Union Officials: Guidelines for Fiduciary Responsibilities Under Section 501 of the Labor-Management Reporting and Disclosure Act, 29 U.S.C. 501, 51228-51232 [05-16908]

Download as PDF 51228 Federal Register / Vol. 70, No. 166 / Monday, August 29, 2005 / Notices DEPARTMENT OF LABOR Office of Labor-Management Standards RIN 1215–AB52 Union Officials: Guidelines for Fiduciary Responsibilities Under Section 501 of the Labor-Management Reporting and Disclosure Act, 29 U.S.C. 501 Office of Labor-Management Standards, Employment Standards Administration, United States Department of Labor. ACTION: Request for information from the public. AGENCY: SUMMARY: This notice is a request for information from the public to assist the Department of Labor (‘‘Department’’) in determining whether to issue guidelines concerning the fiduciary obligations of union officers, agents, shop stewards and other representatives under section 501(a) of the Labor-Management Reporting and Disclosure Act (‘‘LMRDA’’), 29 U.S.C. 501. That section states, in general terms, that these persons occupy ‘‘positions of trust’’ within their labor organizations and must act in the best interests of their union. The LMRDA does not describe in detail the nature and scope of the fiduciary duties as applied to union officials. The Department also seeks comments on the nature and scope of such fiduciary obligations. The comments from interested parties, including unions, union members, union officers, agents, shop stewards, and other representatives, public interest groups, and the public will help determine whether the Department should issue specific guidelines describing the minimum standards officers, agents, shop stewards, and other union representatives must meet to fulfill their fiduciary responsibilities under section 501 of the LMRDA. In addition, the comments should help delineate what issues concerning the fiduciary responsibilities of union officials should be addressed, if it is decided that the Department should issue such guidelines, and what specific standards should be included in the guidelines. These guidelines and standards could further the Department’s interest in ensuring that breaches of fiduciary obligations not be permitted to occur or remain undisclosed. DATES: Comments must be received on or before October 28, 2005. ADDRESSES: You may submit comments, identified by RIN 1215–AB52, by any of VerDate Aug<18>2005 15:33 Aug 26, 2005 Jkt 205001 the following methods: E-mail: OLMSREG-1215-AB52@dol.gov. FAX: (202) 693–1340. To assure access to the FAX equipment, only comments of five or fewer pages will be accepted via FAX transmittal, unless arrangements are made prior to faxing, by calling the number below and scheduling a time for FAX receipt by the Office of Labor-Management Standards (‘‘OLMS’’). Mail: Mailed comments should be sent to Kay Oshel, Director of the Office of Policy, Reports and Disclosure, Office of Labor-Management Standards, U.S. Department of Labor, 200 Constitution Avenue, NW., Room N–5605, Washington, DC 20210. Because the Department continues to experience delays in U.S. mail delivery due to the ongoing concerns involving toxic contamination, commenters should take this into consideration when preparing to meet the deadline for submitting comments. Comments will be available for public inspection during normal business hours at the above address. FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director of the Office of Policy, Reports and Disclosure, Office of Labor-Management Standards, U.S. Department of Labor, 200 Constitution Avenue, NW., Room N–5605, Washington, DC 20210, olmspublic@dol.gov, (202) 693–1233 (this is not a toll-free number). Individuals with hearing impairments may call 1–800– 877–8339 (TTY/TDD). SUPPLEMENTARY INFORMATION: I. Background A. Statutory, Regulatory and Administrative Framework Section 501 of the Labor-Management Reporting and Disclosure Act (LMRDA) imposes a fiduciary obligation on officers, agents, shop stewards, and other representatives of a labor organization. That section provides: The officers, agents, shop stewards, and other representatives of a labor organization occupy positions of trust in relation to such organization and its members as a group. It is, therefore, the duty of each such person, taking into account the special problems and functions of a labor organization, to hold its money and property solely for the benefit of the organization and its members and to manage, invest, and expend the same in accordance with its constitution and bylaws and any resolutions of the governing bodies adopted thereunder, to refrain from dealing with such organization as an adverse party or in behalf of an adverse party in any matter connected with his duties and from holding or acquiring any pecuniary or personal interest which conflicts with the interests of such organization, and to account to the PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 organization for any profit received by him in whatever capacity in connection with transactions conducted by him or under his direction on behalf of the organization. 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 in this section shall be void as against public policy. 29 U.S.C. 501(a). The section, then, requires the union ‘‘officers, agents, shop stewards and other representatives’’ to do the following for their labor organization: (1) To hold its money and property solely for the benefit of the organization and its members; (2) To manage, invest, and expend [the union’s money and property] in accordance with its constitution and bylaws and any resolutions of the governing bodies adopted thereunder; (3) To refrain from dealing with such organization as an adverse party; (4) To refrain from dealing with such organization in behalf of an adverse party in any matter connected with his duties; (5) To refrain from holding or acquiring any pecuniary or personal interest which conflicts with the interests of such organization; and (6) To account to the organization for any profit received by him in whatever capacity in connection with transactions conducted by him or under his direction on behalf of the organization. In addition, the section specifically prohibits the labor organization from excusing its officers, agents, shop stewards and other representatives from these duties with any general exculpatory provisions or resolutions. While section 501 describes the fiduciary requirements in these general terms, it does not provide any specific guidance to union officers, agents, shop stewards, and other representatives or to union members concerning what specific actions or arrangements will be considered a violation of the fiduciary requirements established therein. Section 501(b) further describes the mechanism for enforcing the fiduciary responsibilities set out in section 501(a). The section states: When any officer, agent, shop steward, or representative of any labor organization is alleged to have violated the duties declared in subsection (a) of this section 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 E:\FR\FM\29AUN2.SGM 29AUN2 Federal Register / Vol. 70, No. 166 / Monday, August 29, 2005 / Notices relief for the benefit of the labor organization. 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. 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. 29 U.S.C. 501(b). Several aspects of the enforcement procedures provided in this section should be noted. First, the section is enforced by a private right of action by the individual union member. Second, the member must first go to the union to ask the union to sue, recover damages or secure an accounting before bringing any action in court. Only after the union has refused or failed to take any remedial action may the member bring a lawsuit in court. Third, the member must show ‘‘good cause’’ to obtain ‘‘by leave of the court’’ the right to bring the legal action. Finally, the court may grant attorney’s fees and expenses to the member. The Secretary’s Interpretative Regulations at 29 CFR 401 et seq. do not contain any provision relating to Section 501. In addition, the Department of Labor’s Interpretative Manual stated until 2005 that ‘‘because the Secretary of Labor does not have authority to enforce Section 501(a) of the LMRDA, it is the policy of [the Office of Labor-Management Standards] 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).’’ While section 501 is enforced by a private right of action by the union member, the Secretary possesses the power to conduct investigations for any violation or potential violation of the LMRDA (with the exception of Title I), including breaches of fiduciary responsibilities in section 501. The Secretary may also make known her findings from any such investigation to ‘‘interested persons or officials.’’ Section 601 of the LMRDA provides that: The Secretary shall have power when he believes it necessary in order to determine whether any person has violated or is about to violate any provision of this Act (except title I or amendments made by this Act to other statutes) to make an investigation and in connection therewith he may enter such places and inspect such records and accounts and question such persons as he may deem necessary to enable him to determine the facts relative thereto. The Secretary may report to interested persons or officials concerning the facts required to be shown in VerDate Aug<18>2005 15:33 Aug 26, 2005 Jkt 205001 any report required by this Act and concerning the reasons for failure or refusal to file such a report or any other matter which he deems to be appropriate as a result of such an investigation. 29 U.S.C. 521(a). To date, the Department has not, as a matter of policy, addressed the question of what constitutes a breach of fiduciary duty under section 501. The Department has focused on investigations of embezzlement and theft made illegal under section 501(c) of the Act, and investigations of delinquencies of reports by union officers and employees required by section 202 of the Act, among other matters relating to the conduct of union officers and employees. 29 U.S.C. 432. However, as a result of further examination of the investigative powers given to the Secretary under section 601, the Office of Labor-Management Standards amended its Interpretative Manual to state in new entry 510.002 that the policy of the office was ‘‘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.’’ In addition, the new policy indicated that ‘‘[t]he results of such investigations will be made known to interested persons as appropriate.’’ Section 501(c) establishes criminal penalties for the embezzlement of union assets. The section provides: 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. 29 U.S.C. 501(c). The Department of Labor will not address the provisions of section 501(c) through this particular request for information or any subsequent interpretative regulations or guidelines issued as a result of the information gathered here. Instead, any guidelines issued pursuant to this request for information will be the Department’s interpretation of what actions would constitute a failure to meet the fiduciary responsibilities of section 501. See, e.g., BLE International Reform Committee v. Sytsma, 802 F.2d 180, 190 (6th Cir. 1986) (Although Secretary’s interpretative regulations are not binding, the courts have generally given the regulations considerable weight). B. Legislative History The Senate version of the LMRDA (S. 1555) did not consider the fiduciary PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 51229 responsibilities of union officials in the same manner as the House version of the bill, which included a section identical to the current section 501(a). The Senate bill, S. 1555, provided only that union members could sue for recovery of funds when a union officer or employee had already been convicted of embezzlement, theft, or a conversion of funds. The bill did not apply the common law notion of a fiduciary relationship to the relationship between union officers and employees and the union. This omission was criticized in the minority views to Senate Report No. 187. The minority, and in particular Senator Goldwater, stated: The committee bill professes to recognize the fiduciary nature of the union official’s relation to his union and its members, but makes no provision to establish such relationship, to impose the duties of a fiduciary on union officials, or to give union members any remedy for a breach of the fiduciary obligation. In virtually every State in the Nation, the officers and directors of corporations are made fiduciaries by statute and held to the strictest accountability in their handling of corporate funds and property. Moreover, any profit or gain which accrues to them by virtue of their official position, even if no damage to the corporation or stockholder results, is held in constructive trust for the benefit of the corporation and its stockholders. Under these statutes, stockholders are given the right to enforce the fiduciary obligation through a suit in the courts. The same obligations and remedies attach to the officers and directors of nonprofit and eleemosynary corporations— churches, hospitals, charitable institutions, etc. Union officials alone seem to be free from what has become a normal, in fact a universal, obligation of officials similarly situated. * * * It is our intention to offer on the floor of the Senate amendments designed to fill this unjustifiable vacuum. S. Rep. No. 187, 86th Cong., 1st Sess., reprinted in 1959 U.S. Code Cong. and Admin. News 2318, 2376–77. As indicated above, the provisions that comprise the current 29 U.S.C. 501 were contained in the House version of the LMRDA (H.R. 8342). House Report No. 741 described the reasons for the fiduciary responsibilities in section 501. The House Report stated: The committee bill also contains provisions dealing with breaches of trust and other questionable transactions, which, although not seriously criminal, nevertheless are incompatible with a strong and honestly run labor movement. For centuries the law of fiduciaries has forbidden any person in a position of trust subject to such law to hold interests or enter into transactions in which self-interest may conflict with complete loyalty to those whom he serves. Such a person may not deal with E:\FR\FM\29AUN2.SGM 29AUN2 51230 Federal Register / Vol. 70, No. 166 / Monday, August 29, 2005 / Notices himself, or acquire adverse interests, or make any personal profit as a result of his position. The same principle has long been applied to trustees, to agents, and to bank directors. It should be equally applicable to union officers and employees. The ethical practices code of the American Federation of Labor and Congress of Industrial Organization states: It is too plain for extended discussion that a basic ethical principle in the conduct of union affairs is that no responsible trade union official should have a personal financial interest which conflicts with the full performance of his fiduciary duties as a worker’s representative. Section 501 of the committee bill provides that the officers, agents, shop stewards, and other representatives of labor organizations occupy positions of trust in relation to such organization and its members as a group. H.R. Rep. No. 741, 86th Cong., 1st Sess., reprinted in 1959 U.S. Code Cong. and Admin. News 2424, 2433. The intent of the fiduciary responsibilities in section 501 was further explained in the Supplementary views to House Report No. 741. There, five members of the House stated: Union officials occupy positions of trust. They hold property of the union and manage its affairs on behalf of the members. It is the duty of union officers just as it is the duty of all similar trustees to put their obligations to the union and its members ahead of any personal interest. The committee bill sets forth this principle unequivocally and declares that union officers and agents occupy positions of trust in relationship to labor organizations and their members. * * * We affirm that the committee bill is broader and stronger than the provisions of S. 1555 which relate to fiduciary responsibilities. S. 1555 applied the fiduciary principle to union officials only in their handling of ‘‘money or other property’’ (see S. 1555, sec. 610), apparently leaving other questions to the common law of the several states. Although the common law covers the matter, we considered it important to write the fiduciary principle explicitly into Federal labor legislation. Accordingly the committee bill extends the fiduciary principle to all the activities of union officials and other union agents or representatives. H.R. Rep. No. 741, 86th Cong., 1st Sess., reprinted in 1959 U.S. Code Cong. and Admin. News 2424, 2479–80. The Conference Committee adopted the House version of section 501, which applied the broad legal concept of a fiduciary relationship to the relationship between union officers, agents, shop stewards, and other representatives of the union and its members, verbatim. Contemporary commentators suggested that the fiduciary VerDate Aug<18>2005 15:33 Aug 26, 2005 Jkt 205001 responsibility sections had the potential to be among the most important provisions of the LMRDA. One wrote: The significance of these provisions transcends their literal commands. They represent the judgment of