DOL Proposes Changes to Financial Reporting Requirements for the Largest and Most Prominent Unions

Foley & Lardner LLP

Foley & Lardner LLPIn the wake of a high-profile corruption scandal involving the United Auto Workers International Union (UAW), the Department of Labor (DOL) announced on September 30 a Notice of Proposed Rulemaking (NPRM) designed to “increase and enhance financial transparency for unions regulated by the Labor-Management Reporting and Disclosure Act of 1959.” 

The UAW scandal saw more than a dozen former union officers and several former automotive executives plead guilty to various charges arising from a pattern of bribery and the diversion of union funds for personal use by union officials and others.  In its introduction to the proposed regulatory changes, the DOL observes that much of the illegal conduct at issue in the UAW scandal was facilitated by or concealed through false and inadequate financial reporting by union officials.  The DOL concludes that there may be a link between insufficient reporting and disclosure requirements, on the one hand, and criminal conduct on the other.  The DOL’s proposed changes, if they become law, will provide members of labor organizations with additional and more detailed information about the financial activities of unions and will enable members to examine whether the union’s priorities align with its constitution, as well as the member’s own priorities and those of fellow members. 

Among other changes, the DOL’s proposal provides for a long-form version of the annual financial report referred to as the Form LM-2, which unions with $250,000 in annual receipts currently must file.  The long form, which will be referred to as the LM-2 LF, would apply only to unions with annual receipts of $8 million or more.  This way, the new regulation targets the largest and most prominent labor unions.  The new disclosure form would require labor organizations to identify any officers or employees who were paid $10,000 or more by the reporting organization and who also received $10,000 or more as an officer or employee of another labor organization in gross salaries, allowances, and other direct and indirect disbursements during the reporting period. 

The DOL believes that this change will help identify conflicts of interest and will facilitate tracking funds that may be transferred from one union to another.  Another proposed disclosure focuses on the existence and amount of strike funds.  A strike fund is used to cover the basic financial needs of striking union members and has been particularly susceptible to abuses, such as embezzlement.  Requiring the amount of the fund to be disclosed to union members will allow them to assess the health of the union and monitor the amount of money available in the fund.         

The public will have 60 days from the date the proposal is published in the Federal Register to comment on the DOL’s proposed changes.  The DOL already has acknowledged that, while some of the increased reporting requirements undoubtedly will enhance financial transparency, there are countervailing issues that need to be considered for which comment will be critical.  For example, the proposed strike fund disclosures may give employers visibility into information they can use to their advantage in negotiations with the unions.    

Given the nature of the proposed changes and the impact they will have on union members and employers alike, reactions and comments to the DOL’s proposed changes are likely to be closely monitored by both groups.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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