Labor Organization Annual Financial Reports, Forms LM-2, LM-3, LM-4., 3735-3742 [E7-1275]

Download as PDF Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Rules and Regulations DEPARTMENT OF LABOR Office of Labor-Management Standards 29 CFR Part 403 RIN 12157–AB34 Labor Organization Annual Financial Reports, Forms LM–2, LM–3, LM–4. Office of Labor-Management Standards, Employment Standards Administration, Department of Labor. ACTION: Policy statement; interpretation. mstockstill on PROD1PC62 with RULES AGENCY: SUMMARY: On December 22, 2002, the Department of Labor (Department) proposed revisions to Forms LM–2, LM– 3, and LM–4, which are used by labor organizations to file annual financial reports required under Title II of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA or Act), 29 U.S.C. 401 et seq., with the Employment Standards Administration’s Office of LaborManagement Standards (OLMS). A portion of the proposed rule stated the Department’s intent to revise its interpretation of an aspect of the definition of ‘‘labor organization * * * deemed to be engaged in an industry affecting commerce’’ under the LMRDA. After receiving and considering comments, the Department published its final rule on October 9, 2003. The interpretation in the final rule stated that intermediate bodies that are subordinate to a national or international labor organization that includes a labor organization will be covered by the LMRDA, even if the intermediate body’s constituents are solely public sector local labor unions not covered by the Act. This interpretation of the LMRDA was challenged in federal district court by labor unions affected by the interpretation, and the court granted summary judgment in favor of the labor unions. Alabama Education Ass’n v. Chao, 2005 WL 736535 (D.D.C. Mar 31, 2005). On appeal, the U.S. Court of Appeals for the District of Columbia Circuit reversed the grant of summary judgment. Alabama Education Ass’n v. Chao, 455 F.3d 386 (D.C. Cir. 2006). The court of appeals held that the Department’s interpretation was reviewable under deference principles established under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), and that the statutory definition of ‘‘labor organization * * * deemed to be engaged in an industry affecting commerce’’ is ambiguous and subject to more than one permissible VerDate Aug<31>2005 15:24 Jan 25, 2007 Jkt 211001 interpretation, including the Department’s interpretation. 455 F.3d at 393, 396. The court also concluded, however, that the Department had failed to provide a ‘‘reasoned analysis supporting its change of position’’ and remanded the rule to the Department to provide such analysis. Id. at 396–397. The Department issues this Policy Statement in response to the court’s remand order. DATES: Effective Date: January 26, 2007. FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director, Office of Policy, Reports, and Disclosure, Office of LaborManagement Standards (OLMS), 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: Statutory and Regulatory Background Congress enacted the LMRDA after an extensive investigation of ‘‘the labor and management fields * * * [found] that there ha[d] been a number of instances of breach of trust, corruption, disregard of the rights of individual employees, and other failures to observe high standards of responsibility and ethical conduct.’’ 29 U.S.C. 401(b). Congress intended the Act to ‘‘eliminate or prevent improper practices’’ in labor organizations, to protect the rights and interests of employees, and to prevent union corruption. 29 U.S.C. 401(b), (c). As part of the statutory scheme designed to accomplish these goals, Congress required labor organizations to file annual financial reports with the Secretary of Labor. 29 U.S.C. 431(b). Congress sought full and public disclosure of a labor organization’s financial condition and operations in order to curb embezzlement and other improper financial activities by union officers and employees. See S. Rep. No. 86–187 (1959), reprinted in I NLRB, Legislative History of the LaborManagement Reporting and Disclosure Act of 1959, at 398–99. Under the Act, labor organizations must file reports containing information such as assets, liabilities, receipts, salaries, loans to officers, employees, members or businesses and other disbursements ‘‘in such detail as may be necessary accurately to disclose [their] financial condition and operations for [the] preceding fiscal year.’’ 29 U.S.C. 431(b). ‘‘Labor organizations’’ subject to the financial reporting requirements of the LMRDA are defined in the Act. Section 3(i) of the LMRDA , 29 U.S.C. 402(i), PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 3735 defines a ‘‘labor organization’’ as (1) any organization ‘‘engaged in an industry affecting commerce * * * in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours, or other terms or conditions of employment,’’ or (2) ‘‘any conference, general committee, joint or system board, or joint council so engaged which is subordinate to a national or international labor organization other than a State or local central body.’’ The first clause of Section 3(i) applies to entities that exist, at least in part, to deal with employers concerning terms and conditions of employment. The second clause of the definition applies to conferences, general committees, joint or system boards or joint councils—entities that are known as ‘‘intermediate’’ labor organizations. See 29 CFR 451.4(f). Section 3(j) of the LMRDA, 29 U.S.C. 402(j), sets forth the circumstances under which labor organizations will be ‘‘deemed to be engaged in an industry affecting commerce’’ under the Act. In particular, Section 3(j)(5) of the Act provides that an intermediate labor organization is deemed ‘‘engaged in an industry affecting commerce’’ if it is ‘‘a conference, general committee, joint or system board, or joint council, subordinate to a national or international labor organization, which includes a labor organization engaged in an industry affecting commerce within the meaning of any of the preceding paragraphs of this subsection, other than a State or local central body.’’ 29 U.S.C. 402(j)(5). Although ‘‘employer’’ is defined broadly in the Act, the United States, States and local governments are expressly excluded from this definition. 29 U.S.C. 402(e). Thus, an organization is not covered under the first clause of Section 3(i), which requires that the organization deal with a statutory ‘‘employer,’’ if it deals only with federal, state or local governments. However, an ‘‘organization’’ covered by the second clause of the definition (a ‘‘conference, general committee, [etc.] subordinate to a national or international’’) need not deal with employers at all. 29 U.S.C. 402(i). Instead, such an intermediate labor body is covered by the Act so long as it is subordinate to a national or international labor organization and is ‘‘engaged in an industry affecting commerce.’’ Id. The LMRDA authorizes the Department to promulgate rules and regulations to enforce the Act’s financial reporting requirements. Under the Act, E:\FR\FM\26JAR1.SGM 26JAR1 3736 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Rules and Regulations Congress broadly delegated authority to the Secretary ‘‘to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under this subchapter and such other reasonable rules and regulations * * * as [s]he may find necessary to prevent the circumvention or evasion of such reporting requirements.’’ 29 U.S.C. 438; American Fed’n of Labor and Congress Of Indus. Orgs. v. Chao, 409 F.3d 377, 386 (D.C. Cir. 2005) (‘‘[t]here is no serious dispute’’ that Congress ‘‘delegated authority to the Secretary to promulgate rules to enforce Section 208 [29 U.S.C. 438]’’). The Secretary also has express authority to enforce the Act’s reporting requirements by initiating a civil action. 29 U.S.C. 440. The Department’s interpretation of Section 3(j)(5), which ‘‘clarifies the meaning of ‘labor organization * * * engaged in an industry affecting commerce[,] * * * comes within its express authority in § 208 to promulgate rules’’ under the LMRDA. Alabama Education, 455 F.3d at 393. The Department’s LMRDA Rulemaking The Department issued a Notice of Proposed Rulemaking on December 27, 2002, that proposed revisions to the forms labor organizations use to file annual financial reports required by the LMRDA. Labor Organization Annual Financial Reports, 67 FR 79,280 (Dec. 21, 2002) (NPRM). As part of this rulemaking, the Department stated its intent to modify its interpretation of Section 3(j)(5). As noted, the Section provides that an intermediate labor organization is deemed ‘‘engaged in an industry affecting commerce’’ if it is: mstockstill on PROD1PC62 with RULES A conference, general committee, joint or system board, or joint council, subordinate to a national or international labor organization, which includes a labor organization engaged in an industry affecting commerce within the meaning of any of the preceding paragraphs of this subsection, other than a State or local central body. Before the December 2002 NPRM, the Department interpreted the clause, ‘‘which includes a labor organization engaged in an industry affecting commerce within the meaning of any of the preceding paragraphs of this subsection, ‘‘ in Section 3(j)(5) as modifying ‘‘conference’’ and other listed intermediate bodies. Under that interpretation, Section 3(j)(5) applied only to intermediate bodies that were subordinate to a national or international labor organization and were themselves composed, in whole or in part, of private sector local labor organizations. VerDate Aug<31>2005 15:24 Jan 25, 2007 Jkt 211001 In contrast, in the NPRM’s proposed interpretation, the ‘‘which includes’’ clause, modifies ‘‘national or international labor organization.’’ Under this interpretation, intermediate labor bodies need not themselves include private sector members to be covered under the LMRDA; rather, they need only be subordinate to a national or international labor organization that includes a union that represents private sector workers. The Department’s prior interpretation of Section 3(j)(5) came into question following the decision in Chao v. Bremerton Metal Trades Council, 294 F.3d 1114 (9th Cir. 2002). In Bremerton, the Ninth Circuit held that the Bremerton Metal Trades Council (‘‘BMTC’’), a joint council, met the LMRDA definition of ‘‘labor organization’’ because it was subordinate to the Metal Trades Department, an international labor organization engaged in an industry affecting commerce. Bremerton, 294 F.3d at 1118. In so holding, the court relied on the fact that the BMTC was subordinate to a parent organization that met the LMRDA definition of ‘‘labor organization.’’ Id. The court reasoned that ‘‘[w]e must decide not whether the Bremerton Council bargains directly with any private employers but, instead, whether the Metal Trades Department, the organization to which the Bremerton Council is subordinate, is engaged in an industry affecting commerce.’’ Id. at 1117. Thus, in contrast to the Secretary’s interpretation at the time, Bremerton adopted an analysis under Section 3(j)(5) that looked not to the composition of the intermediate body itself, but rather to whether the national or international to which it is subordinate is engaged in an industry affecting commerce. The Bremerton case brought to the Department’s attention an alternate view of the meaning of the ‘‘which includes’’ clause in Section 3(j)(5). In the 2002 NPRM, the Department proposed to revise its instructions on financial reports for labor organizations to include this interpretation of Section 3(j)(5), reflecting Bremerton’s analysis. See NPRM, 67 FR 79,284 (proposing to adopt a rule that ‘‘an intermediate labor organization that has no dealings itself with private employers and no members who are employed in the private sector may nevertheless be a labor organization engaged in commerce * * * if [it] is ‘subordinate to a national or international labor organization which includes a labor organization engaged in commerce.’’’) Following a 90-day comment period, the Department on October 9, 2003, PO 00000 Frm 00032 Fmt 4700 Sfmt 4700 issued its final rule dealing with labor organization reporting requirements, in which it adopted the revised interpretation of Section 3(j)(5). Labor Organization Annual Financial Reports, 68 FR 58374 (Oct. 9, 2003) (Final Rule). In the preamble to the Final Rule, the Department addressed comments from three labor organizations—the National Education Association (NEA), the American Federation of Teachers (AFT) and the AFL–CIO—each of which opposed the Department’s interpretation of Section 3(j)(5). The Department concluded that the comments opposing the Department’s interpretation failed to provide a persuasive argument supporting the Department’s return to its pre-2002 view of the ‘‘which includes’’ clause of Section 3(j)(5). After being notified by OLMS of the Department’s revised interpretation of Section 3(j)(5), and the corresponding need to file reports, 38 intermediate labor organizations representing public sector employees, primarily public school teachers, challenged the new interpretation in federal district court. The court granted summary judgment in favor of the plaintiff labor organizations. Alabama Education Ass’n v. Chao, 2005 WL 736535 (D.D.C. Mar. 31, 2005). The Department appealed that decision, and the U.S. Court of Appeals for the D.C. Circuit, reversed the lower court’s ruling. Alabama Education Ass’n v. Chao, 455 F.3d 386 (2006). The court of appeals held that the Department has statutory authority ‘‘to clarif[y] the meaning of ‘labor organization * * * engaged in an industry affecting commerce’ ’’ and thus the Secretary’s interpretation of Section 3(j)(5) is ‘‘reviewable under Chevron’’ principles of deference. 455 F.3d at 393. The court further ruled that Section 3(j)(5)’s ‘‘which includes’’ clause contains a ‘‘patent ambiguity’’ and that the Secretary’s interpretation was a permissible interpretation of the provision’s terms. 455 F.3d at 395, 396; see also id. at n. * (LMRDA legislative history confirms ‘‘inherent ambiguity of the statute’’). The court, however, further concluded that the Department had failed to provide a ‘‘reasoned analysis’’ for its change of position ‘‘sufficient to command [the court’s] deference under Chevron.’’ 455 F.3d at 396. The court noted that the Department failed to link specifically the general policy concerns underlying the financial reporting revisions in the final rule, (i.e., changes in union size, financing and structure, and resulting financial irregularities, 67 FR 79,280), with an assessment of the Department’s new and prior interpretations of Section 3(j)(5). 