Labor Organization Officer and Employee Reports; Proposed Rules
[08/29/2005]
Volume 70, Number 166, Page 51165-51225
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Part III
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 Reports; Proposed Rules
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DEPARTMENT OF LABOR
Office of Labor-Management Standards
29 CFR Part 404
RIN 1215-AB49
Labor Organization Officer and Employee Reports
AGENCY: Office of Labor-Management Standards, Employment Standards
Administration, Department of Labor.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: The Employment Standards Administration (ESA) of the
Department of Labor (Department) is proposing to revise the Form LM-30
and its instructions. 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 publicly disclose possible conflicts between
their personal financial interests and their duty to the labor union
and its members. The proposed rule would clarify the Form LM-30, and
its instructions, by explaining key terms and providing examples of the
financial matters that must be reported, eliminate exemptions in the
current Form LM-30 that permit filers to not report financial matters
that would otherwise be required to be reported under the Act, and
improve the usability of the reports by union members and the public.
The Department invites general and specific comment on any aspect of
the rule; it also invites comment on specific points, as noted
throughout the text of this preamble.
DATES: Comments must be received on or before October 28, 2005.
ADDRESSES: You may submit comments, identified by RIN 1215-AB49, by any
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov. E-mail: OLMS-REG-1215-AB49@dol.gov.
FAX: (202) 693-1340. To assure access to the FAX equipment, only
comments of five or fewer pages will be accepted via FAX transmittal,
unless arrangements are made prior to faxing, by calling the number
below and scheduling a time for FAX receipt by the Office of Labor-
Management Standards (OLMS).
Mail: Mailed comments should be sent to Kay Oshel, Director of the
Office of Policy, Reports and Disclosure Office of Labor-Management
Standards, U.S. Department of Labor, 200 Constitution Avenue NW., Room
N-5605, Washington, DC 20210. Because the Department continues to
experience delays in U.S. mail delivery due to the ongoing concerns
involving toxic contamination, you should take this into consideration
when preparing to meet the deadline for submitting comments.
OLMS recommends that you confirm receipt of your comment by
contacting (202) 693-0123 (this is not a toll-free number). Individuals
with hearing impairments may call (800) 877-8339 (TTY/TDD).
Comments will be available for public inspection during normal
business hours at the above address.
FOR FURTHER INFORMATION CONTACT: For further information contact Kay H.
Oshel, Director of the Office of Policy, Reports and Disclosure, at:
Kay H. Oshel, U.S. Department of Labor, Employment Standards
Administration, Office of Labor-Management Standards, 200 Constitution
Avenue NW., Room N-5605, Washington, DC 20210, olms-public@dol.gov,
(202) 693-1233 (this is not a toll-free number), (800) 877-8339 (TTY/
TDD).
SUPPLEMENTARY INFORMATION:
I. Background
The Form LM-30 is used by officers and employees of labor
organizations subject to the Labor-Management Reporting and Disclosure
Act of 1959 (LMRDA or Act). The Act requires public disclosure of
certain financial interests held, income received, and transactions
engaged in by labor organization officers and employees and their
spouses and minor children. Subject to certain 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.
The Form LM-30, which implements in part the financial disclosure
provisions of Title II of the LMRDA, has remained essentially unchanged
in the more than 40 years since 1963, when the Labor Department first
approved the form LM-30. Over the past several years, the Department
has engaged in a process to improve the administration of the LMRDA,
including the design and usefulness of the financial reports required
by the Act. In the course of this process, a number of problems were
identified with Form LM-30. This proposed rule would address these
problems by
Clarifying the instructions by explaining the key terms
used in the Act and instructions, and by providing examples of the
financial matters that must be reported under each subsection of the
Act;
Eliminating exemptions that permit filers to not report
financial matters that would otherwise be required to be reported under
the Act, and which present the potential of conflicts of interests for
union officers and employees;
Improving disclosure by creating a summary table on the
front page of the report, supported by schedules, for disclosing (1)
The filer's interests, payments, loans, transactions or arrangements,
(2) the other party to these financial practices, and (3) the dealings,
if any, between the party and the filer's labor organization or the
employer whose employees the filer's labor organization represents or
actively seeks to represent.
The Department invites comment on this proposed rule with respect
to the benefits of these changes, the ease or difficulty with which
labor organization officers and employees will be able to comply with
these changes, and whether the changes will be meaningful, useful, and
in accordance with the purposes of the LMRDA, which are to disclose to
union members and the public information about certain financial
interests of union officials. Interested parties and the public are
invited to draw upon their experience with similar conflict and
disclosure standards in other settings such as government employment,
accounting, corporate governance, legal and judicial practice,
medicine, and journalism. The Department invites general and specific
comment on any aspect of the rule; it also invites comment on specific
points, as noted throughout the text of this preamble.
A. Financial Transparency
This proposed rule seeks to revise the Form LM-30, the form used by
labor
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organization officers and employees to file the annual financial
reports required by section 202 of the LMRDA, 29 U.S.C. 432. The
rulemaking continues the Department's efforts over the past four years
to improve voluntary compliance with, and enforcement of, the LMRDA. In
response to requests from union members, members of Congress, public
interest groups, and others, the Department:
Launched a new disclosure web site (http://www.union-reports.dol.gov
), where individuals may view union financial reports
and conduct data searches;
Added reports filed by labor union officers and employees,
employers, and labor relations consultants (Forms LM-10, LM-20, LM-21,
and LM-30) to the disclosure web site;
Modernized the annual financial disclosure report (Form
LM-2) filed by the largest labor organizations (see 68 FR 58374, Oct.
9, 2003);
Raised the filing threshold for Form LM-2, thereby
increasing the number of labor organizations that may file a simplified
version of the annual financial disclosure report;
Enhanced compliance assistance programs for filers; and
Increased the investigative resources of OLMS field
offices to facilitate enforcement of the Act.
The Secretary also created a new annual financial disclosure report
(Form T-1) for use by the largest labor organizations to report on the
financial operations of certain trusts in which they are interested
(see 68 FR 58374, Oct. 9, 2003), but the requirement that union file
this information report was vacated by the District of Columbia Circuit
on appeal. See American Federation of Labor and Congress of Indus.
Organizations v. Chao, 409 F. 3d 377 (D.C. Cir. May 31, 2005), petition
for rehearing and rehearing en banc filed July 15, 2005. The goal of
these initiatives, like this proposal, has been to achieve more
detailed and transparent reporting of the financial information that
Congress, in enacting the LMRDA, intended to be made public for the
benefit of union members and the public. Such transparency allows union
members to obtain information needed by them to monitor their union's
affairs and to make informed choices about the leadership of their
union and its direction. At the same time, this transparency promotes
the unions' own interests as democratic institutions and the interests
of the public and the government. Financial transparency also deters
fraud and self-dealing, and facilitates the discovery of such
misconduct when it does occur. In these ways, the Department's reforms
advance 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.'' LMRDA Sec. 2(a), 29 U.S.C. 401(a).
B. The History of the LMRDA
In enacting the LMRDA in 1959, a bipartisan Congress expressed the
conclusion that in the labor and management fields ``there 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.'' LMRDA
Sec. 2(a), 29 U.S.C. 401(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; and 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 of the McClellan
Committee''). For examples of some of the improper arrangements
directly or indirectly involving officials of these unions, see 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 include 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 LMRDA Sec. Sec. 101-105, 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 LMRDA Sec. Sec. 201-206, 211,
29 U.S.C. 431-436, 441; detailed procedural, substantive, and reporting
requirements relating to union trusteeships, see LMRDA Sec. Sec. 301-
306, 29 U.S.C. 461-466; detailed procedural requirements for the
conduct of elections of union officers, see LMRDA Sec. Sec. 401-403,
29 U.S.C. 481-483; safeguards for unions, including bonding
requirements, the establishment of fiduciary responsibilities for union
officials and other representatives, criminal penalties for
embezzlement from a union, loans by a union to officers or employees,
employment by a union of certain convicted felons, and payments to
employees for prohibited purposes by an employer or labor relations
consultant, see LMRDA Sec. Sec. 501-505, 29 U.S.C. 501-505; and
prohibitions against extortionate picketing and retaliation for
exercising protected rights, see LMRDA Sec. Sec. 601-611, 29 U.S.C.
521-531.
The reporting requirement for officers and employees operates in
tandem with the Act's establishment of a fiduciary duty for union
officials and representatives. 29 U.S.C. 501. Congress addressed
conflicts of interest in both section 202 and section 501(a) of the
Act. 29 U.S.C. 432, 501(a). The latter 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, and to account to the
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organization for any profit received by him in whatever capacity in
connection with transactions conducted by him or under his direction
on behalf of the organization.
29 U.S.C. 501(a). 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 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 need for the officer and employee disclosure provisions was not
seriously debated during the consideration of the LMRDA legislation.
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 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 paid out to hoodlums posing as business agents, or be
invested in improper or risky racetrack or real estate deals, or 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
Teamster officials, to which Senator Kennedy refers, are detailed in
the Interim Report of the McClellan Committee, 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, 284-85,
295, 297, 300, 444-48, 264-66, 268, 281. See also The Enemy Within, at
97, 99, 104-05, 106, 221-24.