Congress, which almost certainly will never be reversed, as to the minimum ethical and legal standards by which the behavior of union leaders must be measured. Benjamin Aaron, The LaborManagement Reporting and Disclosure Act of 1959, 73 Harv. L. Rev. 851, 894 (1960). Archibald Cox, who played a role in the development of this legislation as a Congressional staff member, expressed concern that the enforcement of the standards by individual members set out in section 501 might not be sufficient to assure that union officials would live up to their fiduciary responsibilities. Cox wrote: On the other hand, there is the danger, often expressed in the past, that individual employee’s suits are neither an effective sanction nor a practical remedy. Workers are unfamiliar with the law and hesitate to become involved in legal proceedings. The cost is likely to be heavy, and they have little money with which to post bonds, pay lawyer’s fees and print voluminous records. Time is always on the side of the defendant. Even if the suit is successful, there are relatively few situations in which the plaintiff or his attorney can reap financial advantage. Most men are reluctant to incur financial cost in order to vindicate intangible rights. Individual workers who sue union officers run enormous risks, for there are many ways, legal as well as illegal, by which entrenched officials can ‘‘take care of’’ recalcitrant members. Archibald Cox, Internal Affairs of Labor Unions Under the Labor Reform Act of 1959, 58 Mich. L. Rev. 819, 853 (1960). C. The Nature of the Fiduciary Obligation Because the fiduciary responsibilities of union officials are enforced by a private right of action by individual union members, the courts have addressed the scope of the standards set out in section 501 on a case-by-case basis. Each case is decided on the particular facts of the alleged violation. As a result, the case law surrounding the fiduciary responsibilities of union officials under section 501 can be complex. Examination of the case law, however, reveals some general principles. Section 501 imposes the broadest possible fiduciary duty on union officials. See United States v. Bane, 583 F.2d 832, 834–35 (6th Cir. 1978), cert. denied, 439 U.S. 1127 (1979); see also, Johnson v. Nelson, 325 F.2d 646 (8th PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 Cir. 1963) (Section 501 should receive a broad interpretation). The purpose of the section is to deal with the misuse of union funds and union property in every manifestation by union officials. See Hood v. Journeymen Barbers, Hairdressers, Cosmetologists and Proprietors International Union 454 F.2d 1347, 1354 (7th Cir. 1972). Therefore, the section can be applied not only to the monetary interests of the union and its members, but to any area of the union official’s authority. See Stelling et al. v. International Brotherhood of Electrical Workers, Local 1547, 587 F.2d 1379, 1386–87 (9th Cir. 1978), cert. denied, 442 U.S. 944 (1979); see also, United Food and Commercial Workers, Local 911 v. United Food and Commercial Workers International Union, 119 F. Supp. 2d 724, 734 (N.D. Ohio 2000) (loss of members’ democratic rights); Nelson v. Johnson, 212 F. Supp. 233, 284–88 (D. Minn. 1963), aff’d, 325 F.2d 646 (8th Cir. 1963) (examination of legislative history supports a broad interpretation of section 501). In general, union officials will not violate their statutory fiduciary duties under section 501 if they act: (1) With proper authorization from the union; (2) without any personal gain; and, (3) in accordance with the constitution and bylaws of the labor organization. See Tile, Marble, Terrazo Union Finishers, Shopworkers and Granite Cutters International Union v. Ceramic Tile Finishers Union, Local 25, 972 F.2d 738, 744–45 (7th Cir. 1992). Congress did not intend authorization by the union to be a complete defense to claims under section 501. See Morrissey v. Curran, 650 F.2d 1267, 1273–74 (2d Cir. 1981). While the courts will often defer to the actions of union officers, they will give no deference to an expenditure of union funds when it is unauthorized or, even if authorized, when it bestows a direct, personal benefit on the union officer. In either of these instances, the courts will determine whether the expenditure is so unreasonable as to constitute a breach of the statutory fiduciary duties under section 501. See, e.g., Talbot v. Robert Mathews Distributing Co., 961 F.2d 654, 666 (7th Cir. 1992); Council 49, American Federation of State, County and Municipal Employees Union v. Reach, 843 F.2d 1343, 1347 (11th Cir. 1988). Section 501 can be violated, for example, when union officials approve receipt of ‘‘excessive benefits, significantly above a fair range of reasonableness.’’ Morrissey v. Curran, 650 F.2d at 1275. The courts have found a myriad of schemes and arrangements to have violated the statutory fiduciary duties E:\FR\FM\29AUN2.SGM 29AUN2 Federal Register / Vol. 70, No. 166 / Monday, August 29, 2005 / Notices under section 501. For example, a court found that a union officer’s alleged actions of taking money from employers and using the money to operate social organizations that helped the officer solidify his political control of the union would, if proven, violate the section’s requirement that union officials deal with employers at arm’s length. Chathas v. Local 134, International Brotherhood of Electrical Workers, 233 F.3d 508, 514 (7th Cir. 2000). Procedurally, the actions brought by union members under section 501 are analogous to corporate shareholder suits. See Phillips v. Osborne, 403 F.2d 826, 831 (9th Cir. 1968). The requirement under section 501(b) that a request to sue be made to the union before the member brings suit is designed to prevent the filing of harassing and vexatious suits that are without merit. See Sabolsky v. Budzanoski, 457 F.2d 1245, 1253 (3d Cir. 1972), cert. denied 409 U.S. 853 (1972) (3d Cir. 1972). The Department seeks comment on whether officers, agents, shop stewards, and other representatives of a labor organization, as well as union members and the public, would benefit from additional, specific guidance, beyond that contained in the relevant court cases, concerning what actions or arrangements constitute violations of section 501(a), 29 U.S.C. 501(a). D. Interest of the Department of Labor While Congress chose to enforce the fiduciary responsibilities of union officers through private actions brought by individual union members, the Department of Labor maintains an interest and a role in assuring that union officers adhere to their fiduciary responsibilities. Several sections of the LMRDA indicate a nexus between the interests of the Department and the goals of section 501. Section 601 of the LMRDA provides that the Secretary shall have the power to undertake an investigation when she believes it necessary to determine whether any person has violated or is about to violate any provision of the LMRDA, including section 501(a). 29 U.S.C. 521(a). Further, the Secretary may report to interested persons or officials any matter that she deems to be appropriate as a result of such an investigation. Id. These ‘‘interested persons and officials’’ may include: (1) The members of the specific union whose officers or employees were the subject of the investigation; (2) the specific union whose officers or employees were the subject of the investigation; (3) a court that is hearing VerDate Aug<18>2005 15:33 Aug 26, 2005 Jkt 205001 a private lawsuit under section 501; (4) the Congress or appropriate Congressional Committees; and (5) the general public. Thus, the Congress specifically gave the Department the authority to investigate potential violations of section 501 and to publish the results of those investigations. More specific standards concerning what constitutes a violation of the fiduciary responsibilities in section 501 would be useful to Department investigators during such an investigation to determine whether a violation has occurred and whether a report should be made. Beyond this general authority to investigate, the failure of union officers to adhere to their statutory fiduciary duties could affect areas where the Department exercises enforcement authority. These areas include union elections, the imposition of trusteeships, deterrence and detection of embezzlement, and full financial disclosure by unions and union officers and employees. For example, union officers could improperly use union assets or employers’ monies to solidify their control of the union and to increase their chances at reelection. See, e.g., Chathas v. Local 134, International Brotherhood of Electrical Workers, 233 F.3d 508 (7th Cir. 2000). The