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Office of Labor-Management Standards (OLMS)

OLMS Interpretative Manual

TABLE OF CONTENTS

UNION SAFEGUARDS

500-509           (Numbers Reserved)
510                  Fiduciary Responsibility of Officers and Others
511                  (Number Reserved)
512                  Propriety of Expenditure
513                  (Number Reserved)
514                  Exculpatory Provisions
515                  Suit for Accounting or Relief
516                  (Number Reserved)
517                  Court Must Grant Leave to Sue
518                  Counsel Fees and Expenses

519-525           (Numbers Reserved)

530                  Bonding In General
531                  Who Must Be Bonded In General
531.100           Who Must Be Bonded: “Person”
531.200           Who Must Be Bonded: “Duties”
531.300           Who Must Be Bonded: “Labor Organization”
531.400           Who Must Be Bonded: “Trust in Which a Labor Organization is Interested”
531.500           Who Must Be Bonded: “Funds”
531.600           Who Must Be Bonded: “Handled”
531.700           Who Must Be Bonded: “Exclusions”
532                  Amount of Bond—Term of Bond
533                  Type of Bond: Honesty
534                  Form of Bond: Individual or Schedule Designation of Insured
535                  Approved Surety
536                  Conflict of Interest—Bonding
537                  Payment of Premium
538-539           (Numbers Reserved)

540                  Prohibitions Against Certain Financial Aid to Officers
541                  Union Loans, Direct or Indirect
542-549           (Numbers Reserved)

550                  Prohibition Against Holding Office or Employment
551                  Prohibition Against Communists
552                  Prohibition Against Convicts
553                  Crimes Covered by Section 504
554-579           (Numbers Reserved)

580                  Embezzlement and Other Criminal Conversions
581-599           (Numbers Reserved)

FIDUCIARY RESPONSIBILITY OF OFFICERS AND OTHERS

510.001 LMRDA, SECTION 501(a)

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.

       510.002  LMRDA SECTION 501(a) INVESTIGATIVE POLICY  STATEMENT

The Secretary of Labor has the authority under section 601(a) of the LMRDA to investigate "when [s]he believes it necessary in order to determine whether any person has violated or is about to violate any provisions of this Act (except title I or amendments made by this Act to other statutes). . . ." Section 601(a) also provides that "The Secretary may report to interested persons or officials concerning . . . any matter which [s]he deems to be appropriate as a result of such an investigation."

Therefore, it is the policy of the Office of Labor-Management Standards (OLMS) to investigate, at its discretion, allegations of violations by union officers and other representatives of their fiduciary responsibilities under section 501(a) of the LMRDA. The results of such investigations will be made known to interested persons as appropriate.  

(Technical Revisions: Dec. 2016)

510.005 Policy Statement

Because the Secretary of Labor does not have authority to enforce section 501(a) of LMRDA, it is the policy of this Office to refrain from giving advisory opinions on the scope of the fiduciary obligations set forth in section 501(a) and the procedure for enforcement set forth in section 501(b).

In appropriate instances the cases set forth below may be referred to, without comment, to call attention to the conflicting court decisions on the scope of the fiduciary responsibilities of union officers. 

The U.S. Circuit Court of Appeals, Second Circuit, in the cases of Guarnaccia v. Kenin, 234 F.Supp. 429, 57 LRRM 2310 (S.D.N.Y.), aff’d sub nom.; Gurton v. Arons, 339 F.2d 371, 58 LRRM 2080 (2d Cir. 1964); and Coleman v. Brotherhood of Railway and Steamship Clerks, 228 F.Supp. 276, 55 LRRM 3002 (S.D.N.Y. 1964), aff’d, 340 F.2d 206, 58 LRRM 2220 (2d Cir. 1965), held that section 501(a) applied to fiduciary responsibility with respect to money and property of a union and did not give the courts broad power to interfere with the internal affairs of unions.  See also Trustees of Operative Plasterers' and Cement Masons' Local Union Officers and Employees Pension Fund v. Journeymen Plasterers' Protective & Benevolent Society, Local Union No. 5, 794 F.2d 1217, 123 LRRM 2796 (7th Cir. 1986).

The U.S. Circuit Court of Appeals, Eighth Circuit, on the other hand, in affirming the lower court decision requiring union officers to pay legal fees incurred by certain union members in maintaining a law suit which had been authorized by a vote of the membership, took the contrary view.  See Nelson v. Johnson, 212 F.Supp. 233 (D. Minn. 1963), aff’d sub nom., Johnson v. Nelson, 325 F.2d 646, 55 LRRM 2060 (8th Cir. 1963). The Eighth Circuit Court of Appeals held that section 501 imposes fiduciary responsibility in its broadest application and is not confined in its scope to union officials only in their handling of money and property affairs of the labor organization.  Nelson, 325 F.2d. at 651.  See also Air Line Pilots Association International v. Trans States Airlines, 638 F.3d 572 (8th Cir. 2011); Stelling v. IBEW International Brotherhood of Electrical Workers Local Union No. 1547, 587 F.2d 1379 (9th Cir. 1978), cert. denied sub nom., Darby v. International Brotherhood of Electrical Workers, Local Union No.1547, 442 US 944 (1979), reh’g denied, 444 US 889 (1979); Sabolsky v. Budzanoski, 457 F.2d 1245 79 LRRM 2993 (3d Cir. 1972).

            (Technical Revisions: Dec. 2016)

PROPRIETY OF EXPENDITURES

512.800 DEFENSE OF ACCUSED OFFICER
           
            A stated purpose of the Act is “to eliminate” improper practices on the part of labor organizations “and their officers.”  (Emphasis added.)  To allow a union officer to use the power and wealth of the very union which he is accused of pilfering, to defend himself against such charges, can be  inconsistent with Congress’ effort to eliminate the undesirable element which has been uncovered in the labor-management field.
           
            Based on this principle, a union cannot provide an attorney for an officer or pay for an officer’s legal expenses during litigation if the union and officer might have conflicting interests in the outcome of the case.  That will usually be true in cases involving a claim of breach of fiduciary duty by an officer. See Urichuck v. Clark, 689 F.2d 40, 111 LRRM 2323 (3d Cir. 1982); McNamara v. Johnston, 522 F.2d 1157, 1167 (7th Cir.1975), cert. denied, 425 U.S. 911 (1976); Highway Truck Drivers and Helpers Local 107, International Brotherhood of Teamsters v. Cohen, 182 F.Supp. 608, 45 LRRM 3050 (E.D. Pa. 1960), aff'd, 284 F.2d 162 (3d Cir.1960), cert. denied, 365 U.S. 833 (1961). Federal courts will grant injunctions to prevent union officers from expending union funds to pay for officer expenses in defending against lawsuits brought under Section 501 of the LMRDA.  See Kerr v. Shanks, 466 F.2d 1271, 81 LRRM 2366 (9th Cir. 1972); Holdeman v. Sheldon, 204 F.Supp 890, 51 LRRM 2758 (S.D.N.Y. 1962), aff’d, 311 F.2d 2 (2d Cir. 1962).

            If in the litigation it is found that the union officer did not breach the LMRDA, the officer can seek reimbursement from the union for attorneys’ fees and litigation expenses, and the union can provide such reimbursement. If the authorization to pay legal fees for defending its officers was beyond the powers of a union as derived from its constitution, a mere majority vote at a regular union meeting cannot authorize such expenditures.  See Morrissey v. Curran, 650 F.2d 1267, 107 LRRM 2233 (2d Cir. 1981); McNamara v. Johnston, 522 F.2d 1157, 1167 (7th Cir. 1975), cert. denied, 425 U.S. 911 (1976).  Nothing in the LMRDA requires a union to reimburse an officer for attorneys fees and litigation expenses, even if the officer prevails on all LMRDA claims.  See Doyle v. Kamenkowitz, 114 F.3d 371, 377-78, 155 LRRM 2435 (2d Cir. 1997). However, because of LMRDA’s “retention of rights under state laws” provision, §603(a), state law claims on issues not governed by federal law can be brought by union officers to seek reimbursement of legal fees and expenses.  See Schepis v. Local Union No. 17, United Brotherhood of Carpenters and Joiners, 989 F.Supp. 511 (S.D.N.Y.1998) (opinion by then federal district judge, now U.S. Supreme Court Justice Sonia Sotomayor).

            (Revised: Dec. 2016)
             

512.810 DUAL LEGAL REPRESENTATION
           
            The United States Court of Appeals for District of Columbia in commenting on the use of union funds and counsel in the defense of union officers charged with wrongdoing against the union stated:

“As a general proposition we think funds of a union are not available to defend officers charged with wrongdoing which, if the charges were true, would be seriously detrimental to the union and its membership.  See, e.g., Highway Truck Drivers and Helpers Local 107, International Brotherhood of Teamsters v. Cohen, 182 F.Supp. 608, 619-22 (E.D. Pa. 1960), aff’d, 284 F.2d 162 (3d Cir. 1960), cert. denied, 365 U.S. 833 (1961).  Cf. Witherspoon v. Hornbein, 70 Colo. 1 (Sup. Colo. 1921), involving officers of a corporation.  The treasury of a union is not at the disposal of its officers to bear the cost of their defense against charges of fraudulently depriving the members of their rights as members.  It is clear the complaint in this case charged individual officer defendants with conduct which was seriously detrimental to the interests of the International and to the rights of its members.  And in deciding whether or not union funds may be used to defend such a suit the final outcome of the charges is not determinative; for if the charges have substance a sound resolution may be prevented by the very fact of dual representation during the process leading to a decision with respect to the charges.  Different counsel would be required in this process.  In other words, counsel who are chosen by and represent officers charged with the misconduct, and who also represent the union, are not able to guide the litigation in the best interest of the union because of the conflict in counsel’s loyalties.  In such a situation it would be incumbent upon counsel not to represent both the union and the officers.”

Milone v. English, 306 F.2d 814, 50 LRRM 2773 (D.C. Cir. 1962).

            (Technical Revisions: Dec. 2016)

EXCULPATORY PROVISIONS

514.001 LMRDA, SECTION 501(a)
           
            A general exculpatory provision in the constitution and bylaws of such a labor organization or a general exculpatory resolution of a governing body purporting to relieve any such person of liability for breach of the duties declared by this section shall be void as against public policy.

514.005 GENERAL EXCULPATORY RESOLUTION
           
            Where a majority of members present at a meeting of the local adopted a resolution authorizing the union to bear legal costs of defending the local’s officers in certain criminal and civil suits the U.S. District Court for the Eastern District of Pennsylvania found that such an authorization fell within the proscriptions of section 501, but it did not constitute a “general exculpatory resolution” as that phrase is used in the last sentence of section 501(a).  The court said:
           
                        Unfortunately the Act does not define the phrase “general exculpatory resolution...” We must distinguish between a resolution which purports to authorize action which is beyond the power of the union to do and for that reason in violation of section 501(a) when done by an officer...and a resolution which purports to relieve an officer of liability for breach of the duties declared in section 501(a).  At times this distinction may be a fine one.  Very often the result will be the same.  Nevertheless we feel that such a distinction should be made here unless the “exculpatory” provision is to be read as a mere “catchall” phrase.

            There is a distinction between the merit of a resolution and its legality.  The latter question is peculiarly within the competence of a court to pass upon and can not be abandoned finally to the organization.  Maloney v. United Mine Workers, infra; Gordon v. Tomei, 144 Pa. Super. 449 (Super. Pa. 1941).  When a serious question arises as to whether a particular act is within the legitimate aims and purposes of a labor union as expressed by its constitution and bylaws, the Court must ultimately resolve the matter so as to preserve on the one hand the rights of the union and on the other hand those of the individual members of that union. Maloney v. United Mine Workers, 308 Pa. 251 (Sup. Pa. 1932).

            It is true that from the general objectives and purposes of a particular trade union, certain ancillary powers reasonably necessary for their attainment may be implied.  In determining whether a particular act falls within this admittedly broad latitude of action, the Court must take into consideration all of the factors surrounding it, i.e., the stated purpose of the action, its immediate effect, its possible future benefit to the union, etc.  This is necessary in order to determine whether the union in light of the authority derived from its constitution has a sufficient interest in the action to empower it to so act.  If it has, a court of law will not interfere regardless of the wisdom or propriety of the act.  If it has not, a court of law must intervene at the behest of a single union member.

Highway Truck Drivers and Helpers Local 107, International Brotherhood of Teamsters v. Cohen, 182 F.Supp. 608, 45 LRRM 3050 (E.D. Pa. 1960), aff'd, 284 F.2d 162 (3d Cir.1960), cert. denied, 365 U.S. 833 (1961).   