The Senate Committee Report provided an overview of section 202 of
the LMRDA:
[This section] requires a union officer or employee to disclose
any securities or other interest which he has in a business whose
employees his labor union represents or ``seeks to represent'' in
collective bargaining. When a prominent union official has an
interest in the business with which the union is bargaining, he sits
on both sides of the table. He is under temptation to negotiate a
soft contract or to refrain from enforcing working rules so as to
increase the company's profits. This is unfair to both union members
and competing businesses.
S. Rep. No. 187 (``Senate Report'') (1959), at 15, reprinted in 2
Leg. History, at 411. As explained in the Senate Report: ``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 can be summarized 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:
The committee bill attacks the problem [of conflicts of
interest] by requiring union officers and employees to file reports
with the Secretary of Labor disclosing to union members and the
general public any investments or transactions in which their
personal financial interests may conflict with their duties to the
members. The bill requires only the disclosure of conflicts of
interest as defined therein. The other investments of union
officials and their sources of income are not matters of public
concern. No union officer or employee is obliged to file a report
unless he holds a questionable interest in 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 (``House Report''), H.R. Rep. No. 741
(1959), 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 Act 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
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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. Such a person may not deal with
himself, or acquire adverse interests, or make any personal profit
as a result of his position. The same principle has long been
applied to trustees, to agents, and to bank directors. It 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, which, in turn, reflect the
requirements of the extensive code 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 Archibald
Cox, Internal Affairs of Labor Unions under the Labor Reform Act of
1959, 58 Mich. L. Rev. 819, 824-29 (1960). The following excerpts from
this code demonstrate the nexus between the voluntary code 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.
* * * * *
The policies * * * apply to: (a) all officers of the AFL-CIO and
all officers of national and international unions affiliated with
the AFL-CIO, (b) all elected or appointed staff representatives and
business agents of such organizations, and (c) all officers of
subordinate bodies of such organizations who have any degree of
discretion or responsibility in the negotiation of collective
bargaining agreements or their administration.
* * * * *
[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 officials (``AFL-CIO Ethical Practices Code''), 105 Cong.
Rec.*16379 (daily ed. Sept. 3, 1959), reprinted in 2 Leg. History, at
1408.
The Department intends by the proposals set forth herein to better
achieve the purposes of the LMRDA, as demonstrated by the legislative
history. To that end, and by this reform, the Department will increase
compliance with the financial disclosure requirements in the Act,
clarify the form and instructions by use of examples and defined terms,
remove counterproductive exemptions to the filing requirements, and
organize the information in a more useful format.
C. Statutory Language
Section 202 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
[[Page 51170]]
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.
29 U.S.C. 432.
D. Increases in Sophistication and Complexity of Financial Practices
The Form LM-30 has remained essentially unchanged since 1963, when
the Department first approved the Form LM-30. See 28 FR 14384 (Dec. 27,
1963). During this time the operations of unions have changed and
financial matters affecting institutions and individuals have become
more sophisticated. While the same statutory disclosure standard
applies now as it did when the Act took effect, the financial
activities of individuals and organizations have increased
exponentially in scope, complexity and interdependence over the past
four decades.
For example, 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 union financial practices, including
business relationships with outside firms and vendors, increases the
likelihood that union officers and employees 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.
Moreover, present-day concerns about the intersection of personal
interest and professional responsibilities are no longer associated
only with traditional trustees, but are matters of central importance
to the securities industry, corporate governance, and, among other
professional groups, lawyers, physicians, accountants, researchers,
journalists, and government employees.
The Department believes that the purposes of the Act could be
better accomplished by promoting increased compliance with the
financial disclosure requirements in the Act, clarifying the form and
instructions by use of examples and defined terms, removing
counterproductive exemptions to the filing requirements, and organizing
the information in a more useful format. By improving the form and
promoting compliance with reporting requirements, 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. Publicly
available information concerning potential conflicts of union officials
allows union members to better understand any financial incentives or
disincentives faced by their union's officers and employees, and to
make informed choices about the leadership of their union and its
management of the union. Additional disclosure promotes the unions' own
interests as democratic institutions responsive to the concerns of
union members, and deters, as well as facilitates the discovery of,
fraud and self-dealing.
E. The Current Form LM-30
The Department initiated its enforcement of the section 202
reporting requirements within months of the enactment of the LMRDA in
1959, and a regulation making the Form LM-30 effective was published in
1963. See 28 FR 14384 (Dec. 27, 1963).
The current Form LM-30 consists of four sections: a section for
identifying data about the filer, and Parts A through C. (The current
form and instructions are available at http://www.olms.dol.gov.) Part A of the
form seeks transactions that would be reportable under sections
202(a)(1), (a)(2), and (a)(5). See 29 U.S.C. 432(a)(1), (2), (5). Part
A thus generally requires reporting of holdings in, transactions and
arrangements with, and income and loans from the employer whose
employees the filer's labor organization represents or actively seeks
to represent. Part B attempts to implement sections 202(a)(3), and
(a)(4). See 29 U.S.C. 432(a)(3), (4). Part B thus generally captures
holdings in and income from businesses that deal either with the labor
organization, a trust in which the labor organization is interested, or
the employer whose employees the filer's labor organization represents
or actively seeks to represent. Part C attempts to implement section
202(a)(6). See 29 U.S.C. 432(a)(6). Part C thus generally requires
reporting of payments of money or other things of value from employers
and labor relations consultants.
Specifically, the first section gathers basic information about the
filer, including the name of the organization in which the filer is an
officer or employee, the filer's position with the organization, and
the fiscal year covered by the report.
In the ``General Instructions'' filers are informed: ``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, or anything excluded in
the specific instructions in Parts A, B, or C below.''
Part A instructs the filer: ``Complete [this part] if you (1) held
an interest in, (2) engaged in transactions (including loans) with, or
(3) derived income or other economic benefit of monetary value from, an
employer whose employees your organization represents or is actively
seeking to represent. Complete a separate Part A for each such employer
and for each such interest, transaction, or item of income or other
economic benefit connected with that employer.'' For each such
interest, transaction, or income, the filer is requested to disclose
its nature, value, and date of receipt. With regard to the nature of a
discloseable transaction, the instructions provide as examples:
``Continuing use of automobile for personal purposes, gift of
refrigerator, payment for services.'' Additional examples provided
include: ``Loan of money from employer, rental of loft building,
located at X street, Y city, Z State, to employer.'' The instructions
provide additional information for reporting interests in, and
transactions involving, stocks, bonds, securities, options and similar
interests.
After identifying the matters that have to be reported, the
instructions advise the potential filer that he or she should not
report holdings of, transactions in, or income from bona fide
investments in registered securities; holdings of, transactions in, or
income from other securities if they are of ``insubstantial value or
amount'' (defined as holdings or transactions of $1,000 or less and
income of $100 or less in any one security) and occur under terms
unrelated to the filer's status in the labor organization; transactions
involving purchases and sales of goods and services in the regular
course of business at prices generally available to any employee of the
employer; and ``payments and benefits received as a bona fide employee
of the employer for past or present services, including wages, payments
or benefits received under a bona fide health, welfare, pension,
vacation, training or other
[[Page 51171]]
benefit plan; and payments for periods in which such employee engaged
in activities other than productive work, if the payments for such
period of time are: (a) Required by law or a bona fide collective
bargaining agreement, or (b) made pursuant to a custom or practice
under such a collective bargaining agreement, or (c) made pursuant to a
policy, custom, or practice with respect to employment in the
establishment which the employer has adopted without regard to any
holding by such employee of a position with a labor organization.''
Part B instructs the filer to report ``an interest in or * * *
income or other economic benefit with monetary value, including
reimbursed expenses, from a business (1) a substantial part of which
consists of buying from, selling or leasing to, or otherwise dealing
with the business of an employer whose employees your labor
organization represents or is actively seeking to represent, or (2) any
part of which consists of buying from or selling or leasing directly or
indirectly to, or otherwise dealing with your labor organization or a
trust in which your labor organization is interested.'' Filers are
instructed that they are not required to report any of the interests or
income identified in two exceptions to Part A (holdings in,
transactions in, and income from bona fide investments in registered
securities and insubstantial holdings in, transactions in, and income
from other securities). The filer must identify the name and address of
the business involved, describe the type of organization the business
deals with (employer, labor organization, trust), enter the nature of
the dealings between the two parties and the value of these dealings,
enter the interest held or income received by the filer, and the dollar
amount of such income or interest.
