Labor Organization Officer and Employee Report, Form LM-30
[07/02/2007]
Volume 72, Number 126, Page 36105-36190
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Part II
Department of Labor
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Office of Labor-Management Standards
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29 CFR Part 404
Labor Organization Officer and Employee Report, Form LM-30; Final Rule
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DEPARTMENT OF LABOR
Office of Labor-Management Standards
29 CFR Part 404
RIN 1215-AB49
Labor Organization Officer and Employee Report, Form LM-30
AGENCY: Office of Labor-Management Standards, Employment Standards
Administration, Department of Labor.
ACTION: Final rule.
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SUMMARY: The Employment Standards Administration's (``ESA'') Office of
Labor-Management Standards (``OLMS'') of the Department of Labor
(``Department'') publishes this Final Rule to revise the Form LM-30,
Labor Organization Officer and Employee Report, its instructions, and
related provisions in the Department's regulations. The Form LM-30
implements section 202 of the Labor-Management Reporting and Disclosure
Act of 1959 (``LMRDA'' or ``Act''), 29 U.S.C. 432, whose purpose is to
require officers and employees of labor organizations to report
specified financial transactions and holdings to effect public
disclosure of any possible conflicts between their personal financial
interests and their duty to the labor union and its members. This rule
clarifies the Form LM-30 and its instructions by explaining key terms
and providing examples of the financial matters that must be reported,
eliminates or modifies administrative exceptions in the old Form LM-30
that impeded the full disclosure of financial matters that constitute
conflicts, or potential conflicts, of interest, and improves the
usability of the reports by union members and the public.
DATES: Effective Date: This rule will be effective August 16, 2007.
FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director, Office of
Policy, Reports, and Disclosure, Office of Labor-Management Standards,
U.S. Department of Labor, 200 Constitution Avenue, NW., Room N-5609,
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: An outline of this information and a note
regarding the references to statutory provisions in this document
follow:
Table of Contents
I. Background
A. Statutory Authority
B. Departmental Authorization
C. Background to and Overview of Rule
1. The Reasons for Today's Revisions of the Form LM-30
2. Legislative History
II. Discussion of Comments Received on Proposed Rule and
Department's Response
A. Why the Changes to the Form Are Needed Now
B. Why the Department Is Not Presently Requiring Unions To
Notify Their Officers and Employees (``Officials'') About Their
Annual Reporting Obligations
C. Why the De Minimis Exemption From Reporting Insubstantial
Gifts and Other Financial Benefits Has Been Simplified and Subjected
to a $250 Limit, With an Exclusion for Gifts Valued at $20 or Less
and Certain Widely-Attended Gatherings
D. Why Reporting Exceptions Permitted Under the Old Rule Have
Been Eliminated or Modified To Provide More Information to Union
Members
1. Regular Course of Business Exception
2. Bona Fide Employee Exception for Transactions With an
Employer Whose Employees the Official's Union Represents or Is
Actively Seeking To Represent
3. Exception for Bona Fide Loans or Interest From a Banking
Institution
4. Exceptions Relating to Stocks
5. Revision of Special Report Language
E. Why Union Officials, as a General Rule, Must Report Payments
Received as Members of a Company's Board of Directors
F. Why Officers of International, National, and Intermediate
Labor Unions, in Addition to Their Obligation to Report Payments and
Other Financial Benefits Received From Businesses and Employers That
Have a Direct Relationship With the Component of the Union to Which
They are Elected or Appointed, Must Also Report Payments and Other
Financial Benefits Received From Businesses and Employers Whose
Relationship is With a Subordinate Body of Their Union
G. Why Union Officials Must Report Payments Under Union--Leave
and No-Docking Practices Subject to an Exception for Payments of 250
Hours or Less Per Year Made in Accordance with a Collective
Bargaining Agreement
H. What Payments and Other Financial Benefits, Received From an
Employer or Business Whose Employees are not Represented by the
Union and Which Does Not Conduct Business With the Official's Union,
Must be Reported
I. When is a Union ``Actively Seeking To Represent'' Employees,
Thereby Triggering a Union Official's Obligation To Report Payments
and Other Financial Benefits Received From the Employer That is the
Subject of the Organizing Drive
J. How Union Officials Will Determine Whether an Entity From
Which They Receive a Payment or Other Financial Benefit Does a ``A
Substantial Part'' of its Business With an Employer Whose Employees
are Represented by the Official's Union or the Union it is Actively
Seeking to Represent
K. Why Payments and Other Financial Benefits Received From
Section 3(l) Trusts and Service Providers to Such Trusts Must Be
Reported
1. Alleged Procedural Shortcoming
2. Routine Exceptions
3. Relationship With Other Statutes
4. Trusts as Employers and Businesses
L. When Payments and Other Financial Benefits Received From a
Union Other Than an Official's Own Union Must be Reported
M. How the Proposed Definitions Have Been Clarified To Ease a
Filer's Completion of the Form LM-30
1. Definitions Adopted by Today's Rule
2. Other Issues Related to Definitions
N. Details Relating To Proposed and Revised Form and
Instructions
1. Comparison of the ``Old'' and Proposed Forms
2. Comments on Proposed Form
3. Completion of the Revised Form
III. Regulatory Procedures
A. Executive Order 12866
B. Small Business Regulatory Enforcement Fairness Act
C. Unfunded Mandates Reform
D. Executive Order 13132 (Federalism)
E. Regulatory Flexibility Act
F. Paperwork Reduction Act
G. Executive Order 13045 (Protection of Children From
Environmental Health Risks and Safety Risks)
H. Executive Order 13175 (Consultation and Coordination With
Indian Tribal Governments)
I. Executive Order 12630 (Governmental Actions and Interference
With Constitutionally Protected Property Rights)
J. Executive Order 12988 (Civil Justice Reform)
K. Environmental Impact Assessment
L. Executive Order 13211 (Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use)
IV. Text of Final Rule
Appendix
Note: Throughout this document, the Department refers to various
statutory provisions as ``section ----.'' All such references,
unless otherwise noted, are to Title 29 of the U.S. Code. Further,
unless otherwise noted, all the sections are part of the Labor-
Management Reporting and Disclosure Act of 1959, which is set forth
in Chapter 11 of Title 29, 29 U.S.C. 401-531. Following is a list of
the most frequently cited LMRDA provisions in this document with
corresponding citations to the U.S. Code: section 3(l), 29 U.S.C.
402(l); 201, 29 U.S.C. 431; section 202, 29 U.S.C. 432; and section
203, 29 U.S.C. 433. The only other provision of the U.S. Code
frequently referred to in the document by the section number in the
public law in which it was enacted is ``section 302(c),'' a
reference to a provision of the Labor Management Relations Act, as
amended, 29 U.S.C. 141-188. A reference to
[[Page 36107]]
section 302(c), 29 U.S.C. 186(c), appears in the text of section
202(a)(6) of the LMRDA, 29 U.S.C. 432(a)(6).
I. Background
A. Statutory Authority
Section 208 of the LMRDA states in part:
The [Department] shall have authority to issue, amend and
rescind rules and regulations prescribing the form and publication
of reports required to be filed under this title and such other
reasonable rules and regulations (including rules prescribing
reports concerning trusts in which a labor organization is
interested) as he may find necessary to prevent the circumvention or
evasion of such reporting requirements.
29 U.S.C. 438. Today's rule prescribes the disclosure form required
to be filed by a union officer or employee if such an official, his or
her spouse, or minor child hold an interest in or receive payments from
certain entities. The reporting requirements are contained in section
202, which provides in its entirety:
Sec. 202. (a) Every officer of a labor organization and every
employee of a labor organization (other than an employee performing
exclusively clerical or custodial services) shall file with the
Secretary a signed report listing and describing for his preceding
fiscal year--
(1) Any stock, bond, security, or other interest, legal or
equitable, which he or his spouse or minor child directly or
indirectly held in, and any income or any other benefit with
monetary value (including reimbursed expenses) which he or his
spouse or minor child derived directly or indirectly from, an
employer whose employees such labor organization represents or is
actively seeking to represent, except payments and other benefits
received as a bona fide employee of such employer;
(2) Any transaction in which he or his spouse or minor child
engaged, directly or indirectly, involving any stock, bond,
security, or loan to or from, or other legal or equitable interest
in the business of an employer whose employees such labor
organization represents or is actively seeking to represent;
(3) Any stock, bond, security, or other interest, legal or
equitable, which he or his spouse or minor child directly or
indirectly held in, and any income or any other benefit with
monetary value (including reimbursed expenses) which he or his
spouse or minor child directly or indirectly derived from, any
business a substantial part of which consists of buying from,
selling or leasing to, or otherwise dealing with, the business of an
employer whose employees such labor organization represents or is
actively seeking to represent;
(4) Any stock, bond, security, or other interest, legal or
equitable, which he or his spouse or minor child directly or
indirectly held in, and any income or any other benefit with
monetary value (including reimbursed expenses) which he or his
spouse or minor child directly or indirectly derived from, a
business any part of which consists of buying from, or selling or
leasing directly or indirectly to, or otherwise dealing with such
labor organization;
(5) Any direct or indirect business transaction or arrangement
between him or his spouse or minor child and any employer whose
employees his organization represents or is actively seeking to
represent, except work performed and payments and benefits received
as a bona fide employee of such employer and except purchases and
sales of goods or services in the regular course of business at
prices generally available to any employee of such employer; and
(6) Any payment of money or other thing of value (including
reimbursed expenses) which he or his spouse or minor child received
directly or indirectly from any employer or any person who acts as a
labor relations consultant to an employer, except payments of the
kinds referred to in section 302(c) of the Labor Management
Relations Act, 1947, as amended.
(b) The provisions of paragraphs (1), (2), (3), (4), and (5) of
subsection (a) shall not be construed to require any such officer or
employee to report his bona fide investments in securities traded on
a securities exchange registered as a national securities exchange
under the Securities Exchange Act of 1934, in shares in an
investment company registered under the Investment Company Act or in
securities of a public utility holding company registered under the
Public Utility Holding Company Act of 1935, or to report any income
derived therefrom.
(c) Nothing contained in this section shall be construed to
require any officer or employee of a labor organization to file a
report under subsection (a) unless he or his spouse or minor child
holds or has held an interest, has received income or any other
benefit with monetary value or a loan, or has engaged in a
transaction described therein.
B. Departmental Authorization
Section 208 of the Act, 29 U.S.C. 438, provides that the Secretary
of Labor shall have the authority to issue, amend, and rescind rules
and regulations prescribing the form and publication of reports
required to be filed under Title II of the Act and such other
reasonable rules and regulations as she may find necessary to prevent
the circumvention or evasion of the reporting requirements. Secretary's
Order 4-2007, issued May 2, 2007, and published in the Federal Register
on May 8, 2007 (72 FR 26159), contains the delegation of authority and
assignment of responsibility of the Secretary's functions under the
LMRDA to the Assistant Secretary for Employment Standards and permits
the redelegation of such authority.
C. Background to and Overview of Rule
In today's rule, the Department revises the Form LM-30, Labor
Organization Officer and Employee Report based on its review of public
comments received in response to its Notice of Proposed Rulemaking
(``NPRM''), 70 FR 51166 (Aug. 29, 2005). The Form LM-30 is used by
officers and employees of labor organizations subject to the LMRDA.
