphs of this subsection, other than a State or local
central body.
Before the December 2002 NPRM, the Department interpreted the
clause, ``which includes a labor organization engaged in an industry
affecting commerce within the meaning of any of the preceding
paragraphs of this subsection, `` in Section 3(j)(5) as modifying
``conference'' and other listed intermediate bodies. Under that
interpretation, Section 3(j)(5) applied only to intermediate bodies
that were subordinate to a national or international labor organization
and were themselves composed, in whole or in part, of private sector
local labor organizations.
In contrast, in the NPRM's proposed interpretation, the ``which
includes'' clause, modifies ``national or international labor
organization.'' Under this interpretation, intermediate labor bodies
need not themselves include private sector members to be covered under
the LMRDA; rather, they need only be subordinate to a national or
international labor organization that includes a union that represents
private sector workers.
The Department's prior interpretation of Section 3(j)(5) came into
question following the decision in Chao v. Bremerton Metal Trades
Council, 294 F.3d 1114 (9th Cir. 2002). In Bremerton, the Ninth Circuit
held that the Bremerton Metal Trades Council (``BMTC''), a joint
council, met the LMRDA definition of ``labor organization'' because it
was subordinate to the Metal Trades Department, an international labor
organization engaged in an industry affecting commerce. Bremerton, 294
F.3d at 1118. In so holding, the court relied on the fact that the BMTC
was subordinate to a parent organization that met the LMRDA definition
of ``labor organization.'' Id. The court reasoned that ``[w]e must
decide not whether the Bremerton Council bargains directly with any
private employers but, instead, whether the Metal Trades Department,
the organization to which the Bremerton Council is subordinate, is
engaged in an industry affecting commerce.'' Id. at 1117. Thus, in
contrast to the Secretary's interpretation at the time, Bremerton
adopted an analysis under Section 3(j)(5) that looked not to the
composition of the intermediate body itself, but rather to whether the
national or international to which it is subordinate is engaged in an
industry affecting commerce.
The Bremerton case brought to the Department's attention an
alternate view of the meaning of the ``which includes'' clause in
Section 3(j)(5). In the 2002 NPRM, the Department proposed to revise
its instructions on financial reports for labor organizations to
include this interpretation of Section 3(j)(5), reflecting Bremerton's
analysis. See NPRM, 67 FR 79,284 (proposing to adopt a rule that ``an
intermediate labor organization that has no dealings itself with
private employers and no members who are employed in the private sector
may nevertheless be a labor organization engaged in commerce * * * if
[it] is `subordinate to a national or international labor organization
which includes a labor organization engaged in commerce.''')
Following a 90-day comment period, the Department on October 9,
2003, issued its final rule dealing with labor organization reporting
requirements, in which it adopted the revised interpretation of Section
3(j)(5). Labor Organization Annual Financial Reports, 68 FR 58374 (Oct.
9, 2003) (Final Rule). In the preamble to the Final Rule, the
Department addressed comments from three labor organizations--the
National Education Association (NEA), the American Federation of
Teachers (AFT) and the AFL-CIO--each of which opposed the Department's
interpretation of Section 3(j)(5). The Department concluded that the
comments opposing the Department's interpretation failed to provide a
persuasive argument supporting the Department's return to its pre-2002
view of the ``which includes'' clause of Section 3(j)(5).
After being notified by OLMS of the Department's revised
interpretation of Section 3(j)(5), and the corresponding need to file
reports, 38 intermediate labor organizations representing public sector
employees, primarily public school teachers, challenged the new
interpretation in federal district court. The court granted summary
judgment in favor of the plaintiff labor organizations. Alabama
Education Ass'n v. Chao, 2005 WL 736535 (D.D.C. Mar. 31, 2005). The
Department appealed that decision, and the U.S. Court of Appeals for
the D.C. Circuit, reversed the lower court's ruling. Alabama Education
Ass'n v. Chao, 455 F.3d 386 (2006). The court of appeals held that the
Department has statutory authority ``to clarif[y] the meaning of `labor
organization * * * engaged in an industry affecting commerce' '' and
thus the Secretary's interpretation of Section 3(j)(5) is ``reviewable
under Chevron'' principles of deference. 455 F.3d at 393. The court
further ruled that Section 3(j)(5)'s ``which includes'' clause contains
a ``patent ambiguity'' and that the Secretary's interpretation was a
permissible interpretation of the provision's terms. 455 F.3d at 395,
396; see also id. at n. * (LMRDA legislative history confirms
``inherent ambiguity of the statute'').