In Part C, the filer is advised to ``Complete Part C if you
received from any employer (other than an employer covered under Parts
A and B above), or from any labor relations consultant to an employer,
any payment of money or other thing of value.'' The instructions
identify the following as items that are not required to be reported:
(1) Payments of the kind referred to in section 302(c) of the Labor
Management Relations Act (LMRA); (2) bona fide loans, interest or
dividends from banks, other bona fide credit institutions, and
insurance companies; and (3) interest on bonds or dividends on stock,
provided such interest or dividends are received, and such bonds or
stock have been acquired, under circumstances and terms unrelated to
the recipient's status in a labor organization and the issuer of such
securities is not an enterprise in competition with the employer whose
employees the filer's labor organization represents or actively seeks
to represent. The instructions then advise that notwithstanding the
exceptions, the filer must report any payments ``(1) not to organize
employees; (2) to influence employees in any way with respect to their
rights to organize; (3) to take any action with respect to the status
of employees or others as members of a labor organization; and (4) to
take any action with respect to bargaining or dealing with employers
whose employees [the filer's] organization represents or seeks to
represent.'' For each interest or transaction to be reported under Part
C, filers must identify the name of the employer or labor relations
consultant and the nature and amount of the payment.
The LMRA section 302(c) exclusions are not explained in the
instructions. Instead, the instructions provide a full-page quotation
of that section. As a general rule, the section 302(c) exclusions make
the following payments non-reportable: (1) Any money or other thing of
value payable by an employer to (a) an employee whose established
duties include acting openly for the employer in matters of labor
relations or personnel administration, or (b) any officer or employee
of a labor organization who also is an employee or former employee of
such employer, as compensation for, or by reason of, his service as an
employee of such employer; (2) money or other thing of value payable in
satisfaction of a judgment, arbitral award, settlement or release of
any claim in the absence of fraud or duress; (3) with respect to the
sale or purchase of an article or commodity at the prevailing market
price in the regular course of business; (4) with respect to deductions
from wages in payment of dues in a labor organization by written
assignment; (5) with respect to money or other thing of value paid to a
trust fund established by the representative of an employer's employees
for the sole benefit of these employees, their families and dependents
to pay for medical care, pensions, compensation for occupational
injury, unemployment benefits, life insurance, disability insurance or
accident insurance; (6) with respect to money or other thing of value
paid by any employer to a trust fund established by the representative
of the employer's employees for the purpose of pooled vacation,
holiday, severance or similar benefits, or apprenticeship or training
programs; (7) with respect to money or other thing of value paid by any
employer to an individual or pooled trust fund for the purpose of (a)
educational scholarships for the benefit of employees, families, and
dependents, (b) child care centers, or (c) employee housing; (8) with
respect to money or other thing of value paid by any employer to a
trust for defraying the costs of legal services; or (9) with respect to
money or other thing of value paid by any employer to a labor
management committee.
F. Number of Current Form LM-30's Filed
Prior to initiating this rulemaking, the Department sought to
determine the number of Form LM-30s filed, and the number of union
officers and employees. The following table represents all reports
filed in fiscal years 2001 through 2004:
------------------------------------------------------------------------
Number of
Fiscal year reports
filed
------------------------------------------------------------------------
2001......................................................... 59
2002......................................................... 49
2003......................................................... 41
2004......................................................... 95
----------
Total.................................................... 244
------------------------------------------------------------------------
Next, the Department attempted to identify the universe of people
who are potentially subject to the reporting requirements by
calculating the number of union officers and employees. The only source
reasonably available to the Department was reports filed on Forms LM-2,
LM-3 and LM-4. These reports are filed by labor organizations to
disclose their financial conditions and operations, as well as limited
information concerning officers and employees. The following table sets
forth the Form LM-30 data gleaned from the FY 2002 LM reports:
------------------------------------------------------------------------
Number of
officers or
Source of data employees
reported
------------------------------------------------------------------------
LM-2 Officers........................................... 66,749
LM-2 Employees.......................................... 47,371
LM-3 Officers........................................... 86,808
LM-4 Officers........................................... 3,706
---------------
Total............................................... 204,634
------------------------------------------------------------------------
Using these 2002 figures and the annual average of approximately 61
Form LM-30 filings for this 4-year period, the Department computed a
filing rate for Form LM-30 of 0.03% (61/204,634 x 100 = 0.03%). The
Form LM-2, used by the largest labor organizations, requires the filer
to list all the union's officers and the employees
[[Page 51172]]
who received more than $10,000 in salary, allowances, and other direct
and indirect disbursements from the union. Form LM-3, used by unions
with under $200,000 in annual receipts (raised to $250,000 for fiscal
years beginning July 1, 2004 and thereafter), requires the filer to
list all the union's officers, but report employees who received more
than $10,000 in salary, allowances, and other direct and indirect
disbursements from the union only in the additional information item on
the form. This information is not available in the OLMS disclosure
database. Form LM-4 filers (unions with annual receipts of less than
$10,000) do not report either officers or employees. Form LM-4 is
signed by two officers of the union. Although an estimate, the 0.03
percentage can be used to gauge the filing rate in the absence of more
precise figures.
Recently, OLMS evaluated a small number of union employees to
determine how many may have been required to file Form LM-30, but
failed to do so. Employees of unions with titles identifying them as
legal professionals, mostly lawyers, legislative affairs specialists,
and lobbyists, were culled from information derived from Form LM-2
reports filed in FY 2002. Legal professionals were selected because it
is possible, using Internet-based data, to investigate links between
these employees or their spouses and firms that do business with the
union, thereby indicating a potentially reportable interest under
section 202(a)(4). None of the 438 employees had filed Form LM-30.
These 438 individuals' full names were used in Internet searches for
information indicating that they had outside legal employment. The use
of the surname, coupled with other Internet-based biographical data, on
one or two occasions revealed that an official's spouse had such
outside legal employment. Then, an Internet search of the name of the
outside employer was conducted to determine whether the employer listed
the union official's union as a client, or otherwise indicated that it
provided services to the union official's union. OLMS contacted eight
individuals who, based on the Internet research, appeared to have
received, or whose spouse appeared to have received, payments from an
employer that dealt with the individual's union. Through these
contacts, OLMS sought additional information from them to determine
whether the individuals should have filed the Form LM-30 based on a
reportable interest under section 202(a)(4). Of these eight, six
completed and filed a Form LM-30 following the OLMS contact. Three of
the six reports had to be returned to the filers for revisions or
additional information. Review of the final amended reports confirmed
that these six individuals had disclosed reportable interests. When
asked, some filers did not give a reason for failing to earlier file
the reports. Others said they had been unaware of the reporting
requirements. Of the remaining two individuals, one had severed his
relationship with the employer before becoming a union employee. In the
final case, it was determined that the individual did not receive any
benefits other than from the two unions that employed him. The filing
rate for this group was 1.37% (6/438 x 100 = 1.37%). This filing rate
is probably understated for the 438 employees because OLMS was able to
research only potential section 202(a)(4) reporting situations. Others
in the group may well have owed reports based on payments from,
transactions with, or holdings in, employers or businesses that deal
with an employer whose employees the labor organization represents or
is actively seeking to represent.
Available data does not allow the Department to precisely measure
the current filing rate of union officers and employees or predict what
that rate would be if all individuals with reportable interests or
transactions filed Form LM-30. The individuals covered by the informal
inquiry discussed above may or may not be indicative of a typical union
employee. Legal professionals may be more likely or less likely to
engage in financial activities covered by the Form LM-30 than union
employees in other professions. Further, the circumstances of these
professionals may be different from those of union officers. As earlier
mentioned, the number of estimated union officers and employees is
necessarily understated, in that mid-size unions report in a readily
available manner only officers, not employees, on their Form LM-3,
small unions list only two signatory officers on their Form LM-4, and
employees who receive $10,000 or less in a year are not reported on any
of these forms. Certainly, the Department recognizes that not all union
officers or employees have reportable interests or transactions.
Nevertheless, it is clear that the identified employees had not filed
Form LM-30 until they were contacted by OLMS, and half of them did not
complete the report correctly on their first attempt. If union legal
professionals had to be informed of their obligation to file the
reports and failed to correctly complete the report, it is reasonable
to conclude, in the Department's view, that other employees are
similarly unaware of their obligation to file and similarly confused by
the form. The Department will continue to research the extent to which
current Form LM-30 submissions are deficient, and requests comment on
further data on this question.
On many other occasions, OLMS has discovered during an audit or
investigation that a union officer or employee was engaged in a
reportable situation but had not filed the required Form LM-30 until
OLMS became involved. For example:
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. See section 202(a)(4), 29 U.S.C. 432(a)(4).
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. See
section 202(a)(6), 29 U.S.C. 432(a)(6).
A union hired the accounting firm of an employee's spouse.
The firm received over $29,000 from the union over two years. See
section 202(a)(4), 29 U.S.C. 432(a)(4).
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. See section 202(a)(1), 29 U.S.C. 432(a)(1).
A union president owned the building in which the union
rented office space. See section 202(a)(4), 29 U.S.C. 432(a)(4).
A union officer's spouse owned a janitorial business that
provided daily janitorial services to the union at $800 per month. See
section 202(a)(4), 29 U.S.C. 432(a)(4).
A union employee's spouse owned an advertising company
which printed materials for the union and its funds. In one year, the
company received over $245,000 from the union and the funds. See
section 202(a)(4), 29 U.S.C. 432(a)(4).
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. See section 202(a)(4), 29 U.S.C.
432(a)(4) (due to services provided to the local union); section
[[Page 51173]]
202(a)(3), 29 U.S.C. 432(a)(3) (due to services provided to the
theatrical company employers).