Section 202 of the Act requires public disclosure of certain financial
interests held, income received, and transactions engaged in by labor
organization officers and employees (generally referred to herein as
``union officials'' or ``officials'') and their spouses and minor
children. Subject to exclusions, these interests, incomes, and
transactions include:
1. Payments or benefits from, or interests in, an employer whose
employees the filer's union represents or is actively seeking to
represent;
2. Transactions involving interests in, or loans to or from, an
employer whose employees the filer's union represents or is actively
seeking to represent;
3. Interests in, income from, or transactions with a business a
substantial part of which consists of dealing with an employer whose
employees the filer's union represents or is actively seeking to
represent;
4. Interests in, income from, or transactions with a business that
deals with the filer's union or a trust in which the filer's union is
interested;
5. Transactions or arrangements with an employer whose employees
the filer's union represents or is actively seeking to represent; and
6. Payments from an employer or labor relations consultant to an
employer.
As sometimes used herein, the short-hand phrase ``payments or other
financial interests'' or its equivalent is used to refer to the various
payments, transactions, arrangements and other monetary and financial
interests that must be reported. Payments, as a general rule, include
gifts, gratuities, restaurant meals, and entertainment.
The Form LM-30 must be filed annually by a union officer or
employee (other than those solely engaged in performing clerical or
custodial duties) if the official, the official's spouse, or minor
child (or children) receives a payment or other financial interest from
a business or employer in connection with certain activities,
identified in section 202. Section 202's disclosure obligations for
union officials (as embodied in the Form LM-30) are an integral part of
the Act's reporting structure. The Act requires annual reports by
unions as ``institutions'' under section 201 (Forms LM-2, LM-3, and LM-
4), by employers, who must
[[Page 36108]]
report payments to unions and their representatives under section 203
(Form LM-10), and by unions for trusts in which they have an interest
(``section 3(l) trusts,'' a reference to section 3(l) of the Act
defining such trusts) under sections 201 and 208 (Form T-1).
In the NPRM the Department invited comment with respect to the
benefits of the proposed changes, the ease or difficulty with which
union officials would be able to comply with these changes, and whether
the changes would be meaningful, useful, and in accord with the LMRDA
disclosure purposes. The initial 60-day comment period provided for in
the NPRM was subsequently extended to January 26, 2006. 70 FR 61400
(Oct. 24, 2005). The Department received over 1,000 comments. Of these
comments about 50 were unique; the rest were form letters. Almost 300
of the comments were from unions or union members, most of whom were
critical of all or parts of the proposal; about 700 were from
individuals who generally supported the proposal, about 25 were from
business or trade organizations, who expressed diverse views on the
proposal; about 10 were from law firms, on their own behalf or their
clients, who mostly opposed the proposal; two were from benefit fund
administrators, who opposed the proposal; and one was from an academic
who reported on his limited study of the reactions of union officials
to the proposed form and instructions from which he concluded these
documents needed substantial improvement. Over 280 of the union
commenters were members of one local. In their form letters, they urged
rejection of the rule ``in its entirety.'' They characterized the
proposed requirements as ``frivolous.'' They asserted that the existing
form was adequate to ensure ``due diligence'' by union officials,
adding that the proposed union-leave and no-docking requirements would
turn shop stewards into accountants because of the duty to ``calculate
their time.'' Of the individuals supporting the proposal, the
Department received about 660 form letters. These individuals asserted
that such reforms were long overdue, noting that under the current form
it is difficult to determine when a report is required and that the
proposed form's inclusion of clear definitions and examples would
improve reporting.
The historically low filing rates during the years preceding the
initiation of this rulemaking process demonstrated substantial non-
compliance with the Act. The Department recognized that its own
compliance assistance efforts in this area needed improvement and thus
it has retargeted its resources to educate the affected community about
the Form LM-30 reporting obligation and to increase its enforcement
efforts. At the same time as the Department was working on the proposed
rule, it announced an initiative to improve Form LM-30 compliance. As
part of this effort, the Department substantially augmented its
published guidance to Form LM-30 filers, primarily by posting
information on OLMS Web pages and by further disseminating this
information by notifying subscribers to its free, automated list serve.
On April 25, 2005, the Department announced a special enforcement
policy under which new Form LM-30 filers, absent extraordinary
circumstances, would not have to submit reports for prior years, even
if such reports should have been filed. Specifically, the Department
advised the regulated community that it would not require a new filer
to submit reports covering the same financial interest for any prior
years absent extraordinary circumstances. To take advantage of this
grace period, the new filer had to submit his or her initial report
voluntarily during a ``grace period,'' which ended August 15, 2005.
With the substantial voluntary assistance of the AFL-CIO and other
labor organizations to educate union officials about their reporting
obligations, the Department experienced a large upsurge in the number
of Form LM-30 filings over historical levels. To help union officials
better understand their filing obligations, the Department proposed to
change the instructions to the old form by defining and explaining key
concepts and terms used by the statute and the form, and providing
examples of situations where reporting is required. The Department also
proposed to redesign the reporting format to better assist filers and
improve the utility of the collected information to union members, the
Department, and the general public. Following its review of the
comments and taking into account the Department's recent Form LM-30
filing experience--as requested by some commenters, the Department
remains convinced that this approach is sound and therefore today's
rule preserves the overall approach outlined in the NPRM. At the same
time, the comments were helpful in reconsidering some aspects of the
rule and improving the content of the instructions and the form. The
Department has revised the layout of the form. Instead of the
subsection-by-subsection approach in the proposed form and instructions
that parallels the structure of section 202 and its subsections (i.e.,
sections 202(a)(1) through 202(a)(6)), the rule organizes the form and
instructions by the source of the reportable payment to a union
official. Thus, the form lists the types of employer relationships that
trigger a reporting requirement and the types of business relationships
that trigger a reporting requirement. The instructions identify the
types of payments and other financial interests that must be reported
by a union official if received from an employer, differentiating
between payments received from an employer whose employees the filer's
union represents or is actively seeking to represent and those received
from certain other employers. The instructions also identify the types
of payments that must be reported if received from businesses that
maintain business dealings with the official's union, a trust in which
the official's union is interested, or certain employers. In the NPRM,
the Department requested comment on whether labor organizations should
be required to notify their officers and employees of their Form LM-30
reporting obligations. After review of the comments and the number of
recent filers, the Department has decided to not require unions at this
time to provide such notification to their officials.
In the NPRM, the Department proposed to revise its longstanding de
minimis exception by adopting a quantitative standard of $25 as the
amount that would trigger a reporting obligation. Numerous comments
attacked the $25 threshold as unreasonably low, while other commenters
argued that there should be no de minimis level at all. The Department
adopts $250 as the amount above which a report is required and $20 as
the amount above which payments or benefits must be counted when
calculating whether the union official's $250 reporting threshold has
been met. The rule also includes a limited exclusion for widely
attended gatherings, allowing union officials to attend two such
gatherings without incurring a reporting obligation provided the
employer or business paying for the gathering spent $125 or less per
attendee per gathering.
One provision of the Act, section 202(a)(6), may be read to impose
a requirement on union officials to report payments from all employers.
The Department's proposal to construe this obligation in this manner
was opposed by most of the comments that discussed this point. In light
of these comments, today's rule clarifies the scope of the reporting
obligation under section 202(a)(6), identifying particular situations
that pose a conflict of interest
[[Page 36109]]
that otherwise would not be captured by the other five subsections of
section 202(a).
The Department also proposed to remove certain administrative
exceptions that were available to filers under the old rule: Purchases
and sales in the regular course of business at prices generally
available to any employee of the employer; work performed and payments
and benefits received as a bona fide employee of the employer; certain
loans; and specified interests relating to stock ownership. The rule
generally adopts the proposals as set forth in the NPRM to narrow the
scope of these exceptions and thus makes reportable interests and
payments that present previously unreported potential conflicts of
interest.
The Department requested comment on whether to retain the
distinction between securities traded on a registered national stock
exchange and securities traded elsewhere, such as the NASDAQ stock
market, notwithstanding the language in the Act limiting the exception
to registered securities exchanges. See section 202(b) (ties exception
to such exchanges registered under the Securities Exchange Act of 1934
and other enumerated statutes). After reviewing the comments, the
Department retains its interpretation that it should not extend this
limited exception to exchanges that have not been registered. The
Department, however, notes that on July 15, 2006, the Securities and
Exchange Commission (``SEC'') approved NASDAQ's application for
registration as a national securities exchange, effective July 31,
2006.
Payments received by union officials from employers for work done
on the union's behalf are reportable because such payments are not
received as a bona fide employee of the employer making the payment.
The Department explained in its proposal that union officials must
report any payments for other than ``productive work'' for the
employer, including union-leave and no-docking payments. Similarly, the
proposed definition of ``labor organization employee'' clarified that
an individual who is paid by an employer to perform union work is an
employee of the union if he or she is under the control of the union,
while so engaged. Today's rule adopts the proposed definition of ``bona
fide employee'' and ``labor organization employee,'' making union-leave
and no-docking payments reportable. However, today's rule stipulates
that if such payments are made pursuant to a collective bargaining
agreement and the payments are made for 250 or fewer hours during the
year then there is no reporting obligation.
The meaning given ``labor organization'' defines the scope of a
union official's obligation to report interests in or payments by
certain employers and businesses. Essentially the question presented by
the Department's proposal is whether this obligation applies to only an
official's immediate organization, e.g., a local union or international
union in which he or she holds office, or whether it extends to
situations involving organizations affiliated with the immediate
organization. For instance, is an international officer required to
report payments received from a business that sells products or
services to intermediate and local affiliates or from employers whose
employees are represented by a subordinate union? Under today's rule,
an international union officer must report such payments. The same
obligation exists under the old rule. Today's rule further clarifies
that the same reporting obligation applies to payments received by an
intermediate union officer. The Department, however, does not impose a
reporting obligation on local or intermediate union officials who
receive payments from an entity that does business with a higher
affiliated organization. The rule also excepts employees of
international, national, and intermediate unions from this reporting
requirement. Further, the reporting obligation on officers of national
and intermediate unions does not extend to payments received as
employment compensation by their spouse or minor child that otherwise
would be reportable because of the payer's relationship with a
subordinate union.
Although the Department's old rule applies to payments received
from a section 3(l) trust and the Department proposed no departure from
this rule, numerous comments were received arguing that the Form LM-30
reporting obligation has never been applied to payments by trusts to
union officials. These commenters are mistaken. The Department always
has maintained the position that payments from trusts and vendors to
such trusts enjoy no special excepted status under the Act's reporting
provisions. Some commenters argued that such reporting would only be
duplicative of reporting already required by ERISA and could discourage
union trustees from attending conferences designed to educate trustees
about their duties as trustees. The Department believes that the
concerns about burden and overlap with ERISA disclosure requirements
are overstated. In light of the comments, however, today's rule
clarifies that a payment by a trust is treated no differently than
other payments by an employer or a business to union officials.
Section 202(a)(3) imposes a limited reporting obligation on a union
official who has an interest in or receives payments from a business
that buys, sells, leases, or otherwise deals with the business of an
employer if the latter's employees are represented by the official's
union or it is actively seeking to represent these employees. The
obligation attaches only if the vendor's dealings with the employer
comprise a ``substantial part'' of the vendor's business. The
Department proposed to define ``substantial'' as more than 5% of the
vendor's business. Most of the comments criticized the threshold as too
low. Today's rule sets the threshold at 10%.
In addition to some of the terms discussed above, the Department
has clarified some of the proposed definitions. By clarifying these
terms and the concepts that underlie the Act's reporting provisions,
the rule ensures transparency in the personal financial affairs of
union officials that may pose conflicts between the official's duty to
their union and its members and the official's personal interests.