455 E:\FR\FM\26JAR1.SGM 26JAR1 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Rules and Regulations F.3d at 396–397. The court also noted that the Department had unduly relied on the Bremerton decision, without acknowledging that because the intermediate body in that case contained private sector members, the decision’s holding did not contribute to the required reasoned analysis. Id. at 397. Accordingly, the court remanded the rule to the Department to provide a reasoned explanation for its change in interpretation. That analysis is set forth below. Explanation for the Department’s Revised Interpretation of Section 3(j)(5) The Department’s revised interpretation of the statute broadens the coverage of intermediate labor organizations subject to the reporting requirements of the LMRDA. The result of this interpretation is that intermediate bodies that are subordinate to a national or international labor organization that includes a covered labor organization will be covered by the LMRDA, even if the intermediate body is composed of solely public sector local labor unions not covered by the Act. The rulemaking record as a whole suggested several reasons in support of the Department’s adoption of this policy, and those reasons will be further explained and analyzed here. The Department’s 2002 NPRM supported its regulatory revisions to labor organizations’ financial reporting requirements with the following analysis: mstockstill on PROD1PC62 with RULES Labor organizations also have changed tremendously since the enactment of the LMRDA in 1959. There are now far fewer small, independent unions and more large unions affiliated with a national or international body * * *. In fact, many large unions today resemble modern corporations in their structure, scope and complexity. Moreover, just as in the corporate sector, there have been a number of financial failures and irregularities involving pension funds and other member accounts maintained by labor organizations. These failures and irregularities result in direct financial harm to union members. If the members of labor organizations had more complete, understandable information about their unions’ financial transactions, investments and solvency, they would be in a much better position than they are today to protect their personal financial interests and exercise their democratic rights of selfgovernance. NPRM, 67 FR at 79,280–81. In addition, regarding the Department’s view of Section 3(j)(5), the NPRM stated: The instructions to form LM–2 adopt the recent holding of the U.S. Court of Appeals for the Ninth Circuit in Chao v. Bremerton Metal Trades Council, AFL–CIO, 294 F.3d VerDate Aug<31>2005 15:24 Jan 25, 2007 Jkt 211001 1114 (2002), interpreting Section 3(j) of the LMRDA, because that interpretation gives full meaning to the plain language of the statute. In that case, the Court ruled that an intermediate labor organization that has no dealings itself with private employers and no members who are employed in the private sector may nevertheless be a labor organization engaged in commerce within the meaning of Section 3(j) of the LMRDA if the intermediate body is ‘‘subordinate to a national or international labor organization which includes a labor organization engaged in commerce.’’ Accordingly, the Instructions will clarify that any ‘‘conference, general committee, joint or system board, or joint council’’ that is subordinate to a national or international labor organization will be required to file an annual financial form if the national or international labor organization is a labor organization engaged in an industry affecting commerce within the meaning of Section 3(j) of the LMRDA. NPRM, 67 FR 79,280, 79,284. The Department’s 2003 Final Rule provided the following support for its policy revision: The stated intent of Congress was to exempt ‘‘wholly public sector’’ labor organizations from the coverage of the Act. The Bremerton court found that an intermediate labor organization is not ‘‘wholly public sector’’ and exempt from the Act where it is subordinate to a parent organization that meets the definition of a labor organization engaged in an industry affecting commerce. The Department’s regulation at 29 CFR 451.3(a)(4) is not contrary to the Bremerton decision when the regulation is read as giving effect to the court’s interpretation of the term ‘‘wholly public sector labor organization.’’ The Department concludes that none of the commenters provides a persuasive argument for disagreeing with the Bremerton court’s reading of the statute and therefore will maintain the expanded language in the instructions for the Form LM–2. Final Rule, 68 FR 58,374, 58,384. These excerpts from the rule-making record establish a foundation for the Department’s explanation of its policy choice, and point to three interdependent rationales for the adoption of the revised interpretation. First, the Department has selected a policy alternative that is consistent with the terms of the statute and promotes Congress’s purposes in enacting the LMRDA. The Department’s interpretation of Section 3(j)(5) advances the twin Congressional goals that labor organizations’ financial conditions and operations should be subject to public disclosure to benefit employees that participate in those organizations, and that the definition of ‘‘labor organizations’’ covered by the LMRDA should be interpreted broadly to advance union democracy, financial transparency, and integrity. Second, the expanded coverage permitted by the PO 00000 Frm 00033 Fmt 4700 Sfmt 4700 3737 new interpretation promotes disclosure of financial disbursements and receipts to and from structurally related labor organizations, thus enhancing employees’ ability to understand the overall operation of labor organizations in general, as well as identify any potential financial irregularities in particular. The structure and financial aspects of labor organizations have become increasingly complex in the nearly fifty years since the passage of the LMRDA. Unlike several decades ago, when small, independent unions predominated, there are now large, multi-level, multi-faceted labor organizations, most of which are affiliated with large and complex national or international labor organizations. In addition, many labor organizations have restructured and reorganized their affiliate relationships, rendering a single labor organization report insufficient to provide transparency to increasingly complex structures and relationships. Third, and most importantly, the revised interpretation gives full meaning to clause two of Section 3(i), 29 U.S.C. 402(i), which has at its core a focus on covering those intermediate bodies precisely because they are subordinate to a covered national or international labor organization even though they may consist only of unions not covered under the first clause of 3(i). The interpretation advances public disclosure of financial transactions by intermediate bodies that receive money from covered national and international labor organizations, the source of which is, in part, fees and assessments originating from employees in the private sector. Thus, the so-called ‘‘wholly public sector’’ intermediate body loses that attribute to a great extent (despite its composition) when it is subordinate to, and accepting contributions from, covered national and international labor organizations whose funds are derived, in part, from employees in the private sector. As the court of appeals noted, these bases for the revised interpretation were not fully explained in the prior rulemaking, and we now elaborate upon them in greater detail.1 1 In the preamble to the 2003 final rule, the Department reviewed and responded to all comments regarding the Department’s interpretation in the final rule. As explained in the preamble, the Department received only five comments on its interpretation, including one from a supportive union member and one from a labor organization that employed a mistaken premise that the interpretation would require state or local central bodies to file financial disclosure forms. 68 FR 58,383–58,384. Taken together, the remaining three comments from three labor organizations E:\FR\FM\26JAR1.SGM Continued 26JAR1 3738 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Rules and Regulations 1. Consistency With the Terms and Purpose of the LMRDA mstockstill on PROD1PC62 with RULES As noted above, in enacting the LMRDA, Congress intended to ‘‘eliminate or prevent improper practices’’ in labor organizations, protect the rights and interests of employees, and prevent union corruption. 29 U.S.C. 401(b), (c). To curb embezzlement and other improper financial activities of labor organizations, Congress required labor organizations to file detailed annual financial reports with the Secretary of Labor. 29 U.S.C. 431(b). The reporting provisions of the LMRDA were devised to implement the basic premise of the LMRDA—that the Act was intended to safeguard democratic procedures within labor organizations and protect the basic democratic rights of union members. By mandating that labor organizations disclose their financial operations to employees they represent, Congress intended to promote union selfgovernment, which would be advanced because union members would be provided sufficient information to permit them to take effective action in regulating internal union affairs. The LMRDA is a remedial statute, necessary to impose high standards and ethical conduct in the administration of internal union affairs. Wirtz v. Local 153, Glass Bottle Blowers Assn., 389 U.S. 463, 469–470 (1968). In addition, Congress intended the definition of labor organization to be construed broadly to achieve the Act’s purposes. Donovan v. National Transient Div., Int’l Bhd. of Boilermakers, 736 F.2d 618, 621 (10th Cir. 1984), cert. denied, 469 U.S. 1107 (1985). In order to fully effectuate and serve the remedial purposes of the Act noted above, the Department seeks to interpret the definitional sections of the LMRDA broadly ‘‘to include all labor organizations of any kind other than challenged the interpretation on three grounds: (1) The Department did not have the statutory authority to undertake the revised interpretation; (2) the Department’s construction of the statutory terms was erroneous, and resulted in the coverage of intermediate labor organizations that are purely public-sector labor organizations and exempt from the definitional provisions of the Act; and (3) the intermediate bodies to which the Act would apply are not ‘‘subordinate’’ to a national or international labor organization within the meaning of the Act. After full consideration the Department determined that none of the comments resulted in a determination that the interpretation was either legally flawed, an erroneous construction of the statute, or misguided public policy. 68 FR 58,383– 58,384. The Department has once again fully reviewed and reconsidered these comments prior to publication of this Policy Statement, and the conclusion expressed in the 2003 preamble remains unaltered. VerDate Aug<31>2005 15:24 Jan 25, 2007 Jkt 211001 those clearly shown to be outside the scope of the Act.’’ 29 CFR 451.2 (2006). The Department’s pre-2002 interpretation of Section 3(j)(5) did not fully serve Congressional intent that the statute’s definition be read broadly, nor did it serve the remedial purposes of the LMRDA. Employees concerned about payments to and from intermediate labor organizations subordinate to a covered national or international labor organization did not have access to the quality and quantity of information available to members of unions that have historically filed the Department’s annual disclosure forms. Absent such disclosures, union members know less about the governance of their unions and are thereby frustrated by their inability to monitor the spending of their dues monies because they are not fully aware of the financial commitments and obligations of their union. They are disadvantaged in their ability to make informed decisions when electing their union officers because they do not have detailed information about the funding decisions made by incumbent officeholders. In contrast, members of unions that file the financial disclosure forms have a tool that can help them detect fraud and embezzlement. Officers and employees of such unions are deterred from committing such misconduct because they understand that their unions’ financial transactions are recorded, reported, and made publicly available on the Internet. Employees concerned about the expenditures of intermediate unions that did not report as the result of the Department’s prior policy have been denied the benefits that flow from the increased transparency that compliance with the LMRDA brings, including more effective member participation in union decision-making, more informed voters, and the deterrence and detection of fraud. If all intermediate bodies subordinate to LMRDA-covered labor organizations are not themselves covered by the LMRDA, union transparency is diminished and misdeeds will be more difficult to discover. 2. Structural and Financial Complexity of Labor Organizations The Department’s NPRM noted that ‘‘many large unions today resemble modern corporations in their structure, scope and complexity.’’ NPRM, 67 FR at 79,280. Indeed, ‘‘commercial organizations and unions still share many structural features of complex organizations. In most industrial nations, unions as labor organizations have developed from small, voluntary associations, to larger, more formal PO 00000 Frm 00034 Fmt 4700 Sfmt 4700 bureaucracies. With the formation and expansion of large scale industrial unions, the structure of labor organizations has shifted from that of informal communities of workers to more centralized, hierarchical, and rational bureaucracies.’’ Julian Barling, Clive Fullagar & E. Kevin Kelloway, The Union and Its Members 13 (Oxford University Press 1992). In a unionized workplace, employees may be members of a local labor organization, which represents employees with respect to terms and conditions of employment at that particular workplace. That local union is typically chartered by a national union, which in turn may be affiliated with a national federation of unions. In addition, there are city and state federations of labor organizations, international federations of labor, joint and district councils, and departments within a national federation of unions, among others. There are many different, but related, labor organizations that a union member must examine in order to analyze his or her local representative’s expenditure of funds. The interrelatedness, and resulting structural complexity, of labor organizations has a number of causes. The need for collaboration among and between labor organizations with shared interests, the necessity of labor organization cohesion during times of economic strife, the need for large-scale reform regarding certain issues, such as nation-wide wages and hours reform, the rise in multi-city or national corporations, and the growth of a global economy, have all contributed to the increase in labor organization affiliation within local, central and national labor organizations. See Sidney Lens, Unions and What They Do 39–46 (G.P. Putnam’s Sons 1968). These factors contributing to labor organization interrelatedness and complexity have only increased in the final decades of the twentieth century. This growth of interconnected labor organizations has been accompanied by a complicated pattern of relationships, including affiliations, disaffiliations, trusteeships, federal court supervision, and the like. For instance, in 2005, seven of the largest national and international unions left the AFL–CIO, for many years the only national federation of unions, and created a brand new national labor federation. Several of the nation’s largest labor organizations have departed the AFL– CIO in the past, only to rejoin, and then depart again. Several national or international labor organizations prefer to remain independent from any national federation. State federations of E:\FR\FM\26JAR1.SGM 26JAR1 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Rules and Regulations labor organizations have themselves affiliated or disaffiliated with national organizations depending on the common or divergent interests of those labor organizations. Labor organizations have been placed in trusteeship, requiring management of their internal affairs by higher-level labor organizations, and several labor organizations have been managed for years under court supervision. The AFL–CIO itself has departments that are groupings of international unions based on trade or industry that affiliate specifically with those departments. A local union member may have direct contact only with his or her local, but in all likelihood he or she is represented, through elected or appointed delegates, within a maze of other union structures. The complexity of labor organization structures and relationships may be daunting to employees represented at the workplace level by a local labor organization. Yet the structural complexity pales in comparison to the financial complexity created by these relationships. Dues and fees are collected from members at the local level, and that money is sent on to other related organizations in the form of percapita assessments to support an increasingly complicated, sophisticated, and coordinated set of expenditures by related labor organizations, including education, organizing, political action at all levels of government, strike funds, public relations, research, legal representation, and so on. The ability of that local union member to follow the trail of transactions among and between labor organizations affiliated with the local union is challenging at best. Confronted by the structural and financial complexity of interrelated labor organizations, a local union member is further hindered by the fact that labor organizations are required to report only their individual financial conditions—joint affiliate reporting is not required by the LMRDA. As a result, a local union member interested in ascertaining the end-point of his or her dues collected by the local but cast into the stream of affiliate expenditures must obtain the financial reports of the local and each affiliated labor organization— the national or international, the state level organization, the national federation, and any other labor organizations affiliated directly or indirectly with the local union. Of course, this opportunity to study and analyze one’s own local union expenditures is lost if, within the chain of affiliations, one of the affiliates has not filed an annual financial report. Given the increased complexity of union structures and finances, the ability of local union members to benefit from the transparency afforded by the LMRDA should not be diminished by a labor organization’s relationship to an intermediate body that does not presently file annual financial reports. Such a circumstance is akin to a parent corporation disguising its assets and expenditures by lodging them with an undisclosed subsidiary. To avoid this scenario in the context of labor organizations, the LMRDA should be interpreted, to the extent permitted by the statute’s terms, so that local union members have the ability to lift the cloak of structural and financial complexity, and fully understand the activities and expenditures of their local unions, their local’s national affiliates, and the national organization’s subordinate labor organizations. 