The spouse of a union officer owned a company that
provided cleaning and maintenance services to the union and its trust.
In one year, the company received over $94,000 from the union and the
trust. See section 202(a)(4), 29 U.S.C. 432(a)(4)
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. See section 202(a)(1),
29 U.S.C. 432(a)(1)
A union officer was part-owner, along with his wife and
daughter, of a copier supply company. He was the officer of several
unions, including one which employed his daughter as a benefit
representative and union trustee. All of the unions purchased office
equipment and services from the family's company. See section
202(a)(4), 29 U.S.C. 432(a)(4)
A union employee owned a heating and air conditioning
business that performed HVAC work for the union. See section 202(a)(4),
29 U.S.C. 432(a)(4)
In these instances, compliance with the Form LM-30 requirements
would have provided union members with valuable information concerning
the finances of their unions' employees and officers. This would have
assisted union members in evaluating the efficacy of the work performed
by union employees and the leadership provided by union officers. 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, to determine
whether the conflicts have affected the union official's service to the
union. Armed with this information, union members could express their
concerns at membership meetings, see 29 U.S.C. 411(a), cast a more
informed vote at the next internal union election, see 29 U.S.C. 481-
483, employ union procedures for removal of officers guilty of serious
misconduct, see 29 U.S.C. 481(h), or exercise their right to obtain
judicial relief for violations of the fiduciary responsibilities of
union officials, see 29 U.S.C. 501(b).
In other instances, 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 paid the union president with 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. However, 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 involves 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.
OLMS expects that by clarifying the form and instructions, adding
examples to the instructions, eliminating administrative exemptions,
and providing extensive compliance assistance, the filing rate will
increase. During the course of a meeting held under E.O. 12866, a
stakeholder asserted that the Department receives few Form LM-30
reports because union officers and employees engage in few covered
transactions. The Department invites comments concerning the number of
union officers and employees, and the number of union officers and
employees who have not filed a Form LM-30 but who have engaged in a
transaction, or held an interest that required them to do so.
The Department seeks comments on whether to promulgate a regulation
that requires labor organizations to notify their officers and
employees of the annual reporting obligations under the LMRDA. No
notification obligation currently exists under the Department's
regulations, and the regulation proposed herein does not contain such a
provision. Notification by labor organizations would, nevertheless,
help ensure that officers and employees are aware of their reporting
obligations under the LMRDA. An increase in awareness by union officers
and employees could increase the number of reports filed each year,
enabling union members and the public to learn more about financial
transactions in which the union's officers and employees are involved
and, as needed, further inquire into the circumstances of these
dealings to ensure that the interests of the members and the public are
properly being served.
Under one option, each labor organization would be required to
inform its officers and employees, excluding those employed solely in
clerical or custodial positions, of their obligation to annually file a
Form LM-30 if they, their spouse, or minor children, hold any
interests, receive any payments, or engage in any transactions or
arrangements covered by section 202 of the Act. See 29 U.S.C. 432.
Notification would have to be in writing and inform officers and
employees that, subject to certain exemptions, they must file a report
with the Department if they have interests in, receive payments or
income from, or engage in transactions or arrangements with (1) an
employer whose employees the labor organization represents or actively
seeks to represent, (2) a business that deals with the labor
organization, or a trust in which the labor organization is interested,
(3) a business a substantial part of which consists of dealing with the
business of an employer whose employees the labor organization
represents or is actively seeking to represent, (4) any employer, or
(5) a labor relations consultant to an employer. The union would inform
its officers and employees that if they have any questions concerning
which financial matters are reportable and whether they are required to
file a report, they should consult the Form LM-30 and its instructions,
and the union would provide the web site address where the form and
instructions may be found. Notification would be provided by the union
to an officer within 30 days of installation into office and to an
employee within 30 days of the date of hire. Initial notification would
be provided to officers and employees within 60 days of the effective
date of the regulation, and thereafter to each on an annual basis. A
labor organization could meet this requirement by providing employees
and officers with a copy of the Form LM-30 and its instructions. E-mail
notification might be considered an acceptable means of informing
officers and employees.
An alternative to providing a separate notice to each officer and
employee would be to provide a general notice in a union publication
that is addressed to every officer and employee.
The Federal government informs employees at the time of their hire
and reminds them on a regular basis
[[Page 51174]]
thereafter about their various ethical responsibilities, including
conflict of interest rules and disclosure requirements. See E.O. 12674
(Apr. 12, 1989), as modified by E.O. 12731 (Oct. 17, 1990). The
Department seeks comments on whether a similar approach is taken by
other organizations and professions. The public is asked to comment on
other ways in which employers and professional associations educate
their employees and association members about their obligation to
disclose possible conflicts between their personal interests and the
interests of their employer or clients.
The Department invites comments as to the need for and efficacy of
a regulation that requires labor organizations to notify their officers
and employees of the annual reporting obligations under the LMRDA. In
this connection, it would be helpful to learn what steps are now being
taken by labor organizations to inform their officers and employees
about conflict-of-interest situations, including disclosure and
reporting requirements to the union and its members. Is such
information typically provided by an international or national union to
all its affiliates? Is it typically contained in a national or
international constitution or some other document, such as a handbook
for officers and employees, or training materials? Do local and
intermediate unions include such information in their constitutions or
bylaws--or in other documents? What information is provided to union
officials by trusts in which a union has an interest? Under what
circumstances and how often have allegations of officer or employee
conflicts of interests led to internal or judicial proceedings?
During the course of a meeting held under E.O. 12866, a stakeholder
questioned the Department's authority to require labor organizations to
notify their officers and employees of their disclosure obligations.
The public is invited to comment on this issue.
G. Deficiencies in the Reports Filed Using the Current Form LM-30
OLMS examined each of the 244 Form LM-30 reports filed during
fiscal years 2001, 2002, 2003, and 2004 and determined that a majority
of filers did not complete the form correctly. For example, although
Part A is separate and distinct from Parts B and C, 100 filers
erroneously filled out Part A in addition to the appropriate and
intended disclosure of an interest, transaction, income, or arrangement
in Part B or C. A total of 136 filers who completed Part B failed to
indicate whether the business they had an interest in, transaction
with, or income from dealt with a labor organization, trust, or
employer. A total of 117 of the filers who completed Part B provided no
information or incomplete and insufficient information about the nature
and approximate value of the dealings between the business and the
employer, labor organization or trust. Further, 59 of the filers
provided no information or inadequate information about the nature of
the interest they held in, or the income they received from, the
business.
In addition to the deficiencies described above, numerous other
errors occurred that resulted in inadequate and incomplete disclosure.
For example, most filers failed to answer one or more required
questions. In three instances, children of an officer or employee filed
Form LM-30 rather than the officer or employee. Six filers did not
specify their position within the union, four filers failed to report
the fiscal year that was covered by the report, two filers did not sign
the form, and one form was signed by the union official's spouse. In
Part A, 22 filers provided no information or inadequate information
about the nature and amount of the interest in, transaction with, or
income from an employer whose employees their union represented or was
actively seeking to represent.
The Department believes that the errors discussed above can be
reduced by clarifying the form and instructions, adding examples to the
instructions, and providing extensive compliance assistance. This
rulemaking, further, is part of an overall initiative that includes
greater scrutiny of Form LM-30 reports, and union financial records, as
well as increased enforcement. The Department believes that these
efforts will further reduce the error rate. The Form LM-30 will be more
useful to union members and the public when the reports that are filed
are responsive to the questions asked, and can thus be meaningfully
compared with the reports of other union officials. This will permit
union members to understand the nature of the financial matter being
reported, and its significance. This will allow union members to make
informed decisions as to the leadership and management of their union.
During the course of a meeting held under E.O. 12866, a stakeholder
asserted that errors in filed reports could be reduced solely by
increased compliance assistance by the Department. We will continue to
research the extent to which current Form LM-30 submissions are
deficient, and request comments on further data that may help the
Department explore this question. The Department invites comments
concerning all methods that would reduce the number of errors made in
completing Form LM-30.
H. Significant Proposed Changes to the Form LM-30, and Request for
Comments Concerning Filing Exemptions Created by the Department
1. Definitions, Examples and Administrative Exemptions
Definitions: The proposal defines key terms. The current
instructions do not explain terms that are essential to the form's
completion. The revised instructions define: actively seeks to
represent, arrangement, benefit with monetary value, bona fide
employee, bona fide investment, dealing, directly or indirectly, filer/
reporting person/you, income, labor organization, labor organization
employee, labor organization officer, legal or equitable interest,
minor child, payer, publicly traded securities, substantial part, and
trust in which a labor organization is interested.
In defining the term ``labor organization,'' the instructions
clarify that an officer or employee of a local union must file reports
when he or she engages in transactions with a business that deals with
his or her affiliated national labor organization, or engages in
transactions with an employer whose employees the national labor
organization is actively seeking to represent. Similarly, an officer or
employee of a national union must file reports when he or she engages
in transactions with a business that deals with an affiliated
subordinate labor organization, or engages in transactions with an
employer whose employees a subordinate labor organization is actively
seeking to represent. By the same token, when determining whether a
report must be filed due to payments from, or interests held in, a
business that deals with a trust in which a labor organization is
interested, the term ``labor organization'' will retain this expanded
meaning. Thus, for example, an officer of a local union must file
reports when he or she engages in transactions with a business that
deals with a trust in which his or her affiliated national labor
organization is interested.