            (Technical Revisions: Dec. 2016)

SUIT FOR ACCOUNTING OR RELIEF

515.001 LMRDA, SECTION 501 (b)
           
            When any officer, agent, shop steward, or representative of any labor organization is alleged to have violated the duties declared in subsection (a) and the labor organization or its governing board or officers refuse or fail to sue or recover damages or secure an accounting or other appropriate relief within a reasonable time after being requested to do so by any member of the labor organization, such member may sue such officer, agent shop steward, or representative in any district court of the United States or in any State court of competent jurisdiction to recover damages or secure an accounting or other appropriate relief for the benefit of the labor organization.

515.100  REQUEST TO UNION MUST BE MADE
           
            Section 501(b) requires a member of a labor organization to request the labor organization “to sue or recover damages or secure an accounting or other appropriate relief”  before such member may sue “any officer, agent, shop steward, or representative of any labor organization” who is alleged to have violated his fiduciary responsibilities as described in section 501(a).

            Pursuant to this provision, as a precondition to a union member or members bringing a lawsuit for breach of fiduciary duty, the member(s) must make a request to the union or its officers to address the alleged breach, and the request must either be refused or not acted upon within a reasonable time. Courts have differed over what action must be requested. 

            Some courts have held that a union member must first request that the union or its officers bring legal proceedings to obtain for the union one or more of the following: damages, an accounting, or other appropriate relief.  See, e.g., Adams-Lundy v. Association of Professional Flight Attendants, 844 F.2d 245, 248-50 (5th Cir.1988); Erkins v. Bryan, 494 F.Supp. 732 (M.D. Ala. 1980), rev’d, 663 F.2d 1048, 1052 (11th Cir. 1981), cert. denied, 459 U.S. 989 (1982). Other courts have held that the request need not be to pursue legal proceedings, and that a request for payment of damages or other appropriate relief for the union, or for an accounting, will suffice.  Compare Saunders v. Hankerson, 312 F.Supp.2d 46, 61-63, 174 LRRM 2824 (D.D.C. 2004) (court found that request retirement satisfied by language of a press release that accompanied a protest against a union organized by plaintiff union member, as the release said that union “must respond to entire membership” about “alleged improprieties”); Morrissey v. Cocker, 55 LRRM 2532 (Sup. N.Y. 1964) (state trial court held that a written demand allegedly submitted to the union that certain records be turned over did not satisfy the required request for an accounting).

            However, even most of the courts that require that the request be to bring legal proceedings do not require that legal action be specifically mentioned in the request, and have required only that the request provide some notice to the union that legal action might be appropriate.  See, e.g. Association of Professional Flight Attendants, 844 F.2d at 249-50; Dinko v. Wall, 531 F.2d 68, 72-73 (2d Cir. 1976); Antal v. Budzanoski, 320 F.Supp. 161 (W.D. Pa. 1970), rev’d in part, Sabolsky v. Budzanoski, 457 F.2d 1245, 1252-53 (3d Cir. 1972), cert. denied, 409 U.S. 853 (1972).
           
            (Revised: Dec. 2016)

515.201 EXHAUSTION OF REMEDIES
           
            Most courts have held that union members need not exhaust any available internal union remedies as a precondition to bringing suit for breach of fiduciary duty under Section 501(b).  See, e.g., Cowger v. Rohrbach, 868 F.2d 1064, 1066-67 (9th Cir.1989); Erkins v. Bryan, 494 F.Supp. 732 (M.D. Ala. 1980), rev’d, 663 F.2d 1048, 1052-53 (11th Cir. 1981), cert. denied, 459 U.S. 989 (1982).  See also International Longshoremen's Association v. Virginia International Terminals, Inc., 932 F.Supp. 761, 763 (E.D.Va.1996) (whether to require exhaustion of internal remedies is within discretion of trial court).

            (Revised: Dec. 2016)

515.301 UNION AS PARTY TO SUIT

     Courts are divided over whether a union, as an entity, can sue its officers for breach of fiduciary duty under Section 501.  Compare International Union of Operating Engineers, Local 150 v. Ward, 563 F.3d 276, 282-89, 186 LRRM 2368 (7th Cir. 2009) (unions have an implied cause of action under Section 501(a) to sue its officers in federal court for violation of the fiduciary duties imposed by the statute) and International Union of Elec., Electronic, Electrical, Salaried, Machine and Furniture Workers v. Statham, 97 F.3d 1416, 1418-21, 153 LRRM 2663 (11th Cir.1996) (Section 501(a) was intended to create a federal cause of action that can be asserted by the union on its own behalf), with Building Material &and Dump Truck Drivers, Local 420 v. Traweek, 867 F.2d 500, 506-07, 130 LRRM 2441 (9th Cir.1989) (court, focusing exclusively on Section 501(b), declined to recognize an implied federal cause of action for suits by labor unions and found that a union cannot sue under Section 501).  However, some courts have held that unions should be joined, or should conduct themselves, as party plaintiffs when the Section 501 claim, if successful, would accrue to the union’s benefit.  See, e.g., Brink v. DaLesio, 453 F.Supp. 272, 98 LRRM 2333 (D. Md.1978); Purcell v. Keane, 277 F.Supp. 252, 67 LRRM 2216 (E.D. Pa. 1967), aff’d, 406 F.2d 1195, 70 LRRM 3167 (3d Cir. 1969).
            A union is not an indispensable party defendant to a Section 501 claim brought by members, and whether a union can even intervene in a Section 501 case depends on what interests the union seeks to advance and on the circumstances of the case.  See, e.g., Purcell v. Keane, 277 F.Supp. 252, 257-58 (E.D. Pa. 1967), aff’d, 406 F.2d 1195, 70 LRRM 3167 (3d Cir. 1969) (union and union’s president not indispensable party defendants in Section 501 suit); International Brotherhood of Teamsters v. Hoffa, 242 F.Supp. 246, 254-55, 59 LRRM 2460 (D.D.C.1965) (union could intervene to defend the validity of a constitutional amendment, but not to defend individual defendants charged with breaching fiduciary duties); Holdeman v. Sheldon, 204 F.Supp. 890, 51 LRRM 2758 (S.D.N.Y. 1962), aff’d, 311 F. 2d 2, 51 LRRM 2764 (2d Cir. 1962) (union may not intervene and file a common answer in action under section 501(b) against union officers for their alleged unlawful issuance of checks, where it appears that there is a serious question of conflict inherent in the conduct of the union officers and the interests of the union).

            December 2016

COURT MUST GRANT LEAVE TO SUE

517.001 LMRDA, SECTION 501(b)
           
            No such proceeding shall be brought except upon leave of the court obtained upon verified application and for good cause shown which application may be made ex parte.

517.005 LEAVE TO SUE
           
            A union member’s action charging violations of fiduciary duties by officers under section 501, LMRDA, is not maintainable if the member has not first obtained leave of court upon verified application and good cause shown as required by section 501(b).

Addison v. Grand Lodge of the International Association of Machinists, 318 F. 2d 504 (9th Cir. 1963).

            (Technical Revisions: Dec. 2016)

517.100 GOOD CAUSE
           
            Federal courts of appeal have differed over how to define “good cause” for purposes of granting union members leave to bring an action under §501(b).  The Second Circuit demands the most of would-be plaintiffs, requiring that plaintiffs show a “reasonable likelihood of success on the merits.”  The D.C., 3d, 9th and 11th Circuits require less of plaintiffs, holding that if the complaint’s allegations support a “good cause” for the suit, that is sufficient.  These circuits also decree that a defendant can challenge “good cause” based only on issues such as plaintiff failing to follow the LMRDA’s procedures (discussed above) or estoppel, and not based on disputing the complaint’s allegations.  The Fifth Circuit’s test for “good cause” is that the plaintiff must show that the union's refusal to act in response to the plaintiff’s request was “objectively unreasonable, assessed from the point of view of the membership as a whole.”  See Hoffman v. Kramer, 362 F.3d 308, 315-318, 174 LRRM 2489 (5th Cir. 2004) (discussing each of these definitions of “good cause”).  See also Executive Board Local 28, IBEW v. International Brotherhood of Electrical Workers, 184 F.Supp. 649, 653-55 (D. Md. 1960) (in a private action by members comprising the local’s executive board to terminate the trusteeship imposed on the local by the International, and for an accounting of the local’s funds, a verified complaint, which alleged acts that would be at least a misuse of union funds, constituted “good cause” within section 501 of the LMRDA).

            (Revised: Dec. 2016)

517.200 STATE JURISTDICTION

            Section 501(b) itself provides that union members can bring claims for breach of fiduciary responsibility in federal district court or “in any State court of competent jurisdiction.” However, a defendant to such a claim may remove the case to federal court. See Clinton v. Hueston, 308 F.2d 908, 51 LRRM 2273 (5th Cir. 1962).

            As the following case demonstrates, union officers, employees and other representatives can also be sued for state law claims in state court: Gilbert and others sued in Oregon State court alleging union officers’ disregard of union procedures in the conduct of elections and misuse of union funds.  The union defended that Gilbert and the others had not secured the permission of the court to bring suit as required under section 501(b).  The Oregon Supreme Court, in affirming the judgment of the lower court, ruled that section 501(b) is not an exclusive remedy; existing remedies are preserved by section 604 and that the Oregon State courts would have always entertained suits of this type, without the need for granting the permission referred to in the LMRDA.  The lower court had appointed a CPA firm to report on union finances quarterly for period of one year and to supervise the impending election and report the results to the court.

Gilbert v. Hoisting and Portable Engineers, Local Union No. 701, 237 Or. 130, 54 LRRM 2048 (Sup. Or. 1963).

            (Revised: Dec. 2016)

COUNSEL FEES AND EXPENSES

518.001 LMRDA, SECTION 501(b)

            The trial judge may allot a reasonable part of the recovery in any action under this subsection to pay the fees of counsel prosecuting the suit at the instance of the member of the labor organization and to compensate such member for any expenses necessarily paid or incurred by him in connection with the litigation.

518.005 DEFINITION OF “RECOVERY”

            In this case plaintiffs filed a motion for counsel fees and expenses pursuant to section 501(b) of the LMRDA.  In construing the language authorizing the payment of counsel fees, e.g., “The trial judge may allot a reasonable part of the recovery...,” Judge Body held that “recovery” was not intended to be limited to actual money recovery effectuated, but must include the total benefit conferred upon the union through the efforts of counsel.  Therefore, the court determined that a reasonable counsel fee was $38,000 in that the union had benefited because (1) the plaintiffs had obtained an injunction against the use of union funds to defend certain officers against charges and (2) plaintiffs had obtained a verdict against these officers for the $24,921.41 already expended in their defense.  See Highway Truck Drivers & Helpers Local 107, International Brotherhood of Teamsters v. Cohen, 220 F.Supp. 735 (E.D. Pa. 1963), aff’d, 334 F.2d 378 (3d Cir. 1964), cert. denied, 379 U.S. 921 (1964).  See also Kerr v. Shanks, 466 F.2d 1271 (9th Cir. 1972) (monetary recovery not necessary for trial judge, in “exercise of sound discretion” and when suit benefited the union, to award counsel fees and other litigation expenses to the plaintiff).

            However, those courts that allow unions themselves to bring §501 claims (see §515.301, above) do not allow unions to recover counsel fees.  See, e.g., Local 815, International Longshoreman's Association, v. Brazil, 12 F.Supp. 2d 918 (E.D. Wis. 1998).

            (Revised: Dec. 2016)

518.100 COMPUTING COUNSEL FEE

            Ratner, retained as counsel to a dissident faction of union members—the Local Union Reunification Committee (LURC)—successfully pursued several court actions on their behalf.  These actions ultimately led to a court-ordered convention, reorganization of the union, ouster of top International officers (the president, the secretary, and three vice presidents–all  of whom were later convicted and sentenced on embezzlement and/or conspiracy charges), and the subsequent election of LURC backers to top offices in the union.  At that convention it was decided that the LURC should be dissolved, that the International should become plaintiff in what had been a class action, and that Ratner be retained as counsel.  However, the union declared that it would not accept the responsibility for LURC counsel fees “unless and until ordered by a court to do so.”

            Ratner and his associates, who received no payments for their services from April 1961 through January 1962, brought suit to obtain these fees and related expenses.  The district court awarded them $54,834.91 from the contracting parities who entered into the fee agreement, the class represented by the parties, i.e., LURC backers, and the funds of the union, because the action was initiated, undertaken, and prosecuted “...in the interest of the Union membership as a whole...such fruits as flowed from the lengthy proceedings flowed to the benefit of the Union and for the benefit of all its members.”  The award against the International was limited to the terms of the retainer between Ratner and the LURC.