3. Intermediate Bodies’ Expenditure of Funds Derived in Part From Compulsory Fees and Taxes on Employees in the Private Sector The two principles discussed above— the promotion of Congress’s goal of transparency in labor organization expenditures and the complex structural and financial relationships between unions—lead directly to the final consideration supporting the Department’s revised interpretation of Section 3(j)(5). The LMRDA’s purpose and intent, its legislative history, and the complexity and interrelatedness of modern labor organizations, all support the disclosure of assets and expenditures of intermediate labor bodies whose funds are derived, at least in part, from private sector employees. In some cases, private sector employees are represented by a local union that financially supports a national or international labor organization with which it is affiliated, and that national or international labor organization in 3739 turn financially supports a subordinate state-level labor body that may itself be wholly composed of locals representing employees only in the public sector and therefore, has not, in the past, filed annual financial disclosure statements. Consider, for example, a local labor organization composed entirely of nurses and other health care professionals employed by hospitals and other facilities 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 funds to its state-level subordinates. The state-level subordinate may itself be wholly composed of public-sector locals and, as a result, not previously required to file a financial disclosure statement. Consequently, the private-sector nurses can track expenditures of their local union dues only until the expenditures reach the state-level labor organization. There, under the Department’s prior interpretation, further financial information would not be available, because the intermediate labor organization would not be considered to be engaged in an industry affecting commerce under the Act and would not be required to file reports. The same scenario holds true in the case of faculty and staff employed by universities in the private sector, and represented by a local union affiliated with another national union primarily representing teachers in the public sector. The private-sector faculty members’ local union dues support the national teachers union, which in turn disburses funds to its state-level subordinates. Again, the intermediate body may be wholly composed of public-sector locals, but it is receiving indirectly the dues and fees of employees in the private sector. These scenarios are borne out by the two tables below. Table 1 reflects locals affiliated with two national teachers unions that have many dues-paying members employed in the privatesector, like the nurses and university professors examples noted above. The per capita fees paid to the national teachers union by members of those private-sector locals are shown below. mstockstill on PROD1PC62 with RULES TABLE 1.—FISCAL YEAR 2005 PER CAPITA TAX DISBURSEMENTS FROM LOCALS COMPOSED AT LEAST IN PART OF PRIVATE-SECTOR EMPLOYEES TO AFFILIATED NATIONAL TEACHERS UNION 2 Locals Affiliated With American Federation of Teachers 3 Indiana Educators Federation, Local 4524 ......................................................................................................................................... Temple University, Local 4531 ............................................................................................................................................................ USF Faculty Association, Local 4269 ................................................................................................................................................. Washington Teachers Union, Local 6 ................................................................................................................................................. VerDate Aug<31>2005 15:24 Jan 25, 2007 Jkt 211001 PO 00000 Frm 00035 Fmt 4700 Sfmt 4700 E:\FR\FM\26JAR1.SGM 26JAR1 $254,735 173,540 91,381 794,148 3740 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Rules and Regulations TABLE 1.—FISCAL YEAR 2005 PER CAPITA TAX DISBURSEMENTS FROM LOCALS COMPOSED AT LEAST IN PART OF PRIVATE-SECTOR EMPLOYEES TO AFFILIATED NATIONAL TEACHERS UNION 2—Continued Professional Guild of Ohio, Local 1960 ............................................................................................................................................... UCATS, Local Union 3882 .................................................................................................................................................................. Danbury Hospital Professional Nurses Association, Local Union 5047 ............................................................................................. New Haven Federation of Teachers, Local Union 933 ....................................................................................................................... Oregon Federation of Nurses-Kaiser, Local Union 5017 .................................................................................................................... NY State Public Employees Federation, Local Union 4053 ............................................................................................................... Alaska Public Employees Association, Local Union 5200 .................................................................................................................. Professional Staff Congress/CUNY, Local Union 2334 ...................................................................................................................... L & M Healthcare Workers Union, Local Union 5123 ......................................................................................................................... 171,237 395,783 174,270 537,260 412,957 7,658,493 423,730 4,771,000 169,217 Locals Affiliated With National Education Association 4 OEA American Education Assn Okinawa ........................................................................................................................................... Endicott College Faculty Association .................................................................................................................................................. Adrian College Association of Professors ........................................................................................................................................... University of Detroit Professors Union ................................................................................................................................................ Roger Williams University Faculty ....................................................................................................................................................... Baker College Education Association ................................................................................................................................................. Milton Hershey Education Association ................................................................................................................................................ National Education Assn Ind Local Union University of Detroit Support Staff ................................................................................... Rhode Island School of Design Faculty .............................................................................................................................................. RISD Part Time Faculty Association, Local 895 ................................................................................................................................. 264,263 8,631 50,959 147,821 105,623 25,261 70,025 14,840 58,215 39,997 2 Labor organizations that file Form LM–2, LM–3, or LM–4 reports with the Department are, by definition, ‘‘labor organizations’’ covered by the LMRDA. Local labor organizations that file reports are composed, at least in part, of members employed in the private sector. See 29 CFR 451.3(a)(4) (‘‘mixed and non-government locals [are] ‘labor organizations’ and subject to the Act’’). 3 These figures are taken from the Form LM–2 filed by each listed local labor organization for its fiscal year 2005. Form LM–2s are filed by those labor organizations with total annual receipts of $250,000 or more in their fiscal years. See Instructions for Electronic Form LM–2 Labor Organizations Annual Report (3/23/04) at p. 1, at http://www.dol.gov/esa/regs/compliance/olms/erds/LM2Instr2-2-04koREVISED.pdf. (Revisions in 2003 to the Form LM–2 and its instructions, which set $250,000 as the mandatory floor for filing the Form LM–2 amended the old floor of $200,000 set in 29 CFR 403.4. See 68 FR 58383, 58473.) Article VIII, Section 1(a) of AFT’s constitution requires each local to pay an established per capita tax to the national office, and further sets the per capita rate at which the national office will pay the office of each state federation. See AFT 2002 Constitution at p. 21. 4 Except in one case in which the labor organization filed a Form LM–2, these figures are taken from the Form LM–3 filed by each listed local labor organization for its fiscal year 2005. Section 2–9 of the NEA’s bylaws indicates that, as established in contracts entered into between the affiliates and the NEA, local affiliates transmit dues to both the state affiliate and the NEA. As a result, these figures may represent disbursements to both state affiliates and the NEA. See Bylaws of the National Education Association of the United States 2004–2005 at. p. 7. * * * * * Table 2 below confirms that these national teachers unions, which, as shown above, received per capita fees from locals composed, at least in part, of private sector employees, disbursed funds to their affiliated intermediate bodies. TABLE 2.—FISCAL YEAR 2005 DISBURSEMENTS AS ‘‘CONTRIBUTIONS, GIFTS AND GRANTS’’ BY NATIONAL TEACHERS UNIONS TO INTERMEDIATE STATE-LEVEL LABOR ORGANIZATIONS 5 Contributions, Gifts and Grants by American Federation of Teachers to State Affiliates 6 Louisiana Federation of Teachers* ..................................................................................................................................................... $15,000 mstockstill on PROD1PC62 with RULES Contributions, Gifts and Grants by National Education Association to State Affiliates 7 Alabama Education Association* ......................................................................................................................................................... NEA Alaska* ........................................................................................................................................................................................ Arizona Education Association* ........................................................................................................................................................... Arkansas Education Association* ........................................................................................................................................................ Colorado Education Association* ........................................................................................................................................................ Connecticut Education Association* .................................................................................................................................................... Delaware State Education Association* .............................................................................................................................................. Georgia Association of Educators* ...................................................................................................................................................... Hawaii State Teachers Association* ................................................................................................................................................... Idaho Education Association* .............................................................................................................................................................. Indiana State Teachers Association* .................................................................................................................................................. Iowa State Education Association* ...................................................................................................................................................... Kansas NEA* ....................................................................................................................................................................................... Kentucky Education Association* ........................................................................................................................................................ Louisiana Association of Educators* ................................................................................................................................................... Maryland State Teachers Association* ............................................................................................................................................... Massachusetts Teachers Association* ................................................................................................................................................ Education Minnesota ........................................................................................................................................................................... Mississippi Association of Educators* ................................................................................................................................................. Missouri NEA* ...................................................................................................................................................................................... Nebraska State Education Association ............................................................................................................................................... NEA New Hampshire* ......................................................................................................................................................................... VerDate Aug<31>2005 16:43 Jan 25, 2007 Jkt 211001 PO 00000 Frm 00036 Fmt 4700 Sfmt 4700 E:\FR\FM\26JAR1.SGM 26JAR1 $1,561,525 390,595 879,775 434,715 142,435 844,595 239,015 972,770 414,740 317,305 1,181,930 892,770 595,465 1,009,842 479,094 1,434,090 1,638,351 1,410,256 242,370 800,440 590,465 405,595 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Rules and Regulations 3741 TABLE 2.