Similarly, in defining ``bona fide employee,'' the revised Form LM-
30 would require the reporting of payments received by union officers
from an employer for work performed for the union. A typical example
involves a ``no docking'' arrangement where an employer allows a union
steward or union officer to resolve grievances, often on an ``as-
needed'' basis, without a loss
[[Page 51175]]
of pay. In other instances, a union official is paid by an employer
while working full time on union business.
A full discussion of the new definitions is provided below in the
discussion of the instructions.
Examples: The proposal provides examples to help filers determine
what must be reported under each subsection of section 202. These
examples will provide illustrations of reportable and non-reportable
interests, payments, income, transactions, and arrangements. A full
discussion of the examples is provided below in the discussion of the
instructions.
Administrative Exemptions and Special Reports: The proposed
instructions also eliminate some exemptions in the current form. These
exemptions permit filers to omit certain financial matters from
disclosure that would otherwise be reportable if engaged in by the
filer or the filer's spouse or minor child. These exemptions are
discussed below, along with other exemptions that the Department does
not propose to remove. Comments are invited on both the exemptions that
the Department proposes to remove and the exemptions that are not
proposed to be removed.
Under the existing instructions, filers are notified: ``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.'' The LMRDA
Interpretative Manual (``LMRDA Manual''), 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 under
circumstances unrelated to the recipient's status in a labor
organization.'' LMRDA Manual, Sec. 241.700.
The Department seeks comments regarding whether this exemption
should be retained or removed. This exemption applies by its terms to
all reports due under section 202. It does not provide guidance as to
when a gift, gratuity, or loan is ``unrelated to the recipient's status
in the labor organization.'' The statute calls for disclosure of
``any'' stock, bond or other interest, ``any'' income, ``any'' loan,
and ``any'' payment or other thing of value. See 29 U.S.C. 432(a)(1)-
(6). This language could indicate that Congress did not intend to
exempt certain gifts, gratuities, or loans based on their dollar value.
Further, Congress imposed a substantiality test in section 202(a)(3)
(``any business a substantial part of which consists of * * * dealing
with the business of an employer''), but did not do so, at least
expressly, in describing the holdings, transactions, and income that is
reportable under section 202. See 29 U.S.C. 432(a).
At the same time, exceptions based on insubstantiality are commonly
read into statutes that do not expressly contain them. See Wisconsin
Dept. of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214, 231 (1992)
(``the venerable maxim de minimis non curat lex (`the law cares not for
trifles') is part of the established background of legal principles
against which all enactments are adopted, and which all enactments
(absent contrary indication) are deemed to accept.''). Furthermore,
other reporting and disclosure systems do not require reports of small
value items. For the purposes of comparison, one may look to the
treatment of gifts in the financial disclosure reports for certain
Federal Government employees. Employees with general schedule positions
of grade 15 and below whose duties may involve potential conflicts of
interest must file Office of Government Ethics (OGE) Confidential
Financial Disclosure Report 450 (OGE Form 450). The form has a range of
standards for reporting different interests and transactions. Gifts
totaling $285 or less from any one source need not be reported, and
gifts valued at $114 or less need not be included in determining
whether the $285 threshold has been exceeded. Federal employees in
positions above GS-15 and in certain other positions of confidential or
policymaking character must file a Public Financial Disclosure Report
(SF 278). This form treats gifts in a manner similar to the OGE Form
450. Gifts totaling $260 or less from any one source need not be
reported, and gifts valued at $104 or less need not be included in
determining whether the $260 threshold has been exceeded. Similar to
the current Form LM-30's requirement that a de minimis gift be reported
if the gift is related to the filer's status in the union, under the
government's disclosure regime, gifts to a filer's spouse or dependent
child must be disclosed ``to the extent the gift was not given to him
or her totally independent of the relationship to you.'' See SF 278, p.
12; OGE 450, p5. Unlike the Form LM-30, government employees must
report gifts from any source, unless a specific exemption applies,
while union officers and employees must report gifts received only from
certain businesses and employers. See SF 278, p. 12-13; OGE 450, p5. In
one significant regard, government filers are permitted to exclude from
their reports gifts of ``hospitality (food, lodging and entertainment)
on the donor's personal or family premises.'' See SF 278, p. 12-13; OGE
450, p5.
Under the OGE Form 450, loans of $10,000 or less are not
reportable, and there are four exceptions for loans exceeding the
threshold, including mortgages on personal residences, and loans for
personal automobiles, household furnishings, or appliances, where the
loan does not exceed the purchase price. The loan reporting
requirements of the SF 278 are very similar. A copy of both of these
forms and instructions are available at the OGE Web site at: http://www.usoge.gov
.
The Department seeks comment on whether the term ``insubstantial''
left without further explanation in the instructions could be applied
to shield from disclosure some financial transactions that would be of
interest to union members. The Department could augment the existing
instructions to define ``insubstantial value'' so that filers are able
to distinguish between reportable and non-reportable gifts, gratuities,
or loans based on a clearly articulated standard, like that in the
Interpretative Manual or those in the Federal employee disclosure
forms. The Department seeks comment on whether the $25 threshold set
out in the LMRDA Interpretative Manual is an appropriate one, whether
the burden to report small interests and transactions is reasonable,
and whether it would be preferable to require reporting of all
transactions and allow union members to assess whether a particular
holding or transaction is substantial enough to possibly present a
conflict between private interest and union responsibilities. During
the course of a meeting held under E.O. 12866, some stakeholders stated
that the exemption for insubstantial transactions in the existing
instructions should be clarified, and that the threshold for disclosure
be increased. The public is invited to comment on all aspects of this
issue.
Part A of the current instructions exempts from reporting
(ii) Holding of, transactions in, or income from, securities
[that are not 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], provided any such holding, or transaction, or receipt
of income is of insubstantial value or amount and occurs under terms
unrelated to your status in a labor organization. For purposes of
this exclusion, holdings or transactions involving $1,000 or less
and receipt of income of $100
[[Page 51176]]
or less in any one security shall be considered insubstantial;
(iii) Transactions involving purchases and sales of goods and
services in the regular course of business at prices generally
available to any employee of the employer.
(iv) Payments and benefits received as a bona fide employee of
the employer for past or present services, including wages, payments
or benefits received under a bona fide health, welfare, pension,
vacation, training or other benefit plan; and payments for periods
in which such employee engaged in activities other than productive
work, if the payments for such period of time are: (a) Required by
law or a bona fide collective bargaining agreement, or (b) made
pursuant to a custom or practice under such a collective bargaining
agreement, or (c) made pursuant to a policy, custom, or practice
with respect to employment in the establishment which the employer
has adopted without regard to any holding by such employee of a
position with a labor organization.
The Department does not propose to remove exemption (ii), but seeks
comment on whether to remove or retain this exemption. This exception,
which was created administratively, apparently was intended to
discourage reporting of ``insubstantial'' matters unrelated to the
filer's position in the union. In like fashion, the LMRDA Manual
provides an example of the application of this exception and states
that a $400 purchase of stock, traded over the counter by an employee
(and thus otherwise reportable) of a company that supplies his union
over $1 million annually in goods and services need not be reported
where the market value of the stock is $1000 or less and the yearly
income from the stock is $100 or less and the holdings and interest are
unrelated to the individual's employment by the union. LMRDA Manual,
Sec. 246.700 (but also noting that the Department may always require a
special report that disclosed the purchase).
As discussed above, exceptions based on insubstantiality are
commonly applied. Further, there is precedent for a similar use of
reporting thresholds. Under the SF 278, stocks, bonds and securities
from one source need not be reported if they total $1,000 or less in
value. Investment income of $200 or less need not be reported. Under
the OGE Form 450, investments with a value greater than $1,000 or which
produce more than $200 in income are reportable.
On the other hand, the exemption deals with unregistered
securities, or securities sold through an unregistered exchange, which
Congress considered reportable. See 29 U.S.C. 432(b). Further, unlike
the federal disclosure forms, section 202 of the Act requires reporting
only on financial matters that were considered to be potential
conflicts for union officers and employees by Congress and identified
in the statute. Likewise, section 202 does not require reports of
financial matters that do not pose this danger, no matter how large the
value of the holding or transaction. In this context, an exemption
based on insubstantiality or union status factors could arguably result
in nondisclosure of transactions that present conflicts of interests
for union officials and were identified by Congress as reportable,
denying union members relevant information to evaluate their officers
and employees not only at the time of union elections but throughout
their tenure. The Department seeks comment on whether this exemption
should be removed or retained.
Exemption (iii) is a statutory exemption for transactions involving
purchases and sales of goods and services in the regular course of
business at prices generally available to any employee of the employer.
The statutory language applies by its terms to financial matters
reportable under section 202(a)(5), not to section 202(a)(1) or
202(a)(2). Section 202(a)(5) requires union officers and employees to
report any ``business transaction or arrangement'' with an employer
whose employees the union represents or is actively seeking to
represent. It is for this reporting obligation alone that section 202
applies the exception for ``purchases and sales of goods and services
in the regular course of business at prices generally available to any
employee of such employer.''