            On appeal, the Circuit Court reversed and remanded, holding that the value of Ratner’s legal services, when computed on the basis of benefit to the union, may even exceed the computations based upon the scale provided for in the retainer agreement, and accordingly ruled that the court could not base its award upon the contract between Ratner and the LURC.  It ruled that section 501(b) did not limit the court to the amount of “recovery” effected against the ousted union officials, but directed the court to hold the International union liable for reasonable fees, properly earned, based upon the “benefit” which inured to the International.

Bakery and Confectionery Workers International Union v. Ratner, 335 F.2d 691, 56 LRRM 2432 (D.C. Cir. 1964).

            (Technical Revisions: Dec. 2016)

BONDING

530                              Bonding In General
531                              Who Must Be Bonded In General
531.100                       Who Must Be Bonded:  “Person”
531.200                       Who Must Be Bonded:  “Duties”
531.300                       Who Must Be Bonded:  “Labor Organization”
531.400                       Who Must Be Bonded:  “Trust in Which a Labor Organization is Interested”
531.500                       Who Must Be Bonded:  “Funds”
531.600                       Who Must Be Bonded:  “Handled”
531.700                       Who Must Be Bonded:  “Exclusions”
532                              Amount of Bond - Term of Bond
533                              Type of Bond:  Honesty
534                              Form of Bond:  Individual or Schedule Designation of Insured
535                              Approved Surety
536                              Conflict of Interest - Bonding
537                              Payment of Premium
538-539                       (Numbers Reserved)

540                              Prohibition Against Certain Financial Aid to Officers
541                              Union Loans, Direct or Indirect
542-549                       (Numbers Reserved)

550                              Prohibition  Against Holding Office or Employment
551                              Prohibition Against Communists
552                              Prohibition against Convicts
553                              Crimes Covered by Section 504
554-579                       (Numbers Reserved)

580                              Embezzlement and Other Criminal Conversions
581-599                       (Numbers Reserved)

 

SPECIAL NOTE

TEMPORARY PAGE - BONDING
October 1965
           
            Experience gained during the years since the effective date of section 502(a) in September 1959 has suggested the deletion of a number of references to older rulings in this revised section of the Manual.  The deleted rulings reflect areas that are either impractical, vague, or the subject of current study, such as the concept of “composite person.”  In addition, certain clauses that are incorporated in Labor Organization bonds in current use have created technical problems and are receiving our attention.  We hope to be able to resolve these problems with a minimum of disruption to current bonding practices, but in view of the ***** and diverse interests involved, the solution will present some delicate and time-consuming negotiations.

            After these Manual pages were referred to the printer, Congress enacted certain amendments to the LMRDA.  The amended law, among other things, substitutes an “honesty bond” for the “faithful discharge of duty bond” formerly required.  It is felt that the amendments do not materially affect the interpretations contained in this section except that, of course, where reference is made to a “faithful discharge bond,” this will now be construed to refer to a bond providing protection against loss by reason of acts of fraud or dishonesty.

            Please refer any questions not covered in the following rulings to the Division of  Interpretation and Standards in the National Office.

            (Technical Revisions: Dec. 2016)

BONDING IN GENERAL

530.001 LMRDA, SECTION 502
           
            (a) Every officer, agent, shop steward, or other representative or employee of any labor organization (other than a labor organization whose property and annual financial receipts do not exceed $5,000 in value), or of a trust in which a labor organization is interested, who handles funds or other property thereof shall be bonded to provide protection against loss by reason of acts of fraud or dishonesty on his part directly or through connivance with others.  The bond of each such person shall be fixed at the beginning of the organization’s fiscal year and shall be in an amount not less than 10 per centum of the funds handled by him and his predecessor or predecessors, if any, during the preceding fiscal year, but in no case more than $500,000.  If the Labor organization or the trust in which a labor organization is interested does not have a preceding fiscal year, this amount of the bond shall be, in the case of a local labor organization, not less than $1,000, and in the case of any other labor organization or of a trust in which a labor organization is interested, not less than $10,000.  Such bonds shall be individual or schedule in form, and shall have a corporate surety company as surety thereon.  Any person who is not covered by such bonds shall not be permitted to receive, handle, disburse, or otherwise exercise custody or control of the funds or other property of a labor organization or of a trust in which a labor organization is interested.  No such bond shall be placed through an agent or broker or with a surety company in which any labor organization or any officer, agent, shop steward or other representative of a labor organization has any direct or indirect interest.  Such surety company shall be a corporate surety which holds a grant of authority from the Secretary of the Treasury under the Act of July 30, 1947 (6 U.S.C. 6-13), as an acceptable  surety on Federal bonds:  Provided, that when the opinion of the Secretary a labor organization has made other bonding arrangements which would provide the protection required by this section at comparable cost or less, he may exempt such labor organization from placing a bond through a surety company holding such grant of authority.

            (b)  Any person who willfully violates this section shall be fined not more than $10,000 or imprisoned for not more than one year, or both.

530.002 SEE 29 CFR 453

530.005 RELATIONSHIP OF ERISA BONDING REQUIREMENTS TO LMRDA

            Section 412 of the ERISA provides that persons bonded under that Act shall not be subject to the bonding requirements of any other law with respect to the same funds.  Among plans which are subject to the ERISA are certain “trusts in which a labor organization is interested” (as defined in section 3(I) of LMRDA).  Consequently, persons handling funds of such “trusts” who are required to be bonded under section 412 of the ERISA are relieved of the requirement of being bonded under LMRDA with respect to such handling.

530.100 TERM OF BOND

            See 29 CFR 453.17.  See also Manual Entries 532 ff.

WHO MUST BE BONDED IN GENERAL

531.001 LMRDA, SECTION 502(a)

            Every officer, agent, shop steward, or other representative or employee of any labor organization (other than a labor organization whose property and annual financial receipts do not exceed $5,000 in value), or of a trust in which a labor organization is interested, who handles funds or other property thereof hall be bonded... Any person who is not covered by such bonds shall not be permitted to receive, handle, disburse, or otherwise exercise custody or control of the funds or other property of a labor organization or of a trust in which a labor organization is interested ...

531.002 SEE 29 CFR 453.2 to 453.11, 453.25

WHO MUST BE BONDED:
“PERSON”

531.102 SEE 29 CFR 453.22, 453.23

531. 105 OFFICERS AND EMPLOYEES OF UNION

    See 29 CFR 453.5

531.130 CHECK SIGNERS AND ALTERNATES

            A chairman of a board of trustees and a secretary-treasurer must be bonded under the Act when they have the authority to countersign checks, vouchers, or drafts on the funds of the labor organization.  (See 29 CFR 453.8(e).)  It would also be necessary to bond any alternates to these two officials if the alternates perform the same functions in the absence of the chairman or the secretary-treasurer.

531.140 $5,000 EXEMPTION

            29 CFR Section 453.8(a) points out that the Act does not provide an exemption based upon the amount of fund or other property handled by particular personnel.  The statutory $5,000 exemption applies only to the case of unions whose property and annual financial receipts do not exceed this amount.  Therefore, if the provisions of section 502(a) of the Act are otherwise applicable to a particular person, the amount of funds handled by him will not affect this applicability.

            (Technical Revisions: Dec. 2016)

531.150 “HANDLING” COLLECTION OF DUES BY SHOP STEWARDS AND
BUSINES REPRESENTATIVES

            In accordance with the principles set forth in 29 CFR 453.8(c), shop stewards and business representatives who personally collect dues from members are normally required to be bonded under the Act.

531.152 COLLECTION OF WORKING ASSESSMENT BY ONE NOT BONDED

            It would not be improper under the Act for a union member who is not bonded to bring another member’s working assessments to the financial secretary as a personal favor, as long as it is not a formal collection but simply a friendly gesture on the part of a co-worker.

531.160 PRIVATE COLLECTION AGENCY

            A store owner, who acts as agent for a labor organization in the collection of dues, must be bonded for the monies so collected.  Likewise, employees of the store owner who engage in the physical collection of such dues would also have to be bonded based on the amount collected by them.

531.170 EMPLOYER WHO CHECKS OFF DUES

            An employer who checks off union dues is not required to be bonded by section 502.  Section 502 applies only to an “officer, agent, shop steward or other representative” or to an “employee” of a labor organization or of a trust in which a labor organization is interested.  The term “officer, agent, shop steward or other representative” when used with respect to labor organizations is defined by section 3(q) as including “elected officials and key administrative personnel, whether elected or appointed (such as business agents, heads of departments or major units, and organizers . . .).”  Even if the sums withheld by checkoff were deemed to be funds of the union, the employer would not be within the scope of this definition.  The funds withheld are not funds of a trust in which a labor organization is interested within the definition of that term in section 3(1).  Even if they were, the employer would not be an “officer, agent, shop steward or other representative or employee” of such trust.

531.172 BONDING OF EMPLOYERS—REQUIREMENT IN COLLECTIVE BARGAINING AGREEMENT

            While the Act includes a section which requires the bonding of certain union officers and employees and officers and employees of trusts in which a labor organization has an interest, the Act does not require an employer to be bonded in order to guarantee the collection of dues under a collective bargaining agreement provision.

WHO MUST BE BONDED:
“DUTIES”

531.202 SEE 29 CFR 453.10, 453.11

WHO MUST BE BONDED:
“LABOR ORGANIZATION”

531.302 SEE 29 CFR 453.3, 453.5

531.305 $5,000 EXEMPTION - DETERMINATION OF AMOUNT

            See 29 CFR 453.3.

WHO MUST BE BONDED:
“TRUST IN WHICH A LABOR ORGANIZATION IS INTERESTED”

531.402 SEE 29 CFR 453.4, 453.6

531.403 ERISA BONDING EXEMPTION

SPECIAL NOTE:  Trusts bonded under ERISA need not be bonded under the LMRDA.
See Manual Entry 530.005.

531.405 TYPES OF TRUSTS COVERED

            The definition in section 3(1) of the Act of “trust in which a labor organization is interested” covers pension funds, health and welfare funds, profit sharing funds, vacation funds, apprenticeship and training funds, and funds or trusts of a similar nature which exist for the purpose of, or have as a primary purpose, the providing of benefits specified in the definition.  This is so regardless of whether they are administered solely by labor organizations or jointly by labor organizations and employers, or by a corporate trustee, unless they were neither created nor established by a labor organization and also do not have any trustee or member of the governing body who was selected or appointed by a labor organization. 

29 CFR 453.4

See Manual Entry 530.005.

            (Revised: Dec. 2016)

531.406 APPLICATION TO TRUSTS

            The exemption from the bonding requirements for labor organizations whose property and annual financial receipts do not exceed $5,000 in value, does not apply to trusts in which a labor organization is interested.

See Manual Entry 530.005.

531.410 EMPLOYEES OF TRUST

            All individuals employed by a trust in which a labor organization is interested are “employees” regardless of whether, technically, they are employed by the trust, by the trustee, by the trust administrator, or by trust officials in similar positions. 
29 CFR 453.6 (c).

531.412 OFFICERS AND EMPLOYEES OF TRUST

            See 29 CFR 453.6.

531.415 PERSONNEL OF EMPLOYERS WHO MUST BE BONDED

            Personnel, including trustees, regardless of whether they are representatives of or selected by labor organizations, or representatives of or selected by employers, must be bonded if they handle funds or other property of the trust within the meaning of section 502(a).

See Manual Entry 530.005.

531.417 CONTROL BY CORPORATE CO-TRUSTEE

            Where the individual trustees of a trust in which a labor organization is interested have the power to direct the corporate co-trustee to liquidate securities on deposit with it at any time and pay over the proceeds thereof to the individual trustees, the individual trustees must be bonded pursuant to section 502 notwithstanding custody of the securities is retained throughout the year by the corporate co-trustee.

See Manual Entry 530.005.

531.420 JOINTLY ADMINISTERED FUND

            If some members of a board of trustees are appointed by the union, the fund will be a “trust in which a union is interested,” and the trustees and key administrative personnel must be bonded if they handle funds or other property of the trust within the meaning of section 502(a), regardless of whether they are representatives of or selected by employers.  However, banks and other qualified financial institutions in which trust funds are deposited are not subject to the bonding requirements, even though they may also have administrative or management responsibilities with regard to such trusts.

See Manual Entry 530.005.