—FISCAL YEAR 2005 DISBURSEMENTS AS ‘‘CONTRIBUTIONS, GIFTS AND GRANTS’’ BY NATIONAL TEACHERS UNIONS TO INTERMEDIATE STATE-LEVEL LABOR ORGANIZATIONS 5—Continued NEA New Mexico ................................................................................................................................................................................. NEA New York ..................................................................................................................................................................................... New Jersey Education Association ..................................................................................................................................................... Nevada State Education Association* ................................................................................................................................................. North Carolina Association of Educators* ........................................................................................................................................... North Dakota Education Association* ................................................................................................................................................. Oklahoma Education Association* ...................................................................................................................................................... Oregon Education Association* ........................................................................................................................................................... South Carolina Education Association* ............................................................................................................................................... South Dakota Education Association* ................................................................................................................................................. Texas State Teachers Association ...................................................................................................................................................... Tennessee Education Association* ..................................................................................................................................................... Utah Education Association ................................................................................................................................................................. Vermont NEA ....................................................................................................................................................................................... Virginia Education Association* ........................................................................................................................................................... Washington Education Association* .................................................................................................................................................... West Virginia Education Association* ................................................................................................................................................. Wisconsin Education Association Council* ......................................................................................................................................... Wyoming Education Association* ........................................................................................................................................................ 332,305 1,535,089 2,286,522 777,045 1,283,365 213,370 772,045 1,012,705 434,740 239,015 1,408,136 1,105,568 112,435 438,660 1,509,090 1,922,975 416,740 2,470,440 190,725 mstockstill on PROD1PC62 with RULES 5 LM–2 instructions require labor organizations to itemize contributions, gifts and grants on Schedule 17 of the Form. The itemizations include ‘‘direct and indirect disbursements to all entities and individuals during the reporting period associated with contributions, gifts, and grants, other than those listed on Schedules 15, 16, and 20[, and i]nclude, for example, charitable contributions, contributions to scholarship funds, etc.’’ See Instructions for Electronic Form LM–2 Labor Organizations Annual Report (3/23/04) at p.32, at http://www.dol.gov/esa/regs/ compliance/olms/erds/LM2Instr2-2-04koREVISED.pdf. 6 These figures are taken from the Form LM–2 filed by AFT for its fiscal year beginning July 1, 2004 and ending June 30, 2005. 7 These figures are taken from the Form LM–2 filed by the NEA for its fiscal year beginning September 1, 2004 and ending August 31, 2005. * State affiliates marked with an asterisk are parties in Alabama Education Ass’n v. Chao, 455 F.3d 386 (D.C. Cir. 2006), and have not filed financial disclosure reports with the Department. These state affiliates have stated in that litigation that they are intermediate bodies wholly composed of public sector affiliates. State affiliates that are not marked by an asterisk are not parties in Alabama Education Ass’n v. Chao, and have not filed current financial disclosure reports with the Department. The Department presumes that their non-filing status is due to their wholly public sector composition and not due to any other exception or exemption under the LMRDA. Taken together, Tables 1 and 2 demonstrate that two national teachers unions receive dues and fees from employees employed in the privatesector, and that money is, in turn, disbursed to intermediate bodies that have previously not been required to file financial disclosure reports. * * * * * The expenditure of dues and fees of private-sector employees by intermediate-level state affiliates of national labor organizations without full public disclosure of those expenditures runs afoul of the purpose and intent of the LMRDA. As noted earlier, labor organizations that solely ‘‘deal with’’ public-sector employers are not covered by the first clause of Section 3(i), which applies only to labor organizations that deal with statutory, i.e., private sector employers. The second clause has no such limitation, and does not require that intermediate bodies deal with any employers, private or public. Given the scenario outlined above—that intermediate bodies may receive financial support based on dues received in part from private sector employees, the second clause of section 3(i) makes perfect sense. Coverage of intermediate bodies under the second clause does not turn on the entity’s dealings with employers, but is based instead on the subordinate relationship with a covered national or international. VerDate Aug<31>2005 15:24 Jan 25, 2007 Jkt 211001 The Department’s rule corrects the problem of the non-transparency of funds provided by covered national or international labor organizations to subordinate intermediate bodies, and gives full meaning to the second clause of Section 3(i). It would undermine, rather than promote, the purposes of the LMRDA if a labor organization could disburse dues paid by private-sector employees to a subordinate labor body, and such subordinate labor body could spend that money in secrecy. Such a loophole does not exist on the face of the statute or anywhere in its legislative history, and was not deliberately created by Congress in 1959. Moreover, the Department’s key statutory responsibility to promote union transparency and democracy under the LMRDA requires that this loophole created by prior interpretation be closed. As in the cases illustrated above, a private-sector employee represented by a private-sector local union covered by the LMRDA should not be prevented from tracing to its endpoint the expenditure of his or her own dues and fees, even if a labor organization ultimately receiving those private-sector dues is composed solely of public-sector unions. Thus, the ambiguity in Section 3(j)(5), see Alabama Education, 455 F.3d at 395, should be resolved in favor of coverage of an intermediate labor organization PO 00000 Frm 00037 Fmt 4700 Sfmt 4700 that is subordinate to a national or international labor organization that includes a private sector local, even if the intermediate itself is composed solely of public sector members. Under this interpretation, the private-sector employees in that local will have an improved ability to ascertain the nature of labor organizations expenditures derived from their dues. For several decades following the enactment of the LMRDA, the Department’s administration of the statute did not reach intermediate labor organizations subordinate to a covered national or international labor organization but composed solely of local public-sector labor organizations. During that period of LMRDA administration, the Department’s interpretation permitted LMRDAcovered national and international organizations to make financial disbursements to their intermediate affiliates without any requirement that the intermediate affiliates disclose the manner in which that money, some derived from private-sector employees, was spent. Private-sector local union members have been unable to ascertain whether their representatives spend their money wisely, foolishly, or even illegally. The LMRDA’s primary goal of labor organization democracy achieved through labor organization transparency has been thwarted during this period. E:\FR\FM\26JAR1.SGM 26JAR1 3742 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Rules and Regulations The Department’s revised interpretation is intended to shed light on the financial transactions of intermediate labor organizations that are subordinate to, and spend money conveyed to them by, covered labor organizations, thereby fully effectuating the purposes of the Act. For the reasons set forth above, the Department of Labor is issuing this Policy Statement; Interpretation under the authority at 29 U.S.C. 431 and 438. Signed at Washington, DC, this 23rd day of January, 2007. Victoria A. Lipnic, Assistant Secretary for Employment Standards. Don Todd, Deputy Assistant Secretary for LaborManagement Programs. [FR Doc. E7–1275 Filed 1–25–07; 8:45 am] BILLING CODE 4510–CP–P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 165 [CGD13–07–003] RIN 1625–AA00 Safety Zone Regulations, New Tacoma Narrows Bridge Construction Project, Construction Barge ‘‘MARMACK 12’’ Coast Guard, DHS. Temporary final rule. AGENCY: mstockstill on PROD1PC62 with RULES ACTION: SUMMARY: The Coast Guard is establishing a temporary safety zone around the Barge ‘‘MARMACK 12’’, Official Number 1024657, while it is being used for the New Tacoma Narrows Bridge Construction Project. The zone will extend 500 feet in all directions from the barge, and will be in effect at all times during the duration of this rule. This zone is only in effect while the barge is on the navigable waters of the United States, in the Tacoma Narrows. The Coast Guard is taking this action to safeguard the public from possible collision with the barge and the deck sections it is carrying, and from hazards associated with navigating in the vicinity of the barge during construction operations. Entry into this zone is prohibited unless authorized by the Captain of the Port, Puget Sound or his designated representatives. DATES: This rule is effective from 12:01 a.m. January 16, 2007 to 11:59 p.m. January 31, 2007. ADDRESSES: Documents indicated in this preamble as being available in the VerDate Aug<31>2005 15:24 Jan 25, 2007 Jkt 211001 docket are part of docket CGD13–07– 003 and are available for inspection or copying at the Waterways Management Division, Coast Guard Sector Seattle, 1519 Alaskan Way South, Seattle, WA 98134, between 8 a.m. and 3 p.m., Monday through Friday, except Federal holidays. FOR FURTHER INFORMATION CONTACT: Lieutenant Junior Grade Jes Hagen, Waterways Management Division, Coast Guard Sector Seattle, at (206) 217–6958. SUPPLEMENTARY INFORMATION: Background and Purpose Pursuant to 5 U.S.C. 553, a notice of proposed rulemaking (NPRM) has not been published for this regulation and good cause exists for making it effective without publication of an NPRM in the Federal Register. Publishing a NPRM would be contrary to public interest since immediate action is necessary to ensure the safety of vessels and persons that transit in the vicinity of the Tacoma Narrows Bridge. If normal notice and comment procedures were followed, this rule would not become effective until after construction activities were already taking place. Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register. Making the rule effective after 30 days of publication in the Federal Register would be contrary to public interest since immediate action is necessary to ensure the safety of vessels and persons that transit in the vicinity of the Tacoma Narrows Bridge. If normal notice and comment procedures were followed, this rule would not become effective until after construction activities were already taking place. Discussion of Rule The Coast Guard is adopting a temporary safety zone regulation on the waters of Tacoma Narrows, Washington, for the New Tacoma Narrows Bridge construction project. The Coast Guard has determined it is necessary to restrict access to the waters within 500 feet of the construction barge ‘‘MARMACK’’, in order to safeguard people and property from hazards associated with navigating in the vicinity of moving construction equipment. These safety hazards include, but are not limited to, hazards to navigation, collisions with the barge or its cargo, and disturbance of the load on the barge, which could fall or shift, injuring anyone in the vicinity. The Coast Guard, through this action, intends to promote the safety of personnel, vessels, and facilities in the area. Entry into this zone will be PO 00000 Frm 00038 Fmt 4700 Sfmt 4700 prohibited unless authorized by the Captain of the Port or his representative. This safety zone will be enforced by Coast Guard personnel. The Captain of the Port may be assisted by other federal, state, or local agencies. Regulatory Evaluation This temporary rule is not a ‘‘significant regulatory action’’ under section 3(f) of Executive Order 12866 and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not significant under the regulatory policies and procedures of the Department of Homeland Security (DHS). We expect the economic impact of this temporary rule to be so minimal that a full Regulatory Evaluation under paragraph 10(e) of the regulatory policies and procedures of DHS is unnecessary. This expectation is based on the fact that the regulated area established by this regulation would encompass a small area that should not impact commercial or recreational traffic. For the above reasons, the Coast Guard does not anticipate any significant economic impact. Small Entities Under the Regulatory Flexibility Act (5 U.S.C. 601–612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term ‘‘small entities’’ comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. This rule will affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit this portion of the Tacoma Narrows during the time this regulation is in effect. The zone will not have a significant economic impact on a substantial number of small entities due to its small area, and the limited duration of the impacts to navigation caused by the zone. Because the impacts of this rule are expected to be so minimal, the Coast Guard certifies under 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601–612) that this temporary rule will not have a significant economic impact on a substantial number of small entities. Assistance for Small Entities Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104–121), E:\FR\FM\26JAR1.SGM 26JAR1