Department has an interest in this kind of breach of fiduciary duty because one of the purposes of the election provisions of the LMRDA is to offset the inherent advantage over potential rank and file challengers possessed by incumbent union leaders. International Organization of Masters, Mates & Pilots v. Brown, 498 U.S. 466, 478 (1991); Reich v. Local 396, International Brotherhood of Teamsters, 97 F.3d 1269, 1273 (9th Cir. 1996). Two courts have held that a union official who takes actions or makes financial arrangements that improperly use pension or benefit funds violates section 501. See Morrissey v. Curran, 650 F.2d at 1274 (section 501 applies to expenditures of pension fund); Hood v. Journeymen Barbers, Hairdressers, Cosmetologists and Proprietors International Union, 454 F.2d at 1355 (failure of pension committee to observe requirements of pension agreement and maintain adequate reserves violated section 501); but see National Labor Relations Board v. Amax Coal Co., 453 U.S. 322 (1981) (employer appointed trustee of a joint trust is not a representative of the employer, but instead owes an exclusive fiduciary duty to the trust fund participants and beneficiaries). PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 51231 In addition, the Department recently has been engaged in an ongoing process to improve the administration of the LMRDA. During this time, the Department has acted to update and improve reports that had remained unchanged for many years. Through these initiatives the Department is attempting to increase information available to union members and unions regarding their various rights and obligations under the LMRDA. The Department’s reforms advance the LMRDA’s stated purpose that ‘‘labor organizations, employers and their officials adhere to the highest standards of responsibility and ethical conduct in administering the affairs of their organizations.’’ 29 U.S.C. 401(a). For example, the new, more detailed reporting requirements with respect to the Form LM–2 reports work to increase transparency concerning union finances by providing more information to the union members in the union’s annual financial reports. Labor Organization Annual Financial Reports, 68 FR 58374 (Oct. 9, 2003). Similarly, the Notice of Proposed Rulemaking to revise the Form LM–30, which discloses certain financial interests and transactions involving union officers and employees and their spouses and their minor children, is also aimed at improving disclosure to the rank-and-file union member (found in the proposed rules elsewhere in this issue). The goal of these initiatives is to make more detailed and transparent financial information available to union members and the public as the Congress intended with the passage of the LMRDA. This request for information is part of that effort. The request and any subsequent guidelines should help union officers and employees voluntarily comply with the statute. Like the previous initiatives, it is intended to increase the information available to union members as well as union officers, agents, stewards and other representatives. In this instance, it increases the information available to union officers and members regarding what actions or financial arrangements constitute a violation of the fiduciary standards in section 501. This increased information should help both union officers and union members. For example, well-intentioned union officers, agents, stewards and other representatives may find more specific guidelines concerning what actions or financial arrangements might constitute a violation of the fiduciary standards in section 501 to be helpful in shaping their own conduct on behalf of their members. This, in turn, may deter fraud and self-dealing by union officials. E:\FR\FM\29AUN2.SGM 29AUN2 51232 Federal Register / Vol. 70, No. 166 / Monday, August 29, 2005 / Notices In addition, members may come to possess a better sense of what actions or arrangements taken by their officers could be inappropriate. The members, then, could question or protest these questionable actions or arrangements at union meetings. As Archibald Cox noted at the outset of the LMRDA, union members may not be aware of such legal matters and may not pursue even valid claims under section 501. These members may need the assistance of more detailed guidelines in discerning what actions or arrangements constitute a violation of the fiduciary standards in section 501. However, even if the members do not pursue any claim under section 501, the more specific guidelines concerning what may constitute a violation of the fiduciary standards may enable the members to better monitor the financial affairs of their union and make more informed choices concerning the leaders of their union. II. Information Sought The Secretary seeks public comment concerning whether the Department should issue specific guidelines describing the minimum standards for union officers and employees to meet their fiduciary responsibilities under section 501 of the LMRDA. In addition, if the Department does decide to issue such guidelines, the Secretary seeks public comment regarding what issues concerning the fiduciary responsibilities of union officers and employees should be addressed in the guidelines and what specific standards should be included. In particular, the Secretary is seeking written submissions on the following topics: 1—Should the Department issue guidelines defining the types of positions that are indicated by the phrase ‘‘officers, agents, shop stewards, and other representatives of a labor VerDate Aug<18>2005 15:33 Aug 26, 2005 Jkt 205001 organization’’ found in section 501(a) of the Act? 2—Should the guidelines include guidance about what specific actions an individual who is subject to section 501(a) standards should consider taking in order to help the individual remain in compliance with the law? These actions might include seeking professional advice from independent authorities such as certified professional appraisers and actuaries or submitting resolutions for membership ratification. 3—What actions or conduct, or types of action or conduct, should be included in the guidelines as violations of section 501(a)? 4—Should the guidelines indicate that it should be considered a breach of the responsibility of an individual fiduciary to fail to report the improper actions of another fiduciary? 5—Should the guidelines include a definition of what a ‘‘reasonable amount of time’’ is when applied to the demand to sue provision in section 501(b)? 6—What type of training and guidance do union officers and other union officials currently receive from their union or from other sources to help them carry out their duties in compliance with section 501(a)? 7—Do unions have a Code of Ethics that outlines the fiduciary responsibilities of officers, agents, shop stewards and other representatives? 8—If they do, are these Codes of Ethics distributed by the International or parent labor organization to all officers and employees at every level within the organization? 9—Do unions have internal controls and procedures designed to prevent fraud, embezzlement, self-dealing, and other conflicts of interest that are followed by individuals who serve in a fiduciary capacity? If so, what are they? 10—Do all unions issue an annual report? If so, do such annual reports contain an internal control report, that: (1) States the responsibility of union PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) contains an assessment, as of the end of the issuer’s fiscal year, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting? 11—The Secretary also seeks comments on what specific arrangements or transactions by union officers and employees related to the following subject areas should be said to constitute a breach of fiduciary obligations: • Compensation plans of union officers or employees. • Payment of travel, entertainment, or like expenses. • Payment of political or election expenditures. • Failure to pay union taxes or other expenses. • Overpayment for contracts or expenses. • Purchase, sale, or lease of goods or property. • Creation or amendment of union administered pension funds systems. • Conflicts-of-interest for union attorneys. • Contacts with a rival union. • Votes for benefits for the officers, shop stewards and other representatives. • Failure to follow proper constitutional procedures in internal union affairs. Signed at Washington, DC, this 19th day of August, 2005. Victoria A. Lipnic, Assistant Secretary for Employment Standards. Don Todd, Deputy Assistant Secretary for LaborManagement Programs. [FR Doc. 05–16908 Filed 8–26–05; 8:45 am] BILLING CODE 4510–CP–P E:\FR\FM\29AUN2.SGM 29AUN2