531.423 JOINT APPRENTICESHIP FUND

             When a joint apprenticeship committee has one or more members of the governing body appointed by a labor organization and a primary purpose of any trust or funds overseen by that committee is to provide benefits to the members of the labor organization, or their beneficiaries, it falls within the definition of a “trust in which a labor organization is interested” as defined in section 3(1) of the LMRDA.

See Manual Entry 530.005.

            (Revised: Dec. 2016)

531.425 JOINT LABOR-MANAGEMENT ARBITRATION COMMITTEE

            A neutral joint labor-management committee established and administered solely for the purpose of serving both labor and management as an administrator or arbitrator under the provisions of a collective bargaining agreement which it interprets at the request of either is not a trust in which a labor organization is interested.

531.430 EMPLOYER PLAN

            If a plan is created, established and administered solely by the employer and if its governing body contains no member selected or appointed by a labor organization it would not be a “trust in which a labor organization is interested” within the purview of section 502(a).

531.435 EMPLOYER PENSION OR PROFIT-SHARING PLAN

            A pension or profit-sharing plan which is established solely by an employer and administered solely by him and his representatives does not meet the definitional requirements of a “trust in which a labor organization is interested,” set forth in section 3(1) of the Act; and even though the primary purpose requirement under (2) of section 3(1) is satisfied, the bonding provisions of the Act do not apply.  This is so, notwithstanding the fact that the trust was created as a consequence of a collective bargaining agreement.

            (Technical Revisions: Dec. 2016)

531.460 STRIKE FUND

            A strike fund maintained by a group of unions as separate fund, and administered by representatives of the several unions, will ordinarily constitute a “trust in which a labor organization is interested”  and thus the bonding requirement of the Act will apply in those cases.

See Manual Entry 530.005.

531.461

            When a strike fund has been set up by several local labor organizations and the sole purpose of the fund is to solicit and receive money from labor organizations, the general public, and any other possible source, and expend it for the benefit of striking employees, such a fund is a “trust in which a labor organization is interested” and, consequently, the bonding provisions of the Act apply.

WHO MUST BE BONDED:
“FUNDS”

531.502 SEE 29 CFR 453.7, 453.14

531.505 MORTGAGE NOTE

            As 29 CFR Section 453.14  points out, the term “funds” is not confined to cash but includes as well notes, marketable securities and other items of a similar nature.  If a deed of trust is security for an indebtedness evidenced by a note which possesses some measure of negotiability, such a note would be regarded as “funds or other property” for bonding purposes.

            (Technical Revisions: Dec. 2016)

531.510 FUNDS COLLECTED FOR CHARITY

            Individuals who are asked to make charitable collections for organizations such as the United Givers Fund, Red Cross, etc., are agents of these charities even though they also may have positions in the union, such as steward, etc.  Consequently, those persons who undertake such collections need not be bonded with regard to the funds collected on behalf of the charities.  On the other hand, if the amounts collected for the charities are for convenience first deposited into the union’s account and then later remitted to the charities, in computing the amount of his bond required by section 502 of the Act, the treasurer of the labor organization would have to treat these funds as being “handled” within the meaning of the Act.

WHO MUST BE BONDED:
“HANDLED”

531.602 SEE 29 CFR 453.8, 453.9.

531.605 FACTORS TO CONSIDER

            Various factors must be considered in determining what constitutes “handling of funds or other property.”  These include such matters as custody, access, actual authority, powers, responsibilities, supervision, fiscal controls, and the nature of the funds or other property.

531.610 PERSON HANDLING SMALL AMOUNTS

            SEE 29 CFR 453.8(a).

* 531.615 PHYSICAL CONTACT WITH UNION DUES

            Clerical employees of a  union whose duties include the receiving, recording and sorting of union dues payments and who are closely supervised by the Secretary-Treasurer of the union are only required to be bonded with respect to that portion of the dues that are paid in cash.

            Under section 453.8(c) of the bonding interpretative bulletin, clerical employees who have only physical contact with checks, securities or funds or perform only ministerial functions under close supervision are not required to be bonded.  On the other hand, there is a significant risk of loss involved in the processing of the cash receipts, and bonding is required.

            (Technical Revisions: Dec. 2016)

531.620 OPPORTUNITY TO DEFALCATE

            The purpose of the bonding provision is to protect the funds of the union against a significant risk of loss.  Thus, it is not the physical handling of funds which is controlling nor even the authority to handle funds, but rather the opportunity to defalcate.  If a particular person has actual access to, or the opportunity to abscond with union funds, he must be bonded even though his action would not be authorized by the union.

531.623 ABSENCE OF PHYSICAL CONTROL

            Even though persons do not handle funds or property physically, they nevertheless “handle” within the meaning of section 502(a) of the Act where they perform significant duties with respect to the funds or property so as to give them access, control or custody over the funds or property.

29 CFR 453.8(d)

531.630 POWER OF TRUSTEES

            When the Board of Trustees is the entity possessed of the ultimate power and charged with the major responsibility of determining whether the bulk of the transactions and disbursements are bona fide, regular, and in accordance with the trust instrument, it must be considered to handle funds and property and must be bonded accordingly.

531.640 DISBURSEMENT AUTHORITY

            Officers and trustees authorized to sign checks or make cash disbursements clearly fall within the definition.  Whether others who may influence, authorize or affect disbursements also do depends on their specific duties and responsibilities.

            (Technical Revisions: Dec. 2016)

29 CFR 453.8 (e)

531.650 PERSONS WHO SIGN CHECKS

            Personnel who do not handle cash but are only authorized to sign checks are required to be bonded.  This would be true regardless of whether such personnel are the sole signers or co-signers of the checks.

531.651 PERSONS WHO HAVE ACCESS TO SIGNATURE DEVICE

            Personnel who have access to a check signature device must be considered as “handling funds or other property” within the meaning of the Act and must therefore be bonded in addition to those whose signatures are affixed to the checks.

WHO MUST BE BONDED:
“EXCLUSIONS”

531.705 BONDING PROVISIONS NOT APPLICABLE TO FINANCIAL INSTITUTIONS

            The bonding requirements of the Act were not intended to be, and are not, applicable to banks or other qualified financial institutions which serve as a depository for trust funds and perform administrative or management responsibilities with respect to trusts, or to other independent contractors who have contracted with trusts for the performance of functions which are normally not carried out by officials or employees of such trusts.  Likewise, the bonding requirements are not applicable to the employees of such banks, such other qualified financial institutions, or such independent contractors.

See also 29 CFR 453.22(b).

331.710 EXCEPTION FOR INDEPENDENT CONTRACTORS

            See 29 CFR 453.6(b).

531.720 ERISA BONDING EXEMPTION

SPECIAL NOTE:

 Trusts bonded under ERISA need not be bonded under the LMRDA.  See Manual Entry 530.005.

AMOUNT OF BOND - TERM OF BOND

532.001 LMRDA, SECTION 502(a)

            The bond of each such person shall be fixed at the beginning of the organization’s fiscal year and shall be in an amount not less than 10 per centum of the funds handled by him and his predecessor or predecessors, if any, during the preceding fiscal year, but in no case more than $500,000.  If the labor organization or the trust in which a labor organization is interested does not have a preceding fiscal year, the amount of the bond shall be, in the case of a local labor organization, not less than $1,000, and in the case of any other labor organization or of a trust in which a labor organization is interested, not less than $10,000. . . .

532.002 SEE 29 CFR 453.13, 453.15, 453.16, 453.17

532.005 SCOPE

            29 CFR Sections 453.13 through 453.17 discuss the requisite amount of the bonds which the statute declares shall be fixed “at the beginning of the organization’s fiscal year . . . in an amount not less than 10 per centum of the funds handled by him and his predecessor or predecessors, if any, during the preceding fiscal year but in no case more than $500,000.”  Section 453.15 discusses specifically the meaning of funds handled “during the preceding fiscal year” which is the basis from which the amount of the bond is derived.  Such a sum would ordinarily include the total of whatever funds were on hand at the beginning of the fiscal year plus any items received or added in the form of funds during the year.  Thus, the amount handled at any one time is not a relevant consideration in determining the amount of the bond.

            (Technical Revisions: Dec. 2016)

532.100 DUAL CAPACITY OF UNION OFFICER AND BULDING MANAGER

            According to section 453.7 and 453.8, a person is required to be bonded only for the funds he handles.  This would include both monies handled in a capacity of manager of-- a union’s building (rent collections in addition to any other monies he may handle in this capacity), and monies which he may handle, for example, as financial secretary of his local union.  It would not include the value of the building, but would include the value of securities and bank accounts.

            (Technical Revisions: Dec. 2016)

532.200 FUNDS HANDLED TWICE BY SAME PERSONS

            Once an item properly within the category of “funds” had been counted as handled by personnel during a year, there would be no need to count it again should it subsequently be handled by the same personnel during the same year in some other connection.

532.300 $500,000 LIMITATION APPLIES TO AMOUNT OF BOND ITSELF

            The language of the law and the legislative history thereof leave no doubt that the $500,000 limitation applies to the amount of the bond itself, and not to the amount of funds handled, from which the amount of the bond is derived.

532.305 EXCESS COVERAGE

            There is no prohibition against additional or excess coverage.  The additional bond may be in any amount and form otherwise lawful and acceptable to the parties to each bond.

29 CFR 453.2(b)

532.310 COLLECTION FEE-BONDING CLAIMS

            Where an international collects a bonding claim from a surety on behalf of a local and deducts a 20% “collection  fee”, it was held that such fee does not result in a deficiency in the bonding coverage required under section 502 of the LMRDA.

            Under section 502, the sole measure of the adequacy of the amount of bond is the amount of funds handled by the insured during the preceding fiscal year.  After a bond at least equal to 10% of the funds handled by the insured has been obtained, the Department could not assert that the bond is inadequate in amount simply because a subsequently recovered claim is partially depleted by payments or deductions for expenses of collection by the insured or his privy.

532.400 SAFEKEEPING AGREEMENT WITH A BANK

            Funds covered by a safekeeping agreement with a bank are nevertheless to be considered in determining the amount of the bond required.  The fact that a savings account is established in the name of a bank or the bank’s nominee does not constitute such a restriction on access, withdrawal or control of the funds by the depositors, as would make bonding unnecessary.

            (Revised: Dec. 2016)

532.500 FUNDS IN SAVINGS ACCOUNT

            All officers individually or severally authorized to make withdrawals from a union’s savings account are required to be bonded.  If this is the only function performed by an officer which involves the handling of funds or other property of the union, the amount of his bond may be computed solely on the basis of the funds in the savings account, under application of the principles set forth in 29 CFR 453.15.

532. 600 FUNDS HANDLED DURING THE PRECEDING FISCAL YEAR

            Funds handled “during the preceding fiscal year” include funds on hand at the beginning of the year plus funds received or added during the year for any reason.  An item does not have to be counted twice should it be handled by the same person during the year in some other connection.

29 CFR 453.15

532.605 PRIOR FUND AS BASE

            Where the present strike fund is the same trust as a prior strike fund, even though it is administered by a different organization, it is proper to base the bond for members of the administering committee on the amount of the funds handled by them or their predecessors in the prior fund in the preceding fiscal year.

            (Technical Revisions: Dec. 2016)

TYPE OF BOND:  HONESTY

533.001 LMRDA, SECTION 502(a)

. . . to provide protection against loss by reason of acts of fraud or dishonesty on his part directly or through connivance with others. . .

533.002 SEE 29 CFR 453.10 AND 453.12

FORM OF BOND:  INDIVIDUAL OR SCHEDULE DESIGNATION OF INSURED

534.001 LMRDA, SECTION 502(a)

. . . Such bonds shall be individual or schedule in form, and shall have a corporate surety company as surety thereon . . .

534.002 SEE 29 CFR 453.18, 453.19.

            The statute does not require individual bonds, although such bonds are, of course, permissible under its provisions.  The statute also permits position schedule bonds.  This latter type of bond normally does not raise problems concerning the coverage of successors to bonded personnel.

            (Revised: Dec. 2016)

534.005 IN GENERAL
            The statute does not require individual bonds, although such bonds are, of course, permissible under its provisions. The statute also permits position schedule bonds. This latter type of bond normally does not raise problems concerning the coverage of successors to bonded personnel.

534.010 CONGRESSIONAL INTENT

            The statute requires that the bonds be “individual or schedule in form.”  Leading representatives of the bonding industry informed the Department that there are two kinds of bonds in current usage which are “schedule in form” – name schedule bonds and position schedule bonds.  Congress probably knew this before it agreed on language for the provision and it did not qualify or restrict the word “schedule” in any way.  It seems reasonable and proper that any schedule bond which meets the currently accepted usage of this term should be acceptable.  Consequently, an individual bond, a position schedule bond, or a name schedule bond would meet the statutory requirement, “individual or schedule in form.”