Agencies

[Federal Register Volume 72, Number 17 (Friday, January 26, 2007)]
[Rules and Regulations]
[Pages 3735-3742]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-1275]



[[Page 3735]]

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 403

RIN 12157-AB34


Labor Organization Annual Financial Reports, Forms LM-2, LM-3, 
LM-4.

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

ACTION: Policy statement; interpretation.

-----------------------------------------------------------------------

SUMMARY: On December 22, 2002, the Department of Labor (Department) 
proposed revisions to Forms LM-2, LM-3, and LM-4, which are used by 
labor organizations to file annual financial reports required under 
Title II of the Labor-Management Reporting and Disclosure Act of 1959 
(LMRDA or Act), 29 U.S.C. 401 et seq., with the Employment Standards 
Administration's Office of Labor-Management Standards (OLMS). A portion 
of the proposed rule stated the Department's intent to revise its 
interpretation of an aspect of the definition of ``labor organization * 
* * deemed to be engaged in an industry affecting commerce'' under the 
LMRDA. After receiving and considering comments, the Department 
published its final rule on October 9, 2003.
    The interpretation in the final rule stated that intermediate 
bodies that are subordinate to a national or international labor 
organization that includes a labor organization will be covered by the 
LMRDA, even if the intermediate body's constituents are solely public 
sector local labor unions not covered by the Act. This interpretation 
of the LMRDA was challenged in federal district court by labor unions 
affected by the interpretation, and the court granted summary judgment 
in favor of the labor unions. Alabama Education Ass'n v. Chao, 2005 WL 
736535 (D.D.C. Mar 31, 2005). On appeal, the U.S. Court of Appeals for 
the District of Columbia Circuit reversed the grant of summary 
judgment. Alabama Education Ass'n v. Chao, 455 F.3d 386 (D.C. Cir. 
2006). The court of appeals held that the Department's interpretation 
was reviewable under deference principles established under Chevron 
U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 
(1984), and that the statutory definition of ``labor organization * * * 
deemed to be engaged in an industry affecting commerce'' is ambiguous 
and subject to more than one permissible interpretation, including the 
Department's interpretation. 455 F.3d at 393, 396. The court also 
concluded, however, that the Department had failed to provide a 
``reasoned analysis supporting its change of position'' and remanded 
the rule to the Department to provide such analysis. Id. at 396-397. 
The Department issues this Policy Statement in response to the court's 
remand order.

DATES: Effective Date: January 26, 2007.

FOR FURTHER INFORMATION CONTACT: Kay H. Oshel, Director, Office of 
Policy, Reports, and Disclosure, Office of Labor-Management Standards 
(OLMS), 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:

Statutory and Regulatory Background

    Congress enacted the LMRDA after an extensive investigation of 
``the labor and management fields * * * [found] that there ha[d] been a 
number of instances of breach of trust, corruption, disregard of the 
rights of individual employees, and other failures to observe high 
standards of responsibility and ethical conduct.'' 29 U.S.C. 401(b). 
Congress intended the Act to ``eliminate or prevent improper 
practices'' in labor organizations, to protect the rights and interests 
of employees, and to prevent union corruption. 29 U.S.C. 401(b), (c). 
As part of the statutory scheme designed to accomplish these goals, 
Congress required labor organizations to file annual financial reports 
with the Secretary of Labor. 29 U.S.C. 431(b). Congress sought full and 
public disclosure of a labor organization's financial condition and 
operations in order to curb embezzlement and other improper financial 
activities by union officers and employees. See S. Rep. No. 86-187 
(1959), reprinted in I NLRB, Legislative History of the Labor-
Management Reporting and Disclosure Act of 1959, at 398-99. Under the 
Act, labor organizations must file reports containing information such 
as assets, liabilities, receipts, salaries, loans to officers, 
employees, members or businesses and other disbursements ``in such 
detail as may be necessary accurately to disclose [their] financial 
condition and operations for [the] preceding fiscal year.'' 29 U.S.C. 
431(b).
    ``Labor organizations'' subject to the financial reporting 
requirements of the LMRDA are defined in the Act. Section 3(i) of the 
LMRDA , 29 U.S.C. 402(i), defines a ``labor organization'' as (1) any 
organization ``engaged in an industry affecting commerce * * * in which 
employees participate and which exists for the purpose, in whole or in 
part, of dealing with employers concerning grievances, labor disputes, 
wages, rates of pay, hours, or other terms or conditions of 
employment,'' or (2) ``any conference, general committee, joint or 
system board, or joint council so engaged which is subordinate to a 
national or international labor organization other than a State or 
local central body.'' The first clause of Section 3(i) applies to 
entities that exist, at least in part, to deal with employers 
concerning terms and conditions of employment. The second clause of the 
definition applies to conferences, general committees, joint or system 
boards or joint councils--entities that are known as ``intermediate'' 
labor organizations. See 29 CFR 451.4(f).
    Section 3(j) of the LMRDA, 29 U.S.C. 402(j), sets forth the 
circumstances under which labor organizations will be ``deemed to be 
engaged in an industry affecting commerce'' under the Act. In 
particular, Section 3(j)(5) of the Act provides that an intermediate 
labor organization is deemed ``engaged in an industry affecting 
commerce'' if it is ``a conference, general committee, joint or system 
board, or joint council, subordinate to a national or international 
labor organization, which includes a labor organization engaged in an 
industry affecting commerce within the meaning of any of the preceding 
paragraphs of this subsection, other than a State or local central 
body.'' 29 U.S.C. 402(j)(5).
    Although ``employer'' is defined broadly in the Act, the United 
States, States and local governments are expressly excluded from this 
definition. 29 U.S.C. 402(e). Thus, an organization is not covered 
under the first clause of Section 3(i), which requires that the 
organization deal with a statutory ``employer,'' if it deals only with 
federal, state or local governments. However, an ``organization'' 
covered by the second clause of the definition (a ``conference, general 
committee, [etc.] subordinate to a national or international'') need 
not deal with employers at all. 29 U.S.C. 402(i). Instead, such an 
intermediate labor body is covered by the Act so long as it is 
subordinate to a national or international labor organization and is 
``engaged in an industry affecting commerce.'' Id.
    The LMRDA authorizes the Department to promulgate rules and 
regulations to enforce the Act's financial reporting requirements. 
Under the Act,