Sections 202(a)(1) and (a)(2) require union officers and employees
to report (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 employers, and (4) income or
any other benefit with monetary value (including reimbursed expenses)
received from such an employer. Sections 202(a)(1) and (a)(2) do not
include the ``regular-course-of-business'' exception.
The instructions for Part A of the current form combine the
separate reporting obligations of sections 202(a)(1), (a)(2), (a)(5)
into a single query. In so doing, the instructions also apply the
statutory exceptions applicable to each obligation to the other
obligations. Thus, the current form applies the ``regular-course-of-
business'' exception to sections 202(a)(1) and (a)(2)'s requirement
that union officers and employees report (1) holdings, (2) transactions
in holdings, (3) loans, and (4) income or any other benefit with
monetary value (including reimbursed expenses).
The Department's proposal adheres to the statutory design and thus
proposes to remove the exemption for reports due under section
202(a)(1) and 202(a)(2). The proposed form would thus eliminate the
application of the ``regular course of business'' exception to reports,
due under sections 202(a)(1) and (a)(2), of (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
employers, and (4) income or any other benefit with monetary value
(including reimbursed expenses) received from such an employer. Rather,
the proposed form applies the ``regular-course-of-business'' exception
only to reports, due under section 202(a)(5), of any ``business
transaction or arrangement'' with an employer whose employees the union
represents or is actively seeking to represent.
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
believes, 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 ``regular-course-of-business'' exemption. Also, it is
conceivable that 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 the
``regular-course-of-business'' 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
[[Page 51177]]
their responsibilities to the union and the union members.
Similarly, the first part of exemption (iv) (up to the semicolon)
(dealing with payments and benefits received as a bona fide employee of
the employer) is created by statute. Under the statute, it applies to
reports due under sections 202(a)(1) and 202(a)(5). Section 202(a)(1)
requires union officers and employees to report (1) holdings in an
employer whose employees the union represents or is actively seeking to
represent, and (2) income or any other benefit with monetary value
(including reimbursed expenses) from such an employer. As discussed
above, section 202(a)(5) requires union officers and employees to
report any ``business transaction or arrangement'' with such an
employer. Sections 202(a)(1) and (a)(5) both contain an exception for
``payments and other benefits received as a bona fide employee of such
employer.''
Section 202(a)(2) requires union officers and employees 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) does not include the ``bona fide
employee'' exception.
By combining these separate reporting obligations--sections
202(a)(1), (a)(2), (a)(5)--into a single query, the instructions for
Part A of the current form also apply the statutory exceptions
applicable to each obligation to all three obligations. Thus, the
current form applies the ``bona fide employee'' exception to section
202(a)(2)'s requirement that union officers and employees to report (1)
transactions in holdings, and (2) loans.
The proposed form applies the ``bona fide employee'' exception only
to reports, due under sections 202(a)(1) and (a)(5), of (1) holdings in
an employer whose employees the union represents or is actively seeking
to represent, (2) income or any other benefit with monetary value
(including reimbursed expenses) from such an employer, and (3) business
transactions or arrangements with such an employer.
The proposed form would eliminate the application of the ``bona
fide employee'' exception to reports, due under sections 202(a)(2), of
(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.
Union members have an interest in knowing all transactions of union
officers and employees involving transactions in ownership interests
in, and loans to or from, the employer, so they can evaluate whether
such matters are significant enough, or of such a nature, to constitute
a conflict of interest. Under the current form, a union officer could
avoid reporting a loan received from the employer on the ground that
the loan was a benefit received as a bona fide employee, despite the
union members' legitimate interest in knowing whether the person who
negotiates the terms and conditions of their employment is beholden to
the employer. Removal of the exemption would thus provide union members
with important information concerning the financial activities of their
officers and employees. Further, sales and purchases of ownership
interest in the employer are highly unlikely to constitute payments
received as a bona fide employee, and, in any event, a union member
would likely be interested to learn whether their union officers or
employees availed themselves of the opportunity to purchase or divest
in employer holdings. The exemption in the current form is all but
superfluous in the context of ownership interests, and to the extent
that it is not superfluous, it is counterproductive. The presence of a
largely useless exemption can create confusion and complicate
enforcement. Finally, the change is consistent with the plain language
of the statute, which applies the ``bona fide employee'' exception only
to financial matters reportable under sections 202(a)(1) and 202(a)(5),
not to section 202(a)(2).
Following the statutory framework, the Department, therefore,
proposes to eliminate this exemption for reports due under section
202(a)(2). Further, as discussed in greater detail in IV.B.2.b, below,
the portion of the exemption that excludes payments for periods in
which such employee engaged in activities other than productive work
will also be removed.
Part B of the current instructions adopts exemption (ii) from Part
A. This exemption was created by the Department, and, for the reasons
discussed above, the Department seeks comment on whether the exemption
should be retained, but does not propose to remove this exemption.
Part C of the current instructions contains the following
exemptions:
(ii) Bona fide loans, interest or dividends from national or
state banks, credit unions, savings or loan associations, insurance
companies, or other bona fide credit institutions.
(iii) Interest on bonds or dividends on stock, provided such
interest or dividends are received, and such bonds or stock have
been acquired, under circumstances and terms unrelated to the
recipient's status in a labor organization and the issuer of such
securities is not an enterprise in competition with the employer
whose employees your labor organization represents or actively seeks
to represent.
The Department proposes to eliminate these two exemptions. Section
202(a)(6) requires union officers and employees 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.
Part C (Items 13 and 14) of the current form implements the
statutory requirement for reporting payments received from an employer
or a labor relations consultant to an employer. The first exemption
permits union officers and employees to not report bona fide loans,
interest or dividends from bona fide credit institutions. The proposed
form would eliminate this exemption.
The exemption operates as a barrier to disclosure. In one case, a
credit union controlled by a local union made 61% of the credit union's
loans to four loan officers, three of whom were officers of the local.
By eliminating this exemption, union officers and employees will be
required to disclose such loans, interest payments, or dividends.
Disclosure of these loans would have benefited the union members. The
actions of these officials were not in the best interest of the credit
union, or the labor organization that established it, because of the
potential consequences of not spreading lending risk among multiple
loan recipients and the granting of loans for reasons related to union
status rather than ability to repay.
The exemption in the current form is not required by the statute,
which is silent on this issue. Indeed, the exemption tracks one that
Congress chose to include in reports of employers, but omitted from the
reports of union officers and employees. Compare 29 U.S.C. 433(a) with
29 U.S.C. 432(a)(6). Further, this exemption leaves the filer to
determine, without further guidance, whether a loan is bona fide.
Exemption (iii) of Part C will also be eliminated under the
Department's proposal. This exemption is similar in certain respects to
the statutory exemption of section 202(b), but unlike section 202(b),
it exempts from reporting bonds and stocks that are not registered with
the SEC or traded on a registered securities exchange. Further, section
202(a)(6), to which this exemption applies, already contains an
exemption ``with respect to the sale and purchase of an article or
commodity at the prevailing market price in the
[[Page 51178]]
regular course of business.'' To the extent that the exemption in the
current form excludes from reporting transactions that fail to meet the
statutory section 202(a)(6) exemption, it sanctions nondisclosure of
transactions at below-market prices made outside of the regular course
of business--the most suspect transactions. Union members would have an
interest in knowing whether a union official has received a benefit not
available to others on similar terms, in order to evaluate where the
union official's loyalties may lie and whether any divided loyalties
could affect the official's ability to represent the union members.
Further, this exemption invites abuse by permitting the filer to make
an unguided determination on whether the bonds and stocks have been
acquired under circumstances unrelated to the recipient's status in a
labor organization. The exemption is not required by the statute, and
its removal is consistent with it.
The exceptions described above are not required by the statutory
language and despite their apparent design to simplify reporting, they
have added a layer of complexity to the proper understanding of the
section 202 reporting obligations. The exemptions are lengthy, and
require study in addition to that needed to understand the reporting
obligations. They are ambiguous, and may lead filers to believe that
reportable transactions may be omitted from the form.
Exemptions (ii) and (iv) of Part A, and exemptions (ii) and (iii)
of Part C were not expected to be invariably available. See 29 CFR
404.4. A special report was intended to be used to obtain such exempted
information upon demand of the Department, although the special report
provision has proved useless in practice, in part because the
Department cannot know when important information has been omitted and
that a special report would be revealing. See 29 CFR 404.4. The
Department proposes to delete the special report provision. As
mentioned above, at the time the Form LM-30 was created, the Department
acted under the impression that more complete reporting could be
realized through an ad hoc special report, and could be selectively
required by the Secretary. See 29 CFR 404.4. These reports would allow
the Secretary to require the disclosure of the information that was
exempted from disclosure by operation of the four administrative
exemptions discussed above. Id. No procedures were established,
however, to govern the imposition of a special report; nor did the
Department ever issue or seek a special report. The special report
regulation is an acknowledgement that one or more of the exemptions
potentially permit the non-reporting of conflict-of-interest
transactions, but leaves no realistic method by which the Department
can identify these cases and require more detailed reporting. Further,
in today's regulatory and statutory environment, which mandates
numerous time consuming procedures and analyses before a reporting form
may be issued or revised, the Department's ability to implement a
special report for a particular set of union officers and employees is
questionable.