* 534.020 AGGREGATE OR MULTIPLE PENALTY BLANKET BONDS ARE PERMISSIBLE

            The bonding provisions (section 502) of the LMRDA were amended in certain respects in 1965.  The legislative record made in amending the provisions to authorize honesty bonds for labor organizations indicates that Congress was concerned not only with the additional costs for union bonds associated with “faithful discharge of duty” coverage, but also with the higher premiums on multiple penalty as opposed to aggregate penalty bonds.  The House Report on the bill to amend section 502 (H.R. Rep. No. 182, 89th Cong. 1st Sess. 3) reflects Congress’ desire to remove any distinction between bonding required by the LMRDA and by the WPPDA (Welfare & Pension Plans Disclosure Act, repealed in 1974 when ERISA enacted) with regard to these cost factors. In the light of this expression of Congressional intent, it is the opinion of the Solicitor of Labor that section 502 should no longer be interpreted as requiring multiple penalty bonds.

            Accordingly, a bond written to cover all persons required by the LMRDA to be bonded is acceptable if it operates on either an aggregate or multiple penalty basis.

            (Technical Revisions: Dec. 2016)

APPROVED SURETY

535.001   LMRDA, SECTION 502(a)

            …Such surety company shall be a corporate surety which holds a grant of authority from the Secretary of the Treasury under the Act of July 30, 1947 (6 U.S.C. 6-13), as an acceptable surety on Federal bonds: Provided, That when in the opinion of the Secretary a labor organization has made other bonding arrangements which would provide the protection required by this section at comparable cost or less, he may exempt such labor organization from placing a bond through a surety company holding such grant of authority.

535.002 SEE 29 CFR 453.20 AND 453.26.

535.004

            Criteria for exemption have not yet been promulgated. All inquiries relating to exemptions should be forwarded to the National Office.

535.005 SURETIES—AUTHORIZED BY TREASURY DEPARTMENT

            See Treasury Department Circular 570 for list of corporate sureties holding grants of authority from the Secretary of the Treasury.

NOTE:
A copy of Treasury Department Circular 570, containing a list of companies holding certificates of authority as acceptable sureties on Federal bonds is included in the “Regulations” section at the end of this Manual.

See Manual Entry 290.001 ff
Re: Surety Company Reporting.

*535.010 SELF-INSURANCE PROHIBITED

            A union is precluded from either depositing its own funds with a surety to pay 1osses or indemnifying a surety for losses sustained under a bond. Irrespective of the method used, self-insurance of union funds, either in whole or in part, fails to comply with the requirements of section 502 of the LMRDA.

            Section 502(a) requires that every officer, agent, shop steward, etc., of any labor organization “who handles funds or other property thereof shall be bonded ...” (Emphasis supplied). Both this language and its legislative background make it clear that self-insurance arrangements are precluded, in whole or in part. This construction is directly supported by the statement of the House Labor Committee with respect to the exemption authority contained in the 1965 amendments to the LMRDA wherein it was stated that it was not the intention of the Committee, in giving discretionary authority to the Secretary, to sanction self-insurance on the part of labor organizations. If the exemption authority does not extend to self-insurance, then a fortiori these arrangements are not available to unions under section 502.   

CONFLICT OF INTEREST–BONDING

536.001 LMRDA, SECTION 502(a)

            ...No such bond shall be placed through an agent or broker or with a surety company in which any labor organization or any officer, agent, shop steward, or other representative of a labor organization has any interest or indirect interest...

536.002 SEE 29 CFR 453.21

536.005 SURETY, AGENT OR BROKER–INTEREST IN

            The section is designed to prevent placing of bonds through agents or brokers, and with surety companies, in which any labor organization or any officer, agent, shop steward, or other representative of a labor organization holds more than a nominal interest. This could include situations in which any of the above persons are in a position to influence or control the activities or operations of such brokers, agents, or surety companies, by virtue of interests held either directly or indirectly by them, or by relatives or third parties which they own or control.

29 CFR 453.21

            (Revised: Dec. 2016)

536.010 SALARIED EMPLOYEE OF UNION AS AGENT

            A salaried employee of a local union is precluded from acting as agent or broker on any LMRDA bond required by the union or any trust in which the union is interested when his duties are to oversee the union’s various insurance needs, collect delinquent health and welfare premiums, process life insurance for the members’ programs, process annual diagnostic examinations for the members and research any new business the union might require.

            From the description of his duties it appears that he falls within the scope of the definition contained in section 3(q) of the LMRDA with respect to officer, agent, shop steward or other representative of a labor organization and thus, he is barred under section 502(a) from acting as agent or broker on any bond required under the LMRDA for any labor organization or any trust in which any labor organization is interested.

536.100 WHERE INSURANCE AGENT AND UNION PRESIDENT ARE RELATED

            The fact that an insurance agent and union president are brothers would not be sufficient in and of itself to make the prohibition against direct or indirect interest contained in section 502 applicable. While not controlling, the presence of the relationship would, however, appear to be a circumstance entitled to some weight, along with other circumstances, in determining whether a direct or indirect interest exists in any given case. If, for example, in addition to the family relationship, any business relationship exists between the president and his brother, including a loan of any sort which would give rise to a legal interest or if they are engaged in any joint venture, trust relationship, etc., it would seem that the brother would be disqualified from acting as agent. Similarly, if the brother’s wife or minor child has any business relationship with the union president, the brother would be disqualified from acting as agent by virtue of his legal interest in the estate of the wife or child.

            From a practical standpoint, a strong case for disqualification may exist where a close relative holds a controlling interest in or serves as exclusive agent for a bonding company. However, in a case where the relative is one of thousands of agents who receive commissions from large companies, and where the agent does not have the power to vary the terms of the bond or to conduct or to determine whether an investigation should be conducted, then disqualification would not appear to be warranted.

            29 CFR 453.21 states that the disqualification, “would be effective if a labor organization or any of the specified persons are in a position to influence or control the activities…by virtue of interests held either directly by them or by relatives or third parties which they own or control.”  This statement should be interpreted to mean that the disqualification is effective if the persons specified can influence activities by virtue of interests own or controlled by such persons or labor organization, irrespective of the degree of relationship or affinity and without regard to where legal title or ownership may happen to be vested.

            (Revised: Dec. 2016)

536.200 UNION’S OWN BONDING FUND

            Sections 453.20 and 453.21 contain a discussion of the surety companies with which bonds required by the Act must be placed, and the agents through which this may be done. While it is evident that the disqualification of a union’s own Fidelity Department under the principles set forth in section 453.21 will make it necessary for such union to modify its past practice of obtaining bonds through its Fidelity Department to carry out the Act’s minimum requirements, there is nothing in the Act which will prevent the uses of the Fidelity Department to provide additional protection beyond the requirements of the Act.

536.300 ANOTHER UNION AS SURETY FOR BOND

            As the statutory disqualification provisions regarding agents, brokers, and surety companies are based on the holding of any direct or indirect interest by “any” labor organization or “any” officer, agent, shop steward, or other representative of a labor organization, it appears that the disqualification applies even if such interest is held by a labor organization other than the one for which the bond is to be secured or by any personnel in any such labor organization.

See 29 CFR 453.21.

            (Revised: Dec. 2016)

PAYMENT OF PREMIUM

537.002 SEE 29 CFR 453.24

537.005 COST OF BONDING

            Since the Act does not prohibit the payment of the cost of the bonds by a trust fund of labor organizations, the decision as to who is to bear this cost is, as noted in 29 CFR Section 453.24, left to the discretion and agreement of the parties concerned in each case, subject to any limitations imposed by law or by their organic instruments. But see Manual Entry 531.403 (regarding bonding for ERISA-covered trusts).

            (Revised: Dec. 2016)

537.100 BONDS SECURED BY NATIONAL OR INTERNATIONAL FOR SUBORDINATE BODIES

            Section 502(a) does not prohibit an international organization from paying the premium for the required bonds of its affiliated units.

PROHIBITIONS AGAINST CERTAIN FINANCIAL AID TO OFFICERS

540.001 LMRDA, SECTION 503
           

  1. No labor organization shall make directly or indirectly any loan or loans to any officer or employee of such organization which results in a total indebtedness on the part of such officer or employee to the labor organization in excess of $2,000.
  2. No labor organization or employer shall directly or indirectly pay the fine of any officer or employee convicted of any willful violation of this Act
  3. Any person who willfully violates this section shall be fined not more than $5,000 or imprisoned for not more than one year, or both. See pamphlet, “Union Safeguards,” page 3.

 

540.005 LIMIT ON LOANS APPLIES TO SINGLE UNION

X, the President of a national organization of unions, obtained loans in various amounts, no one of which exceeded $2,000, from each of four locals affiliated with the national organization. X held office in each of these locals. The combined total of these loans was in excess of $2,000.

            The language of section 503(a) does not appear to prohibit loans obtained by an officer from more than one labor organization in amounts of $2,000 or less.

UNION LOANS—DIRECT OR INDIRECT

541.005 SPECIAL TRUST FUNDS

            Where an employer makes a contribution to a special fund to be used to insure against future uncertainty and risk to which an employee is subject, he is at the time of the contribution, making a payment on behalf of the employee. This is so even though the employee himself may never receive any of the benefits contemplated by the plan, since the payment made on his behalf accords him the same protection in the form of potential benefits as the employee who actually receives benefits. It would thus follow that loans subsequently made from such vested payments in accordance with the plan should not be considered as direct or indirect loans made by a labor organization within the meaning of the prohibition contained in section 503(a) of the Act.  See also Manual Entry 541.100, immediately below.

            (Technical Revisions: Dec. 2016)

541.100 LOAN TO DISCHARGED MEMBER

            Mr. X, a union member, was discharged from his job. He filed a grievance and while it was being adjudicated, the membership of the union voted to pay him his weekly salary of $125.00 for the period from his discharge until his grievance is finally settled. Mr. X signed an agreement to the effect that if he succeeds in obtaining a back-wage settlement on final adjudication, the amount advanced by the union will be considered a loan to be repaid. Nothing in the constitution or bylaws of the local or international prohibit such a transaction.

            Even if the amount paid to Mr. X under this arrangement ultimately aggregates to more than $2,000, the limitation of section 503(a) of LMRDA does not apply as long as Mr. X is neither an “officer,” as that term is defined in section 3(n) of the Act, nor an employee of the labor organization.

            The act prohibited by section 502(a) is the making of loans in excess of $2,000 by labor organizations “to any officer or employee of such organization.” The language of the sections clearly does not apply to “employees” as defined in section 3(f).

            (Technical Revisions: Dec. 2016)

541.200 LOANS FOR BENEFIT OF THE UNION

            Section 503(a) of the Act does not contain any exception for secured loans or for loans which are of benefit to the union. Therefore, a loan to a union employee to assist him in purchasing an automobile used for union business would in our opinion be a violation of section 503(a) if the advance resulted in a total indebtedness on the part of the employee to the union of more than $2,000.

541.300 PRE-LMRDA DEBTS

            A reasonable construction of section 503 would be that it cannot render an indebtedness illegal which exceeded $2,000 prior to the effective date of the Act (September 14, 1959). However, if the total indebtedness was $2,000 or more on the effective date of the Act, section 503(a) would make illegal any loans after that date which would increase the total indebtedness by any amount. Further loans would be prohibited until the total indebtedness had been reduced to the point where an additional loan would result in a total debt to the union of $2,000 or less.

541.400 BLOCK MORTGAGE LOAN

            An international bought a block of 20 mortgages for investment purposes from a mortgage-lending institution. One of the mortgages was for a loan of $20,000.00 extended to an employee of the international by the institution at the request of a key official of the international, who also requested that this mortgage be included in the block.

            Inasmuch as the loan in question was one made indirectly by the international, there appears to be a violation of sections 503(a) of the Act.

See also Manual Entry 214.720.