[[Page 3736]]

Congress broadly delegated authority to the Secretary ``to issue, 
amend, and rescind rules and regulations prescribing the form and 
publication of reports required to be filed under this subchapter and 
such other reasonable rules and regulations * * * as [s]he may find 
necessary to prevent the circumvention or evasion of such reporting 
requirements.'' 29 U.S.C. 438; American Fed'n of Labor and Congress Of 
Indus. Orgs. v. Chao, 409 F.3d 377, 386 (D.C. Cir. 2005) (``[t]here is 
no serious dispute'' that Congress ``delegated authority to the 
Secretary to promulgate rules to enforce Section 208 [29 U.S.C. 
438]''). The Secretary also has express authority to enforce the Act's 
reporting requirements by initiating a civil action. 29 U.S.C. 440. The 
Department's interpretation of Section 3(j)(5), which ``clarifies the 
meaning of `labor organization * * * engaged in an industry affecting 
commerce[,] * * * comes within its express authority in Sec.  208 to 
promulgate rules'' under the LMRDA. Alabama Education, 455 F.3d at 393.

The Department's LMRDA Rulemaking

    The Department issued a Notice of Proposed Rulemaking on December 
27, 2002, that proposed revisions to the forms labor organizations use 
to file annual financial reports required by the LMRDA. Labor 
Organization Annual Financial Reports, 67 FR 79,280 (Dec. 21, 2002) 
(NPRM). As part of this rulemaking, the Department stated its intent to 
modify its interpretation of Section 3(j)(5). As noted, the Section 
provides that an intermediate labor organization is deemed ``engaged in 
an industry affecting commerce'' if it is:

    A conference, general committee, joint or system board, or joint 
council, subordinate to a national or international labor 
organization, which includes a labor organization engaged in an 
industry affecting commerce within the meaning of any of the 
preceding paragraphs of this subsection, other than a State or local 
central body.

    Before the December 2002 NPRM, the Department interpreted the 
clause, ``which includes a labor organization engaged in an industry 
affecting commerce within the meaning of any of the preceding 
paragraphs of this subsection, `` in Section 3(j)(5) as modifying 
``conference'' and other listed intermediate bodies. Under that 
interpretation, Section 3(j)(5) applied only to intermediate bodies 
that were subordinate to a national or international labor organization 
and were themselves composed, in whole or in part, of private sector 
local labor organizations.
    In contrast, in the NPRM's proposed interpretation, the ``which 
includes'' clause, modifies ``national or international labor 
organization.'' Under this interpretation, intermediate labor bodies 
need not themselves include private sector members to be covered under 
the LMRDA; rather, they need only be subordinate to a national or 
international labor organization that includes a union that represents 
private sector workers.
    The Department's prior interpretation of Section 3(j)(5) came into 
question following the decision in Chao v. Bremerton Metal Trades 
Council, 294 F.3d 1114 (9th Cir. 2002). In Bremerton, the Ninth Circuit 
held that the Bremerton Metal Trades Council (``BMTC''), a joint 
council, met the LMRDA definition of ``labor organization'' because it 
was subordinate to the Metal Trades Department, an international labor 
organization engaged in an industry affecting commerce. Bremerton, 294 
F.3d at 1118. In so holding, the court relied on the fact that the BMTC 
was subordinate to a parent organization that met the LMRDA definition 
of ``labor organization.'' Id. The court reasoned that ``[w]e must 
decide not whether the Bremerton Council bargains directly with any 
private employers but, instead, whether the Metal Trades Department, 
the organization to which the Bremerton Council is subordinate, is 
engaged in an industry affecting commerce.'' Id. at 1117. Thus, in 
contrast to the Secretary's interpretation at the time, Bremerton 
adopted an analysis under Section 3(j)(5) that looked not to the 
composition of the intermediate body itself, but rather to whether the 
national or international to which it is subordinate is engaged in an 
industry affecting commerce.
    The Bremerton case brought to the Department's attention an 
alternate view of the meaning of the ``which includes'' clause in 
Section 3(j)(5). In the 2002 NPRM, the Department proposed to revise 
its instructions on financial reports for labor organizations to 
include this interpretation of Section 3(j)(5), reflecting Bremerton's 
analysis. See NPRM, 67 FR 79,284 (proposing to adopt a rule that ``an 
intermediate labor organization that has no dealings itself with 
private employers and no members who are employed in the private sector 
may nevertheless be a labor organization engaged in commerce * * * if 
[it] is `subordinate to a national or international labor organization 
which includes a labor organization engaged in commerce.''')
    Following a 90-day comment period, the Department on October 9, 
2003, issued its final rule dealing with labor organization reporting 
requirements, in which it adopted the revised interpretation of Section 
3(j)(5). Labor Organization Annual Financial Reports, 68 FR 58374 (Oct. 
9, 2003) (Final Rule). In the preamble to the Final Rule, the 
Department addressed comments from three labor organizations--the 
National Education Association (NEA), the American Federation of 
Teachers (AFT) and the AFL-CIO--each of which opposed the Department's 
interpretation of Section 3(j)(5). The Department concluded that the 
comments opposing the Department's interpretation failed to provide a 
persuasive argument supporting the Department's return to its pre-2002 
view of the ``which includes'' clause of Section 3(j)(5).
    After being notified by OLMS of the Department's revised 
interpretation of Section 3(j)(5), and the corresponding need to file 
reports, 38 intermediate labor organizations representing public sector 
employees, primarily public school teachers, challenged the new 
interpretation in federal district court. The court granted summary 
judgment in favor of the plaintiff labor organizations. Alabama 
Education Ass'n v. Chao, 2005 WL 736535 (D.D.C. Mar. 31, 2005). The 
Department appealed that decision, and the U.S. Court of Appeals for 
the D.C. Circuit, reversed the lower court's ruling. Alabama Education 
Ass'n v. Chao, 455 F.3d 386 (2006). The court of appeals held that the 
Department has statutory authority ``to clarif[y] the meaning of `labor 
organization * * * engaged in an industry affecting commerce' '' and 
thus the Secretary's interpretation of Section 3(j)(5) is ``reviewable 
under Chevron'' principles of deference. 455 F.3d at 393. The court 
further ruled that Section 3(j)(5)'s ``which includes'' clause contains 
a ``patent ambiguity'' and that the Secretary's interpretation was a 
permissible interpretation of the provision's terms. 455 F.3d at 395, 
396; see also id. at n. * (LMRDA legislative history confirms 
``inherent ambiguity of the statute'').
    The court, however, further concluded that the Department had 
failed to provide a ``reasoned analysis'' for its change of position 
``sufficient to command [the court's] deference under Chevron.'' 455 
F.3d at 396. The court noted that the Department failed to link 
specifically the general policy concerns underlying the financial 
reporting revisions in the final rule, (i.e., changes in union size, 
financing and structure, and resulting financial irregularities, 67 FR 
79,280), with an assessment of the Department's new and prior 
interpretations of Section 3(j)(5). 455

[[Page 3737]]

F.3d at 396-397. The court also noted that the Department had unduly 
relied on the Bremerton decision, without acknowledging that because 
the intermediate body in that case contained private sector members, 
the decision's holding did not contribute to the required reasoned 
analysis. Id. at 397. Accordingly, the court remanded the rule to the 
Department to provide a reasoned explanation for its change in 
interpretation.
    That analysis is set forth below.

Explanation for the Department's Revised Interpretation of Section 
3(j)(5)

    The Department's revised interpretation of the statute broadens the 
coverage of intermediate labor organizations subject to the reporting 
requirements of the LMRDA.
    The result of this interpretation is that intermediate bodies that 
are subordinate to a national or international labor organization that 
includes a covered labor organization will be covered by the LMRDA, 
even if the intermediate body is composed of solely public sector local 
labor unions not covered by the Act. The rulemaking record as a whole 
suggested several reasons in support of the Department's adoption of 
this policy, and those reasons will be further explained and analyzed 
here.
    The Department's 2002 NPRM supported its regulatory revisions to 
labor organizations' financial reporting requirements with the 
following analysis:

    Labor organizations also have changed tremendously since the 
enactment of the LMRDA in 1959. There are now far fewer small, 
independent unions and more large unions affiliated with a national 
or international body * * *. In fact, many large unions today 
resemble modern corporations in their structure, scope and 
complexity. Moreover, just as in the corporate sector, there have 
been a number of financial failures and irregularities involving 
pension funds and other member accounts maintained by labor 
organizations. These failures and irregularities result in direct 
financial harm to union members. If the members of labor 
organizations had more complete, understandable information about 
their unions' financial transactions, investments and solvency, they 
would be in a much better position than they are today to protect 
their personal financial interests and exercise their democratic 
rights of self-governance.

NPRM, 67 FR at 79,280-81.

    In addition, regarding the Department's view of Section 3(j)(5), 
the NPRM stated:

    The instructions to form LM-2 adopt the recent holding of the 
U.S. Court of Appeals for the Ninth Circuit in Chao v. Bremerton 
Metal Trades Council, AFL-CIO, 294 F.3d 1114 (2002), interpreting 
Section 3(j) of the LMRDA, because that interpretation gives full 
meaning to the plain language of the statute. In that case, the 
Court ruled that an intermediate labor organization that has no 
dealings itself with private employers and no members who are 
employed in the private sector may nevertheless be a labor 
organization engaged in commerce within the meaning of Section 3(j) 
of the LMRDA if the intermediate body is ``subordinate to a national 
or international labor organization which includes a labor 
organization engaged in commerce.'' Accordingly, the Instructions 
will clarify that any ``conference, general committee, joint or 
system board, or joint council'' that is subordinate to a national 
or international labor organization will be required to file an 
annual financial form if the national or international labor 
organization is a labor organization engaged in an industry 
affecting commerce within the meaning of Section 3(j) of the LMRDA.