A number of comments were received from employer and industry
associations. Most of these comments focused on the obligation of
employers to file a Form LM-10 on certain payments made by employers or
labor relations consultants to unions or union officials. Today's rule
is specific to Form LM-30 filers. It does not amend the Department's
current regulations or guidance specific to the Form LM-10. The
Department, however, has carefully considered all the comments
submitted by these groups and addresses them herein insofar as they
address particular aspects of the Form LM-30 proposal. Form LM-10
Frequently Asked Questions (FAQs) on the OLMS Web site at http://www.olms.dol.gov
informs the public that the Department will not
enforce certain Form LM-10 reporting requirements until both the Form
LM-30 rulemaking is completed and further written guidance is issued on
the Form LM-10. This written guidance will be issued in revisions to
the FAQs that will be announced through the OLMS list serve which can
be subscribed to at http://www.dol.gov/esa/about/org/olms/olms-mailinglist.htm
.
1. The Reasons for Today's Revisions of the Form LM-30
The Form LM-30 has remained essentially unchanged since 1963.
[[Page 36110]]
During this time, there have been many significant changes in the ways
in which unions operate and conduct their financial affairs.
Individuals too have more and varied financial interests than was the
case forty years ago. As explained in the NPRM, many unions manage
benefit plans for their members, maintain close business relationships
with financial service providers such as insurance companies and
investment firms, operate revenue-producing subsidiaries, and
participate in foundations and charitable activities. The complexity of
these financial practices, including business relationships with
outside firms and vendors, increases the likelihood that union
officials may have interests in, or receive income from, these
businesses. As more labor organizations conduct their financial
activities through sophisticated trusts, increased numbers of
businesses have commercial relationships with such trusts, creating
financial opportunities for union officers and employees who may
operate, receive income from, or hold an interest in such businesses.
In addition, employers also have fostered multi-faceted business
interests, creating further opportunities for financial relationships
between employers and union officers and employees. In this context,
disclosure is critical to promoting good union governance, fostering
ethical behavior, and deterring and detecting self-dealing.
As noted in the NPRM, on many occasions the Department has
discovered during an audit or investigation that a union officer or
employee received a reportable payment or other financial benefit but
had failed to file the Form LM-30 as required. The Department
identified several such situations in the NPRM, including the
following:
A local president owned 50% of a business that resurfaced
the union's parking lot. Over two years, the business received $9,000
from the union.
A union designated certain attorneys to represent injured
members. Some of these attorneys, who were employers, furnished cash or
items of value such as trips and golf clubs to union officials.
A union hired the accounting firm of an employee's spouse.
The firm received over $29,000 from the union over two years.
An officer of a union, whose members worked at a theater,
formed a business with two partners. He put his share of the business
in his wife's name although he actually managed the business, which
employed members of his local to work for the theater. He and his wife
received almost $75,000 in profits, expense reimbursements, and salary
from the business.
A union president owned the building in which the union
rented office space.
A union employee's spouse owned an advertising company
that printed materials for the union and its funds. In one year, the
company received over $245,000 as payment for her company's services.
Four local officers formed a company that provided payroll
services to the local as well as to theatrical companies that employed
members of the local. Two other officers of the local received over
$20,000 as employees of the company.
The spouse of a union officer owned a company that
provided cleaning and maintenance services to the union and a trust in
which the union was interested. In one year, the company received over
$94,000 from the union and the trust.
A union officer's spouse owned a janitorial business that
provided daily janitorial services to the union at $800 per month.
A union officer was part-owner, along with his wife and
daughter, of a copier supply company. He was an officer of several
unions, including one that employed his daughter as a benefit
representative and union trustee. All of the unions purchased office
equipment and services from the family's company.
During a campaign for a State government office, a
business agent received contributions from employers who were covered
by the union's collective bargaining agreement.
A union employee owned a heating and air conditioning
business that performed HVAC work for the union.
In these instances, compliance with the Form LM-30 requirements
would have provided union members with valuable information concerning
financial practices of their unions' officials. This information would
have assisted union members in evaluating the efficacy of the work
performed by union employees and the leadership provided by union
officers. Furthermore, the information would have alerted them to
potential conflicts of interests and guided them as to which actions or
decisions of their officers and employees might require greater
scrutiny in order to determine whether the conflicts had affected the
union official's service to the union. Armed with this information,
union members could express their concerns at membership meetings, see
section 101(a), 29 U.S.C. 411(a), evaluate the use of union monies as
reported on the union's annual financial report, see section 201(b), 29
U.S.C. 431(b), cast more informed votes at internal union elections,
see sections 401-403, 29 U.S.C. 481-483, employ union procedures for
removal of officers guilty of serious misconduct, see section 401(h),
29 U.S.C. 481(h), and exercise their right to obtain judicial relief
for violations of the official's fiduciary responsibilities. See
section 501(b), 29 U.S.C. 501(b).
In other instances, as described in the NPRM, compliance with Form
LM-30 requirements would have revealed criminal conduct. For example,
the president of a national union had the sole authority to appoint or
remove attorneys from a list of ``Designated Legal Counsel.'' These
attorneys represented injured union members who sought compensation
from the railroad for on-the-job injuries. Rather than selecting
attorneys on the basis of their skills, the president awarded the
designation to attorneys who gave the union president cash or other
things of value. In another instance, contractors were hired to make
repairs and improvements to the offices of a local union. The
contractors also performed work on the officers' homes. All the
expenses of the work, including about $1.2 million for work on the
officers' homes, was charged to and paid by the union. A third example
involved a contractor, an investment firm that managed pension and
investment accounts for unions. This company collapsed in September
2000, costing its clients about $355 million. The company's former
chairman was indicted on counts of fraud, money laundering, witness
tampering, and making illegal payments to union benefit plan trustees.
As part of its scheme to buy the influence of pension fund trustees,
who were union officers, the investment firm hired relatives of pension
trustees as well as provided plan trustees with gifts including rifles,
season tickets to sporting events, and fishing and hunting trips to
various locations in the western U.S., Canada, Africa, Argentina and
Mexico.
As the above incidents demonstrate, a statement made in 1986
continues to ring true: ``The plunder of union resources remains an
attractive [target for certain individuals and organizations]. * * *
The most successful devices are the payment of excessive salaries and
benefits to * * * union officials and the plunder of workers'' health
and pension funds.'' President's Commission on Organized Crime, Report
to the President and Attorney General, The Edge: Organized Crime,
Business, and Labor Unions
[[Page 36111]]
(1986), at 12. Added transparency about a union official's conflicts of
interest will help ensure that all union officials keep paramount the
interests of their union and its members. Most union officials will
never be tempted to subordinate their union's interests to their own
financial interests; the rule will help them avoid the perception that
their financial interests, left unreported through inadvertence or
misunderstanding, may engender unfair suspicion. Others, though
tempted, will be deterred from taking such action. See Archibald Cox,
Internal Affairs of Labor Unions Under the Labor Reform Act of 1959, 58
Mich.L.Rev. 819, 827 (1960) (``Internal Affairs of Labor Unions'')
(``The official whose fingers itch for a ``fast buck'' but who is not a
criminal will be deterred by the fear of prosecution if he files no
report and by fear of reprisal from the members if he does'').
The Form LM-30 has been redesigned to facilitate full and accurate
completion by the filer and review by members of the filer's union and
the public. The instructions now contain useful definitions of key
terms and concepts required to complete the form and numerous practical
examples to assist filers in completing the form. Union officials will
also better understand the disclosure obligations relating to actual or
potential conflicts of interest and will be mindful of their duty to
hold their union's interests above their own personal financial
interests. Financial transparency, as noted above, also may deter fraud
and self-dealing and facilitates discovery of such misconduct when it
occurs. Transparency promotes the unions' own interests as democratic
institutions. By these improvements, union members will obtain a more
accurate picture of the personal financial interests of their union's
officers and employees, as those interests may bear upon their actions
on behalf of the union and its members. With this information, union
members will be better able to understand any financial incentives or
disincentives faced by their union's officers and employees and to make
more informed choices about the leadership of their union and its
management of its affairs. Through these actions, the Department
advances the LMRDA's declared purpose ``that labor organizations,
employers, and their officials adhere to the highest standards of
responsibility and ethical conduct in administering the affairs of
their organizations.'' Section 2(a). As such, today's rule will better
achieve the purposes of the LMRDA than the old reporting regimen.
2. Legislative History
To better understand the purposes served by disclosure, a brief
review of the history of the LMRDA's reporting and disclosure
requirements for union officials is appropriate. As explained in the
NPRM, at 70 FR 51166, the LMRDA was passed in 1959 by a bipartisan
Congress that found: In labor and management fields:
[T]here have 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 which require further and supplementary legislation
that will afford necessary protection of the rights and interests of
employees and the public generally as they relate to the activities
of labor organizations, employers, labor relations consultants, and
their officers and representatives.
Section 2(a).
The legislation was the direct outgrowth of a Congressional
investigation conducted by the Select Committee on Improper Activities
in the Labor or Management Field, commonly known as the McClellan
Committee, chaired by Senator John McClellan of Arkansas. In 1957, the
committee began a highly publicized investigation of union racketeering
and corruption; its findings of financial abuse, mismanagement of union
funds, and unethical conduct provided much of the impetus for enactment
of the LMRDA's remedial provisions. See generally Benjamin Aaron, The
Labor-Management Reporting and Disclosure Act of 1959, 73 Harv. L. Rev.
851, 851-55 (1960). During the investigation, the committee uncovered a
host of improper financial arrangements between officials of several
international and local unions and employers (and labor consultants
aligned with the employers) whose employees were represented by the
unions in question or might be organized by them. Similar arrangements
also were found to exist between union officials and the companies that
handled matters relating to the administration of union benefit funds.
See generally, Interim Report of the Select Committee on Improper
Activities in the Labor or Management Field, S. Report No. 85-1417
(1957) (``Interim Report''). For examples of some of the improper
arrangements directly or indirectly involving officials of these
unions, see Interim Report, pp. 42-86, 122-30, 150-57, 222-55, 376-420,
441-50. See also Robert F. Kennedy, The Enemy Within (1960) (discussing
the committee's investigation).
The statute was designed to remedy these various ills through a set
of integrated provisions aimed at union governance and management.
These included a ``bill of rights'' for union members, which provides
for equal voting rights, freedom of speech and assembly, and other
basic safeguards for union democracy, see sections 101-105 of the
LMRDA, 29 U.S.C. 411-415, financial reporting and disclosure
requirements for unions, union officers and employees, employers, labor
relations consultants, and surety companies, see sections 201-206 and
211 of the LMRDA, 29 U.S.C. 431-436, 441; detailed procedural,
substantive, and reporting requirements relating to union trusteeships,
see sections 301-306 of the LMRDA, 29 U.S.C. 461-466; detailed
procedural requirements for the conduct of elections of union officers,
see sections 401-403 of the LMRDA, 29 U.S.C. 481-483, safeguards for
unions, including bonding requirements, the establishment of fiduciary
responsibilities for union officials and other representatives; and
criminal penalties for embezzlement from a union, for loans over $2,000
by a union to officers or employees, for a union's employment of
certain convicted felons or permitting them to hold union office, and
for payments to employees for prohibited purposes by an employer or
labor relations consultant, see sections 501-504 of the LMRDA, 29
U.S.C. 501-504; and prohibitions against retaliation for exercising
protected rights, see sections 601-611 of the LMRDA, 29 U.S.C. 521-531.