PROHIBITION AGAINST HOLDING OFFICE OR EMPLOYMENT

550.001 LMRDA, SECTION 504.

            (a) No person who is or has been a member of the Communist Party or who has been convicted of, or served any part of  a prison term resulting from his conviction of robbery, bribery, extortion, embezzlement, grand larceny, burglary, arson, violation of narcotics laws, murder, rape assault with intent to kill, assault which inflicts grievous bodily injury, or a violation of title II or III of this Act, any felony involving abuse or misuse of such person's position or employment in a labor organization or employee benefit plan to seek or obtain an illegal gain at the expense of the members of the labor organization or the beneficiaries of the employee benefit plan, or conspiracy to commit any such crimes or attempt to commit any such crimes, or a crime in which any of the foregoing crimes is an element, shall serve or be permitted to serve—

  1. as a consultant or adviser to any labor organization,
  2. as an officer, director, trustee, member of any executive board or similar governing body, business agent, manager, organizer,  employee, or representative in any capacity of any labor organization, 
  3. as a labor relations consultant or adviser to a person engaged in an industry or activity affecting commerce, or as an officer, director, agent, or employee of any group or association of employers dealing with any labor organization, or in a position having specific collective bargaining authority or direct responsibility in the area of labor-management relations in any corporation or association engaged in an industry or activity affecting commerce, or
  4. in a position which entitles its occupant to a share of the proceeds of, or as an officer or executive or administrative employee of, any entity whose activities are in whole or substantial part devoted to providing goods or services to any labor organization, or
  5. in any capacity, other than in his capacity as a member of such labor organization, that involves decision-making authority concerning, or decision-making authority over, or custody of, or control of the moneys, funds, assets, or property of any labor organization,

during or for the period of thirteen years after such conviction or after the end of such imprisonment, whichever is later, unless the sentencing court on the motion of the person convicted sets a lesser period of at least three years after such conviction or after the end of such imprisonment, whichever is later, or unless prior to the end of such  such period, in the case of a person so convicted or imprisoned, (A) his citizenship rights, having been revoked as a result of such conviction, have been fully restored, or (B)  if the offense is a Federal offense, the sentencing judge or, if the offense is a State or local offense, the United States district court for the district in which the offense was committed, pursuant to sentencing guidelines and policy statements under section 994(a) of Title 28, determines that such person’s service is any capacity referred to in clause (1) through (5) would not be contrary to the purposes of this Act. Prior to making any such determination the court shall hold a hearing and shall give notice of such proceeding by certified mail to the Secretary of Labor and to State, county, and Federal prosecuting officials in the jurisdiction or jurisdictions in which such person was convicted. The  court’s determination in any such proceeding shall be final. No person  shall knowingly hire, retain, employ, or otherwise place any other person to serve in any capacity  in violation of this subsection.

(b) Any person who willfully violates this section shall be fined not more than $10,000 or imprisoned for not more than five years, or both.

(c) Definitions

For the purpose of this section—

(1) A person shall be deemed to have been “convicted” and under the disability of “conviction” from the date of the judgment of the trial court, regardless of whether that judgment remains under appeal.

(2) A period of parole shall not be considered as part of a period of imprisonment.

(d) Salary of person barred from labor organization office during appeal of conviction

Whenever any person—

(1) by operation of this section, has been barred from office or other position in a labor organization as a result of a conviction, and

(2) has filed an appeal of that conviction,

any salary which would be otherwise due such person by virtue of such office or position, shall be placed in escrow by the individual employer or organization responsible for payment of such salary. Payment of such salary into escrow shall continue for the duration of the appeal or for the period of time during which such salary would be otherwise due, whichever period is shorter. Upon the final reversal of such person's conviction on appeal, the amounts in escrow shall be paid to such person. Upon the final sustaining of such person's conviction on appeal, the amounts in escrow shall be returned to the individual employer or organization responsible for payments of those amounts. Upon final reversal of such person's conviction, such person shall no longer be barred by this statute from assuming any position from which such person was previously barred.

NOTE:
The provision in this section relating to membership in the Communist Party has been held unconstitutional.
See Manual Entry 551.005.

            (Revised: Dec. 2016)

550.005 GUIDELINES TO SECRETARY’S CONSTRUCTION OF SECTION 504

See memorandum of understanding between Departments of Labor and Justice concerning investigation and prosecution of crimes and civil enforcement actions: www.dol.gov/olms/regs/compliance/Enforcement_Coord.htm.

            (Revised: Dec. 2016)

550.100 UNION’S RIGHT TO IMPOSE MORE STRINGENT PROHIBITIONS

            A, a member in good standing in Local X, was denied opportunity to be a candidate for the office of business manager of his local in a recent election under a provision of the local’s bylaws which state, in pertinent part, that “No member shall be eligible for election, be elected, or hold office or position, and no person shall be employed who has been convicted of any crime involving moral turpitude offensive to trade union morality” (Emphasis added). A was convicted of forgery and received a suspended four-year sentence in 1953.

            A filed a letter of complaint with the Secretary of Labor contending, among other things, that the subject provision of the local’s bylaws imposes an unreasonable qualification on candidacy for union office. In support of this contention A suggests that section 504 of the Act establishes the qualifications for union candidacy in the area of criminal convictions, and since A would not be prevented from seeking office by section 504, the subject provisions is unreasonable.

            The language of section 401(e) is designed to prevent a union from denying a member in good standing the right to seek and hold union office. At the same time the union is permitted to uniformly impose reasonable qualifications for office. While a member’s eligibility for candidacy is subject to the prohibitions of section 504, such eligibility is also subject to reasonable qualifications uniformly imposed by the union, and section 504 was not intended to, and does not, preempt the union’s right to uniformly impose more stringent prohibitions against ex-convicts seeking office than that imposed by section 504. The subject provision would not appear to constitute an unreasonable qualification.  See 29 CFR 52.34

NOTE:
Prior to filing a complaint with the Secretary A sought a preliminary injunction to restrain the union from holding a scheduled election until the question of his eligibility was settled. On the issue of the validity of the union bylaw, the court stated that section 401(e) contemplated that a union may impose greater restrictions concerning the eligibility of its members to hold office than that imposed by section 504 provided only that such restrictions are reasonable and are uniformly imposed.

Coburn v. Operating Engineers Local Union No. 3, 54 LRRM 2229 (N.D. Cal. 1963).

            (Technical Revisions: Dec. 2016)

550.200 NONSALARIED PERSONNEL

            The section 504(a) prohibition applies to any person who serves as an “officer, director, trustee, member of any executive board or similar governing body, business agent, manager, organizer, employee, or representative in any capacity of any labor organization,” whether or not he serves in a paid position.  See LMRDA Section 504(a)(2), 29 U.S.C. § 504(a)(2).

            (Revised: Dec. 2016)

550.300 AFFIDAVITS

            The Act contains no requirements for filing affidavits regarding the absence of Communist affiliations.
            Section 201 of the Act repealed sections 9 (f), (g), and (h) of the LMRA (Taft-Hartley). Section 9(h) of the LMRA had provided that in order for a labor organization to use the facilities of the NLRB each officer of the labor organization and the officers of the national or international of which it was an affiliate or constituent unit had to file with the NLRB an affidavit stating that he was not a member of or affiliated with the Communist Party.

Note:
The provision in section 504 of the LMRDA relating to membership in the Communist party has been held unconstitutional. See Manual Entry 551.005.

*550.400 PERSON INELIGIBLE TO SERVE MAY NOT BE A CANDIDATE

            A person who will be barred from serving in union office by section 504 is not eligible to be a candidate for such office. However, a person who will be eligible to serve on the date of the installation of officers may be a candidate, even though at the time of his nomination and election he is still within the period set forth in section 504. See 29 CFR 452.34.

            (Revised: Dec. 2016)

550.500 WOMEN’S AUXILIARY

            It is a conceivable that a body organized as a women’s auxiliary could be so integrated with a union and charged with such responsibilities that one of its officers, etc., might be “an officer, organizer, or other employee…” of the union, so as to bring her within the scope of section 504.

550.600 PREEMPTION OF STATE CRIMINAL LAWS

            In reference to the Labor-Management Reporting and Disclosure Act, the Supreme Court said in De Veau v. Braisted, 363 U.S. 144, 46 LRRM 2304 (1960): “The federal law expressly provides that none of its provisions are to be construed to impair the authority of states to enact and enforce general criminal laws with respect to the same group of serious felonies and disclaims pre-emption of state laws regulating the responsibilities of union officials excepting where such preemption is specifically provided.”

            The Court also stated that section 504 of LMRDA makes it clear “that section 504(a) was not to restrict state criminal law enforcement regarding the felonies there enumerated as federal bars to union office….”  Braisted, 363 U.S. at 157.  See also Bell v. Waterfront Commission, 279 F. 2d 854, 46 LRRM 2448 (2d Cir. 1960); Applegate v. Waterfront Commission, 184 F.Supp. 33, 46 LRRM 2983 (S.D.N.Y. 1960).  

            (Technical Revisions: Dec. 2016)

550.700 JURISDICTION OF FEDERAL COURTS OVER OFFICER’S SUIT

             A U.S. District Court has jurisdiction to decide a suit brought by an elected union officer against his union for injunctive relief and a declaratory judgment interpreting section 504 as applied by his union in removing him from office. See Serio v. Liss, 300 F. 2d 386, 49 LRRM 2111 (3d Cir. 1961).  See also Illario v. Frawley, 426 F.Supp. 1132, 1135, 94 LRRM 2834 (D.N.J. 1977) (applying Serio). U.S. District courts also have jurisdiction over suspended officer’s claims against the U.S. Department of Labor for declaratory judgment that the officer was not “convicted” for purposes of section 504.  See Harmon v. Teamsters Local Union 371, 832 F.2d 976, 977-78, 126 LRRM 2697 (7th Cir. 1987).  

NOTE:  Persons considered ineligible under §504(a) can petition judges to reduce the period of their ineligibility.  See, e.g., United States v. Peters, 938 F.Supp.2d 296 (N.D.N.Y. 2013).

            (Revised: Dec. 2016)

*550.710 INJUNCTIVE RELIEF

            The U.S. Court of Appeals for the Seventh Circuit has held that the United States may not seek to enjoin a person who is ineligible to serve in union office by reason of section 504 from running for that office. Even though the person by taking office would subject himself and the union to the criminal penalties, section 504 provides no injunctive remedy against the individual or the union.  United States v. Jalas, 409 F.2d 358, 70 LRRM 3265 (7th Cir. 1969), aff’gg 67 LRRM 2762 (N.D. Ill. 1968).

            However, the election in which the person who is ineligible to serve is a candidate may be subject to challenge under section 402.
            See also Manual Entry 550.400 and 29 CFR 452.34.

            (Technical Revisions: Dec. 2016)

550.800 RESPONSIBILITY FOR REMOVAL OF CONVICTED OFFICER

            Section 504(a) prohibits a “person” who has been convicted of one of the crimes enumerated therein from holding office in accordance with the terms of that subsection. If the “person” is a union officer at the time of his conviction, he must be removed from office by the other officers of the union. Failure of the union’s officers to take steps to have the convicted officer removed from office is a violation of the last sentence of section 504(a) which states, in pertinent part: “No labor organization or officer thereof shall knowingly permit any person to assume or hold any office…in violation of this subsection.”  See, e.g., Herman v. American Postal Workers Union, 995 F.Supp. 1, 2, 157 LRRM 2623 (D.D.C.1997).

            (Technical Revisions: Dec. 2016)

PROHIBITON AGAINST COMMUNISTS

551.005

            In the case of United States v. Brown, 381 U.S. 437 (1965), the U.S. Supreme Court declared that the portion of section 504 (Prohibition Against Certain Person Holding Office) relating to membership in the Communist Party, was unconstitutional on the grounds that the language of the statute amounted to a bill of attainder within the meaning of Article 1, section 9, of the Constitution.  381 U.S. at 441-51. 

            In view of the separability clause in section 611 of the LMRDA, section 504 continues to be in full force and effect with regard to the convict provisions thereof.

United States v. Brown, 381 U.S. 437, 59 LRRM 2353 (1965).

            (Technical Revisions: Dec. 2016)

PROHIBITION AGAINST CONVICTS

552.001 LMRDA, SECTION 504

            See Manual Entry 550.001

            (Revised: Dec. 2016)

552.005 LAW OF JURISDICTION DETERMINES OFFENSE

            The law of the jurisdiction under which the conviction occurs determines whether the offense is one of the crimes specified.  For convictions for crimes under state law, courts will determine, drawing guidance from that state’s law, whether the crime is equivalent to one of those identified in Section 504(a).  See, e.g., Herman v. American Postal Workers Union, 995 F.Supp. 1,2, 157 LRRM 2623 (D.D.C.1997); Berman v. Local 107, 237 F.Supp. 767, 770-772, 58 LRRM 2009 (E.D. Pa.1964). The prohibition applies even if the person convicted has not lost his citizenship rights as a result of the conviction. 