NPRM, 67 FR 79,280, 79,284.
    The Department's 2003 Final Rule provided the following support for 
its policy revision:

    The stated intent of Congress was to exempt ``wholly public 
sector'' labor organizations from the coverage of the Act. The 
Bremerton court found that an intermediate labor organization is not 
``wholly public sector'' and exempt from the Act where it is 
subordinate to a parent organization that meets the definition of a 
labor organization engaged in an industry affecting commerce. The 
Department's regulation at 29 CFR 451.3(a)(4) is not contrary to the 
Bremerton decision when the regulation is read as giving effect to 
the court's interpretation of the term ``wholly public sector labor 
organization.'' The Department concludes that none of the commenters 
provides a persuasive argument for disagreeing with the Bremerton 
court's reading of the statute and therefore will maintain the 
expanded language in the instructions for the Form LM-2.

Final Rule, 68 FR 58,374, 58,384.

    These excerpts from the rule-making record establish a foundation 
for the Department's explanation of its policy choice, and point to 
three interdependent rationales for the adoption of the revised 
interpretation. First, the Department has selected a policy alternative 
that is consistent with the terms of the statute and promotes 
Congress's purposes in enacting the LMRDA. The Department's 
interpretation of Section 3(j)(5) advances the twin Congressional goals 
that labor organizations' financial conditions and operations should be 
subject to public disclosure to benefit employees that participate in 
those organizations, and that the definition of ``labor organizations'' 
covered by the LMRDA should be interpreted broadly to advance union 
democracy, financial transparency, and integrity. Second, the expanded 
coverage permitted by the new interpretation promotes disclosure of 
financial disbursements and receipts to and from structurally related 
labor organizations, thus enhancing employees' ability to understand 
the overall operation of labor organizations in general, as well as 
identify any potential financial irregularities in particular. The 
structure and financial aspects of labor organizations have become 
increasingly complex in the nearly fifty years since the passage of the 
LMRDA. Unlike several decades ago, when small, independent unions 
predominated, there are now large, multi-level, multi-faceted labor 
organizations, most of which are affiliated with large and complex 
national or international labor organizations. In addition, many labor 
organizations have restructured and reorganized their affiliate 
relationships, rendering a single labor organization report 
insufficient to provide transparency to increasingly complex structures 
and relationships.
    Third, and most importantly, the revised interpretation gives full 
meaning to clause two of Section 3(i), 29 U.S.C. 402(i), which has at 
its core a focus on covering those intermediate bodies precisely 
because they are subordinate to a covered national or international 
labor organization even though they may consist only of unions not 
covered under the first clause of 3(i). The interpretation advances 
public disclosure of financial transactions by intermediate bodies that 
receive money from covered national and international labor 
organizations, the source of which is, in part, fees and assessments 
originating from employees in the private sector. Thus, the so-called 
``wholly public sector'' intermediate body loses that attribute to a 
great extent (despite its composition) when it is subordinate to, and 
accepting contributions from, covered national and international labor 
organizations whose funds are derived, in part, from employees in the 
private sector.
    As the court of appeals noted, these bases for the revised 
interpretation were not fully explained in the prior rulemaking, and we 
now elaborate upon them in greater detail.\1\
---------------------------------------------------------------------------

    \1\ In the preamble to the 2003 final rule, the Department 
reviewed and responded to all comments regarding the Department's 
interpretation in the final rule. As explained in the preamble, the 
Department received only five comments on its interpretation, 
including one from a supportive union member and one from a labor 
organization that employed a mistaken premise that the 
interpretation would require state or local central bodies to file 
financial disclosure forms. 68 FR 58,383-58,384. Taken together, the 
remaining three comments from three labor organizations challenged 
the interpretation on three grounds: (1) The Department did not have 
the statutory authority to undertake the revised interpretation; (2) 
the Department's construction of the statutory terms was erroneous, 
and resulted in the coverage of intermediate labor organizations 
that are purely public-sector labor organizations and exempt from 
the definitional provisions of the Act; and (3) the intermediate 
bodies to which the Act would apply are not ``subordinate'' to a 
national or international labor organization within the meaning of 
the Act. After full consideration the Department determined that 
none of the comments resulted in a determination that the 
interpretation was either legally flawed, an erroneous construction 
of the statute, or misguided public policy. 68 FR 58,383-58,384. The 
Department has once again fully reviewed and reconsidered these 
comments prior to publication of this Policy Statement, and the 
conclusion expressed in the 2003 preamble remains unaltered.

---------------------------------------------------------------------------

[[Page 3738]]

1. Consistency With the Terms and Purpose of the LMRDA

    As noted above, in enacting the LMRDA, Congress intended to 
``eliminate or prevent improper practices'' in labor organizations, 
protect the rights and interests of employees, and prevent union 
corruption. 29 U.S.C. 401(b), (c). To curb embezzlement and other 
improper financial activities of labor organizations, Congress required 
labor organizations to file detailed annual financial reports with the 
Secretary of Labor. 29 U.S.C. 431(b). The reporting provisions of the 
LMRDA were devised to implement the basic premise of the LMRDA--that 
the Act was intended to safeguard democratic procedures within labor 
organizations and protect the basic democratic rights of union members. 
By mandating that labor organizations disclose their financial 
operations to employees they represent, Congress intended to promote 
union self-government, which would be advanced because union members 
would be provided sufficient information to permit them to take 
effective action in regulating internal union affairs.
    The LMRDA is a remedial statute, necessary to impose high standards 
and ethical conduct in the administration of internal union affairs. 
Wirtz v. Local 153, Glass Bottle Blowers Assn., 389 U.S. 463, 469-470 
(1968). In addition, Congress intended the definition of labor 
organization to be construed broadly to achieve the Act's purposes. 
Donovan v. National Transient Div., Int'l Bhd. of Boilermakers, 736 
F.2d 618, 621 (10th Cir. 1984), cert. denied, 469 U.S. 1107 (1985). In 
order to fully effectuate and serve the remedial purposes of the Act 
noted above, the Department seeks to interpret the definitional 
sections of the LMRDA broadly ``to include all labor organizations of 
any kind other than those clearly shown to be outside the scope of the 
Act.'' 29 CFR 451.2 (2006).
    The Department's pre-2002 interpretation of Section 3(j)(5) did not 
fully serve Congressional intent that the statute's definition be read 
broadly, nor did it serve the remedial purposes of the LMRDA. Employees 
concerned about payments to and from intermediate labor organizations 
subordinate to a covered national or international labor organization 
did not have access to the quality and quantity of information 
available to members of unions that have historically filed the 
Department's annual disclosure forms. Absent such disclosures, union 
members know less about the governance of their unions and are thereby 
frustrated by their inability to monitor the spending of their dues 
monies because they are not fully aware of the financial commitments 
and obligations of their union. They are disadvantaged in their ability 
to make informed decisions when electing their union officers because 
they do not have detailed information about the funding decisions made 
by incumbent officeholders. In contrast, members of unions that file 
the financial disclosure forms have a tool that can help them detect 
fraud and embezzlement. Officers and employees of such unions are 
deterred from committing such misconduct because they understand that 
their unions' financial transactions are recorded, reported, and made 
publicly available on the Internet. Employees concerned about the 
expenditures of intermediate unions that did not report as the result 
of the Department's prior policy have been denied the benefits that 
flow from the increased transparency that compliance with the LMRDA 
brings, including more effective member participation in union 
decision-making, more informed voters, and the deterrence and detection 
of fraud. If all intermediate bodies subordinate to LMRDA-covered labor 
organizations are not themselves covered by the LMRDA, union 
transparency is diminished and misdeeds will be more difficult to 
discover.

2. Structural and Financial Complexity of Labor Organizations

    The Department's NPRM noted that ``many large unions today resemble 
modern corporations in their structure, scope and complexity.'' NPRM, 
67 FR at 79,280. Indeed, ``commercial organizations and unions still 
share many structural features of complex organizations. In most 
industrial nations, unions as labor organizations have developed from 
small, voluntary associations, to larger, more formal bureaucracies. 
With the formation and expansion of large scale industrial unions, the 
structure of labor organizations has shifted from that of informal 
communities of workers to more centralized, hierarchical, and rational 
bureaucracies.'' Julian Barling, Clive Fullagar & E. Kevin Kelloway, 
The Union and Its Members 13 (Oxford University Press 1992).
    In a unionized workplace, employees may be members of a local labor 
organization, which represents employees with respect to terms and 
conditions of employment at that particular workplace. That local union 
is typically chartered by a national union, which in turn may be 
affiliated with a national federation of unions. In addition, there are 
city and state federations of labor organizations, international 
federations of labor, joint and district councils, and departments 
within a national federation of unions, among others. There are many 
different, but related, labor organizations that a union member must 
examine in order to analyze his or her local representative's 
expenditure of funds.
    The interrelatedness, and resulting structural complexity, of labor 
organizations has a number of causes. The need for collaboration among 
and between labor organizations with shared interests, the necessity of 
labor organization cohesion during times of economic strife, the need 
for large-scale reform regarding certain issues, such as nation-wide 
wages and hours reform, the rise in multi-city or national 
corporations, and the growth of a global economy, have all contributed 
to the increase in labor organization affiliation within local, central 
and national labor organizations. See Sidney Lens, Unions and What They 
Do 39-46 (G.P. Putnam's Sons 1968). These factors contributing to labor 
organization interrelatedness and complexity have only increased in the 
final decades of the twentieth century.
    This growth of interconnected labor organizations has been 
accompanied by a complicated pattern of relationships, including 
affiliations, disaffiliations, trusteeships, federal court supervision, 
and the like. For instance, in 2005, seven of the largest national and 
international unions left the AFL-CIO, for many years the only national 
federation of unions, and created a brand new national labor 
federation. Several of the nation's largest labor organizations have 
departed the AFL-CIO in the past, only to rejoin, and then depart 
again. Several national or international labor organizations prefer to 
remain independent from any national federation. State federations of

