Proposed Rulemaking on Labor Organization Annual Financial Reports


    TO: Victoria A. Lipnic
    Assistant Secretary for Employment Standards
    U.S. Department of Labor

    FROM: Robert Hunter and Paul Kersey
    Mackinac Center for Public Policy

    DATE: January 16, 2003

On December 27, 2002, the U.S. Department of Labor proposed revisions to form LM-2 and new rules applying to financial disclosure under the Labor-Management Reporting and Disclosure Act (LMRDA), for unions with annual receipts of over $200,000. At that time the department requested public comments on the new rules and forms. We submit the following comments for your consideration.

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The Mackinac Center for Public Policy is an independent, nonprofit, nonpartisan research and educational organization devoted to analyzing Michigan public policy issues. Among other areas, the Center focuses on protecting and reporting upon worker labor rights through its labor policy studies. Based upon our interviews with hundreds of Michigan workers over the past six years, the Center strongly and enthusiastically supports the department’s draft union disclosure rule, including the recommendations included herewith, as necessary to answer union workers’ No. 1 complaint about their unions: that it is nearly impossible to discover how unions are spending their dues.

These worker concerns prompted us to author our own study in December of 2001 entitled “The Michigan Union Accountability Act: A Step Toward Accountability and Democracy in Labor Organizations.” In this study, we identified and analyzed the disclosure problems facing Michigan union employees and developed model state legislation to remedy them. This publication can be accessed on the Mackinac Center website at

We begin by noting that many of the issues addressed in DOL’s new reporting rules touch on fundamental speech and association rights of workers. In a line of cases ending with Beck v. Communications Workers of America, 487 U.S. 735 (1988), the U.S. Supreme Court ruled that union-represented workers were not obligated to pay union dues beyond their pro-rata share of union expenses related to negotiation and administration of a collective bargaining agreement and the handling of grievances. Spending related to union political activities, public relations, charities and organization of workers in other bargaining units could not be passed on to non-members. Enforcing these basic rights has proved difficult, in part due to the difficulty of ascertaining union spending.

The new financial disclosure rules and new LM2 and T1 forms have the potential to advance the enforcement of Beck by providing both members and non-members with reliable, well-organized information on union expenses. Ideally, workers should be able to use these reports to calculate the appropriate dues amount they should withhold in the exercise of their Beck rights.

The new forms also will provide union members with information that may provide the first warning alarms of corruption. Unusual spending patterns or shifts in expenses, revealed in the LM2, may tip workers off to fraud and abuse, allowing union members the option of disciplining or removing wasteful or corrupt union leaders.

Finally, the revisions will encourage workers to become more active in the governance of their unions. More specific information about union spending patterns will provide material for healthy debate among union officials, activists and members about union activities and priorities.

While recognizing the need for confidentiality in certain areas of union governance, over the long term the draft rules will strengthen, not weaken, the union movement by giving union members a better understanding of how their unions operate and how their dues are spent. We encourage the department to pursue these revised rules, and we offer the following comments with the intention of improving a worthwhile initiative.

Allocation of Salaries Based upon Estimates of Time

While we would encourage the department to pursue the most accurate methods for allocating salaries among the various categories of union activity, we doubt that it is practical at this point to demand exact calculations of time spent. Commercial time-tracking programs are available, but demanding a day-to-day printout of each union official’s and employee’s time would be burdensome, especially for the larger unions covered by form LM2, and would create an extremely long document.

Nonetheless, employee salaries and duties are an important part of union expenditures, and reflect on the priorities established by union leadership. Union members are entitled to a general understanding of the sorts of activities union leaders and employees are engaged in. The proposed rules provide this without revealing specifics that might compromise confidential information. We advise the department to retain these time estimates over any objections union officials might raise.

Schedule 17 - Political Activities

For many union members and political activists this may be the most interesting aspect of the new LM2 form. Union political activity, funded through mandatory agency fees, may not reflect the wide range of opinions actually found among union members.

What constitutes “political” spending or activity is a complicated question, with different answers applying in different contexts. For instance, so-called “issue advocacy” ads present political arguments and summarize the positions of candidates, yet do not explicitly call for the election or defeat of any candidate or ballot initiative. The Supreme Court has ruled in Buckley v. Valeo that such advertisements are not subject to campaign finance regulations, even though they are clearly designed with a particular electoral impact in mind.

It appears that the Department of Labor would consider “issue advocacy” reportable as a political expense, most likely as “voter education”. However, union officials may argue that an ad which, taken as a whole, is clearly meant to affect an election, is not “political” because it does not specifically call for the election or defeat of a candidate. Union officials have resisted efforts to determine the extent of their political activities in the past, and may try to keep open this loophole. We recommend that this point be emphasized explicitly, perhaps adding the following statement to the instructions: “It does not matter if a communication does not explicitly call for the election or defeat of a candidate or the approval or rejection of a referendum.”