Agencies

[Federal Register Volume 70, Number 166 (Monday, August 29, 2005)]
[Notices]
[Pages 51228-51232]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-16908]



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Part IV





Department of Labor





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Office of Labor-Management Standards



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Union Officials: Guidelines for Fiduciary Responsibilities Under 
Section 501 of the Labor-Management Reporting and Disclosure Act, 29 
U.S.C. 501; Notices

Federal Register / Vol. 70, No. 166 / Monday, August 29, 2005 / 
Notices

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

RIN 1215-AB52


Union Officials: Guidelines for Fiduciary Responsibilities Under 
Section 501 of the Labor-Management Reporting and Disclosure Act, 29 
U.S.C. 501

AGENCY: Office of Labor-Management Standards, Employment Standards 
Administration, United States Department of Labor.

ACTION: Request for information from the public.

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SUMMARY: This notice is a request for information from the public to 
assist the Department of Labor (``Department'') in determining whether 
to issue guidelines concerning the fiduciary obligations of union 
officers, agents, shop stewards and other representatives under section 
501(a) of the Labor-Management Reporting and Disclosure Act 
(``LMRDA''), 29 U.S.C. 501. That section states, in general terms, that 
these persons occupy ``positions of trust'' within their labor 
organizations and must act in the best interests of their union. The 
LMRDA does not describe in detail the nature and scope of the fiduciary 
duties as applied to union officials. The Department also seeks 
comments on the nature and scope of such fiduciary obligations.
    The comments from interested parties, including unions, union 
members, union officers, agents, shop stewards, and other 
representatives, public interest groups, and the public will help 
determine whether the Department should issue specific guidelines 
describing the minimum standards officers, agents, shop stewards, and 
other union representatives must meet to fulfill their fiduciary 
responsibilities under section 501 of the LMRDA. In addition, the 
comments should help delineate what issues concerning the fiduciary 
responsibilities of union officials should be addressed, if it is 
decided that the Department should issue such guidelines, and what 
specific standards should be included in the guidelines. These 
guidelines and standards could further the Department's interest in 
ensuring that breaches of fiduciary obligations not be permitted to 
occur or remain undisclosed.

DATES: Comments must be received on or before October 28, 2005.

ADDRESSES: You may submit comments, identified by RIN 1215-AB52, by any 
of the following methods: E-mail: OLMS-REG-1215-AB52@dol.gov.
    FAX: (202) 693-1340. To assure access to the FAX equipment, only 
comments of five or fewer pages will be accepted via FAX transmittal, 
unless arrangements are made prior to faxing, by calling the number 
below and scheduling a time for FAX receipt by the Office of Labor-
Management Standards (``OLMS'').
    Mail: Mailed comments should be sent to Kay Oshel, Director of the 
Office of Policy, Reports and Disclosure, Office of Labor-Management 
Standards, U.S. Department of Labor, 200 Constitution Avenue, NW., Room 
N-5605, Washington, DC 20210. Because the Department continues to 
experience delays in U.S. mail delivery due to the ongoing concerns 
involving toxic contamination, commenters should take this into 
consideration when preparing to meet the deadline for submitting 
comments.
    Comments will be available for public inspection during normal 
business hours at the above address.

FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director of the Office 
of Policy, Reports and Disclosure, Office of Labor-Management 
Standards, U.S. Department of Labor, 200 Constitution Avenue, NW., Room 
N-5605, Washington, DC 20210, olms-public@dol.gov, (202) 693-1233 (this 
is not a toll-free number). Individuals with hearing impairments may 
call 1-800-877-8339 (TTY/TDD).

SUPPLEMENTARY INFORMATION:

I. Background

A. Statutory, Regulatory and Administrative Framework

    Section 501 of the Labor-Management Reporting and Disclosure Act 
(LMRDA) imposes a fiduciary obligation on officers, agents, shop 
stewards, and other representatives of a labor organization. That 
section provides:

    The officers, agents, shop stewards, and other representatives 
of a labor organization occupy positions of trust in relation to 
such organization and its members as a group. It is, therefore, the 
duty of each such person, taking into account the special problems 
and functions of a labor organization, to hold its money and 
property solely for the benefit of the organization and its members 
and to manage, invest, and expend the same in accordance with its 
constitution and bylaws and any resolutions of the governing bodies 
adopted thereunder, to refrain from dealing with such organization 
as an adverse party or in behalf of an adverse party in any matter 
connected with his duties and from holding or acquiring any 
pecuniary or personal interest which conflicts with the interests of 
such organization, and to account to the organization for any profit 
received by him in whatever capacity in connection with transactions 
conducted by him or under his direction on behalf of the 
organization. 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 in this section shall 
be void as against public policy.

    29 U.S.C. 501(a). The section, then, requires the union ``officers, 
agents, shop stewards and other representatives'' to do the following 
for their labor organization:

    (1) To hold its money and property solely for the benefit of the 
organization and its members;
    (2) To manage, invest, and expend [the union's money and 
property] in accordance with its constitution and bylaws and any 
resolutions of the governing bodies adopted thereunder;
    (3) To refrain from dealing with such organization as an adverse 
party;
    (4) To refrain from dealing with such organization in behalf of 
an adverse party in any matter connected with his duties;
    (5) To refrain from holding or acquiring any pecuniary or 
personal interest which conflicts with the interests of such 
organization; and
    (6) To account to the organization for any profit received by 
him in whatever capacity in connection with transactions conducted 
by him or under his direction on behalf of the organization.

    In addition, the section specifically prohibits the labor 
organization from excusing its officers, agents, shop stewards and 
other representatives from these duties with any general exculpatory 
provisions or resolutions. While section 501 describes the fiduciary 
requirements in these general terms, it does not provide any specific 
guidance to union officers, agents, shop stewards, and other 
representatives or to union members concerning what specific actions or 
arrangements will be considered a violation of the fiduciary 
requirements established therein.
    Section 501(b) further describes the mechanism for enforcing the 
fiduciary responsibilities set out in section 501(a). The section 
states:

    When any officer, agent, shop steward, or representative of any 
labor organization is alleged to have violated the duties declared 
in subsection (a) of this section 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

[[Page 51229]]

relief for the benefit of the labor organization. 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. 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.

    29 U.S.C. 501(b). Several aspects of the enforcement procedures 
provided in this section should be noted. First, the section is 
enforced by a private right of action by the individual union member. 
Second, the member must first go to the union to ask the union to sue, 
recover damages or secure an accounting before bringing any action in 
court. Only after the union has refused or failed to take any remedial 
action may the member bring a lawsuit in court. Third, the member must 
show ``good cause'' to obtain ``by leave of the court'' the right to 
bring the legal action. Finally, the court may grant attorney's fees 
and expenses to the member.
    The Secretary's Interpretative Regulations at 29 CFR 401 et seq. do 
not contain any provision relating to Section 501. In addition, the 
Department of Labor's Interpretative Manual stated until 2005 that 
``because the Secretary of Labor does not have authority to enforce 
Section 501(a) of the LMRDA, it is the policy of [the Office of Labor-
Management Standards] 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).''
    While section 501 is enforced by a private right of action by the 
union member, the Secretary possesses the power to conduct 
investigations for any violation or potential violation of the LMRDA 
(with the exception of Title I), including breaches of fiduciary 
responsibilities in section 501. The Secretary may also make known her 
findings from any such investigation to ``interested persons or 
officials.'' Section 601 of the LMRDA provides that:

    The Secretary shall have power when he believes it necessary in 
order to determine whether any person has violated or is about to 
violate any provision of this Act (except title I or amendments made 
by this Act to other statutes) to make an investigation and in 
connection therewith he may enter such places and inspect such 
records and accounts and question such persons as he may deem 
necessary to enable him to determine the facts relative thereto. The 
Secretary may report to interested persons or officials concerning 
the facts required to be shown in any report required by this Act 
and concerning the reasons for failure or refusal to file such a 
report or any other matter which he deems to be appropriate as a 
result of such an investigation.