The court, however, further concluded that the Department had
failed to provide a ``reasoned analysis'' for its change of position
``sufficient to command [the court's] deference under Chevron.'' 455
F.3d at 396. The court noted that the Department failed to link
specifically the general policy concerns underlying the financial
reporting revisions in the final rule, (i.e., changes in union size,
financing and structure, and resulting financial irregularities, 67 FR
79,280), with an assessment of the Department's new and prior
interpretations of Section 3(j)(5). 455
[[Page 3737]]
F.3d at 396-397. The court also noted that the Department had unduly
relied on the Bremerton decision, without acknowledging that because
the intermediate body in that case contained private sector members,
the decision's holding did not contribute to the required reasoned
analysis. Id. at 397. Accordingly, the court remanded the rule to the
Department to provide a reasoned explanation for its change in
interpretation.
That analysis is set forth below.
Explanation for the Department's Revised Interpretation of Section
3(j)(5)
The Department's revised interpretation of the statute broadens the
coverage of intermediate labor organizations subject to the reporting
requirements of the LMRDA.
The result of this interpretation is that intermediate bodies that
are subordinate to a national or international labor organization that
includes a covered labor organization will be covered by the LMRDA,
even if the intermediate body is composed of solely public sector local
labor unions not covered by the Act. The rulemaking record as a whole
suggested several reasons in support of the Department's adoption of
this policy, and those reasons will be further explained and analyzed
here.
The Department's 2002 NPRM supported its regulatory revisions to
labor organizations' financial reporting requirements with the
following analysis:
Labor organizations also have changed tremendously since the
enactment of the LMRDA in 1959. There are now far fewer small,
independent unions and more large unions affiliated with a national
or international body * * *. In fact, many large unions today
resemble modern corporations in their structure, scope and
complexity. Moreover, just as in the corporate sector, there have
been a number of financial failures and irregularities involving
pension funds and other member accounts maintained by labor
organizations. These failures and irregularities result in direct
financial harm to union members. If the members of labor
organizations had more complete, understandable information about
their unions' financial transactions, investments and solvency, they
would be in a much better position than they are today to protect
their personal financial interests and exercise their democratic
rights of self-governance.
NPRM, 67 FR at 79,280-81.
In addition, regarding the Department's view of Section 3(j)(5),
the NPRM stated:
The instructions to form LM-2 adopt the recent holding of the
U.S. Court of Appeals for the Ninth Circuit in Chao v. Bremerton
Metal Trades Council, AFL-CIO, 294 F.3d 1114 (2002), interpreting
Section 3(j) of the LMRDA, because that interpretation gives full
meaning to the plain language of the statute. In that case, the
Court ruled that an intermediate labor organization that has no
dealings itself with private employers and no members who are
employed in the private sector may nevertheless be a labor
organization engaged in commerce within the meaning of Section 3(j)
of the LMRDA if the intermediate body is ``subordinate to a national
or international labor organization which includes a labor
organization engaged in commerce.'' Accordingly, the Instructions
will clarify that any ``conference, general committee, joint or
system board, or joint council'' that is subordinate to a national
or international labor organization will be required to file an
annual financial form if the national or international labor
organization is a labor organization engaged in an industry
affecting commerce within the meaning of Section 3(j) of the LMRDA.
NPRM, 67 FR 79,280, 79,284.
The Department's 2003 Final Rule provided the following support for
its policy revision:
The stated intent of Congress was to exempt ``wholly public
sector'' labor organizations from the coverage of the Act. The
Bremerton court found that an intermediate labor organization is not
``wholly public sector'' and exempt from the Act where it is
subordinate to a parent organization that meets the definition of a
labor organization engaged in an industry affecting commerce. The
Department's regulation at 29 CFR 451.3(a)(4) is not contrary to the
Bremerton decision when the regulation is read as giving effect to
the court's interpretation of the term ``wholly public sector labor
organization.'' The Department concludes that none of the commenters
provides a persuasive argument for disagreeing with the Bremerton
court's reading of the statute and therefore will maintain the
expanded language in the instructions for the Form LM-2.