In essence, the exemptions proposed to be eliminated render non-
reportable transactions that by statute are subject to disclosure, a
deficiency that has not been effectively eliminated through the use of
a special report procedure. In addition to being not required by
statute, the exemptions proposed to be removed necessarily reduce the
information available to union members to evaluate their union
officials. Instead of the Department determining in advance that entire
categories of financial holdings or transactions should not be
disclosed, the better course may be to require reporting so that union
members may decide for themselves whether the financial matters are of
concern. The resulting increased transparency will permit union members
to obtain information needed by them to monitor their union's affairs
and to make informed choices about the leadership of their union and
its direction. At the same time this increased transparency will
promote the unions' own interests as democratic institutions and the
interests of the public and the government. The increased financial
transparency will also deter fraud and self-dealing, and facilitate the
discovery of such misconduct when it does occur.
2. Restructured Form
The broad purpose of the Form LM-30 is to disclose possible
conflicts between the personal financial interests of a union officer
or employee and his union. A union member or other person reviewing a
report should be able to easily discern the financial interests of the
filer. The current form is not arranged to quickly provide such
information. The current form does not provide a summary of the data on
the report. The viewer must examine all the Parts A, B, and C that are
filed; review the payers in all Items 6, 8, and 13; and sum the amounts
in all Items 7b, 12b, and 14b to obtain an overview of what has been
reported. Union members reviewing the report of a filer with multiple
reportable transactions and interests from several sources would thus
have to sort through numerous pages of the report to discern who had
paid the filer and perform the math themselves.
To remedy this problem, the Department's proposal contains a
summary information schedule that may satisfy the needs of many users
of the report without need for greater detail. In the revised form, for
convenience and ease of understanding, the term ``payer'' is used to
describe the employer, business, or labor relations consultant that is
financially involved with the filer. Using this terminology, a Payer
Summary Schedule on the first page of the report shows the name of
every payer from which the filer received money or in which the filer
held an interest, and the total monetary value the filer derived from
each payer. Each payer is numbered to correspond to the appropriate
Payer Detail Page. Anyone interested in further information regarding
the interests and transactions can skip directly to the appropriate
detail page.
The proposed form will call for additional contact information
about the filer and his or her labor organization, including the e-mail
address of each filer, and the telephone number, web site address,
state of incorporation or registration, and state business
identification number of each payer. The purpose of this additional
contact information is to allow those who view the report to accurately
identify the filer and, more important, accurately identify and further
research the business with which the filer has a financial
relationship. Ambiguous information about the filer or the source of
payments to the filer can negate the utility of the report, by denying
members sufficient information to assess the conflict situation.
Comments are solicited on the significance of this information to
readers of the reports and whether a filer has reasonable access to
this information.
A labor organization schedule will be added to the form allowing a
filer to list the unions that the filer is employed by or an officer
of, thus negating the need for filers to submit multiple reports.
Continuation pages ease completion of the form, and facilitate search
and retrieval.
The proposal also organizes all the reported financial interests
and transactions into tables. This will allow a member or other user to
perform an electronic search on the OLMS disclosure database. Upon
promulgation of a final rule, this database will be
[[Page 51179]]
configured in a way that will facilitate such searches.
The Department seeks comments on the proposed notice requirement,
clarification of the form, use of examples to guide filers, removal of
the administrative exemptions, deletion of the special report
procedures, and restructuring of the form.
III. Authority
A. Legal Authority
The legal authority for the notice of proposed rulemaking is
sections 202 and 208 of the Labor-Management Reporting and Disclosure
Act of 1959, as amended (LMRDA), 29 U.S.C. 432, 438.
B. Departmental Authorization
Section 208 of the LMRDA provides that the Secretary of Labor shall
have 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. 29 U.S.C. 438. Secretary's Order
4-2001, issued May 24, 2001, and published in the Federal Register on
May 31, 2001 (66 FR 29656), continued the delegation of authority and
assignment of responsibility to the Assistant Secretary for Employment
Standards in Secretary's Order 5-96 of those functions to be performed
by the Secretary of Labor under the LMRDA.
IV. Overview of the Regulations and Instructions
The discussion that follows describes the Department's proposal to
revise its regulations implementing section 202(a) of the LMRDA, 29 CFR
part 404, and the Form LM-30 and its accompanying instructions, which
are incorporated into the regulations by reference. 29 CFR 404.3. The
following discussion highlights the key elements of each subsection of
section 202 and the significant changes between the proposed and
current regulations, form, and instructions.
A. The Regulations
1. The proposal would amend section 404.4 of the regulations, 29
CFR 404.4, relating to special reports. This section provides that the
Secretary may require the filer to file special reports on certain
matters pertinent to an officer's or employee's holdings or interests
covered by section 202, specifically including four categories of
holdings, transactions, and payments that would be reportable but for
four administrative exemptions. These include two administrative
exemptions to Part A. The first permits the filer to exclude holdings
of, transactions in, or income from non-registered securities of
insubstantial value that are unrelated to the filer's status in the
labor organization. See Instructions, Part A, exclusion (ii). The
second consists of an expansion of the statutory exclusion for payments
and benefits received as a bona fide employee to include ``payments for
periods in which such employee engaged in activities other than
productive work.'' See Instructions, Part A, exclusion (iv). They also
include two administrative exemptions to Part C. The first specified
Part C exemption excludes bona fide loans, interest, or dividends from
banks, insurance companies and other bona fide credit institutions. See
Instructions, Part C, exclusion (ii). The second concerns interest on
bonds or dividends on stock, provided such interest or dividends are
received, and such bonds or stock have been acquired, under
circumstances and terms unrelated to the recipient's status in a labor
organization and the issuer of such securities is not an enterprise in
competition with the employer whose employees the filer's labor
organization represents or actively seeks to represent. See
Instructions, Part C, exclusion (iii). Although the special report
provision will be deleted, the Department notes that it maintains
statutory authority to assess each 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.
2. In addition, the Department proposes to amend section 404.7,
which requires the maintenance and preservation of records. The
language has been revised to better identify some of the documents that
must be retained and to address the fact that records now may be
maintained in electronic format. The Department intends no substantive
change in meaning, as the revised language merely clarifies and makes
explicit the retention requirements that have always been imposed by
the regulation and statute. See 29 CFR 404.7; 29 U.S.C. 436.
3. The Department proposes to amend section 404.1 to add
definitions for the following terms: Benefit with monetary value,
dealing, income, labor organization, minor child, and trust in which a
labor organization is interested. See 29 CFR 404.1. In addition, the
existing definitions for the terms ``labor organization officer,'' and
``labor organization employee'' will be modified. These are terms that
appear in 29 CFR 404, and it is thus appropriate to define the terms in
the regulations themselves. The terms and their definitions will also
appear in the instructions, as will other terms, discussed below, that
appear only in the instructions. This approach is used in the existing
regulations and instructions.
To be as effective as possible, a reporting and disclosure statute
such as section 202(a) depends on a known and easily applied standard
regarding what must be reported. Such a standard is important not only
for union officials who must comply with the reporting requirements and
for the administrative agency that enforces compliance, but also,
because of the special objectives of the LMRDA, for union members and
the general public who rely on disclosure and need to know what the
disclosure or its absence represents.
B. The Instructions
The following discussion tracks the major sections of the proposed
instructions. The proposed instructions, in turn, correspond roughly
with the layout of the existing instructions. We identify the changes
between the proposed and existing instructions; these changes also are
reflected in the revised layout and design of the form itself. The
proposed layout of the form is based on other updated OLMS financial
disclosure reports and includes a summary schedule.
1. General Changes
The myriad types of financial transactions made reportable by
section 202 complicate the design of a ``self-explanatory'' form. The
filer must rely on the instructions to accurately complete the form. We
invite comments as to the layout of the instructions, their clarity,
and suggestions about how to better explain the reporting obligations.
2. Introductory Section of the Instructions
a. The first heading of the proposed instructions: ``Why file'' is
identical to the current form. Like the current form it delineates the
basic reporting obligations. However, the proposal adds more
information to better place the filing obligation in the larger context
of the LMRDA. We identify the elements of the statute and explain that
the basic purpose of the section 202 report is to publicly identify any
actual or apparent conflict between the personal financial interests of
a filer, spouse, or minor child and the filer's obligation to the union
and its members. The proposal also clarifies that no report need be
filed unless the filer, spouse, or minor child
[[Page 51180]]
held a covered interest or engaged in a covered transaction during the
reporting period.
b. The second heading of the proposed instructions is
``Definitions.'' This is a new section of the instructions.
The terms defined include: actively seeking to represent,
arrangement, benefit with monetary value, bona fide employee, bona fide
investment, dealing, directly or indirectly, filer/reporting person/
you, income, labor organization, labor organization employee, labor
organization officer, legal or equitable interest, minor child, payer,
publicly traded securities, substantial part, and trust in which a
labor organization is interested.