The reporting requirement for union officials operates in tandem
with the Act's establishment of a fiduciary duty for union officials
and representatives. Section 501, 29 U.S.C. 501. Congress addressed
conflicts of interest in both sections 202 and 501(a) of the Act. The
latter section provides in part:
The officers, agents, shop stewards, and other representatives
of a labor organization occupy positions of trust in relation to
such organization and its members as a group. It is, therefore, the
duty of each such person, taking into account the special problems
and functions of a labor organization, to hold its money and
property solely for the benefit of the organization and its members
and to manage, invest, and expend the same in accordance with its
constitution and bylaws and any resolutions of the governing bodies
adopted thereunder, to refrain from dealing with such organization
as an adverse party or in behalf of an adverse party in any matter
connected with his duties and from holding or acquiring any
pecuniary or personal interest which conflicts with the interests of
such organization * * *.
Both provisions address the potential and actual conflict between a
union representative's personal interests and his or her duty to the
union and its
[[Page 36112]]
members. See Theodore Clark, Jr., The Fiduciary Duties of Union
Officials under Section 501 of the LMRDA, 52 Minn. L. Rev. 437, 458-60
(1962).
The McClellan Committee hearings disclosed a history of self-
dealing by certain union officials, often at the expense of their
union's membership. Then Senator John F. Kennedy was the chief sponsor
of the Senate bill, S. 505, which served as the foundation for the
LMRDA. In introducing the bill for the Senate's consideration, Senator
Kennedy addressed concerns about the involvement of union officials in
matters that blurred their personal interests and their union's
interests, which concerns would be remedied by the legislation. Senator
Kennedy used the experience of the Teamsters union, as revealed by the
investigation of the McClellan Committee, to underscore the purposes to
be achieved by the Act:
First. It will no longer be possible for the dues of Teamster
members to be * * * used by [the union's] officers to build their
own personal financial empires without the knowledge of the members
themselves--or without investigation by the press and public
authorities.
Second. [A union official] would be required to disclose all his
business dealings with insurance agents handling the union's welfare
funds, his private arrangements with employers, his hidden
partnerships in business ventures foisted upon his members, and all
other possible conflicts of interest.
* * * * *
Sixth. [Union officials] will find future collusion with
employers vastly restricted--with no more loans from employer
groups, no more attacks on rival unions through middlemen * * *, and
no more secrecy shrouding the use of union funds to bail out a
collaborating employer.
105 Cong. Rec. S817 (daily ed. Jan. 20, 1959), reprinted in 2 NLRB
Legislative History of the Labor-Management Reporting and Disclosure
Act of 1959 (``Leg. History''), at 969.
The improper dealings by the Teamsters officials, to which Senator
Kennedy refers, are detailed in the Interim Report, at e.g., 48, 59-60,
64-86, 222-54, 443-50. These dealings, like those identified by
officials of other unions in the Interim Report, included actions
undertaken by national officers, or others acting at their behest,
involving matters affecting not only the national union's operation but
also matters of importance to local and intermediate bodies of their
union. See e.g., Interim Report, at 4-7, 46-49, 51, 55, 59-60, 63, 69,
74, 81, 87, 122-25, 128, 130, 179, 186-87, 224, 228, 230-40, 244, 250,
252, 264-66, 268, 281, 284-85, 295, 297, 300, 444-48. See also The
Enemy Within, at 97, 99, 104-05, 106, 221-24.
As explained in the Senate Committee Report, S. Rep. No. 187 (1959)
(``Senate Report''), at 15, reprinted in 1 Leg. History, at 411: ``The
hearings before the McClellan committee brought to light a number of
instances in which union officials gained personal profit from a
business which dealt with the very same employer with whom they engaged
in collective bargaining on behalf of the union.'' Id. The committee
endorsed the concern expressed in the AFL-CIO's Ethical Practices Code
that the union official ``may be given special favors or contracts by
the employer in return for less than a discharge of his obligations as
a trade-union leader.'' Id.
In explaining the purpose of the disclosure rules for union
officers and employees, the Senate Report presented ``three reasons for
relying upon the milder sanction of reporting and disclosure [relative
to establishing criminal penalties] to eliminate improper conflicts of
interest,'' which we summarize as follows:
Disclosure discourages questionable practices. ``The
searchlight of publicity is a strong deterrent.'' Disclosure rules
should be tried before more severe methods are employed.
Disclosure aids union governance. Reporting and
publication will enable unions ``to better regulate their own affairs.
The members may vote out of office any individual whose personal
financial interests conflict with his duties to members,'' and
reporting and disclosure would facilitate legal action by members
against ``officers who violate their duty of loyalty to the members.''
Disclosure creates a record. The reports will furnish a
``sound factual basis for further action in the event that other
legislation is required.''
Senate Report, at 16, reprinted in 1 Leg. History, at 412.
The Report further stated: ``No union officer or employee is
obliged to file a report unless he holds a questionable interest or has
engaged in a questionable transaction. The bill is drawn broadly
enough, however, to require disclosure of any personal gain which an
officer or employee may be securing at the expense of the union
members.'' Senate Report, at 14-15, reprinted in 1 Leg. History, at
410-11. The House Committee Report, H.R. Rep. No. 741 (1959) (``House
Report''), at 11, reprinted in 1 Leg. History, at 769, conveyed the
same message. Both the Senate and House Reports recognize that a
reportable interest is not necessarily an illegal practice. As the
House Report stated:
In some instances matters to be reported are not illegal and may
not be improper but may serve to disclose conflicts of interest.
Even in such instances, disclosure will enable the persons whose
rights are affected, the public, and the Government, to determine
whether the arrangements or activities are justifiable, ethical, and
legal.
House Report, at 4, reprinted in 1 Leg. History, at 762. See Senate
Report, at 38, reprinted in 1 Leg. History, at 434 (``By requiring
reports * * *, the committee is not to be construed as necessarily
condemning the matters to be reported if they are not specifically
declared to be improper or made illegal under other provisions of the
bill or other laws''). ``Reports are required as to matters which
should be public knowledge so that their propriety can be explored in
the light of known facts and conditions.'' Id. As stated by Senator
Barry Goldwater after the LMRDA had been passed:
Briefly, what must be reported are holdings of interest in or
the receipt of economic benefits from employers who deal or might
deal with such union official's union, or holdings in or benefits
from enterprises which do business with such union official's union.
105 Cong. Rec. A8512 (daily ed. Oct. 2, 1959), reprinted in 2 Leg.
History, at 1846.
Conflict of interest standards, including disclosure obligations of
individuals and entities occupying positions of trust, are well
grounded in U.S. law. As stated in the House Report, repeating almost
verbatim the same point in the Senate Report:
For centuries the law of fiduciaries has forbidden any person in
a position of trust subject to such law to hold interests or enter
into transactions in which self-interest may conflict with complete
loyalty to those whom he serves. * * * The same principle * * *
should be equally applicable to union officers and employees
[quoting the AFL-CIO's Ethical Practices Code]: ``[A] basic ethical
principle in the conduct of union affairs is that no responsible
trade union official should have a personal financial interest which
conflicts with the full performance of his fiduciary duties as a
worker's representative.''
Senate Report, at 11, reprinted in 1 Leg. History, at 769. See
generally Restatement (Second) of Trusts (1959) Sec. Sec. 170, 173;
Restatement (Second) of Agency (1958) Sec. Sec. 381, 387-98.
Section 202 is an effort, in part, to make effective the disclosure
requirements associated with the fiduciary standards applied to union
officials in Title V of the LMRDA, a duty that includes an obligation
to report potential conflicts of interest. Both Titles II and V of the
Act represent an effort to codify various requirements
[[Page 36113]]
contained in an extensive code of ethics voluntarily adopted by the
AFL-CIO in 1957 and applied to its affiliated unions and officials. See
Senate Report, at 12-16, reprinted in 1 Leg. History, at 408-12; House
Report, at 9-12, reprinted in 1 Leg. History, at 767-70. See also
Internal Affairs of Labor Unions, 58 Mich. L. Rev. at 824-29. The
following excerpts from this code demonstrate the similarities between
a union official's fiduciary duty and the disclosure requirements of
section 202.
[A] basic ethical principle in the conduct of trade union
affairs is that no responsible trade union official should have a
personal financial interest which conflicts with the full
performance of his fiduciary duties as a workers' representative.
[U]nion officers and agents should not be prohibited from
investing their personal funds in their own way in the American free
enterprise system so long as they are scrupulously careful to avoid
any actual or potential conflict of interest.
In a sense, a trade union official holds a position comparable
to that of a public servant. Like a public servant, he has a high
fiduciary duty not only to serve the members of his union honestly
and faithfully, but also to avoid personal economic interest which
may conflict or appear to conflict with the full performance of his
responsibility to those whom he serves.
There is nothing in the essential ethical principles of the
trade union movement which should prevent a trade union official, at
any level, from investing personal funds in the publicly traded
securities of corporate enterprises unrelated to the industry or
area in which the official has a particular trade union
responsibility.
[These principles] apply not only where the investments are made
by union officials, but also where third persons are used as blinds
or covers to conceal the financial interests of union officials.
Ethical Practices Code IV: Investments and Business Interests of Union,
105 Cong. Rec.*16379 (daily ed. Sept. 3, 1959), reprinted in 2 Leg.
History, at 1408. See also Ethical Practices Code II: Health and
Welfare Funds, id., 2 Leg. History, at 1406-07.
The Department intends by today's rule to better achieve the
purposes of the LMRDA, as reflected by its legislative history.
II. Discussion of Comments Received on Proposed Rule and Department's
Response
A. Why the Changes To the Form Are Needed Now
Several commenters recommended that the Department should evaluate
its recent compliance experience with Form LM-30 reports submitted by
union officials using the old form before considering any changes to
the form. One commenter stated that there is no problem with the old
form. Another asserted that the affected community has spent a ``huge
amount of time getting up to speed on the present form,'' arguing that
the proposed form is more confusing than the current form because it
requires filers to identify for each reportable interest the particular
statutory provision to which it relates.
A labor educator, noting the upsurge in Form LM-30 filings about
the time of the comment period on the proposed rule, suggested that the
Department should postpone any changes until it completed a thorough
analysis of these submissions. Although this commenter acknowledged
that the old form presents some challenges to a filer's easy
understanding of the reporting requirements, he asserted that the
proposed form poses greater opportunity for mistake and confusion. Two
commenters argued: ``[R]adically changing the form at the same time as
the Department provides comprehensive guidance on what is considered
reportable [on the old form] will only impede the efforts to encourage
accurate and full reporting.''
The old Form LM-30 posed substantial challenges to filers. As
discussed in the NPRM and as demonstrated by comments on the proposal,
filers have been unsure about the kinds of payments that trigger the
need to file a Form LM-30. See 70 FR 51172-73, 51175. Keeping the
status quo would leave in place exceptions that permit union officials
to avoid disclosing payments that would otherwise be reportable under
the statute, denying union members information about their officials'
interests in and payments by employers and businesses that raise
conflict of interest questions. Deferring the final rule for an
exhaustive analysis of all the Form LM-30 filings during the April
through mid-August 2006 ``grace period,'' numbering about 13,000 would
cause undue delay with little additional gain. The Department's
preliminary and ongoing review of these filings demonstrates that the
old form is unclear and that today's rule will rectify many of the
problems observed in those filings.
One commenter recommended that the Department, well in advance of
the filing deadline, ``should grant a reasonable extension for filing
and/or make any aspects of the final rule that are more restrictive
than the current rule prospective only. DOL should only apply any
changes prospectively, and it should provide a reasonable opportunity
for necessary recordkeeping and related efforts to facilitate accurate
reports and compliance.'' Another commenter argued that no new
requirements should be imposed on service providers until rulemaking on
the Form LM-10 is completed. Another commenter argued that no changes
in reporting should occur any sooner than a filer's fiscal year that
begins after the final rule takes effect.