Final Rule, 68 FR 58,374, 58,384.
These excerpts from the rule-making record establish a foundation
for the Department's explanation of its policy choice, and point to
three interdependent rationales for the adoption of the revised
interpretation. First, the Department has selected a policy alternative
that is consistent with the terms of the statute and promotes
Congress's purposes in enacting the LMRDA. The Department's
interpretation of Section 3(j)(5) advances the twin Congressional goals
that labor organizations' financial conditions and operations should be
subject to public disclosure to benefit employees that participate in
those organizations, and that the definition of ``labor organizations''
covered by the LMRDA should be interpreted broadly to advance union
democracy, financial transparency, and integrity. Second, the expanded
coverage permitted by the new interpretation promotes disclosure of
financial disbursements and receipts to and from structurally related
labor organizations, thus enhancing employees' ability to understand
the overall operation of labor organizations in general, as well as
identify any potential financial irregularities in particular. The
structure and financial aspects of labor organizations have become
increasingly complex in the nearly fifty years since the passage of the
LMRDA. Unlike several decades ago, when small, independent unions
predominated, there are now large, multi-level, multi-faceted labor
organizations, most of which are affiliated with large and complex
national or international labor organizations. In addition, many labor
organizations have restructured and reorganized their affiliate
relationships, rendering a single labor organization report
insufficient to provide transparency to increasingly complex structures
and relationships.
Third, and most importantly, the revised interpretation gives full
meaning to clause two of Section 3(i), 29 U.S.C. 402(i), which has at
its core a focus on covering those intermediate bodies precisely
because they are subordinate to a covered national or international
labor organization even though they may consist only of unions not
covered under the first clause of 3(i). The interpretation advances
public disclosure of financial transactions by intermediate bodies that
receive money from covered national and international labor
organizations, the source of which is, in part, fees and assessments
originating from employees in the private sector. Thus, the so-called
``wholly public sector'' intermediate body loses that attribute to a
great extent (despite its composition) when it is subordinate to, and
accepting contributions from, covered national and international labor
organizations whose funds are derived, in part, from employees in the
private sector.
As the court of appeals noted, these bases for the revised
interpretation were not fully explained in the prior rulemaking, and we
now elaborate upon them in greater detail.\1\
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\1\ In the preamble to the 2003 final rule, the Department
reviewed and responded to all comments regarding the Department's
interpretation in the final rule. As explained in the preamble, the
Department received only five comments on its interpretation,
including one from a supportive union member and one from a labor
organization that employed a mistaken premise that the
interpretation would require state or local central bodies to file
financial disclosure forms. 68 FR 58,383-58,384. Taken together, the
remaining three comments from three labor organizations challenged
the interpretation on three grounds: (1) The Department did not have
the statutory authority to undertake the revised interpretation; (2)
the Department's construction of the statutory terms was erroneous,
and resulted in the coverage of intermediate labor organizations
that are purely public-sector labor organizations and exempt from
the definitional provisions of the Act; and (3) the intermediate
bodies to which the Act would apply are not ``subordinate'' to a
national or international labor organization within the meaning of
the Act. After full consideration the Department determined that
none of the comments resulted in a determination that the
interpretation was either legally flawed, an erroneous construction
of the statute, or misguided public policy. 68 FR 58,383-58,384. The
Department has once again fully reviewed and reconsidered these
comments prior to publication of this Policy Statement, and the
conclusion expressed in the 2003 preamble remains unaltered.
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[[Page 3738]]
1. Consistency With the Terms and Purpose of the LMRDA
As noted above, in enacting the LMRDA, Congress intended to
``eliminate or prevent improper practices'' in labor organizations,
protect the rights and interests of employees, and prevent union
corruption. 29 U.S.C. 401(b), (c). To curb embezzlement and other
improper financial activities of labor organizations, Congress required
labor organizations to file detailed annual financial reports with the
Secretary of Labor. 29 U.S.C. 431(b). The reporting provisions of the
LMRDA were devised to implement the basic premise of the LMRDA--that
the Act was intended to safeguard democratic procedures within labor
organizations and protect the basic democratic rights of union members.
