The Ethical and Legal Basis for Union Financial Disclosure

Because worker support for unions, or at least their collective representation operations, may be compelled, union spending is an entirely appropriate subject of public discussion and inquiry.

The collection of forced dues is not the only prerogative unique to union officials: Under state and federal law, union officials have authority to bargain wages and terms of conditions of employment for all workers in a bargaining unit, including union opponents, and also have the power to pursue or disregard their grievances. While unions are subject to a legal duty of fair representation and are expected to represent all bargaining unit members — not just union members — with equal diligence, courts and regulatory agencies tend to give union officials broad discretion in deciding what contractual demands to make and which grievances to take up. A worker may find that a representative has been chosen for him over his strenuous objections. That worker cannot opt out of an agreement reached by that union and cannot have the union replaced.

In no other situation are competent adults forced to accept the services of a representative without an individual right to choose or replace that representative. Unions have a remarkable level of legal power over bargaining unit members. It is only reasonable that unions should give a thorough accounting of how they use that power.

And because much of the authority wielded by unions flows directly from state and federal law, rather than from the voluntary support of workers, unions are accountable not only to their members but to society as a whole, for the manner in which they use these powers. This naturally includes an accounting of how the union spends funds from union dues and agency fees.

Under the Labor-Management Reporting and Disclosure Act of 1959, every labor organization covered by the act "shall file annually with the Secretary [of labor] a financial report," which is to include assets and liabilities, receipts, salaries and other compensation, loans and other disbursements.[12] The requirement covers any labor organization that represents private-sector employees, even if that number is modest. Consequently, the vast majority of union organizations are at least partially covered, although most locals of government employee unions are not required to file under LMRDA. The statute gives to the U.S. secretary of labor the authority to draft and revise the forms and rules used for this financial disclosure.[13]

This provision gave rise to the creation of the first LM-2, LM-3 and LM-4 forms. Depending on their total disbursements, union organizations, from locals up to international federations, have been and remain obligated to file one of these forms. The largest groups, with annual disbursements of more than $200,000, were required to file form LM-2.

For most of the period since LMRDA was passed, the demands of union financial disclosure were fairly limited. The forms themselves were largely unchanged for 40 years.[14] As recently as 2004, the LM-2 form included of a series of basic financial questions, many of which were yes-or-no. These were followed by a statement of assets and liabilities, a one-page summary of receipts and disbursements, schedules for loans, assets and investments, and payments to union officers and staff. The form broke expenditures down in a very general way, with "Schedule 12" covering contributions, gifts and grants; "Schedule 13" covering office and administrative expenses; and "Schedule 15" covering "other disbursements." Other than officers and staff, the LM-2 did not require the union to give the names of any payees or itemize any individual transactions.

[12] 29 U.S.C. §431.

[13] 29 U.S.C. §438.

[14] Federal Register, Vol. 73 p. 27347-8, fn. 3.