    29 U.S.C. 521(a). To date, the Department has not, as a matter of 
policy, addressed the question of what constitutes a breach of 
fiduciary duty under section 501. The Department has focused on 
investigations of embezzlement and theft made illegal under section 
501(c) of the Act, and investigations of delinquencies of reports by 
union officers and employees required by section 202 of the Act, among 
other matters relating to the conduct of union officers and employees. 
29 U.S.C. 432. However, as a result of further examination of the 
investigative powers given to the Secretary under section 601, the 
Office of Labor-Management Standards amended its Interpretative Manual 
to state in new entry 510.002 that the policy of the office was ``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.'' In addition, the new policy 
indicated that ``[t]he results of such investigations will be made 
known to interested persons as appropriate.''
    Section 501(c) establishes criminal penalties for the embezzlement 
of union assets. The section provides:

    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.

    29 U.S.C. 501(c). The Department of Labor will not address the 
provisions of section 501(c) through this particular request for 
information or any subsequent interpretative regulations or guidelines 
issued as a result of the information gathered here. Instead, any 
guidelines issued pursuant to this request for information will be the 
Department's interpretation of what actions would constitute a failure 
to meet the fiduciary responsibilities of section 501. See, e.g., BLE 
International Reform Committee v. Sytsma, 802 F.2d 180, 190 (6th Cir. 
1986) (Although Secretary's interpretative regulations are not binding, 
the courts have generally given the regulations considerable weight).

B. Legislative History

    The Senate version of the LMRDA (S. 1555) did not consider the 
fiduciary responsibilities of union officials in the same manner as the 
House version of the bill, which included a section identical to the 
current section 501(a). The Senate bill, S. 1555, provided only that 
union members could sue for recovery of funds when a union officer or 
employee had already been convicted of embezzlement, theft, or a 
conversion of funds. The bill did not apply the common law notion of a 
fiduciary relationship to the relationship between union officers and 
employees and the union. This omission was criticized in the minority 
views to Senate Report No. 187. The minority, and in particular Senator 
Goldwater, stated:

    The committee bill professes to recognize the fiduciary nature 
of the union official's relation to his union and its members, but 
makes no provision to establish such relationship, to impose the 
duties of a fiduciary on union officials, or to give union members 
any remedy for a breach of the fiduciary obligation.
    In virtually every State in the Nation, the officers and 
directors of corporations are made fiduciaries by statute and held 
to the strictest accountability in their handling of corporate funds 
and property. Moreover, any profit or gain which accrues to them by 
virtue of their official position, even if no damage to the 
corporation or stockholder results, is held in constructive trust 
for the benefit of the corporation and its stockholders. Under these 
statutes, stockholders are given the right to enforce the fiduciary 
obligation through a suit in the courts. The same obligations and 
remedies attach to the officers and directors of nonprofit and 
eleemosynary corporations--churches, hospitals, charitable 
institutions, etc. Union officials alone seem to be free from what 
has become a normal, in fact a universal, obligation of officials 
similarly situated. * * * It is our intention to offer on the floor 
of the Senate amendments designed to fill this unjustifiable vacuum.

    S. Rep. No. 187, 86th Cong., 1st Sess., reprinted in 1959 U.S. Code 
Cong. and Admin. News 2318, 2376-77.
    As indicated above, the provisions that comprise the current 29 
U.S.C. 501 were contained in the House version of the LMRDA (H.R. 
8342). House Report No. 741 described the reasons for the fiduciary 
responsibilities in section 501. The House Report stated:

    The committee bill also contains provisions dealing with 
breaches of trust and other questionable transactions, which, 
although not seriously criminal, nevertheless are incompatible with 
a strong and honestly run labor movement.

    For centuries the law of fiduciaries has forbidden any person in a 
position of trust subject to such law to hold interests or enter into 
transactions in which self-interest may conflict with complete loyalty 
to those whom he serves. Such a person may not deal with

[[Page 51230]]

himself, or acquire adverse interests, or make any personal profit as a 
result of his position. The same principle has long been applied to 
trustees, to agents, and to bank directors. It should be equally 
applicable to union officers and employees. The ethical practices code 
of the American Federation of Labor and Congress of Industrial 
Organization states:

    It is too plain for extended discussion that a basic ethical 
principle in the conduct of union affairs is that no responsible 
trade union official should have a personal financial interest which 
conflicts with the full performance of his fiduciary duties as a 
worker's representative.

    Section 501 of the committee bill provides that the officers, 
agents, shop stewards, and other representatives of labor organizations 
occupy positions of trust in relation to such organization and its 
members as a group.
    H.R. Rep. No. 741, 86th Cong., 1st Sess., reprinted in 1959 U.S. 
Code Cong. and Admin. News 2424, 2433.
    The intent of the fiduciary responsibilities in section 501 was 
further explained in the Supplementary views to House Report No. 741. 
There, five members of the House stated:

    Union officials occupy positions of trust. They hold property of 
the union and manage its affairs on behalf of the members. It is the 
duty of union officers just as it is the duty of all similar 
trustees to put their obligations to the union and its members ahead 
of any personal interest.
    The committee bill sets forth this principle unequivocally and 
declares that union officers and agents occupy positions of trust in 
relationship to labor organizations and their members. * * * We 
affirm that the committee bill is broader and stronger than the 
provisions of S. 1555 which relate to fiduciary responsibilities. S. 
1555 applied the fiduciary principle to union officials only in 
their handling of ``money or other property'' (see S. 1555, sec. 
610), apparently leaving other questions to the common law of the 
several states. Although the common law covers the matter, we 
considered it important to write the fiduciary principle explicitly 
into Federal labor legislation. Accordingly the committee bill 
extends the fiduciary principle to all the activities of union 
officials and other union agents or representatives.

    H.R. Rep. No. 741, 86th Cong., 1st Sess., reprinted in 1959 U.S. 
Code Cong. and Admin. News 2424, 2479-80.
    The Conference Committee adopted the House version of section 501, 
which applied the broad legal concept of a fiduciary relationship to 
the relationship between union officers, agents, shop stewards, and 
other representatives of the union and its members, verbatim.
    Contemporary commentators suggested that the fiduciary 
responsibility sections had the potential to be among the most 
important provisions of the LMRDA. One wrote:

    The significance of these provisions transcends their literal 
commands. They represent the judgment of Congress, which almost 
certainly will never be reversed, as to the minimum ethical and 
legal standards by which the behavior of union leaders must be 
measured.