By mandating that labor organizations disclose their financial
operations to employees they represent, Congress intended to promote
union self-government, which would be advanced because union members
would be provided sufficient information to permit them to take
effective action in regulating internal union affairs.
The LMRDA is a remedial statute, necessary to impose high standards
and ethical conduct in the administration of internal union affairs.
Wirtz v. Local 153, Glass Bottle Blowers Assn., 389 U.S. 463, 469-470
(1968). In addition, Congress intended the definition of labor
organization to be construed broadly to achieve the Act's purposes.
Donovan v. National Transient Div., Int'l Bhd. of Boilermakers, 736
F.2d 618, 621 (10th Cir. 1984), cert. denied, 469 U.S. 1107 (1985). In
order to fully effectuate and serve the remedial purposes of the Act
noted above, the Department seeks to interpret the definitional
sections of the LMRDA broadly ``to include all labor organizations of
any kind other than those clearly shown to be outside the scope of the
Act.'' 29 CFR 451.2 (2006).
The Department's pre-2002 interpretation of Section 3(j)(5) did not
fully serve Congressional intent that the statute's definition be read
broadly, nor did it serve the remedial purposes of the LMRDA. Employees
concerned about payments to and from intermediate labor organizations
subordinate to a covered national or international labor organization
did not have access to the quality and quantity of information
available to members of unions that have historically filed the
Department's annual disclosure forms. Absent such disclosures, union
members know less about the governance of their unions and are thereby
frustrated by their inability to monitor the spending of their dues
monies because they are not fully aware of the financial commitments
and obligations of their union. They are disadvantaged in their ability
to make informed decisions when electing their union officers because
they do not have detailed information about the funding decisions made
by incumbent officeholders. In contrast, members of unions that file
the financial disclosure forms have a tool that can help them detect
fraud and embezzlement. Officers and employees of such unions are
deterred from committing such misconduct because they understand that
their unions' financial transactions are recorded, reported, and made
publicly available on the Internet. Employees concerned about the
expenditures of intermediate unions that did not report as the result
of the Department's prior policy have been denied the benefits that
flow from the increased transparency that compliance with the LMRDA
brings, including more effective member participation in union
decision-making, more informed voters, and the deterrence and detection
of fraud. If all intermediate bodies subordinate to LMRDA-covered labor
organizations are not themselves covered by the LMRDA, union
transparency is diminished and misdeeds will be more difficult to
discover.
2. Structural and Financial Complexity of Labor Organizations
The Department's NPRM noted that ``many large unions today resemble
modern corporations in their structure, scope and complexity.'' NPRM,
67 FR at 79,280. Indeed, ``commercial organizations and unions still
share many structural features of complex organizations. In most
industrial nations, unions as labor organizations have developed from
small, voluntary associations, to larger, more formal bureaucracies.
With the formation and expansion of large scale industrial unions, the
structure of labor organizations has shifted from that of informal
communities of workers to more centralized, hierarchical, and rational
bureaucracies.'' Julian Barling, Clive Fullagar & E. Kevin Kelloway,
The Union and Its Members 13 (Oxford University Press 1992).
In a unionized workplace, employees may be members of a local labor
organization, which represents employees with respect to terms and
conditions of employment at that particular workplace. That local union
is typically chartered by a national union, which in turn may be
affiliated with a national federation of unions. In addition, there are
city and state federations of labor organizations, international
federations of labor, joint and district councils, and departments
within a national federation of unions, among others. There are many
different, but related, labor organizations that a union member must
examine in order to analyze his or her local representative's
expenditure of funds.
The interrelatedness, and resulting structural complexity, of labor
organizations has a number of causes. The need for collaboration among
and between labor organizations with shared interests, the necessity of
labor organization cohesion during times of economic strife, the need
for large-scale reform regarding certain issues, such as nation-wide
wages and hours reform, the rise in multi-city or national
corporations, and the growth of a global economy, have all contributed
to the increase in labor organization affiliation within local, central
and national labor organizations. See Sidney Lens, Unions and What They
Do 39-46 (G.P. Putnam's Sons 1968). These factors contributing to labor
organization interrelatedness and complexity have only increased in the
final decades of the twentieth century.