            (Revised: Dec. 2016)

552.010 FOREIGN CONVICTION

            The prohibition in section 504 on the holding of union office by a person convicted of any of the crimes enumerated therein is applicable to foreign convictions as well as domestic convictions under certain circumstances.
            Assuming that he was accorded due process of law, an officer of an International union, subject to the jurisdiction of the United States and whose membership consists predominantly of residents of the United States, who is convicted under Canadian law of a crime which corresponds substantially with one of the crimes listed in section 504, is barred from holding international office.

552.100 CLASSIFICATION AS MISDEMEANOR OR FELONY

            The defendant was convicted of a violation of section 504(a) of LMRDA in that he served as an organizer for a local union within five years after “conviction for conspiracy to commit extortion.” At the same trial, the president of the local union was convicted of violation of section 504(a) for knowingly permitting the defendant to assume and hold a paid position as an organizer of the local.

            The defendant moved for a new trial contending (1) that his conviction of conspiracy to commit extortion under section 580 of the Penal Laws of the State of New York is a misdemeanor and that section 504 only disqualifies persons convicted of felonies from holding office.

            In denying the defendant’s motion for a new trial, the court stated:

“The restrictive interpretation urged by defendants would attenuate the corrective action declared in section 504. The section speaks of disqualification of persons convicted of misdemeanors, in proscribing employment by a labor organization of persons convicted of a ‘violation of Title II or III of this Act.’ The Court concludes that persons convicted of any of the crimes stated in section 504(a) are ineligible, whether such crimes be classified as a misdemeanor or felony.”

United States v. Priore, 236 F.Supp. 542, 56 LRRM 2580 (E.D.N.Y. 1964).

            (Technical Revisions: Dec. 2016)

552.150 WHERE ELEMENTS OF CRIME INCLUDE CRIME LISTED IN SECTION 504

            A labor organization officer convicted of a crime under a Federal or State statute, and actually incarcerated as a result thereof, is subject to the  ban on holding union office if the crime of which he is convicted requires as an essential element thereof any of the crimes enumerated in section 504(a).
See language of Section (504(a); see also United States v. Priore, 236 F.Supp. 542, 56 LRRM 2580 (E.D.N.Y. 1964).

            (Technical Revisions: Dec. 2016)

552.200 CONVICTION, NOT INDICTMENT, GOVERNS

            Where a man is charged with conspiracy to bribe, but is indicted and convicted for conspiracy to defraud the United States,  he is not convicted of any of the offenses enumerated in 504(a), nor of a conspiracy to commit any such crimes, and therefore is not precluded from serving as a union officer.

552.205 CONVICTION BASED ON CONFESSION

            Section 504(a) of the LMRDA prohibits a person who has been convicted of extortion from holding office in a union for thirteen years after the date of conviction. A conviction based on a confession is nonetheless a conviction.

            (Revised: Dec. 2016)

552.208 WHEN PROHIBITION BEGINS

             The prohibitions of Section 504(a) begin upon the person’s conviction or the end of the person’s imprisonment, whichever is later.  See Manual Entry 550.001 (language of Section 504(a)).  For purposes of determining whether a person’s “conviction” has occurred, courts consider state law, but also consider whether the purposes of Section 504 would be served by postponing the start of the period of prohibition.  See Harmon v. Teamsters Local Union 371, 832 F.2d 976, 978-80 (7th Cir.1987).    

552.210 APPEAL OF CONVICTION

            See Manual Entry 550.001 (language of Section 504(a)(d) that explains how  convicted person’s salary will be paid into escrow while any appeal is pending).  See also McMahan v. International Association of Bridge, Structural and Ornamental Iron Workers, 800 F.Supp. 1337 (D.S.C. 1991), aff’d in part, 964 F.2d 1462 (4th Cir. 1992), remand, 858 F.Supp. 529 , 146 LRRM 3113 (D.S.C.1994) (on remand from the Fourth Circuit, trial court upheld escrow provisions of Section 504(d) and granted officer’s summary judgment against the local union, after the Fourth Circuit held that a former union officer whose conviction was reversed could bring claim against union under Section 504(d) for funds it was required to hold in escrow during appeal).
           
(Revised: Dec. 2016)

*552.220 DENIAL OF CERTIORARI

            As set forth in Manual Entry 550.001, §504(d) provides that a convicted person’s salary will be paid into escrow “for the duration of the appeal” and that “[u]pon the final reversal of such person’s conviction” the amounts in escrow would be paid to that person. The references to “duration of appeal” and “final reversal” in this provision indicate that not until the U.S. Supreme Court has denied certiorari or the time has expired for seeking certiorari should the amounts in escrow be paid to whomever is entitled to them under §504(d).

            (Revised: Dec. 2016)

552.500 NATURALIZATION OF CONVICT 

            X, an alien residing in the United States, is convicted in a State court of one of the crimes enumerated in section 504(a) and sentenced to a term in prison. After serving part of his sentence, X is paroled. While in a parole status he becomes a citizen of the United States. Subsequently he is released from parole. X immediately seeks to run for office in a labor organization.

QUESTION:
Is X required to wait  thirteen years after the time he was released from parole (i.e., the end of his sentence) before he is eligible to be an officer of a labor organization, or is the fact that X obtained citizenship subsequent to the commission of the crime equivalent, for the purpose of LMRDA, to the restoration of citizenship rights set forth in section 504(a) thereby making him immediately eligible?

HELD:
Naturalization as a United States citizen cannot be equated with the restoration of citizenship rights set forth in section 504(a). Section 504 is directed to the withdrawal of certain rights incident to citizenship such as the right to vote, the right to hold certain offices, etc. These rights are commonly denied an individual convicted of a felony and incarcerated in a penitentiary. His status as a citizen of the United States is not withdrawn, he is merely placed under a impediment by a state. While an individual is serving under such an impediment he is ineligible to serve as a union officer. His eligibility would be restored only when all of the rights which are denied him as a result of a conviction have been restored. In short, securing of U.S. citizenship through naturalization is not the equivalent of being fully pardoned (and thereby having one’s citizenship rights fully restored) for purposes of section 504.

            (Revised: Dec. 2016)

552.600 RESTORATION OF CITIZENSHIP RGITHS

            A union member convicted of one of the crimes enumerated in section 504 and incarcerated in the penitentiary as a result of such conviction is prohibited from holding union office only for the period following the termination of his imprisonment, even though his citizenship rights have not been restored.

            (Revised: Dec. 2016)

CRIMES COVERED BY SECTION 504

553.001 LMRDA, SECTION 504(a)

            …robbery, bribery, extortion, embezzlement, grand larceny, burglary, arson, violation or narcotic laws, murder, rape, assault with intent to kill,, assault which inflicts grievous bodily injury, or a violation of title II or III of this Act, or conspiracy to commit any such crimes,…

553.305 HOBBS ACT—EXTORTION

            A union officer was found guilty of conspiracy to obstruct interstate commerce by extortion under the Hobbs Act in 1956. He was sentenced to be confined for four years. After his release but prior to the end of the ban on holding union office imposed by section 504, the former office made application for a Certificate of Exemption to the U.S. Board of Parole. After the application was denied, he attempted to run for local union office and was barred from so doing by the union, which relied upon an opinion of the Attorney General that he was barred from holding office by section 504 of LMRDA until January 10, 1966.

            The former officer then brought this action against the union seeking a declaratory judgment that he is not subject to the sanctions imposed by section 504 since he was not convicted of one of the crimes enumerated therein. Upon application, the Attorney General was allowed to intervene as a defendant. The Attorney General contended that the crime of which the former office was convicted necessarily embraced extortion and is therefore included in the list of crimes enumerated in section 504 and moved for a summary judgment to dismiss the complaint.

            In granting the defendant’s motion for summary judgment, the court construed section 504 “as embracing any of the enumerated crimes, the commission of which is a necessary predicate for the guilty verdict” (i.e., violation of the Hobbs Act). In finding the former officer guilty of the Hobbs Act violation, the court stated, “it is inescapable that the jury…must have found that he was guilty of extortion because it was an essential element of the crime and there was no other means or method by which the conspiracy was established.”

Postma v. International Brotherhood of Teamsters, Local 294, 337 F.2d 609, 57 LRRM 2298 (2d Cir. 1964).

            (Revised: Dec. 2016)

553.310 CONSPIRACY TO EXTORT

            A former convict served as an organizer for a local union. He was charged with violating section 504 and in defense contended that he was convicted of the crime of conspiracy (which is not listed as a crime under section 504) and not conspiracy to extort.

            In overruling his contention, the court stated that reference to the indictment “makes it abundantly clear that defendant…was convicted of conspiracy to commit the crime of extortion.” The court went on to say:

“…The interpretation that will result in a rational scheme and give dimension to the purging action of section 504, is one which includes convictions obtained under the conspiracy statues of the several states, upon proof the conspiracy was entered into to commit the crime of extortion or any of the other crimes referred to.”

United States v. Priore, 236 F.Supp. 542, 56 LRRM 2580 (E.D.N.Y. 1964).
           
            (Technical Revisions: Dec. 2016)

553.400 FALSE ENTRIES IN CREDIT UNION RECORDS

            Section 504(a) makes it a crime for a person who has been convicted of certain offenses enumerated in the section to hold office in a labor union. One of the prior convictions set forth is embezzlement.

            X, a union officer, entered a plea of guilty to a violation of section 1006 of Title 18 of the United States Code. He received a suspended sentence of two years, was fined $300 and placed on probation for two years.

            Section 1006 proscribes the making of false entries, statements, etc., in records of credit unions (methods used to cover up embezzlement) and while the offense is much like embezzlement, it appears from legislative history of the section that Congress did not intend to cover the offense in 18 U.S.C. 1006.

            Therefore, since X was not convicted of embezzlement or any of the other crimes specifically enumerated in section 504(a), he is not proscribed from holding office by virtue of his having been convicted under 18 U.S.C. 1006.

            (Revised: Dec. 2016)

553.505 CONSPIRACY TO CHEAT AND DEFRAUD

            The plaintiff, a union member, brought an action for a declaratory judgment and sought an injunction which would order the defendant, a local union, to place his name on the ballot as a candidate for the office of business agent in the forthcoming election. Defendant had declared the plaintiff ineligible to be a candidate by reason of his conviction in 1963, under Pennsylvania law, for conspiracy to cheat and defraud the local. The plaintiff, at the time of this action, was in prison in Pennsylvania but had a petition before the court alleging that his conviction under State law was in violation of certain Federal constitutional rights.

            Plaintiff’s principal contention in this action was that since LMRDA does not specify “a conspiracy to cheat and defraud,” his conviction was not covered by any of the specific terms of section 504. He further argued that section 504 of LMRDA “must be regarded as so penal in nature” that the doctrine of strict construction of penal statutes must be applied in this civil injunctive case.

            Citing Serio v. Liss, Postma v. International Brotherhood of Teamsters, Local 294, and United States v. Priore (see Manual Entries 550.700, 552.100, 553.305, 553.310) the court rejects the argument that section 504 must be strictly construed in civil cases, holding that it should be interpreted liberally as a remedial statute.

            The issue thus was whether the Pennsylvania crime of conspiracy to cheat and defraud is within one of the prohibitions of either embezzlement or grand larceny in section 504.
           
After lengthy analysis of Pennsylvania and Federal law the court concludes:
“While aware of the technical differences under Pennsylvania law as to Larceny and a Conspiracy to Cheat and Defraud, I conclude that for the purposes of the Labor-Management Reporting Act, section 504, the state crime of conspiracy to cheat and defraud is the equivalent of grand larceny  as used in section 504. Such a construction seems particularly consistent with the Congressional intent where the cheating and defrauding which resulted in the illegal dissipation of union funds were among the acts which Congress intended to eliminate by the enactment of the Labor-Management Reporting Act of 1959.”

The court denied the request for an injunction and held that the plaintiff was not entitled to a declaratory judgment which would sanction placing his name on the ballot in the forthcoming election.
Berman v. Local 107, International Brotherhood of Teamsters, 237 F.Supp. 767, 58 LRRM 2009, (E.D. Pa. 1964).

            (Technical Revisions: Dec. 2016)

EMBEZZLEMENT AND OTHER CRIMINAL CONVERSIONS

580.001 LMRDA, SECTION 501(c)
           
            Any person who embezzles, steals, or unlawfully and willfully abstracts or converts to his own use, or the use of another, any of the moneys, funds, securities, property, or other assets of a labor organization of which he is an officer, or by which he is employed, directly or indirectly, shall be fined not more than $10,000 or imprisoned for not more than five years, or both.