DOL is applying these changes prospectively only. This final rule
will apply to fiscal years beginning on or after ------, 2007.
Therefore, no report subject to today's rule will be due until at least
------, 2008. There is ample time from publication of this final rule
until ------, 2008 for all filers to obtain any information they need
to comply with the filing requirements.
B. Why the Department Is Not Presently Requiring Unions to Notify Their
Officers and Employees (``Officials'') About Their Annual Reporting
Obligations
In the NPRM, the Department requested comments on whether the
Department should require unions to provide notice of the filing
requirements to their officers and employees. The NPRM discussed
possible notification options. Under one option, unions would be
required to notify their officers and employees of their Form LM-30
obligations within 30 days of their installation into office or hire,
respectively. Unions would be required to provide initial notification
within 60 days of the enactment of the regulation, and annually
thereafter to all officers and employees. Under the proposal, a union
could meet this requirement by providing a copy of the Form LM-30 and
its instructions. E-mail notification might be considered. As an
alternative, a general notice, provided in a union publication
addressed to each officer and employee, might be adequate for this
purpose.
A number of comments were received on the notification question.
Commenters were divided on the question. Some commenters strongly
supported mandatory notification, pointing to low numbers of past
filers as evidence that notification is essential. No union commenter
supported the proposal. Commenters were divided as to whether the
Department has authority to require notification under sections 105 or
208 of the LMRDA. One commenter asserted that the Department lacks
authority to issue a notification requirement under section 105,
arguing that this provision does not allow imposition of a detailed
code of union conduct. Another commenter used section 105 to illustrate
its position that Congress knew how to establish a notification
requirement, arguing that its
[[Page 36114]]
failure to so provide in section 202 evinces the intention to excuse
unions from any obligation to provide such notice. Another commenter
argued to the contrary, stating that mandatory notification is
consistent with section 105 which states, ``[e]very labor organization
shall inform its members concerning the provisions of this Act.'' While
acknowledging that section 208 arguably permits a notification
requirement, a commenter argued that the Department must first
demonstrate that such a rule is necessary to prevent the circumvention
or evasion of the reporting obligation. It argued that
``circumvention'' and ``evasion'' connote a willful disregard of the
filing obligation, actions that require as a premise that the filer
already is aware of the filing obligation.
A commenter argued that the Department should impose a broader
notification requirement on unions. Unions should be required, in its
view, to provide notice to both officials and their members about both
the filing obligations of union officials and the union's own reporting
obligations to file a Form LM-2, 3 or 4. Another commenter viewed
notification as a ``first-step in the right direction.'' It stated a
preference for a system whereby the Department would provide annual
reminders about Form LM-30; each union would be required to file with
the Department the names and addresses of all its officers and
employees. On the other hand, several commenters argued that reliance
on voluntary efforts would better achieve the goal of informing
officials about their filing obligation. One of these commenters stated
that voluntary education works better than mandatory notification given
that unions have a variety of governance structures and that they
operate, in effect, in different industries calling for different
approaches. Another commenter suggested that DOL ``work informally'' to
obtain compliance. This commenter explained that under the old
regulation, unions take various steps to inform their officials about
Form LM-30 requirements, such as by holding meetings or providing
written notices. The commenter argued that the choice of a method to
inform union members should be left to the union. Several commenters
argued that notification was unnecessary in light of new Department
guidance, pointing to the rise in filings to support its claim.
The Department believes it possesses the authority to impose a
notification requirement. However, the Department has concluded, based
on its review of the comments and the recent experience with Form LM-30
filers, that a mandatory notification requirement is unnecessary on the
present record to effectuate the disclosure purpose served by section
202 of the Act. After unions and their counsel became aware of the
Department's increased emphasis in securing compliance with section
202, many contacted their officers and employees to inform or at least
remind them of their obligation to file a Form LM-30 if they engaged in
any of the activities identified by the form and its instructions.
While in previous years less than 100 forms were typically filed each
year, during the 2005 grace period contemporaneous with this
rulemaking, 13,326 reports were filed. During FY 2006, 4,348 Form LM-30
reports were filed. Given the historic increases in Form LM-30s during
the grace period with stepped up Departmental compliance assistance and
voluntary efforts by major unions to educate affiliates and officials,
there is currently not a sufficient record to conclude that a mandatory
requirement is needed.
The Department applauds the voluntary efforts by the AFL-CIO and
other unions to apprise union officials about their Form LM-30
reporting obligations. However, insufficient time has passed to
conclude that union officials, without receiving regular notice by
their union of these obligations, will remain aware of these
obligations. If future compliance figures indicate that new union
officials are uninformed about their Form LM-30 filing obligations or
that others appear to have forgotten their obligations, the Department
may then reassess the need for imposing a notification requirement.
C. Why the De Minimis Exemption From Reporting Insubstantial Gifts and
Other Financial Benefits Has Been Simplified and Subjected to a $250
Limit, With an Exclusion for Gifts Valued at $20 or Less and Certain
Widely-Attended Gatherings
Section 202(a) of the LMRDA calls for disclosure of ``any'' stock,
bond or other interest, ``any'' income, ``any'' loan, and ``any''
payment or other thing of value received by a union official, his or
her spouse, or minor child[ren] from employers and businesses as
defined in sections 202(a)(1) through 202(a)(6). While this inclusive
language may be read to require a report on any such payments
regardless of amount, the Department always has excepted from reporting
payments of insubstantial or de minimis value. Thus, the old
instructions to the Form LM-30 inform filers: ``You do not have to
report any sporadic or occasional gifts, gratuities, or loans of
insubstantial value, given under circumstances or terms unrelated to
the recipient's status in a labor organization.'' This exemption
applies by its terms to all reports due under section 202. The LMRDA
Interpretative Manual (``LMRDA Manual''), as revised in March 2005,
states that anything with a value of $25 or less will be considered de
minimis and therefore not reportable if it is given on an ``infrequent
or sporadic'' basis under circumstances unrelated to the recipient's
status in a labor organization. LMRDA Manual, Sec. 241.700.
The Department sought comments on the de minimis exception
generally and specifically on whether the $25 threshold is appropriate,
whether the burden is reasonable, and whether reporting of all
transactions should be required without regard to their value. 70 FR
51175. In November 2005, following a review of Form LM-30 reports filed
during the Department's grace period, which revealed the reporting of
numerous payments that union members and the public would regard as
trivial, and based on comments from union representatives that the
threshold was too low, the Department issued guidance advising that
``gifts, gratuities or loans with a value of $250 or less'' would be
considered insubstantial for the purposes of Form LM-30 reporting.
In the NPRM, the Department noted the inclusive language used by
Congress in defining the scope of the reporting obligation and the
absence of any general substantiality test for the LMRDA's reporting
provisions. See section 202(a)(3); 29 U.S.C. 432(a) (limiting reports
specific to certain ``substantial'' dealings). The Department also
noted that exceptions based on insubstantiality are commonly read into
statutes that do not expressly contain them and that the financial
disclosure reports for certain Federal government employees contain a
de minimis exemption.
The Department in today's rule retains a de minimis exemption.
Under this exemption, payments or gifts totaling $250 or less from any
one source during the reporting year need not be reported. In addition,
the Department decides that payments or gifts valued at $20 or less
need not be included in determining whether the $250 threshold has been
met. The Department has concluded that a dollar-specific test for de
minimis payments is preferable to one that requires filers to make a
fact-specific determination of what is ``insubstantial'' or ``unrelated
to the filer's status in a labor organization'' or ``sporadic and
occasional.'' The Department also has crafted a limited reporting
exclusion for a union official's
[[Page 36115]]
attendance at ``widely attended gatherings.'' If during the year, an
officer or employee attends one or two widely-attended gatherings for
which an employer has spent $125 or less per attendee per gathering,
the officer or employee has no Form LM-30 obligation with regard to
tracking or disclosing these events. A gathering will be considered
``widely attended'' if it is expected that a large number of persons
will attend and that attendees will include both union officials and a
substantial number of individuals with no relationship to a union or
its section 3(l) trust.
The Department received numerous comments on the de minimis
question, mostly in favor of retaining the exemption and the adoption
of a quantitative threshold substantially higher than the $25 figure
discussed in the NPRM. Particular comments are discussed below.
A few commenters argued that no de minimis level should be adopted
at all. One commenter stated that full disclosure was appropriate
because it allowed a union's members to decide whether a gift to a
union official presented a negligible conflict of interest or not. The
Department acknowledges that there would be some benefit in eliminating
the exception; this change would allow individual union members to
determine whether a particular payment poses a conflict of interest and
more importantly could lead to further inquiry about a union official's
actions. As stated in the NPRM, there is no statutory requirement for a
de minimis level. See Environmental Defense Fund, Inc. v. EPA, 82 F.3d
451, 466 (D.C. Cir. 1996). Nonetheless, abandoning a de minimis
threshold altogether would be a sharp departure from the Department's
historical practice. Moreover, as further discussed below, the
Department believes that elimination of the de minimis exception would
only marginally increase meaningful transparency. Furthermore, the
absence of a specific de minimis exception in section 202 is not
determinative; exceptions based on insubstantiality are commonly read
into statutes that do not expressly contain them, and this practice
demonstrates their practical value. See Wisconsin Dept. of Revenue v.
William Wrigley, Jr., Co., 505 U.S. 214, 231 (1992). For these reasons,
the Department retains the de minimis exception.
Many commenters noted the difficulty of applying the vague de
minimis standard in the old instructions and the historical absence of
helpful guidance in applying the exception. Several requested the
Department to provide at least an illustrative dollar figure and to
explain the meaning it attributes to the terms ``unrelated to the
filer's status in a labor organization'' and ``sporadic and
occasional.'' Some specifically requested the Department to provide
additional examples so that filers could better understand the de
minimis exception. Others argued for a test that was solely tied to the
dollar value of any gift or payment.
As acknowledged in the NPRM, the qualitative aspects of the rule
have proved difficult to apply. Based on its consideration of the
comments and further review of this question, the Department has
concluded that the purposes of section 202 can best be achieved by
modifying the test so that the value of the payment or gift is the sole
consideration affecting its disclosure. Additional conditions for
claiming the exception would often present filers with the burden and
expense of undertaking a fact-specific inquiry even though the amount
of the gift or payment, as recognized by the dollar threshold, is
insubstantial.
Some commenters favored replacing or at least supplementing the de
minimis rule with the creation of broad exceptions to the various
reporting requirements. These commenters requested exceptions for what
they viewed as routine activities necessary for conducting business.
Thus, exceptions, among others, were proposed for the following: any
expenses related to an employee benefit plan including educational
benefits, receptions and meals, routine business functions and
luncheons, all marketing expenses, marketing and entertainment expenses
provided equally to union and management trustees, and any promotional
or branded good containing a company name or logo. Most of these
comments were from employers or industry associations that anticipate
that union officials will rely on the vendors to keep track of any
gifts or payments so that they can readily determine whether they have
incurred a reporting obligation. Another commenter suggested that no
report should be required for any gratuity that would be considered a
``business expense'' by the IRS. One commenter characterized the rule
as ``incredibly burdensome'' and an ``unprecedented imposition'' on
service providers to trusts. Another commenter suggested, in effect,
that the Department should adopt the rules and exceptions provided
under the disclosure rules for Federal employees in place of the
Department's proposed de minimis rule.