This growth of interconnected labor organizations has been
accompanied by a complicated pattern of relationships, including
affiliations, disaffiliations, trusteeships, federal court supervision,
and the like. For instance, in 2005, seven of the largest national and
international unions left the AFL-CIO, for many years the only national
federation of unions, and created a brand new national labor
federation. Several of the nation's largest labor organizations have
departed the AFL-CIO in the past, only to rejoin, and then depart
again. Several national or international labor organizations prefer to
remain independent from any national federation. State federations of
[[Page 3739]]
labor organizations have themselves affiliated or disaffiliated with
national organizations depending on the common or divergent interests
of those labor organizations. Labor organizations have been placed in
trusteeship, requiring management of their internal affairs by higher-
level labor organizations, and several labor organizations have been
managed for years under court supervision. The AFL-CIO itself has
departments that are groupings of international unions based on trade
or industry that affiliate specifically with those departments. A local
union member may have direct contact only with his or her local, but in
all likelihood he or she is represented, through elected or appointed
delegates, within a maze of other union structures.
The complexity of labor organization structures and relationships
may be daunting to employees represented at the workplace level by a
local labor organization. Yet the structural complexity pales in
comparison to the financial complexity created by these relationships.
Dues and fees are collected from members at the local level, and that
money is sent on to other related organizations in the form of per-
capita assessments to support an increasingly complicated,
sophisticated, and coordinated set of expenditures by related labor
organizations, including education, organizing, political action at all
levels of government, strike funds, public relations, research, legal
representation, and so on. The ability of that local union member to
follow the trail of transactions among and between labor organizations
affiliated with the local union is challenging at best.
Confronted by the structural and financial complexity of
interrelated labor organizations, a local union member is further
hindered by the fact that labor organizations are required to report
only their individual financial conditions--joint affiliate reporting
is not required by the LMRDA. As a result, a local union member
interested in ascertaining the end-point of his or her dues collected
by the local but cast into the stream of affiliate expenditures must
obtain the financial reports of the local and each affiliated labor
organization--the national or international, the state level
organization, the national federation, and any other labor
organizations affiliated directly or indirectly with the local union.
Of course, this opportunity to study and analyze one's own local union
expenditures is lost if, within the chain of affiliations, one of the
affiliates has not filed an annual financial report.
Given the increased complexity of union structures and finances,
the ability of local union members to benefit from the transparency
afforded by the LMRDA should not be diminished by a labor
organization's relationship to an intermediate body that does not
presently file annual financial reports. Such a circumstance is akin to
a parent corporation disguising its assets and expenditures by lodging
them with an undisclosed subsidiary. To avoid this scenario in the
context of labor organizations, the LMRDA should be interpreted, to the
extent permitted by the statute's terms, so that local union members
have the ability to lift the cloak of structural and financial
complexity, and fully understand the activities and expenditures of
their local unions, their local's national affiliates, and the national
organization's subordinate labor organizations.
3. Intermediate Bodies' Expenditure of Funds Derived in Part From
Compulsory Fees and Taxes on Employees in the Private Sector
The two principles discussed above--the promotion of Congress's
goal of transparency in labor organization expenditures and the complex
structural and financial relationships between unions--lead directly to
the final consideration supporting the Department's revised
interpretation of Section 3(j)(5). The LMRDA's purpose and intent, its
legislative history, and the complexity and interrelatedness of modern
labor organizations, all support the disclosure of assets and
expenditures of intermediate labor bodies whose funds are derived, at
least in part, from private sector employees. In some cases, private
sector employees are represented by a local union that financially
supports a national or international labor organization with which it
is affiliated, and that national or international labor organization in
turn financially supports a subordinate state-level labor body that may
itself be wholly composed of locals representing employees only in the
public sector and therefore, has not, in the past, filed annual
financial disclosure statements.
Consider, for example, a local labor organization composed entirely
of nurses and other health care professionals employed by hospitals and
other facilities in the private sector, which is affiliated with a
national union primarily representing teachers in the public sector.
