Labor Officials Dragging Feet on Union Financial Transparency

The Office of Labor-Management Standards (OLMS), a division within the Department of Labor (DOL), has been generally inactive during the Trump administration, an unfortunate reality given the importance of the sub-agency’s mission: promote union democracy and financial integrity in labor unions.

And, worse, the Obama DOL spent eight years rescinding regulations that increased union financial transparency and undermining the sub-agency’s ability to fulfill its mission. A glimmer of hope exists that the DOL will, at some point, take steps to ensure that union officials spend member dues wisely and that members—and the public—can hold labor organizations accountable. Two regulations, which would increase union financial transparency requirements, have appeared in the DOL’s section of the Unified Regulatory Agenda since the Spring 2017 edition, but have yet to be officially proposed. Both regulations would reinstate rules that the Bush administration implemented under Labor Secretary Elaine Chao.

Implementing these rules would be a great step to ensure that the OLMS properly enforces the Labor Management Reporting and Disclosure Act (LMRDA), which was enacted, in part, to impose financial disclosure on labor unions so that members and public could uncover improper financial activities. In addition, these financial transparency requirements educate members on how union officials spend dues and informs them on whether they should vote to keep current union officials in their leadership positions.

One regulation that the DOL should move to reestablish is the Form T-1, which requires labor unions to annually disclose financial information related to “trusts” that they have an interest in. The Bush DOL rule required “all receipts from or disbursements to any individual or entity during the plan’s fiscal year be itemized if the total receipts from or disbursements to such individual or entity are $10,000 or more. The itemization would have to include the name and address of the individual or entity involved and the purpose of the transactions.”

These trusts are generally established to provide member benefits like training and apprenticeships. As I’ve noted previously, this kind of financial transparency can exposed union corruption early on and minimized the damage. For example, in a recent United Automobile Workers scandal, union officials misappropriated millions of dollars, meant for training members, on solid gold pens and Ferraris.      

The other regulation, known as the intermediate bodies rule, expands which labor organizations must file financial disclosure forms with the DOL. Similar to the T-1 rule, promulgating this regulation should be an easy lift for the DOL because it appears to simply reinstate the Bush era rule that was litigated with the Labor Department ultimately prevailing in court. 

Currently, only labor organizations that represent employees who work in private industry or government unions representing both public- and private-sector employees are required to file financial reports, known as LM forms, with the DOL. The LM forms require unions to itemize expenditures, list officer salaries, number of union members, and types of dues that members pay.

For example, the National Education Association (NEA) and American Federation of Teachers (AFT) already submit LM-2 forms to the DOL because they represent a mix of private and public-sector workers. However, state-level affiliates, or intermediate bodies, of the NEA and AFT who only represent public-sector members are not covered by the LMRDA and are not required to submit LM forms.

This is a grave oversight, which the intermediate bodies rule remedies. Under this regulation, any intermediate body government union that is subordinate to a national or international labor organization that is covered by the LMRDA will have to file an LM report, even if the intermediate body’s members exclusively work in the public sector. This rule would not, however, require local government unions to file financial disclosure reports with the DOL.

The expansion of financial reporting requirements to intermediate bodies advances the goals of the LMRDA. One, the LMRDA is meant to be interpreted broadly to “advance union democracy, financial transparency, and integrity” and Congress delegated authority to the Secretary of Labor to issue regulations that determine which unions must file financial disclosure reports. Two, the LMRDA intended to make unions’ financial conditions subject to public disclosure to educate members on how the union operates and so they can hold union leadership accountable.

Without the intermediate bodies rule, a subsection of government union members are less educated about the governance of their unions and are unable to monitor how dues are spent. Here is how that occurs. In many cases, private-sector employees are represented by a local union that is affiliated with, and financially supports, a national government union. That national union in turn disburses funds, which in part are from private-sector workers, that support subordinate state-level unions that are wholly composed of employees in the public-sector, and therefore do not have to file annual financial disclosure statements.

Consider, for example, a local labor organization composed entirely of nurses who are employed by hospital in the private sector, which is affiliated with a national union primarily representing teachers in the public sector. The private-sector nurses’ local union dues support the national teachers union, which in turn disburses those funds to its state-level subordinates. The state-level subordinate may itself be wholly composed of public-sector locals and is currently not required to file a financial disclosure statement. Consequently, the private-sector nurses can only track how their dues are spent until the expenditures reach the state-level labor organization.

And this represents a huge sum of money. For example, the AFT collected nearly $200 million in per capita taxes—money local unions must pay to the national union—from subordinate unions in 2018. The AFT then disburses these dues payments to wholly public-sector unions that are not required to financially disclose how they use these funds. As seen from the AFT’s 2018 LM-2 form, millions of dollars are disbursed to these intermediate bodies.

All these regulations intend to do is ensure more unions act as responsible stewards of the dues they collect from the men and women they represent. A worthy goal considering union members are the real owners of the money of the union and should be entitled to a full accounting of their funds.

Moreover, union financial transparency is necessary because much of the authority wielded by unions come from state and federal law, not voluntary support of workers (less than 10 percent of unionized workers voted for the union that represents them).

While it is well documented that the DOL is short-staffed, hopefully they make restoring financial transparency requirements on labor unions a top priority in 2019.