Several comments expressed concern about the need to report
educational materials and seminars provided union trustees by vendors
offering or providing services to welfare and pension plans. These
commenters argued that even a high de minimis level would have a
chilling effect because union trustees would refuse the materials or
decline to attend a seminar in order to avoid the recordkeeping and
reporting burden or the perception by union members that the trustee's
attendance would be inappropriate. One commenter suggested that no
report should be required for educational resources provided to union
officials, so long as the sponsoring organization retained a statement
of the educational purpose of the resource, a list of its total
expenses relating to the otherwise reportable event, and if a seminar,
the list of attendees.
The Department declines to create any suggested broad category of
exceptions. Creating the broad exceptions suggested would frustrate the
purpose of the statute to make transparent possible conflicts and would
deny union members the ability to evaluate any concerns they might have
about the possibility that a union official might put his or her own
interests above those of the union and its members. Educational
seminars and resources may benefit trustees to pension or welfare plans
and the workers whom the plan is meant to benefit. The same event,
however, may well include gifts, meals, travel, lodging and
entertainment provided by service providers, or potential service
providers, to these plans. By requiring reporting, the Department need
not attempt the highly difficult task of crafting a rule that will
identify the questionable payments. Rather, union members and the
public can evaluate the situation on a case-by-case basis, and make
their own decisions on the choices made by their officials.
Furthermore, these commenters fail to recognize that the Secretary's
authority to fashion a de minimis exception is a limited one. The LMRDA
does not confer on the Secretary the authority to except from reporting
matters which Congress has evinced no intention to withhold from
disclosure and the de minimis principle, as evidenced by its name, only
applies to matters of relative insignificance. Although the disclosure
rules for Federal employees provide an alternative system for reporting
financial interests that may pose a conflict with an individual's
duties, that system was designed to meet the special needs and
interests of Federal employment and the various laws that govern such
employment. The
[[Page 36116]]
Department has borrowed some ideas from the disclosure rules for
Federal employees but to adopt the Federal disclosure rules wholesale
would be impracticable.
Most of the commenters advocated a dollar threshold substantially
higher than the $25 figure mentioned in the NPRM; many urged a figure
higher than $250. These commenters and others requested the Department
to exclude from the aggregate amount ``hospitality gifts'' of nominal
value, variously defined by particular commenters. Several commenters
urged the Department to adopt a two-tier approach similar to Federal
conflict of interest disclosure requirements for Office of Government
Ethics (OGE) Form 450 and Form SF 278. In general, these commenters
recommended that gifts totaling $250 or less from any one source need
not be reported and that ``insubstantial'' gifts (ranging from $75 to
$250) should not be included in determining whether the $250 threshold
has been met. Otherwise, many commenters argued, the recordkeeping
burden would be unreasonable because union officials would have to
track every cup of coffee and every lunch to determine whether and when
the $250 level was met. The general rule for employees covered by the
Federal disclosure rules is that they are prohibited from accepting any
gift because of their government position. Examples of prohibited gifts
are those that come from persons or firms that have contracts, grants,
or other business with the employee's agency, or are seeking such
contracts, grants or other business. These employees are also
prohibited from accepting gifts from entities that are either regulated
by the employee's agency or may be affected by the performance of the
employee's duties. An exception to this general rule applies to
unsolicited non-cash gifts of $20 or less up to a maximum of $50 per
year from a single source. 5 CFR 2635.204(a).
The Department believes that, by setting the threshold at $250 and
providing that payments or gifts valued at $20 or less need not be
included in determining whether the $250 threshold has been met, it has
achieved the appropriate balance between ensuring transparency of
potential conflicts and minimizing the reporting burden. This two-tier
approach has precedent in the Federal employee disclosure regime. By
excluding expenses of $20 or less from the $250 computation, the
Department substantially reduces the burden associated with aggregating
gifts or payments from a particular employer or business. There will be
no need to keep records of coffee and pastry service, modest lunches,
or similar ``hospitality gifts.''
Some commenters expressed the concern that requiring large numbers
of reports on relatively small amounts of payments ``buries'' from view
reports of greater value. The Department believes this fear is
unfounded, especially in light of the $250 aggregate threshold
established by today's rule. Even at a much lower figure, the number of
reports of interest to a particular union member would constitute only
a small fraction of the total number of reports filed and these reports
could easily be culled electronically from the other reports.
The Department does not find persuasive the comments urging that
payments higher than $20 should be excluded from the $250 reporting
threshold. While there may be merit to some arguments urging a somewhat
higher or lower amount, a $20 initial threshold minimizes reporting
burden and ensures disclosure of financial relationships that may pose
a conflict of interest. The Department, however, rejects the suggestion
that items valued substantially more than $20 should go unreported.
While in the Department's view, a single gift of $75 or even $100 is
unlikely to be a matter of substantial concern to some members, even a
few gifts of this magnitude would be of concern to most members. And
almost every member would be concerned if a union official received
several gifts of such value. By setting the amount at $100, for
example, a union official could receive a respectable set of golf
clubs, gloves, shoes, and other golfing attire through a series of $100
gifts without filing a Form LM-30. Most union members and members of
the public, the Department believes, would view the gift of a complete
set of clubs or other serial or packaged gifts as posing a potential
conflict of interest between the union duties of the recipient and
matters affecting the donor of the gifts.
The purpose of the de minimis exception is to minimize reporting
burden. A filer may not use the exception to hide the receipt of a
series of payments or gifts that are purposely set at $20 or less to
avoid reaching the $250 reporting threshold. For example, a filer would
have to report his or her receipt of individual tickets worth $20 or
less to all of a professional baseball team's home games that are
provided before each game rather than given as a complete package at
the start of the season. The Department is sensitive to the concern
that by setting the de minimis level at $250 today's rule could lead to
the unintended consequence that some union officials will choose not to
attend some widely-attended gatherings of value to them and their
union's members. However, the Department also believes that reporting
attendance at legitimate educational gatherings will also benefit the
filer by showing their union members that the filer is taking steps to
learn and advance the skills needed for their position. As stated
above, the Department's authority to fashion a de minimis exception is
constrained by the language of section 202. In the Department's view,
however, the Department is within the bounds of its discretion to craft
a limited reporting exception for such gatherings. Thus, the Department
concludes that no union official need report their attendance at one or
two such gatherings annually provided the expense incurred by the
employer or business holding the gathering is $125 or less per expected
attendee. The Department believes this change meets the concern of some
commenters that union officials and trustees would be discouraged from
attending educational seminars related to their union or trustee duties
if they were required to report such activities. The Department
considered, but rejected as impractical and perhaps beyond the
Department's authority, a broader qualitative exception for meetings.
None of the comments provided a ready basis for distinguishing between
the purposes of various meetings that would reduce the reporting burden
without impeding the disclosure of information relevant to assessing
the potential conflict of interest from the value of attendance at
several meetings or a single meeting of significant economic value to a
union official present at the meeting.
D. Why Reporting Exceptions Permitted Under the Old Rule Have Been
Eliminated or Modified To Provide More Information to Union Members
In the NPRM, the Department proposed the elimination of regulatory
exceptions from the reporting requirements of section 202. One of these
exceptions relates to the reporting by union officials of payments
received under ``union-leave'' and ``no-docking'' policies; this
exception is discussed separately. Although each exception is based on
statutory language excepting the reporting of specific interests in or
payments from an employer, the old Form LM-30 and its instructions
apply these specific exceptions more generally to other matters that
otherwise would have to be reported. As discussed in the NPRM, by
administratively enlarging exceptions to reporting, the Department
deprived union members of information
[[Page 36117]]
to which they were entitled under particular provisions of section 202.
70 FR 51175-78. The Department also proposed to eliminate a provision
in its regulations, 29 CFR 404.4, which now states that the Department
may require a union official to file a special report in situations
where the administrative exceptions departed from the language of the
statute. 70 FR 51178.
Under today's rule, as discussed below, the Department generally
has adopted the proposals set forth in the NPRM to narrow the scope of
these exceptions in order to better adhere to the statutory design. The
Department also has eliminated the ``special reports'' language as
unnecessary given the Department's express statutory mandate to conduct
investigations under the Act.
1. Regular Course of Business Exception
Section 202(a)(5) of the LMRDA requires union officials to report
any ``business transaction or arrangement'' with an employer whose
employees the union represents or is actively seeking to represent.
This section excepts from reporting two categories of transactions and
arrangements: (1) Payments and benefits received as a bona fide
employee of an employer whose employees the official's union represents
or is actively seeking to represent; and (2) ``purchases and sales of
goods or services in the regular course of business at prices generally
available to any employee of such employer.'' (Emphasis added).
Sections 202(a)(1) and 202(a)(2) require union officers and employees
to report payments from and other financial interests with such an
employer. These sections do not contain this ``employee discount in the
regular course of business'' exception, but the prior instructions
applied it to financial matters covered by these subsections.
The Department adopts its proposal to limit the exception to
financial matters reportable under section 202(a)(5). Thus, this
exception will no longer apply to matters reportable under sections
202(a)(1) or 202(a)(2). It will not be applicable to (1) Holdings in an
employer whose employees the union represents or is actively seeking to
represent, (2) transactions in such holdings, (3) loans to or from such
employer, and (4) income or any other benefit with monetary value
(including reimbursed expenses) received from such an employer.
The Department received a few comments specific to this issue. One
commenter supported the proposal to remove the exception, while two
others objected to the proposal. One commenter based its support of the
Department's proposal in the statutory language, noting that the
``regular course of business/employee discount'' exception is found
only in section 202(a)(5) and not in sections 202(a)(1) and 202(a)(2).
Therefore, this commenter contended, ``the current instructions create
an exception for transactions under the latter two subsections that
Congress did not envision.'' Numerous commenters objected generally to
reporting related to the routine conduct of business, especially in
connection with business conducted between section 3(l) trusts and
service providers, including financial institutions. For example, one
commenter asserted that the Department should not focus on ``routine
business transactions conducted at arms length,'' but rather on those
transactions that may be evidence of a potential conflict of interest.
One commenter offered a general argument against reporting of what
it considers to be routine business transactions, including payments or
loans to union officials. The commenter argued, in effect, that the
proviso in section 202(a)(6), excepting reporting on ``payments of the
kinds referred to in section 302(c) of the Labor Management Relations
Act,'' should be applied broadly to all the subsections of section
202(a). Thus, this commenter argues implicitly that section 302(c) of
the Labor Management Relations Act excepts from the section's criminal
prohibition the payment of money or other thing of value ``with respect
to the sale or purchase of an article or commodity at the prevailing
market price in the regular course of business.'' 29 U.S.C. 186(c)(3).
This commenter apparently believes that Congress also intended to
exclude such payments from any reporting by union officials,
notwithstanding the absence of such exception from subsections (a)(1)-
(5) of section 202.
The Department disagrees that Congress intended the section 302(c)
proviso in section 202(a)(6) to supplant the specific reporting
obligations prescribed by the other five subsections of section 202(a),
several which have unique exceptions narrowly applicable to the types
of payments for which reports must be filed. The Department concludes
that this construction is contrary to the plain language of the Act,
and would render superfluous specific exclusions Congress crafted for
particular types of payments. It would make no sense for Congress to
craft a disclosure-specific statute with explicit reporting obligations
and explicit exceptions and, at the same time, undo those specific
provisions by a vague reference to another statute.