The private-sector nurses' local union dues support the national
teachers union, which in turn disburses funds to its state-level
subordinates. The state-level subordinate may itself be wholly composed
of public-sector locals and, as a result, not previously required to
file a financial disclosure statement. Consequently, the private-sector
nurses can track expenditures of their local union dues only until the
expenditures reach the state-level labor organization. There, under the
Department's prior interpretation, further financial information would
not be available, because the intermediate labor organization would not
be considered to be engaged in an industry affecting commerce under the
Act and would not be required to file reports.
The same scenario holds true in the case of faculty and staff
employed by universities in the private sector, and represented by a
local union affiliated with another national union primarily
representing teachers in the public sector. The private-sector faculty
members' local union dues support the national teachers union, which in
turn disburses funds to its state-level subordinates. Again, the
intermediate body may be wholly composed of public-sector locals, but
it is receiving indirectly the dues and fees of employees in the
private sector.
These scenarios are borne out by the two tables below. Table 1
reflects locals affiliated with two national teachers unions that have
many dues-paying members employed in the private-sector, like the
nurses and university professors examples noted above. The per capita
fees paid to the national teachers union by members of those private-
sector locals are shown below.
Table 1.--Fiscal Year 2005 Per Capita Tax Disbursements From Locals
Composed at Least in Part of Private-Sector Employees to Affiliated
National Teachers Union \2\
------------------------------------------------------------------------
------------------------------------------------------------------------
Locals Affiliated With American Federation of Teachers \3\
------------------------------------------------------------------------
Indiana Educators Federation, Local 4524................ $254,735
Temple University, Local 4531........................... 173,540
USF Faculty Association, Local 4269..................... 91,381
Washington Teachers Union, Local 6...................... 794,148
[[Page 3740]]
Professional Guild of Ohio, Local 1960.................. 171,237
UCATS, Local Union 3882................................. 395,783
Danbury Hospital Professional Nurses Association, Local 174,270
Union 5047.............................................
New Haven Federation of Teachers, Local Union 933....... 537,260
Oregon Federation of Nurses-Kaiser, Local Union 5017.... 412,957
NY State Public Employees Federation, Local Union 4053.. 7,658,493
Alaska Public Employees Association, Local Union 5200... 423,730
Professional Staff Congress/CUNY, Local Union 2334...... 4,771,000
L & M Healthcare Workers Union, Local Union 5123........ 169,217
------------------------------------------------------------------------
Locals Affiliated With National Education Association \4\
------------------------------------------------------------------------
OEA American Education Assn Okinawa..................... 264,263
Endicott College Faculty Association.................... 8,631
Adrian College Association of Professors................ 50,959
University of Detroit Professors Union.................. 147,821
Roger Williams University Faculty....................... 105,623
Baker College Education Association..................... 25,261
Milton Hershey Education Association.................... 70,025
National Education Assn Ind Local Union University of 14,840
Detroit Support Staff..................................
Rhode Island School of Design Faculty................... 58,215
RISD Part Time Faculty Association, Local 895........... 39,997
------------------------------------------------------------------------
\2\ Labor organizations that file Form LM-2, LM-3, or LM-4 reports with
the Department are, by definition, ``labor organizations'' covered by
the LMRDA. Local labor organizations that file reports are composed,
at least in part, of members employed in the private sector. See 29
CFR 451.3(a)(4) (``mixed and non-government locals [are] `labor
organizations' and subject to the Act'').
\3\ These figures are taken from the Form LM-2 filed by each listed
local labor organization for its fiscal year 2005. Form LM-2s are
filed by those labor organizations with total annual receipts of
$250,000 or more in their fiscal years. See Instructions for
Electronic Form LM-2 Labor Organizations Annual Report (3/23/04) at p.
1, at http://www.dol.gov/esa/regs/[fxsp0]compliance/olms/erds/
[fxsp0]LM2Instr2-2-04koREVISED.pdf. (Revisions in 2003 to the Form LM-
2 and its instructions, which set $250,000 as the mandatory floor for
filing the Form LM-2 amended the old floor of $200,000 set in 29 CFR
403.4. See 68 FR 58383, 58473.) Article VIII, Section 1(a) of AFT's
constitution requires each local to pay an established per capita tax
to the national office, and further sets the per capita rate at which
the national office will pay the office of each state federation. See
AFT 2002 Constitution at p. 21.