    Benjamin Aaron, The Labor-Management Reporting and Disclosure Act 
of 1959, 73 Harv. L. Rev. 851, 894 (1960).
    Archibald Cox, who played a role in the development of this 
legislation as a Congressional staff member, expressed concern that the 
enforcement of the standards by individual members set out in section 
501 might not be sufficient to assure that union officials would live 
up to their fiduciary responsibilities. Cox wrote:

    On the other hand, there is the danger, often expressed in the 
past, that individual employee's suits are neither an effective 
sanction nor a practical remedy. Workers are unfamiliar with the law 
and hesitate to become involved in legal proceedings. The cost is 
likely to be heavy, and they have little money with which to post 
bonds, pay lawyer's fees and print voluminous records. Time is 
always on the side of the defendant. Even if the suit is successful, 
there are relatively few situations in which the plaintiff or his 
attorney can reap financial advantage. Most men are reluctant to 
incur financial cost in order to vindicate intangible rights. 
Individual workers who sue union officers run enormous risks, for 
there are many ways, legal as well as illegal, by which entrenched 
officials can ``take care of'' recalcitrant members.

    Archibald Cox, Internal Affairs of Labor Unions Under the Labor 
Reform Act of 1959, 58 Mich. L. Rev. 819, 853 (1960).

C. The Nature of the Fiduciary Obligation

    Because the fiduciary responsibilities of union officials are 
enforced by a private right of action by individual union members, the 
courts have addressed the scope of the standards set out in section 501 
on a case-by-case basis. Each case is decided on the particular facts 
of the alleged violation. As a result, the case law surrounding the 
fiduciary responsibilities of union officials under section 501 can be 
complex. Examination of the case law, however, reveals some general 
principles.
    Section 501 imposes the broadest possible fiduciary duty on union 
officials. See United States v. Bane, 583 F.2d 832, 834-35 (6th Cir. 
1978), cert. denied, 439 U.S. 1127 (1979); see also, Johnson v. Nelson, 
325 F.2d 646 (8th Cir. 1963) (Section 501 should receive a broad 
interpretation). The purpose of the section is to deal with the misuse 
of union funds and union property in every manifestation by union 
officials. See Hood v. Journeymen Barbers, Hairdressers, Cosmetologists 
and Proprietors International Union 454 F.2d 1347, 1354 (7th Cir. 
1972). Therefore, the section can be applied not only to the monetary 
interests of the union and its members, but to any area of the union 
official's authority. See Stelling et al. v. International Brotherhood 
of Electrical Workers, Local 1547, 587 F.2d 1379, 1386-87 (9th Cir. 
1978), cert. denied, 442 U.S. 944 (1979); see also, United Food and 
Commercial Workers, Local 911 v. United Food and Commercial Workers 
International Union, 119 F. Supp. 2d 724, 734 (N.D. Ohio 2000) (loss of 
members' democratic rights); Nelson v. Johnson, 212 F. Supp. 233, 284-
88 (D. Minn. 1963), aff'd, 325 F.2d 646 (8th Cir. 1963) (examination of 
legislative history supports a broad interpretation of section 501).
    In general, union officials will not violate their statutory 
fiduciary duties under section 501 if they act: (1) With proper 
authorization from the union; (2) without any personal gain; and, (3) 
in accordance with the constitution and bylaws of the labor 
organization. See Tile, Marble, Terrazo Union Finishers, Shopworkers 
and Granite Cutters International Union v. Ceramic Tile Finishers 
Union, Local 25, 972 F.2d 738, 744-45 (7th Cir. 1992). Congress did not 
intend authorization by the union to be a complete defense to claims 
under section 501. See Morrissey v. Curran, 650 F.2d 1267, 1273-74 (2d 
Cir. 1981). While the courts will often defer to the actions of union 
officers, they will give no deference to an expenditure of union funds 
when it is unauthorized or, even if authorized, when it bestows a 
direct, personal benefit on the union officer. In either of these 
instances, the courts will determine whether the expenditure is so 
unreasonable as to constitute a breach of the statutory fiduciary 
duties under section 501. See, e.g., Talbot v. Robert Mathews 
Distributing Co., 961 F.2d 654, 666 (7th Cir. 1992); Council 49, 
American Federation of State, County and Municipal Employees Union v. 
Reach, 843 F.2d 1343, 1347 (11th Cir. 1988). Section 501 can be 
violated, for example, when union officials approve receipt of 
``excessive benefits, significantly above a fair range of 
reasonableness.'' Morrissey v. Curran, 650 F.2d at 1275.
    The courts have found a myriad of schemes and arrangements to have 
violated the statutory fiduciary duties

[[Page 51231]]

under section 501. For example, a court found that a union officer's 
alleged actions of taking money from employers and using the money to 
operate social organizations that helped the officer solidify his 
political control of the union would, if proven, violate the section's 
requirement that union officials deal with employers at arm's length. 
Chathas v. Local 134, International Brotherhood of Electrical Workers, 
233 F.3d 508, 514 (7th Cir. 2000).
    Procedurally, the actions brought by union members under section 
501 are analogous to corporate shareholder suits. See Phillips v. 
Osborne, 403 F.2d 826, 831 (9th Cir. 1968). The requirement under 
section 501(b) that a request to sue be made to the union before the 
member brings suit is designed to prevent the filing of harassing and 
vexatious suits that are without merit. See Sabolsky v. Budzanoski, 457 
F.2d 1245, 1253 (3d Cir. 1972), cert. denied 409 U.S. 853 (1972) (3d 
Cir. 1972).
    The Department seeks comment on whether officers, agents, shop 
stewards, and other representatives of a labor organization, as well as 
union members and the public, would benefit from additional, specific 
guidance, beyond that contained in the relevant court cases, concerning 
what actions or arrangements constitute violations of section 501(a), 
29 U.S.C. 501(a).