Union members have an interest in knowing of such holdings,
transactions in holdings, loans, and income so they can evaluate
whether each is significant enough, or of such a nature, to constitute
a conflict of interest. The statutory exemption for payments and other
benefits received as a bona fide employee of the employer is sufficient
to exempt all the ordinary payments received as part of an employment
relationship; the exemption in the current form, the Department finds,
may provide a means to exclude other items that present conflicts of
interest for union officials. For example, a union officer who receives
income from the employer of union members for contract work could, at
least arguably, avoid disclosing the payment by relying on this
exemption. A union employee who purchases certain types of ownership
interests could avoid disclosing the holding by relying on this
exemption. A union official with an employer as a client has a conflict
between personal interests and union loyalties, as does an official
with an ownership interest in the employer. The change is consistent
with the plain language of the statute, which applies this exception
only to financial matters reportable under section 202(a)(5), not to
section 202(a)(1) or 202(a)(2). The elimination of this exemption will
result in more detailed and transparent reporting of financial
information that union members may find helpful in determining whether
their union's officers and employees are subject to financial pressures
inconsistent with their responsibilities to the union and its members.
2. Bona Fide Employee Exception for Transactions With an Employer Whose
Employees the Official's Union Represents or Is Actively Seeking To
Represent
Sections 202(a)(1) and 202(a)(5) include language that specifically
excepts ``payments and other benefits received as a bona fide employee
of such employer'' from reporting. Under the old Form LM-30 and the
instructions, however, this exception also was applied to matters for
which reports were required under section 202(a)(2). Section 202(a)(2)
requires union officials to report: (1) Transactions in holdings in an
employer whose employees the union represents or is actively seeking to
represent, and (2) loans to or from such an employer. Section 202(a)(2)
does not include the ``bona fide employee'' exception.
[[Page 36118]]
The Department proposed to limit this exception only to reports due
under sections 202(a)(1) and 202(a)(5), thereby eliminating the old
exception for reports (on payments other than loans) due under section
202(a)(2). See 70 FR 51176-78, 51188. The Department received only one
comment on this issue. It supported the proposal. Today's rule adopts
the proposal, which is consistent with the plain language of the
statute. A union official's decision to purchase or divest holdings in
the employer could be of significant importance to union members and
its reporting would prevent a possible conflict from escaping the
scrutiny of members. As noted in the proposal, sales and purchases of
an ownership interest in the employer are unlikely to constitute
payments received as a bona fide employee; by eliminating this
exception, a union official must now, for example, report payments made
to officials as stock options where the employer buys back such
options.
3. Exception for Bona Fide Loans or Interest From a Banking Institution
Section 202(a)(6) requires union officials to report ``any payment
of money or other thing of value (including reimbursed expenses)''
received from ``any employer'' or any labor relations consultant to an
employer. Under the old Form LM-30 and its instructions, the following
are excepted from reporting: ``[B]ona fide loans, interest or dividends
from national or state banks, credit unions, savings or loan
associations, insurance companies, or other bona fide credit
institutions.'' See Part C (ii) of the instructions to the old form.
The Department proposed to eliminate the exemption.
Upon review of the comments, the Department retains the general
exception but limits its scope because the Department has determined
that the exception is too broad. Under the final rule, this exception
will not apply to ``national or state banks, credit unions, savings or
loan associations, insurance companies, or other bona fide credit
institutions that constitute a `trust in which your labor organization
is interested'.''
The Department received two comments in support of the proposal to
eliminate this exception in toto. One commenter argued that the
exception in the Form LM-30 instructions had no statutory basis, and
that its existence tended to shield transactions that should be
reported. The Department received four comments opposed to this
proposal. These commenters stated that the elimination of this
exception would burden union officers and employees, employers, and the
Department; interfere with the privacy of the employees as well as the
financial institutions by revealing confidential information; and fail
to advance the goal of disclosing potential conflicts of interest. One
commenter argued that the Department's proposal to eliminate the
exception was an ``unwarranted intrusion on privacy,'' while providing
only minimal benefit to union members. This commenter questioned why
the public should be made aware of a ``bona fide mortgage'' from a
financial institution unrelated to the union and given on terms
generally offered to the public. Most mortgages along with other
encumbrances on property must be recorded with a government office,
typically at the county level, to be effective. These filings are
publicly available and as such the insinuation that the Department is
now making public information that was secret is unfounded. Further,
the vast majority of these loans will be made on neutral criteria not
related to the filer's status with a labor organization and as such
will not be reportable. The rare instance where the filer's status with
the labor organization is a criterion for issuance of the loan is
exactly the type of situation where a possible conflict of interest
exists. As such, reporting on transactions of this type is warranted.
Another commenter recommended that the Department only require
reporting of loans made to employees in whole or in part due to their
union status. The commenter expressed concern over the volume and
diversity of new transactions that would come under the scope of the
new Form LM-30, such as payroll advances, and the burdensome
recordkeeping requirements that would accompany the elimination of this
exception. One commenter argued that the ``overwhelming majority'' of
the estimated 206,000 union officers and employees would now have to
report under the new Form LM-30.
The Department has concluded that the exception as drawn in the
instructions to the old Form LM-30 is too broad. While there is a
strong argument that elimination of the exception would best serve the
disclosure purposes of the Act, the total burden associated with
requiring reports on payments received from all financial institutions
would be considerable. Loans, interest, and dividends earned during the
regular course of business with a bona fide financial institution are
among the most common financial transactions undertaken by individuals.
For example, without this exception, a union official would have to
report each mortgage or other bank loan received from any financial
institution in competition with a financial institution that deals with
the official's union. A union official would first have to identify all
the financial transactions with the official, his or her spouse or
minor children and then look at the corresponding institutions to see
whether they do business with the official's union, or compete with
those that deal with the official's union. In the Department's view,
the burden would outweigh the value of the additional information
disclosed.
The current exception has kept improper transactions from being
disclosed. As noted in the NPRM, the Department only belatedly became
aware of a situation where a credit union controlled by a local union
made 61% of its loans to four of its loan officers, three of whom were
officers of the local. 70 FR 51177. If the officials had been required
to report these loans, the members would have learned that their credit
union was making loans for reasons related to union status, not on a
borrower's ability to repay the debt, which posed a risk to the credit
union by failing to spread the lending risk more broadly. In short, the
members would have been able to determine whether the officials had
placed their own personal interests above the union's interest in the
credit union that it ostensibly controlled. By eliminating the
exception for institutions that are trusts, valuable information
regarding potential conflicts of interest will be publicly disclosed.
While the Department recognizes that an official's interest in
preserving the confidentiality of such information may be considerable;
nonetheless, this interest is outweighed by the need for union members
and the public to know of transactions between union officials and
related organizations. Thus, here the balance tips in favor of
disclosure in the limited situations proposed by today's rule.
This exception applies, and has always applied, only to reports due
under section 202(a)(6). Where the financial institution is an employer
whose employees the filer's union represents or is actively seeking to
represent, the exception would not apply. Nor would it apply where the
financial institution is a business that buys, sells, leases or
otherwise deals with the union, a trust in which the union is
interested, or in substantial part with the employer of the union
members.
One commenter ``strongly'' disagreed with the proposal, arguing
that it would impose a reporting obligation on union
[[Page 36119]]
officials, even though financial institutions are expressly relieved
from reporting such loans by section 203(a)(1) of the Act. Section
203(a)(1) specifically exempts ``payments or loans made by any national
or State bank, credit union, insurance company, savings and loan
association or other credit institution.'' The commenter pointed out
the potential ``reporting inequities'' of the Department's proposal and
argued that the inconsistent reporting obligation would make
comparative analysis of Forms LM-10 and LM-30 impossible. The
Department acknowledges that by modifying the exception, union
officials will be required to report on matters about which the
financial institutions themselves have no LMRDA reporting
responsibility. However, the commenter overlooked the limited scope of
the divergence. Section 203(a)(1)'s exception for ``credit
institutions'' does not extend to any payments or loans made by such
institutions to persuade or otherwise interfere with employee
collective bargaining or representation rights. See 29 U.S.C. 203(a)(2)
and (3). Furthermore, strong policy reasons exist for requiring union
officials to report their arrangements with financial institutions in
the limited circumstances required by today's rule.
4. Exceptions Relating to Stocks
The Department invited comments about whether to remove or retain
the administratively created exception related to the reporting of
holdings, transactions or receipts of income from securities that do
not meet the registration requirements of the Act, are of insubstantial
value, and occur under terms unrelated to an employee's status in a
labor organization. The old rule states: ``For purposes of this
exclusion, holdings or transactions involving $1,000 or less and
receipt of income of $100 or less in any one security shall be
considered insubstantial.'' 70 FR 51176.
On a related issue, the Department sought comments on whether to
retain the distinction between, on the one hand, securities traded on a
registered national stock exchange and, on the other hand, securities
that while traded on a high volume exchange, are not traded on a
registered national exchange (as was the case with NASDAQ until
recently). 70 FR 51177. Section 202(b) provides that a union official
is not required ``to report his bona fide investments in securities
traded on a securities exchange registered as a national securities
exchange under the Securities Exchange Act of 1934, in shares in an
investment company registered under the Investment Company Act of 1940,
or in securities of a public utility holding company registered under
the Public Utility Holding Company Act of 1935, or to report any income
derived therefrom.'' The NPRM listed all of the stock exchanges
currently registered under the Securities and Exchange Act of 1934:
``The American Stock Exchange, Chicago Board Options Stock Exchange,
International Securities Exchange, National Stock Exchange (formerly
the Cincinnati Stock Exchange), New York Stock Exchange, Pacific
Exchange, and Philadelphia Stock Exchange.'' The proposal noted that
NASDAQ was not registered as a national securities exchange.
Two commenters favored the complete elimination of the
insubstantiality exception for securities not meeting the registration
requirements. One of these commenters argued that the insubstantiality
exception flies in the face of clear statutory intent to require the
reporting of all stock transactions apart from bona fide investments in
securities traded on a national securities exchange. The other
commenter argued that union members, not this Department, should
determine what is and is not insubstantial. One commenter also
supported the exception for small holdings of unregistered securities
as long as the holdings are too small to give rise to a controlling
interest. Focusing on the comprehensibility of the exceptions to ``end-
user'' union officials and members, another commenter stated that the
``$1,000/100'' and ``publicly-traded securities'' exceptions are
specific and easily understood. By contrast, all of the union
commenters, along with a labor educator, favored the exception and
supported its broadening.
The Department believes that the $1,000/$100 exception is
warranted, and therefore it is retained in today's rule. Where the
value of securities and any interest thereon is less than these
threshold amounts, there is little risk of potential conflict between
an official's personal interests and his or her duties to the union.
Moreover, any such risk is outweighed by the burden associated with
such reporting. Thus, for these and the reasons already expressed more
generally herein on the application of the de minimis principle to the
reporting obligation, today's rule retains this limited reporting
exception.
One commenter objected to maintaining the exception for stock
traded on other than a registered, national stock exchange on the
ground that the statute does not provide for such an exception. Another
commenter argued that there should be no exceptions for transactions
involving the stock of the employer, regardless of whether the stock is
traded on a registered securities exchange. This commenter expressed
concern about the potential for insider trading by union officials who
have knowledge about the position of the company that the rank and file
members do not have. In support of his position, the commenter provides
an example in which members of a union executive board sell stock
options in a national exchange or private exchange shortly before
authorizing a strike against the company that issued the stock.