The meaning of many of these terms is left unclear by the current
instructions. By defining and explaining the key terms used by section
202, a filer will better understand his or her reporting obligations,
which, in turn, will improve the likelihood of filing and the accuracy
of the reports. Providing information that should be disclosed, based
on statutory requirements, will aid union members in assessing whether
their union's officers and employees have entered into financial
arrangements with employers, businesses, and others that could
potentially compromise the officials' ability to act in the best
interests of, and achieve the best results for, the union and its
members.
Actively seeking to represent, as proposed, means that a labor
organization has taken steps to become the bargaining representative of
the employees of an employer, including but not limited to:
Sending organizers to an employer's facility;
Placing an individual in a position as an employee of an
employer that is the subject of an organizing drive and paying that
individual subsidies to assist in the union's organizing activities;
Circulating a petition for representation among employees;
Soliciting employees to sign membership cards;
Handing out leaflets;
Picketing; or
Demanding recognition or bargaining rights or obtaining or
requesting an employer to enter into a neutrality agreement (whereby
the employer agrees not to take a position for or against union
representation of its employees), or otherwise committing labor or
financial resources to seek representation of employees working for the
employer.
This definition, in large part, is based on a statement from the
legislative history. See Senate Report, at 15, reprinted in 1 Leg.
History, at 411 (The phrase ``actively seeking to represent'' denotes
``more than that the union hopes some day to become the bargaining
representative of a group of employees or claims jurisdiction to
organize them. It requires specific organizational activities such as
sending organizers into a community, handing out leaflets, picketing,
or demanding recognition and bargaining rights''); House Report, at 11;
reprinted in 1 Leg. History, at 769. The examples are concrete actions
commonly associated with attempts to organize a workforce. Comments are
invited as to the merit and clarity of the enumerated activities and
whether other examples would be helpful. In the Department's view, the
term ``actively seek to represent'' seeks to distinguish between
situations where a union has taken steps to organize and those where
the union merely has an interest in organizing employees of the
employer in question. For example, a union may wish to represent
employees of a certain employer, and may even have finalized an
organizing plan, but has not yet begun to implement the plan. Such a
union is not actively seeking to represent employees of this employer.
Comments are sought as to whether it is appropriate to trigger the
reporting obligation on the decision to organize an employer's
workforce distinct from taking the first concrete step to organize. The
Department recognizes that some organizing activities are initiated
without notice to the public or an employer, but there would appear to
be few, if any, situations, where the disclosure of a reported interest
on the Form LM-30 would be the first open acknowledgment of the union's
active efforts to represent employees. Commenters are asked to address
this assumption.
Arrangement, as proposed, means any agreement or understanding,
tacit or express, or any plan or undertaking, commercial or personal,
by which the filer, spouse, or minor child will obtain a benefit,
directly or indirectly, with an actual or potential monetary value.
The term encompasses both personal and business transactions,
including an unwritten understanding. For example, if an employer's
representative during the reporting period solicits a union officer to
accept a job with the employer, the filer must report the solicitation,
unless the filer rejects the offer. A standing job offer must be
reported because it carries the potential of monetary value to the
filer. Another example of a situation requiring a report would be one
in which a covered employer provides insider information about a stock
or other investment opportunity, unless the filer rejects the advice
and takes no steps to act on it.
Certain senior government officers and employees are required to
file publicly available reports (SF 278) disclosing their financial
interests as well as the interests of their spouse and dependent
children. The SF 278 requires a filer to report ``arrangements''
including ``(1) future employment; (2) a leave of absence during [the
filer's] period of Government service; (3) continuation of payments by
a former employer other than the United States Government; and (4)
continuing participation in an employee welfare or benefit plan
maintained by a former employer other than United States Government
retirement benefits.'' The form notes that disclosure ``includes any
agreements or arrangements with a future employer entered into by a
termination filer.'' SF 278, p. 15; See also OGE 450, p. 4.
In addition, senior government filers ``must disclose any
negotiations for future employment from the point you and a potential
non-Federal employer have agreed to your future employment by that
employer whether or not you have settled all of the terms, such as
salary, title, benefits, and date employment is to begin.'' SF 278, p.
15.
Benefit with monetary value, as proposed, means anything of value,
tangible or intangible, including any interest in personal or real
property, gift, insurance, retirement, pension, license, copyright,
forbearance, bequest or other form of inheritance, office, options,
agreement for employment or property, or property of any kind.
This definition is adopted from disclosure regulations applicable
to federal employment. See 5 CFR 2634.105(h); 5 CFR 2634.302(b)(1).
Bona fide employee, as proposed, is an individual who performs work
for, and subject to the control of, the employer.
In considering the meaning to be given bona fide employee, the
Department considered the purposes of the LMRDA, and the following
point in the AFL-CIO's Ethical Practices Code: ``No responsible trade
union official should accept kickbacks, under-the-table payments, gifts
of other than nominal value, or any personal payment of any kind other
than regular pay and benefits for work performed as an employee from an
employer or business enterprise with which his union bargains
collectively.'' AFL-CIO Ethical Practices Code, 105 Cong. Rec.*16379
(daily ed. Sept. 3, 1959), reprinted in 2 Leg. History, at 1408. The
Department
[[Page 51181]]
has also considered the disclosure form (SF 278) required to be
completed by senior government officials and employees. The
instructions for the SF 278 require filers to report earned income,
including ``fees, salaries, commissions, compensation for personal
services, retirement benefits, and honoraria,'' excluding ``income from
employment by the United States government.'' SF 278, p. 8. Finally,
the Department recognizes that numerous federal agencies, including the
Department, continue the pay of union representatives engaged in the
conduct of union-management business. See Agreement between Local 12,
AFGE, AFL-CIO and the U.S. Department of Labor, Article 45 (Effective
March 20, 2005).
Under the proposed definition, to be exempt from reporting,
payments and other benefits received as a bona fide employee of the
employer must be attributable to work performed for, and subject to the
control of, the employer. See Nationwide Mut. Ins. Co. v. Darden, 503
U.S. 318, 322-24 (1992). Such payments and other benefits are non-
reportable, even if they represent compensation for such work
previously performed, such as earned or accrued wages, payments or
benefits received under a bona fide health, welfare, pension, vacation,
training or other benefit plan, leave for jury duty, and all payments
required by law. In contrast, compensation for work performed as an
independent contractor does not constitute payments or benefits to a
bona fide employee, even if the individual also serves as a bona fide
employee while performing other work. Most fundamentally, compensation
paid to an individual who is carried on the employer's payroll but who
does not work (a ``no-show employee'') is not compensation to a bona
fide employee.
By its terms, the proposed definition excludes payments for work
performed for an individual other than the employer, or work performed
outside the control of the employer. This definition will, thus,
require reporting of at least two types of compensation that are
currently excluded from reporting as ``payments and other benefits
received as a bona fide employee.'' See Instructions, Part A, exclusion
(iv). These compensation types are ``union leave'' and ``no docking''
payments. Under a union-leave policy, the employer continues the pay
and benefits of an individual who works full time for a union. Under a
no-docking policy, the employer permits individuals to devote portions
of their day or workweek to union business, such as processing
grievances, with no loss of pay. Continuation of pay in this context is
not ``payments or other benefits received as a bona fide employee''
because the payments are not attributable to work performed for, and
subject to the control of, the employer. Rather, the pay is for
services performed for, and subject to the control of, the union. The
payments are, therefore, reportable. See 29 U.S.C. 432(a)(1), (a)(5).
The current instructions treat as non-reportable payments for
``activities other than productive work,'' depending in part on the
collective bargaining agreement and the employer's practices.
Specifically, exemption (iv) of Part A of the current form excludes
``payments for periods in which such employee engaged in activities
other than productive work, if the payments for such period of time
are: (a) Required by law or a bona fide collective bargaining
agreement, or (b) made pursuant to a custom or practice under such a
collective bargaining agreement, or (c) made pursuant to a policy,
custom, or practice with respect to employment in the establishment
which the employer has adopted without regard to any holding by such
employee of a position with a labor organization.'' See Instructions,
Part A, exemption (iv). The LMRDA Manual discusses the situation when a
union officer ``is excused from his regular work to handle grievances
and [is] paid his regular wages while handling grievances.'' It states:
``Such a situation will not normally require reports from the union
officer * * * on the theory that the employee officer is being paid for
work performed of value to the employer who is interested in seeing to
it that grievances are immediately adjusted.'' LMRDA Manual, Sec.
248.005.
The Department proposes to change this rule. Under the Department's
proposed instructions, an officer or employee would have to report any
payments for other than ``productive work,'' including union-leave and
no-docking payments. These payments are not received as a bona fide
employee of the employer; they are received as a representative or
employee of the union. The employer's perception that an employee's
work for the union is valuable, a fact relied on by the LMRDA Manual,
does not seem relevant. The question is whether the payment is received
as a bona fide employee, not whether the employer considers the money
well spent. The payments also represent a potential conflict of
interest. Members have an interest in knowing how much union officers
or employees ar |