D. Interest of the Department of Labor

    While Congress chose to enforce the fiduciary responsibilities of 
union officers through private actions brought by individual union 
members, the Department of Labor maintains an interest and a role in 
assuring that union officers adhere to their fiduciary 
responsibilities. Several sections of the LMRDA indicate a nexus 
between the interests of the Department and the goals of section 501.
    Section 601 of the LMRDA provides that the Secretary shall have the 
power to undertake an investigation when she believes it necessary to 
determine whether any person has violated or is about to violate any 
provision of the LMRDA, including section 501(a). 29 U.S.C. 521(a). 
Further, the Secretary may report to interested persons or officials 
any matter that she deems to be appropriate as a result of such an 
investigation. Id. These ``interested persons and officials'' may 
include: (1) The members of the specific union whose officers or 
employees were the subject of the investigation; (2) the specific union 
whose officers or employees were the subject of the investigation; (3) 
a court that is hearing a private lawsuit under section 501; (4) the 
Congress or appropriate Congressional Committees; and (5) the general 
public. Thus, the Congress specifically gave the Department the 
authority to investigate potential violations of section 501 and to 
publish the results of those investigations. More specific standards 
concerning what constitutes a violation of the fiduciary 
responsibilities in section 501 would be useful to Department 
investigators during such an investigation to determine whether a 
violation has occurred and whether a report should be made.
    Beyond this general authority to investigate, the failure of union 
officers to adhere to their statutory fiduciary duties could affect 
areas where the Department exercises enforcement authority. These areas 
include union elections, the imposition of trusteeships, deterrence and 
detection of embezzlement, and full financial disclosure by unions and 
union officers and employees.
    For example, union officers could improperly use union assets or 
employers' monies to solidify their control of the union and to 
increase their chances at reelection. See, e.g., Chathas v. Local 134, 
International Brotherhood of Electrical Workers, 233 F.3d 508 (7th Cir. 
2000). The Department has an interest in this kind of breach of 
fiduciary duty because one of the purposes of the election provisions 
of the LMRDA is to offset the inherent advantage over potential rank 
and file challengers possessed by incumbent union leaders. 
International Organization of Masters, Mates & Pilots v. Brown, 498 
U.S. 466, 478 (1991); Reich v. Local 396, International Brotherhood of 
Teamsters, 97 F.3d 1269, 1273 (9th Cir. 1996).
    Two courts have held that a union official who takes actions or 
makes financial arrangements that improperly use pension or benefit 
funds violates section 501. See Morrissey v. Curran, 650 F.2d at 1274 
(section 501 applies to expenditures of pension fund); Hood v. 
Journeymen Barbers, Hairdressers, Cosmetologists and Proprietors 
International Union, 454 F.2d at 1355 (failure of pension committee to 
observe requirements of pension agreement and maintain adequate 
reserves violated section 501); but see National Labor Relations Board 
v. Amax Coal Co., 453 U.S. 322 (1981) (employer appointed trustee of a 
joint trust is not a representative of the employer, but instead owes 
an exclusive fiduciary duty to the trust fund participants and 
beneficiaries).
    In addition, the Department recently has been engaged in an ongoing 
process to improve the administration of the LMRDA. During this time, 
the Department has acted to update and improve reports that had 
remained unchanged for many years. Through these initiatives the 
Department is attempting to increase information available to union 
members and unions regarding their various rights and obligations under 
the LMRDA. The Department's reforms advance the LMRDA's stated purpose 
that ``labor organizations, employers and their officials adhere to the 
highest standards of responsibility and ethical conduct in 
administering the affairs of their organizations.'' 29 U.S.C. 401(a).
    For example, the new, more detailed reporting requirements with 
respect to the Form LM-2 reports work to increase transparency 
concerning union finances by providing more information to the union 
members in the union's annual financial reports. Labor Organization 
Annual Financial Reports, 68 FR 58374 (Oct. 9, 2003). Similarly, the 
Notice of Proposed Rulemaking to revise the Form LM-30, which discloses 
certain financial interests and transactions involving union officers 
and employees and their spouses and their minor children, is also aimed 
at improving disclosure to the rank-and-file union member (found in the 
proposed rules elsewhere in this issue). The goal of these initiatives 
is to make more detailed and transparent financial information 
available to union members and the public as the Congress intended with 
the passage of the LMRDA.
    This request for information is part of that effort. The request 
and any subsequent guidelines should help union officers and employees 
voluntarily comply with the statute. Like the previous initiatives, it 
is intended to increase the information available to union members as 
well as union officers, agents, stewards and other representatives. In 
this instance, it increases the information available to union officers 
and members regarding what actions or financial arrangements constitute 
a violation of the fiduciary standards in section 501.
    This increased information should help both union officers and 
union members. For example, well-intentioned union officers, agents, 
stewards and other representatives may find more specific guidelines 
concerning what actions or financial arrangements might constitute a 
violation of the fiduciary standards in section 501 to be helpful in 
shaping their own conduct on behalf of their members. This, in turn, 
may deter fraud and self-dealing by union officials.

[[Page 51232]]

    In addition, members may come to possess a better sense of what 
actions or arrangements taken by their officers could be inappropriate. 
The members, then, could question or protest these questionable actions 
or arrangements at union meetings. As Archibald Cox noted at the outset 
of the LMRDA, union members may not be aware of such legal matters and 
may not pursue even valid claims under section 501. These members may 
need the assistance of more detailed guidelines in discerning what 
actions or arrangements constitute a violation of the fiduciary 
standards in section 501. However, even if the members do not pursue 
any claim under section 501, the more specific guidelines concerning 
what may constitute a violation of the fiduciary standards may enable 
the members to better monitor the financial affairs of their union and 
make more informed choices concerning the leaders of their union.

II. Information Sought

    The Secretary seeks public comment concerning whether the 
Department should issue specific guidelines describing the minimum 
standards for union officers and employees to meet their fiduciary 
responsibilities under section 501 of the LMRDA. In addition, if the 
Department does decide to issue such guidelines, the Secretary seeks 
public comment regarding what issues concerning the fiduciary 
responsibilities of union officers and employees should be addressed in 
the guidelines and what specific standards should be included. In 
particular, the Secretary is seeking written submissions on the 
following topics:
    1--Should the Department issue guidelines defining the types of 
positions that are indicated by the phrase ``officers, agents, shop 
stewards, and other representatives of a labor organization'' found in 
section 501(a) of the Act?
    2--Should the guidelines include guidance about what specific 
actions an individual who is subject to section 501(a) standards should 
consider taking in order to help the individual remain in compliance 
with the law? These actions might include seeking professional advice 
from independent authorities such as certified professional appraisers 
and actuaries or submitting resolutions for membership ratification.
    3--What actions or conduct, or types of action or conduct, should 
be included in the guidelines as violations of section 501(a)?
    4--Should the guidelines indicate that it should be considered a 
breach of the responsibility of an individual fiduciary to fail to 
report the improper actions of another fiduciary?
    5--Should the guidelines include a definition of what a 
``reasonable amount of time'' is when applied to the demand to sue 
provision in section 501(b)?
    6--What type of training and guidance do union officers and other 
union officials currently receive from their union or from other 
sources to help them carry out their duties in compliance with section 
501(a)?
    7--Do unions have a Code of Ethics that outlines the fiduciary 
responsibilities of officers, agents, shop stewards and other 
representatives?
    8--If they do, are these Codes of Ethics distributed by the 
International or parent labor organization to all officers and 
employees at every level within the organization?
    9--Do unions have internal controls and procedures designed to 
prevent fraud, embezzlement, self-dealing, and other conflicts of 
interest that are followed by individuals who serve in a fiduciary 
capacity? If so, what are they?
    10--Do all unions issue an annual report? If so, do such annual 
reports contain an internal control report, that: (1) States the 
responsibility of union management for establishing and maintaining an 
adequate internal control structure and procedures for financial 
reporting; and (2) contains an assessment, as of the end of the 
issuer's fiscal year, of the effectiveness of the internal control 
structure and procedures of the issuer for financial reporting?
    11--The Secretary also seeks comments on what specific arrangements 
or transactions by union officers and employees related to the 
following subject areas should be said to constitute a breach of 
fiduciary obligations:
     Compensation plans of union officers or employees.
     Payment of travel, entertainment, or like expenses.
     Payment of political or election expenditures.
     Failure to pay union taxes or other expenses.
     Overpayment for contracts or expenses.
     Purchase, sale, or lease of goods or property.
     Creation or amendment of union administered pension funds 
systems.
     Conflicts-of-interest for union attorneys.
     Contacts with a rival union.
     Votes for benefits for the officers, shop stewards and 
other representatives.
     Failure to follow proper constitutional procedures in 
internal union affairs.

    Signed at Washington, DC, this 19th day of August, 2005.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.

Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.
[FR Doc. 05-16908 Filed 8-26-05; 8:45 am]
BILLING CODE 4510-CP-P