\4\ Except in one case in which the labor organization filed a Form LM-
2, these figures are taken from the Form LM-3 filed by each listed
local labor organization for its fiscal year 2005. Section 2-9 of the
NEA's bylaws indicates that, as established in contracts entered into
between the affiliates and the NEA, local affiliates transmit dues to
both the state affiliate and the NEA. As a result, these figures may
represent disbursements to both state affiliates and the NEA. See
Bylaws of the National Education Association of the United States 2004-
2005 at. p. 7.
* * * * *
Table 2 below confirms that these national teachers unions, which,
as shown above, received per capita fees from locals composed, at least
in part, of private sector employees, disbursed funds to their
affiliated intermediate bodies.
Table 2.--Fiscal Year 2005 Disbursements as ``Contributions, Gifts and
Grants'' by National Teachers Unions to Intermediate State-Level Labor
Organizations \5\
------------------------------------------------------------------------
------------------------------------------------------------------------
Contributions, Gifts and Grants by American Federation of Teachers to
State Affiliates \6\
------------------------------------------------------------------------
Louisiana Federation of Teachers*....................... $15,000
------------------------------------------------------------------------
Contributions, Gifts and Grants by National Education Association to
State Affiliates \7\
------------------------------------------------------------------------
Alabama Education Association*.......................... $1,561,525
NEA Alaska*............................................. 390,595
Arizona Education Association*.......................... 879,775
Arkansas Education Association*......................... 434,715
Colorado Education Association*......................... 142,435
Connecticut Education Association*...................... 844,595
Delaware State Education Association*................... 239,015
Georgia Association of Educators*....................... 972,770
Hawaii State Teachers Association*...................... 414,740
Idaho Education Association*............................ 317,305
Indiana State Teachers Association*..................... 1,181,930
Iowa State Education Association*....................... 892,770
Kansas NEA*............................................. 595,465
Kentucky Education Association*......................... 1,009,842
Louisiana Association of Educators*..................... 479,094
Maryland State Teachers Association*.................... 1,434,090
Massachusetts Teachers Association*..................... 1,638,351
Education Minnesota..................................... 1,410,256
Mississippi Association of Educators*................... 242,370
Missouri NEA*........................................... 800,440
Nebraska State Education Association.................... 590,465
NEA New Hampshire*...................................... 405,595
[[Page 3741]]
NEA New Mexico.......................................... 332,305
NEA New York............................................ 1,535,089
New Jersey Education Association........................ 2,286,522
Nevada State Education Association*..................... 777,045
North Carolina Association of Educators*................ 1,283,365
North Dakota Education Association*..................... 213,370
Oklahoma Education Association*......................... 772,045
Oregon Education Association*........................... 1,012,705
South Carolina Education Association*................... 434,740
South Dakota Education Association*..................... 239,015
Texas State Teachers Association........................ 1,408,136
Tennessee Education Association*........................ 1,105,568
Utah Education Association.............................. 112,435
Vermont NEA............................................. 438,660
Virginia Education Association*......................... 1,509,090
Washington Education Association*....................... 1,922,975
West Virginia Education Association*.................... 416,740
Wisconsin Education Association Council*................ 2,470,440
Wyoming Education Association*.......................... 190,725
------------------------------------------------------------------------
\5\ LM-2 instructions require labor organizations to itemize
contributions, gifts and grants on Schedule 17 of the Form. The
itemizations include ``direct and indirect disbursements to all
entities and individuals during the reporting period associated with
contributions, gifts, and grants, other than those listed on Schedules
15, 16, and 20[, and i]nclude, for example, charitable contributions,
contributions to scholarship funds, etc.'' See Instructions for
Electronic Form LM-2 Labor Organizations Annual Report (3/23/04) at
p.32, at http://www.dol.gov/esa/regs/ compliance/olms/erds/LM2Instr2-
2-04koREVISED.pdf.
\6\ These figures are taken from the Form LM-2 filed by AFT for its
fiscal year beginning July 1, 2004 and ending June 30, 2005.