Other commenters argued that the existing exception for securities
traded on a registered, national stock exchange should be continued and
extended to cover stock transactions for shares traded on NASDAQ. All
of the union commenters, along with a labor educator, favored the
exception and supported broadening it. A commenter supported
maintaining the exception for stock that is held in a company unrelated
to the filer's labor organization because, in its view, there is no
potential for a conflict of interest. In support of their position,
they argued that the LMRDA's legislative history demonstrates that
Congress did not want to burden officials with reporting holdings of
publicly traded or regulated stocks ``because of the unlikelihood that
such holdings will amount to a substantial or controlling interest * *
* in the company in question. The argument follows that because NASDAQ
securities are publicly regulated and publicly traded, they fall within
the purview of what Congress sought to exempt from reporting under
section 202(b). One commenter illustrated its position with the
different reporting requirements that would apply if a union official
owned both Gateway and Dell stock: the Dell stock (traded on NASDAQ)
would be reported, whereas the Gateway stock (traded on the NYSE) would
not be reported. According to this commenter, there is no conflict of
interest in either instance, and accordingly neither transaction should
be reported. Another commenter noted that when the LMRDA was enacted in
1959, the shares of large corporations were exclusively traded on
registered exchanges. It explains that now, however, the shares of many
of those same large corporations are traded on the NASDAQ and that
shares traded on NASDAQ are subject to Federal registration
requirements.
The Department retains the rule set forth in the instructions to
the old rule, continuing the obligation of union officials to report
transactions with any
[[Page 36120]]
exchange unless and until they meet the requirements embodied in
section 202(b). As a pure matter of policy, the argument for adding
securities traded on a highly regulated, albeit ``unregistered,''
market to the general exception for stock traded on a registered,
national stock exchange may have merit. However, such argument founders
on the plain language used by Congress to craft the exception for
securities traded on a registered exchange as provided in the statute.
By conditioning a reporting exception on registration, Congress
obviously considered whether unregistered stocks should be similarly
exempted and decided against it. Similarly, the statutory language
prevents the Department from adopting a rule, as suggested by one
commenter, to require officials to report their holdings in such
securities that he or she has purchased in a company whose employees
the official's union represents or is actively seeking to represent.
Although the commenters have demonstrated that the exception
crafted by Congress, differentiating between certain kinds of stock
depending upon how they are traded, may lead to some perceived
anomalies, they do not show that this reporting obligation will impose
any undue burden on filers. Furthermore, on July 15, 2006, the SEC
approved NASDAQ's application for registration as a national securities
exchange, effective July 31, 2006. In announcing its decision, the SEC
stated that the ``vast majority'' of the companies listed on NASDAQ
have previously registered their securities under the Exchange Act.
Press Release, SEC (July 31, 2006), available at http://www.sec.gov/news/press/2006/2006-127.htm
(last visited on Nov. 21, 2006). Thus,
under today's rule, the exception provided by section 202(b) applies to
registered stocks traded on NASDAQ; and the instructions have been
revised to reflect this change. As some of the commenters suggested,
the distinction between highly regulated stocks that are traded on a
national, but unregistered exchange, and those traded on a registered
national exchange is not immediately apparent to many filers,
particularly insofar as NASDAQ-traded securities were concerned. The
Department believes that its proposed definition of ``publicly-traded
securities'' (albeit something of a misnomer in that registration of a
national exchange, not ``public trading,'' is the distinguishing
characteristic for reporting purposes) accurately set forth the
statutory reporting obligation. At the same time, however, the change
in the registration status of NASDAQ has largely eliminated the need
for a lengthy discussion of this point in the instructions. For this
reason, the final instructions more closely follow the abbreviated
discussion of this point in the current instructions, without the need
for a separate definition of ``publicly-traded securities'' or an
equivalent term.
5. Revision of Special Report Language
As noted, the old Form LM-30 administratively excepts union
officials from reporting various matters that otherwise would have to
be reported under the particular subsections of section 202(a). A
special report was intended to be used to obtain such information about
such unreported matters upon demand of the Department. See 29 CFR
404.4. The Department proposed to delete the special report provision.
At the time the Form LM-30 was created, the Department apparently
believed that more complete reporting, consistent with the reporting
requirements of section 202, could be realized through an ad hoc
special report that could be selectively required by the Department.
See 29 CFR 404.4. As discussed in the NPRM, these reports would allow
the Department to require the disclosure of the information that was
exempted from disclosure by operation of the administrative exceptions.
No procedures were established, however, to identify the circumstances
for which a special report would be required; and apparently the
Department has never requested a union official to provide a special
report. As noted in the NPRM, the elimination of the special report
provision does not diminish the Department's authority to assess each
Form LM-30 report for sufficiency, require amended reports, and to
commence investigations where it is necessary to determine whether any
person has or is about to violate any provision of the Act. 29 U.S.C.
440, 521.
E. Why Union Officials, as a General Rule, Must Report Payments
Received as Members of a Company's Board of Directors
If a union official serves as a director for an employer and
receives compensation or reimbursement for attendance at meetings, the
official must report such payments. Such payments may not have been
reported on the old Form LM-30 because of an official's reliance on an
earlier opinion by the Department on this issue. In the NPRM, the
proposed instructions provided the following example of a transaction
to be reported under section 202(a)(4):
You are a national union president and a trustee of a jointly
administered health care trust that insures union members through an
insurance company. Premiums for coverage are paid by the trust to
the insurance company. You are a member of the board of directors of
the health insurance company, which pays you an annual fee and
reimburses expenses for your attendance at board meetings. * * * As
the insurance company is doing business with a trust in which your
union is interested, you must report your annual fee and reimbursed
expenses under this subsection. The dealings between the health
insurance company and the trust must also be reported.
70 FR 51215.
The Department only received one comment on this point. The
commenter opposed the proposal, arguing that the Department should
confirm its 1986 opinion that directors' fees paid to union officers
serving on a corporate board need not be reported ``so long as the
corporation pays the union officer/director at the same rate it pays
the other directors, for the same services.'' The opposition was based
on the commenter's broader premise that Congress intended to generally
except any payments to union officials that are made in the regular
course of business. The Department disagrees.
In the commenter's view, the old Form LM-30, in effect, applies
language in section 202(a)(5)--excepting from reporting certain
transactions involving the ``purchases and sales of goods or services
in the regular course of business at prices generally available to any
employee of [the] employer'' who sold the goods or service--to modify
generally the reporting obligations under section 202. The commenter
argued that the instructions to the old Form LM-30 also apply, in
effect, language in section 202(a)(6)--excepting from reporting certain
payments ``of the kinds referred to in section 302(c) of the Labor
Management Relations Act''--to modify generally the reporting
obligations of section 202. The commenter, in essence, asserts that the
instructions to the old form, like the 1986 opinion on directors' fees,
which draws on similar language in section 302(c), properly effectuate
the intent of Congress and therefore should be preserved. The commenter
further asserts that there is no justification for additional
recordkeeping and reporting if the union representatives are being
treated the same as their fellow directors on a corporate board.
The Department disagrees with this commenter's opposition to this
reporting requirement. The commenter's reference to the 1986 opinion on
directors' fees refers to a letter by a senior Department official
responding to
[[Page 36121]]
a request for an opinion concerning directors' fees paid to union
officers serving on a corporate board. The official concluded that ``so
long as the corporation pays the union officer/director at the same
rate that it pays the other directors, for the same services,'' the
payments are not reportable. The opinion letter reversed a 1983
determination by another senior Department official that the fees must
be reported. After again carefully reviewing this question and the
example discussed above in the NPRM, the Department concludes that the
NPRM correctly illustrated a payment that is required under section
202(a)(4) (a business dealing directly or indirectly with an official's
union) and section 404.2 of the Department's regulations on reporting
by union officials (a business dealing with a section 3(l) trust that
involves the official's union).
If a union official serves on an employer's board of directors and
receives a fee, the employer has made a payment to a union official.
Such payments are typically not of the kind referred to in section
302(c) because the exception concerning compensation to employees is
not applicable unless the director is employed by the company on whose
board he or she sits, an atypical status for a corporate director.
Further, directors' fees are not an article or commodity, and it is
questionable whether such payments for these types of personal services
can be said to have a prevailing market price. Significantly, these
payments raise potential questions of a conflict of interest, due to
the employer's role in selecting the directors and setting the amount
of the fee. A union member has an interest in knowing whether decisions
made by his or her union officials may have been affected by the
official's competing personal financial interest. The commenter's
contention that no report should be filed where union-affiliated
directors receive the same compensation as non-union directors is not
persuasive. The LMRDA's reach extends only to regulating the conduct of
union officials, not to setting general standards of corporate
governance.
Thus, under today's rule, no separate reporting exception is made
for directors' fees. A union official must report his or her receipt of
directors' fees when made by an employer whose employees the payment
recipient's union represents or is actively seeking to represent.
Sections 202(a)(1), (2) and (5). Such fees will also be reportable when
made by a business, a substantial part of which consists of buying,
selling, or otherwise dealing with an employer whose employees the
payment recipient's union represents or is actively seeking to
represent, or any part of which consists of buying, selling, or
otherwise dealing with the recipient's union, or a trust in which the
recipient's union is interested. Section 202(a)(4). Finally, as
discussed in greater detail, the official must report his or her
receipt of directors' fees from an employer defined by this rule under
202(a)(6) including an employer in competition with an employer whose
employees the payment recipient's union represents or is actively
seeking to represent.
F. Why Officers of International, National, and Intermediate Labor
Unions, in Addition to Their Obligation to Report Payments and Other
Financial Benefits Received From Businesses and Employers That Have a
Direct Relationship With the Component of the Union to Which They are
Elected or Appointed, Must Also Report Payments and Other Financial
Benefits Received From Businesses and Employers Whose Relationship Is
With a Subordinate Body of Their Union
In the NPRM, the Department proposed to clarify the obligation of a
union official to report his or her interests in and payments (and
those of the official's spouse and minor children) from employers and
businesses that have a relationship with the official's union, albeit
at a different hierarchical level than the level at which the official
serves as an officer or employee. Under sections 202(a)(1) through
(a)(5), union officers and employees must report payments from,
holdings in, or transactions with: (1) An employer whose employees the
filer's labor organization represents or is actively seeking to
represent; (2) a business a substantial part of which consists of
dealing with an employer whose employees the filer's labor organization
represents or is actively seeking to represent; or (3) a business that
deals with the filer's labor organization or a trust in which the
filer's labor organization is interested. The scope of the reporting
obligation thus depends on what organization constitutes the filer's
``labor organization.'' As explained in the NPRM, many labor
organizations consist of a three-tier hierarchy, such as a local labor
organization, an intermediate body, and a national or international
labor organization. 70 FR 51182. The NPRM explained that the
Department's proposal clarifies the reach of the disclosure obligation
to include conflicts that arise between a union official and his or her
responsibility to both the immediate unit of the union that he or she
serves and any of its parent or subordinate bodies. The NPRM noted that
the LMRDA Manual provides that an officer at the highest tier of a
three-tier labor organization must report payments from businesses that
deal with employers whose employees are represented by a subordinate
union local. ``An international union officer must report his income
from [a] business [that has dealings with an employer whose employees a
local union represents] even though he is not an officer of the local
which represents the employees of the business, and even though his
duties as an international officer do not include representation
activities.'' LMRDA Manual, Sec. 241.100. The proposed rulemaking
noted that members of an LMRDA-covered labor organization would have an
interest in knowing if a subordinate labor organization purchases goods
or services from a business entity owned by a higher level labor
organization officer because local union personnel may choose to deal
with this business entity out of fear of alienating the higher level
officer. 70 FR 51183.
The old instructions are silent about the obligation of an officer
or employee to report interests or income from businesses that have a
relationship with parent |