*580.002 STATUTE OF LIMITATIONS FOR EMBEZZLEMENT CASES

            Pursuant to 18 USC 3282, the statute of limitations for embezzlement cases under section 501(c) of the LMRDA is five years.

            (Revised: Dec. 2016)

580.100 UNAUTHORIZED USE OF FUNDS

            Defendant filed motion for judgment of acquittal after jury had returned verdict of guilty on embezzlement charge brought under section 501(c) of LMRDA.

            In denying defendant’s motion the court ruled that the phrase in section 501(c) “to his own use” does not require the Government to show that the appropriation of union funds was for the personal advantage of the defendant, but means simply “not to the use of the entruster.”
           
The court further ruled that the conversion consisted of the use of union funds for political purposes with knowledge that such use was unauthorized and with the intent to deprive the union of its use of the funds. The fact that this was accomplished in an indirect manner does not militate against the crime because it was the intent of Congress to hold officers of labor organizations strictly to their responsibilities as fiduciaries of the funds entrusted to them.
United States v. Harrelson, 223 F.Supp. 869, 54 LRRM 2456 (E.D. Mich. 1963). See also United States v. Santiago, 528 F.2d 1130, 1135 (2d Cir. 1976).

            (Technical Revisions: Dec. 2016)

580.150 UNLAWFUL CONVERSION OF UNION PROPERTY
           
            The United States Court of Appeals for the Second Circuit upheld the conviction of three union officials for violation of section 501(c) of the LMRDA through the unlawful conversion of union property when for a fee they falsified information on union application forms to obtain high priority job classifications for unqualified members.  United States v. Robinson, 512 F.2d 491, 88 LRRM 3433 (2d Cir. 1975), cert. denied sub nom. (1975); Villegas v. United States, 423 U.S.853 (1975).  The court held that the argument that there was no violation of section 501(c) because the forms had no intrinsic value was not persuasive. The court found that the statute does not require that the converted property be of any particular value, and in fact when the forms were filled in with false information their value to members who were not qualified for the higher job classification was great enough for them to pay $500 to $850 for them.  The fact that no union funds were depleted did not remove the action of the officials from the reach of the statute because one of the aims of section 501(c) was to preclude the unjust enrichment of union officials which occurred in this instance.  The court also found that the allocation of jobs by priority is a principal benefit of union membership and to the extent that this process was thwarted by the action of the officials in obtaining high priority job classifications for unqualified members, the union and its bona fide members suffered a loss.  The court quoted with approval a definition of the unlawful and willful conversion of union property from United States v. Silverman, 430 F.2d 106, 127 (2d Cir. 1970), cert. denied, 402 U.S. 953 (1971) —“It is easy to understand how a union employee does this when he ‘unlawfully and willfully’ uses union fund in a manner that works to the personal benefit of himself or the payee and does not benefit the union whether or not the union went through the form of authorization; the ‘union’ presumably would have objected if it had been able to speak freely.”  Robinson, 512 F.2d at 495, quoting, Silverman, 430 F.2d at 127.

            (Revised: Dec. 2016)

580.200 USE OF UNION CREDIT CARD FOR PERSONAL PURCHASES

            The defendant, the secretary-treasurer of a local union, was found guilty by a jury in the U.S. District Court on an indictment charging him with embezzlement and conversion of union money and of making false entries on the union’s books in respect thereto in violation of sections 501 and 209 of LMRDA.

            Evidence was presented in the District Court that the defendant used credit cards issued to the union by major oil companies for the purchase of gasoline, supplies and equipment for his boat. These purchases, which amounted to about two thousand dollars, were billed to the union and paid by union checks drawn on its bank account. These checks were signed by the defendant who approved the payment of all union bills and signed the checks.

            On appeal, the defendant raised the question of whether his use of union funds constituted embezzlement or conversion. He contended that although the words in the statute, “embezzles…or converts to his own use,” are in the disjunctive, they are synonymous; that the union’s checking account was intangible property not capable of embezzlement or conversion.

            In affirming the decision of the District Court, the Court of Appeals answers the defendant’s contention as follows:
“We are unable to follow this reasoning. We think the crime of conversion has even wider application than embezzlement. Congress recognized that there was a difference between embezzlement and conversion by including both in the statute. The union’s bank account would certainly come within scope of the broad language of the statute, ‘moneys, funds, securities, property, or other assets of a labor organization.”

“The language in the statute, ‘embezzles, steals, or unlawfully and willfully abstracts or converts to his own use,’ would seem to cover almost every kind of a taking, whether by larceny, theft, embezzlement or conversion.”
           
“In 501(a) of the Act Congress indicated rather clearly its policy with respect to the fiduciary responsibility of officers, agents and representatives of labor organizations, and it would appear that technical common law distinctions of various types of crimes were not intended to be rigidly applied.”

United States v. Harmon, 339 F.2d 354, 58 LRRM 2033 (6th Cir. 1964), cert. denied, 380 U.S. 944, 58 LRRM 2591 (1965).

            (Revised: Dec. 2016)

580.250 UNAUTHORIZED AUTOMOBILE LEASES FOR PERSONAL USE

            The United States Court of Appeals for the Second Circuit upheld the convictions of two union officers for violating section 501(c) of the LMRDA when the officers, without authorization from the union and for personal reasons, used union funds to pay for long-term automobile leases for themselves and their friends and for gas and oil expenditures. United States v. Ferrara, 451 F.2d 91 (2d Cir. 1971), cert. denied, 405 U.S. 1032 (1972).

            (Technical Revisions: Dec. 2016)

580.300 TRUST FUNDS

            It is the opinion of the Department of Justice that funds of a trust, established in accordance with section 302(c)(5) of the Taft-Hartley Act, are not funds or property of a labor organization, and the embezzlement or conversion of trust funds, therefore, does not constitute a violation of section 501 of the Reporting and Disclosure Act.

580.400 PUBLIC ACCOUNTANT

            A public accountant who worked at a local union office one day a month, who performed the usual duties of an outside auditor (such as checking the receipt books to verify proper entry in the day book of all money received, verifying that checks issued were recorded in the cash disbursements journal, reconciling bank statements, etc.) and who in addition prepared checks, Social Security Reports, Form W-2’s, Forms LM-1 and LM-2 and assisted in the election of the local’s officers, was employed by the local within the meaning of section 501(c).

            Persons employed by a labor organization, within the meaning of section 501(c) of the Act, include not only salaried employees but any person whose services are engaged or hired as an independent contractor to perform a particular job or contract for that labor organization. In view of the duties performed by the public accountant in question, he is deemed to be employed by the local during the entire period he performed these duties and is therefore subject to the provisions of section 501(c).

*580.405 ATTORNEY

            An attorney who was retained as counsel for a labor organization was found guilty of violating section 501(c) of the LMRDA by charging and receiving payments for services which he had not rendered. On appeal he argued that (1) section 501(c) is applicable only to officers and employees of a union and not to “independent contractors” such as an attorney on retainer, and (2) section 501(c) is limited to embezzlement by “insiders” with inherent access to union funds.

            The Court of Appeals held that the attorney was employed by the union within the meaning of section 501(c) of the LMRDA. That section specifically provides for the criminal liability of “any person” who is employed by a union. Its scope is not confined to the common-law sense of “employee” as a servant or a salaried person working under direct supervision.

            The Court also ruled that section 501(c) is not limited to the common-law crime of embezzlement, which involves a misappropriation by one entrusted with funds, but includes other forms of theft, stealing and converting. Its reach is therefore not limited to insiders such as officers and employees. Consequently, the fact that the attorney did not have direct access to union funds but had to have his bills approved by the union was irrelevant. United States v. Capanegro, 576 F.2d 973, 99 LRRM 2232 (2d Cir. 1978), cert. denied, 439 U.S. 928, 99 LRRM 2955 (1978).

            (Technical Revisions: Dec. 2016)

580.500 IMPROPER PERSONAL EXPENSES: UNRELATED TO UNION BUSINESS

            A union officer was convicted of embezzling and abstracting union money in violation of section 501(c) the LMRDA. The officer had submitted vouchers and had been paid by the union for personal expenses unrelated to union business.  The personal expenses unrelated to union business included living expenses during certain winter months in Miami Beach, telephone bills for personal calls, and personal expenses charged on a credit card.  

On appeal the court rejected the defendant’s assertion that the evidence did not show willful intent. The court stated that: “Direct proof that acts are done unlawfully and willfully is not always necessary for such may often be inferred from the very fact that the acts constituting the crime have been committed.” In this case there was “enough evidence from which the jury could have found beyond a reasonable doubt that the items were personal non-business expenses and in no way incurred in furtherance of the union’s business. Therefore, the jury could reasonably have inferred, in turn, that appellant intended to receive and knew he was receiving union funds for purely personal expenses.”
           
The court also held that the defendant was not absolved from guilt by the mere fact that subsequently “his expenses were...authorized and adopted by the union” after he had submitted the vouchers and been paid. The court said: “When one sends the union a voucher known to be an improper one, and then receives payment of the voucher, the crime is completed.”

United States v. Dibrizzi, 393 F.2d 642, 68 LRRM 2377 (2d Cir. 1968).

            (Technical Revisions: Dec. 2016)

580.600 CONSPIRACY TO EMBEZZLE–PERSONS NOT OFFICERS OR EMPLOYEES

            Although only a person who is a union officer or is employed, directly or indirectly, by the union can violate section 501(c), a person who is neither a union officer nor employed by the union but who engages in a conspiracy to violate section 501(c) with at least one other person who is a union officer or employed by the union can be charged with conspiracy under 18 U.S.C. 371, which states in part:

“If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both.”
           
It has been established that the phrase “any offense against the United States” in 18 U.S.C. 371 means a violation of any Federal statute, including a violation of section 501(c) of the LMRDA.  See United States v. Smith, 200 F.Supp. 227 (D. Tenn. 1961), United States v. Hipsch, 34 F.Supp. 270 (D. Mo. 1950); United States v. Hiroku Komai, 286 F. 450 (S.D. Cal. 1923). It has also been established in numerous cases that as long as one participant in a conspiracy has the capacity to commit an offense, any other participants may be prosecuted for the conspiracy.  Brown v. United States, 204 F. 2d 247 (6th Cir. 1953); Curtis v. United States, 67 F. 2d 943 (10th Cir. 1933); United States v. Lester, 363 F.2d 68 (6th Cir. 1966).

(Technical Revisions: Dec. 2016)

*580.710 INTENT ELEMENT

            The federal courts of appeals have divided over the definition of [t]he essential elements of a section 501(c) crime.  The position of the D.C., First, Second, Fourth and Fifth Circuits is that the prosecution must prove that the use or expenditure of money or property by the defendant(s) was "unauthorized" by the union.  See United States v. DeFries, 129 F.3d 1293, 156 LRRM 2999 (D.C. Cir.1997); United States v. Walsh, 928 F.2d 7, 12, 136 LRRM 2913 (1st Cir. 1991); United States v. Hamilton, 2001 WL 51035, at *1-2 (2d Cir. Jan. 2, 2001); United States v. Stockton, 788 F.2d 210, 216-18, 122 LRRM 2408 (4th Cir.), cert. denied, 479 U.S. 840 (1986); United States v. Hammond, 201 F.3d 346, 349, 163 LRRM 2349 (5th Cir. 1999).  The Second Circuit further requires that the prosecution prove that the defendant(s), acting with the intent to deprive the union of its property, lacked a good faith belief that the use of money or property was for the benefit of the union. See United States v. Butler, 954 F.2d 114, 118-19 (2d Cir. 1992).  By contrast, the Third, Seventh, Eighth and Ninth Circuits apply a “totality of the circumstances” standard, in which whether the union authorized the defendant(s) use of money or property, and whether defendant(s) had a good faith belief that their action benefited the union, are only factors to be considered in determining whether the defendant(s) had the “fraudulent intent” required to prove a Section 501(c) crime.  See, e.g., United States v. Oliva, 46 F.3d 320, 148 LRRM 2388 (3d Cir. 1995); United States v. Floyd, 882 F.2d 235, 239-41, 132 LRRM 2175 (7th Cir.1989); United States v. Welch, 728 F.2d 1113, 1119-20, 115 LRRM 3127 (8th Cir.1984); United States v. Thordarson, 646 F.2d 1323, 1334, 107 LRRM 2505 (9th Cir. 1981), cert. denied, 454 U.S. 1055 (1981).

            (Revised: Dec. 2016)

 

 

Last Updated: 1-5-17