\7\ These figures are taken from the Form LM-2 filed by the NEA for its
fiscal year beginning September 1, 2004 and ending August 31, 2005.
* State affiliates marked with an asterisk are parties in Alabama
Education Ass'n v. Chao, 455 F.3d 386 (D.C. Cir. 2006), and have not
filed financial disclosure reports with the Department. These state
affiliates have stated in that litigation that they are intermediate
bodies wholly composed of public sector affiliates. State affiliates
that are not marked by an asterisk are not parties in Alabama
Education Ass'n v. Chao, and have not filed current financial
disclosure reports with the Department. The Department presumes that
their non-filing status is due to their wholly public sector
composition and not due to any other exception or exemption under the
LMRDA.
Taken together, Tables 1 and 2 demonstrate that two national
teachers unions receive dues and fees from employees employed in the
private-sector, and that money is, in turn, disbursed to intermediate
bodies that have previously not been required to file financial
disclosure reports.
* * * * *
The expenditure of dues and fees of private-sector employees by
intermediate-level state affiliates of national labor organizations
without full public disclosure of those expenditures runs afoul of the
purpose and intent of the LMRDA. As noted earlier, labor organizations
that solely ``deal with'' public-sector employers are not covered by
the first clause of Section 3(i), which applies only to labor
organizations that deal with statutory, i.e., private sector employers.
The second clause has no such limitation, and does not require that
intermediate bodies deal with any employers, private or public. Given
the scenario outlined above--that intermediate bodies may receive
financial support based on dues received in part from private sector
employees, the second clause of section 3(i) makes perfect sense.
Coverage of intermediate bodies under the second clause does not turn
on the entity's dealings with employers, but is based instead on the
subordinate relationship with a covered national or international. The
Department's rule corrects the problem of the non-transparency of funds
provided by covered national or international labor organizations to
subordinate intermediate bodies, and gives full meaning to the second
clause of Section 3(i).
It would undermine, rather than promote, the purposes of the LMRDA
if a labor organization could disburse dues paid by private-sector
employees to a subordinate labor body, and such subordinate labor body
could spend that money in secrecy. Such a loophole does not exist on
the face of the statute or anywhere in its legislative history, and was
not deliberately created by Congress in 1959. Moreover, the
Department's key statutory responsibility to promote union transparency
and democracy under the LMRDA requires that this loophole created by
prior interpretation be closed. As in the cases illustrated above, a
private-sector employee represented by a private-sector local union
covered by the LMRDA should not be prevented from tracing to its end-
point the expenditure of his or her own dues and fees, even if a labor
organization ultimately receiving those private-sector dues is composed
solely of public-sector unions. Thus, the ambiguity in Section 3(j)(5),
see Alabama Education, 455 F.3d at 395, should be resolved in favor of
coverage of an intermediate labor organization that is subordinate to a
national or international labor organization that includes a private
sector local, even if the intermediate itself is composed solely of
public sector members. Under this interpretation, the private-sector
employees in that local will have an improved ability to ascertain the
nature of labor organizations expenditures derived from their dues.
For several decades following the enactment of the LMRDA, the
Department's administration of the statute did not reach intermediate
labor organizations subordinate to a covered national or international
labor organization but composed solely of local public-sector labor
organizations. During that period of LMRDA administration, the
Department's interpretation permitted LMRDA-covered national and
international organizations to make financial disbursements to their
intermediate affiliates without any requirement that the intermediate
affiliates disclose the manner in which that money, some derived from
private-sector employees, was spent. Private-sector local union members
have been unable to ascertain whether their representatives spend their
money wisely, foolishly, or even illegally. The LMRDA's primary goal of
labor organization democracy achieved through labor organization
transparency has been thwarted during this period.
[[Page 3742]]
The Department's revised interpretation is intended to shed light on
the financial transactions of intermediate labor organizations that are
subordinate to, and spend money conveyed to them by, covered labor
organizations, thereby fully effectuating the purposes of the Act.
For the reasons set forth above, the Department of Labor is issuing
this Policy Statement; Interpretation under the authority at 29 U.S.C.
431 and 438.
Signed at Washington, DC, this 23rd day of January, 2007.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.
Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.
[FR Doc. E7-1275 Filed 1-25-07; 8:45 am]
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