Schedule 18 - Lobbying

A common lobbying tactic for politically active organizations is to make appeals to their members or to the general public, asking them to contact their elected representatives and express their support or opposition to a piece of legislation or an executive branch initiative. However the definition of lobbying in the directions attached to the LM2 form focuses on “dealing with the executive and legislative branches of the Federal, State, and local governments.” This implies that “grassroots activism” affecting legislation is not covered as a lobbying expense. These costs should be defined and classified either as lobbying or political activity for purposes of the law.

The Threshold for Filing form LM-2

We recommend maintaining the current threshold level of $200,000 at which unions are required to file form LM-2. We believe that raising the level to 250,000 in annual receipts disproportionately disenfranchises almost 1,000,000 union members from receiving the information they need to exercise Beck rights, and asserting democratic governance over the affairs of their unions. Denying almost one-ninth of all current private-sector union members access to detailed financial information about their unions is unwarranted and substantially diminishes the worthy purposes of the rule. The proper balance is achieved by the current threshold level of $200,000.

T-1’s Should Be Filed for All Trusts and Funds in which Labor Organizations Have Reportable Interests

We recommend that a final rule require that labor organizations file T-1’s for all trusts or funds in which they have a reportable interest. Union members should be able to access, from a single source through the department, all detailed and reliable information on significant trusts’ financial operations. While trust/fund information may technically be available from other sources, members cannot readily access this information and thus are largely denied the opportunity to determine whether funds are being spent in ways that benefit them. Without the financial disclosure which the T-1’s represent, it is highly unlikely that union members can gain an adequate understanding of these trusts for purposes of exercising their democratic membership rights.

Departmental Authorization to Expand Dissemination of Union Disclosures to Union Members

While we heartedly applaud the department’s proposed rule, we are nevertheless concerned that millions of union-dues payers will neither learn of the availability of the LM forms through electronic means, nor have the means to access the documents.

Accordingly, we recommend that the Secretary of Labor, using her legal authority under the rules, consider the following actions to insure access to union financial disclosures and to prevent union evasion of reporting requirements.

  1. The Secretary should engage in sufficient outreach programs, including the preparation of employee notices, informing union-dues payers of ways to access union financial disclosures;

  2. Require unions to post their most recent LM filings on bulletin boards both in union halls and in employee workplaces where bulletin boards are reserved for exclusive union use.

  3. Encourage unions to publish their most recent LM forms in regular union periodicals, in written communications sent to their members, and on union websites.

Schedule 16 – Organizing

While the Department is correct that neither the employer’s name nor the bargaining unit need be identified in determining union organizing expenditures, it is important to require that additional information be furnished to verify that the claimed expenses are valid and legitimate. The following information might be furnished on the LM forms to accomplish these objectives without compromising the proprietary nature of union expenses for the reporting period:

  1. The number of workplaces organized or attempted to be organized;

  2. The industries involved in organizing activities;

  3. The number of petitions filed with the NLRB for exclusive representation rights;

  4. The results of election proceedings;

  5. The number of employers who recognized a unions through a “card check” procedure; and

  6. The number of employees who became union members following organization or certification efforts.

Require Union Financial Disclosures Be Subject to Independent Audits

A glaring omission in the draft rules is the lack of independent audit requirements. The burden should be on the union to demonstrate that it accurately prepared the financial documents subject to disclosure. Compliance is best verified by independent auditors who can ensure the accuracy and veracity of the information provided by labor organizations. Disclosure of financial information is a futile act unless the U.S. Department of Labor at the same time compels the unions to furnish accurate and true information.

Since the 1930s, corporations have been obligated to file detailed reports with the U.S. Securities and Exchange Commission (SEC), using generally accepted accounting procedures, for the specific purpose of helping investors assess the health of publicly traded companies.

The SEC requires annual and quarterly disclosure of public companies’ financial dealings. Such disclosure is made through detailed reports prepared by independent third-party auditors, using generally accepted auditing standards and generally accepting accounting principles.

The same should be true for labor unions. Union members provide billions of dollars in dues to their unions each year. These “investors” certainly have a right to a detailed and meaningful annual disclosure of the manner in which their union is spending their dues to represent them. Just as stockholders and not management are the owners of a public company, dues-paying members and not union officials are the “owners” of the union.

Respectfully Submitted,

Robert P. Hunter
Director of Labor Policy

Paul S. Kersey
Labor Policy Research Associate