While the Department of Labor deserves considerable credit for updating LM-2 forms and rules, our review revealed numerous weaknesses in the current system.[*] First, the definitions given for each of the functional categories are too general. As was earlier noted, a certain amount of vagueness is to be expected when the functional categories are new, but with nearly three years of LM-2 reports to review, the Department of Labor should be in a position to know where the gray areas are and how they could be replaced with bright lines.
The primary purpose of a union is representation of workers. Unions have a direct interest in making this function appear as large as possible. Consequently, the greatest need for sharp but fair distinctions is here.
As the rules currently stand, representation is one of several functional categories. But worker representation is not just one of several functions that a union performs; it is the raison d'etre of the entire union movement. Having "representation" as a single expense category on form LM-2 is the equivalent of General Motors treating "cars" as a single category on its expense statements. Shareholders would be likely to expect more details. Future LM-2 forms should break representation into its constituent parts:
While we combined strike benefits with general representation costs for our analysis, these items should be kept separate in future LM-2 revisions. Breaking representation down into these constituent parts will make it easier for DOL to develop clear rules regarding what is and is not a representation expense, and for union staff to follow those rules. The creation of these subcategories will also give union members a more complete understanding of the services that the union provides for them and where union priorities lie.
Businesses and even nonprofits are regularly expected to provide independent verification, including an independent audit, as part of their financial disclosure requirements under federal law. As we discussed above, the fact that unions claim much of their income through agency fee clauses, requiring workers to pay union dues or agency fees as a condition of employment, makes the need for thorough financial disclosure by unions as compelling as it is for publicly traded companies — perhaps more so. Independent verification of the information contained in LM-2 forms would give union members greater confidence in the information they receive from their union and do much to reduce the number of questionable entries.
Under current law, there is no penalty if a union fails to file an LM-2 form or refuses to allow its members to review the underlying records. Instead, the Department of Labor or individual union member must ask a court for an injunction to compel compliance, a cumbersome enforcement mechanism that among other things is likely to encourage unions to take liberties with their financial reporting duties. When DOL must litigate to compel the filing of a report, or documentation is difficult to find, the department is more likely to accept an LM-2 report with incorrect or questionable entries. Legislation has been introduced to allow DOL to levy fines on unions that fail to meet their obligations under the Labor-Management Reporting and Disclosure Act. Legislation of this sort is long overdue.
An even greater legislative oversight, however, is the failure of the state of Michigan to establish any financial reporting requirements for unions representing state or local government employees. While state labor federations generally do file federal financial disclosure forms, government employee union locals across the state are largely exempt from making any financial disclosures other than tax forms available to their members or the general public. Some of these locals represent thousands of members and handle hundreds of thousands of dollars in mandatory union dues and agency fees. For all the weaknesses of the current LM-2 forms, Michigan government employees would benefit greatly if the state were to simply adopt federal standards and require all unions in Michigan with annual disbursements of more than $250,000 per year to file form LM-2 with the Department of Labor or with the state.
 GOP Members of Congress to Introduce Bills Imposing Fines for LMRDA Violations, Bureau of National Affairs, Daily Labor Report, April 10, 2008.
[*] To its credit, DOL was in the early stages of proposing further revisions at the time this report was written. Its notice of proposed rulemaking and request for comments, issued May 12, 2008, can be viewed at 73 Fed. Reg. 27346.