[[Page 3739]]

labor organizations have themselves affiliated or disaffiliated with 
national organizations depending on the common or divergent interests 
of those labor organizations. Labor organizations have been placed in 
trusteeship, requiring management of their internal affairs by higher-
level labor organizations, and several labor organizations have been 
managed for years under court supervision. The AFL-CIO itself has 
departments that are groupings of international unions based on trade 
or industry that affiliate specifically with those departments. A local 
union member may have direct contact only with his or her local, but in 
all likelihood he or she is represented, through elected or appointed 
delegates, within a maze of other union structures.
    The complexity of labor organization structures and relationships 
may be daunting to employees represented at the workplace level by a 
local labor organization. Yet the structural complexity pales in 
comparison to the financial complexity created by these relationships. 
Dues and fees are collected from members at the local level, and that 
money is sent on to other related organizations in the form of per-
capita assessments to support an increasingly complicated, 
sophisticated, and coordinated set of expenditures by related labor 
organizations, including education, organizing, political action at all 
levels of government, strike funds, public relations, research, legal 
representation, and so on. The ability of that local union member to 
follow the trail of transactions among and between labor organizations 
affiliated with the local union is challenging at best.
    Confronted by the structural and financial complexity of 
interrelated labor organizations, a local union member is further 
hindered by the fact that labor organizations are required to report 
only their individual financial conditions--joint affiliate reporting 
is not required by the LMRDA. As a result, a local union member 
interested in ascertaining the end-point of his or her dues collected 
by the local but cast into the stream of affiliate expenditures must 
obtain the financial reports of the local and each affiliated labor 
organization--the national or international, the state level 
organization, the national federation, and any other labor 
organizations affiliated directly or indirectly with the local union. 
Of course, this opportunity to study and analyze one's own local union 
expenditures is lost if, within the chain of affiliations, one of the 
affiliates has not filed an annual financial report.
    Given the increased complexity of union structures and finances, 
the ability of local union members to benefit from the transparency 
afforded by the LMRDA should not be diminished by a labor 
organization's relationship to an intermediate body that does not 
presently file annual financial reports. Such a circumstance is akin to 
a parent corporation disguising its assets and expenditures by lodging 
them with an undisclosed subsidiary. To avoid this scenario in the 
context of labor organizations, the LMRDA should be interpreted, to the 
extent permitted by the statute's terms, so that local union members 
have the ability to lift the cloak of structural and financial 
complexity, and fully understand the activities and expenditures of 
their local unions, their local's national affiliates, and the national 
organization's subordinate labor organizations.

3. Intermediate Bodies' Expenditure of Funds Derived in Part From 
Compulsory Fees and Taxes on Employees in the Private Sector

    The two principles discussed above--the promotion of Congress's 
goal of transparency in labor organization expenditures and the complex 
structural and financial relationships between unions--lead directly to 
the final consideration supporting the Department's revised 
interpretation of Section 3(j)(5). The LMRDA's purpose and intent, its 
legislative history, and the complexity and interrelatedness of modern 
labor organizations, all support the disclosure of assets and 
expenditures of intermediate labor bodies whose funds are derived, at 
least in part, from private sector employees. In some cases, private 
sector employees are represented by a local union that financially 
supports a national or international labor organization with which it 
is affiliated, and that national or international labor organization in 
turn financially supports a subordinate state-level labor body that may 
itself be wholly composed of locals representing employees only in the 
public sector and therefore, has not, in the past, filed annual 
financial disclosure statements.
    Consider, for example, a local labor organization composed entirely 
of nurses and other health care professionals employed by hospitals and 
other facilities 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 funds to its state-level 
subordinates. The state-level subordinate may itself be wholly composed 
of public-sector locals and, as a result, not previously required to 
file a financial disclosure statement. Consequently, the private-sector 
nurses can track expenditures of their local union dues only until the 
expenditures reach the state-level labor organization. There, under the 
Department's prior interpretation, further financial information would 
not be available, because the intermediate labor organization would not 
be considered to be engaged in an industry affecting commerce under the 
Act and would not be required to file reports.
    The same scenario holds true in the case of faculty and staff 
employed by universities in the private sector, and represented by a 
local union affiliated with another national union primarily 
representing teachers in the public sector. The private-sector faculty 
members' local union dues support the national teachers union, which in 
turn disburses funds to its state-level subordinates. Again, the 
intermediate body may be wholly composed of public-sector locals, but 
it is receiving indirectly the dues and fees of employees in the 
private sector.
    These scenarios are borne out by the two tables below. Table 1 
reflects locals affiliated with two national teachers unions that have 
many dues-paying members employed in the private-sector, like the 
nurses and university professors examples noted above. The per capita 
fees paid to the national teachers union by members of those private-
sector locals are shown below.

   Table 1.--Fiscal Year 2005 Per Capita Tax Disbursements From Locals
   Composed at Least in Part of Private-Sector Employees to Affiliated
                       National Teachers Union \2\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
       Locals Affiliated With American Federation of Teachers \3\
------------------------------------------------------------------------
Indiana Educators Federation, Local 4524................        $254,735
Temple University, Local 4531...........................         173,540
USF Faculty Association, Local 4269.....................          91,381
Washington Teachers Union, Local 6......................         794,148

[[Page 3740]]

 
Professional Guild of Ohio, Local 1960..................         171,237
UCATS, Local Union 3882.................................         395,783
Danbury Hospital Professional Nurses Association, Local          174,270
 Union 5047.............................................
New Haven Federation of Teachers, Local Union 933.......         537,260
Oregon Federation of Nurses-Kaiser, Local Union 5017....         412,957
NY State Public Employees Federation, Local Union 4053..       7,658,493
Alaska Public Employees Association, Local Union 5200...         423,730
Professional Staff Congress/CUNY, Local Union 2334......       4,771,000
L & M Healthcare Workers Union, Local Union 5123........         169,217
------------------------------------------------------------------------
        Locals Affiliated With National Education Association \4\
------------------------------------------------------------------------
OEA American Education Assn Okinawa.....................         264,263
Endicott College Faculty Association....................           8,631
Adrian College Association of Professors................          50,959
University of Detroit Professors Union..................         147,821
Roger Williams University Faculty.......................         105,623
Baker College Education Association.....................          25,261
Milton Hershey Education Association....................          70,025
National Education Assn Ind Local Union University of             14,840
 Detroit Support Staff..................................
Rhode Island School of Design Faculty...................          58,215
RISD Part Time Faculty Association, Local 895...........          39,997
------------------------------------------------------------------------
\2\ Labor organizations that file Form LM-2, LM-3, or LM-4 reports with
  the Department are, by definition, ``labor organizations'' covered by
  the LMRDA. Local labor organizations that file reports are composed,
  at least in part, of members employed in the private sector. See 29
  CFR 451.3(a)(4) (``mixed and non-government locals [are] `labor
  organizations' and subject to the Act'').
\3\ These figures are taken from the Form LM-2 filed by each listed
  local labor organization for its fiscal year 2005. Form LM-2s are
  filed by those labor organizations with total annual receipts of
  $250,000 or more in their fiscal years. See Instructions for
  Electronic Form LM-2 Labor Organizations Annual Report (3/23/04) at p.
  1, at http://www.dol.gov/esa/regs/compliance/olms/erds/
LM2Instr2-2-04koREVISED.pdf. (Revisions in 2003 to the Form LM-
  2 and its instructions, which set $250,000 as the mandatory floor for
  filing the Form LM-2 amended the old floor of $200,000 set in 29 CFR
  403.4. See 68 FR 58383, 58473.) Article VIII, Section 1(a) of AFT's
  constitution requires each local to pay an established per capita tax
  to the national office, and further sets the per capita rate at which
  the national office will pay the office of each state federation. See
  AFT 2002 Constitution at p. 21.
\4\ Except in one case in which the labor organization filed a Form LM-
  2, these figures are taken from the Form LM-3 filed by each listed
  local labor organization for its fiscal year 2005. Section 2-9 of the
  NEA's bylaws indicates that, as established in contracts entered into
  between the affiliates and the NEA, local affiliates transmit dues to
  both the state affiliate and the NEA. As a result, these figures may
  represent disbursements to both state affiliates and the NEA. See
  Bylaws of the National Education Association of the United States 2004-
  2005 at. p. 7.

* * * * *
    Table 2 below confirms that these national teachers unions, which, 
as shown above, received per capita fees from locals composed, at least 
in part, of private sector employees, disbursed funds to their 
affiliated intermediate bodies.

 Table 2.--Fiscal Year 2005 Disbursements as ``Contributions, Gifts and
 Grants'' by National Teachers Unions to Intermediate State-Level Labor
                            Organizations \5\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
  Contributions, Gifts and Grants by American Federation of Teachers to
                          State Affiliates \6\
------------------------------------------------------------------------
Louisiana Federation of Teachers*.......................         $15,000
------------------------------------------------------------------------
  Contributions, Gifts and Grants by National Education Association to
                          State Affiliates \7\
------------------------------------------------------------------------
Alabama Education Association*..........................      $1,561,525
NEA Alaska*.............................................         390,595
Arizona Education Association*..........................         879,775
Arkansas Education Association*.........................         434,715
Colorado Education Association*.........................         142,435
Connecticut Education Association*......................         844,595
Delaware State Education Association*...................         239,015
Georgia Association of Educators*.......................         972,770
Hawaii State Teachers Association*......................         414,740
Idaho Education Association*............................         317,305
Indiana State Teachers Association*.....................       1,181,930
Iowa State Education Association*.......................         892,770
Kansas NEA*.............................................         595,465
Kentucky Education Association*.........................       1,009,842
Louisiana Association of Educators*.....................         479,094
Maryland State Teachers Association*....................       1,434,090
Massachusetts Teachers Association*.....................       1,638,351
Education Minnesota.....................................       1,410,256
Mississippi Association of Educators*...................         242,370
Missouri NEA*...........................................         800,440
Nebraska State Education Association....................         590,465
NEA New Hampshire*......................................         405,595

[[Page 3741]]

 
NEA New Mexico..........................................         332,305
NEA New York............................................       1,535,089
New Jersey Education Association........................       2,286,522
Nevada State Education Association*.....................         777,045
North Carolina Association of Educators*................       1,283,365
North Dakota Education Association*.....................         213,370
Oklahoma Education Association*.........................         772,045
Oregon Education Association*...........................       1,012,705
South Carolina Education Association*...................         434,740
South Dakota Education Association*.....................         239,015
Texas State Teachers Association........................       1,408,136
Tennessee Education Association*........................       1,105,568
Utah Education Association..............................         112,435
Vermont NEA.............................................         438,660
Virginia Education Association*.........................       1,509,090
Washington Education Association*.......................       1,922,975
West Virginia Education Association*....................         416,740
Wisconsin Education Association Council*................       2,470,440
Wyoming Education Association*..........................         190,725
------------------------------------------------------------------------
\5\ LM-2 instructions require labor organizations to itemize
  contributions, gifts and grants on Schedule 17 of the Form. The
  itemizations include ``direct and indirect disbursements to all
  entities and individuals during the reporting period associated with
  contributions, gifts, and grants, other than those listed on Schedules
  15, 16, and 20[, and i]nclude, for example, charitable contributions,
  contributions to scholarship funds, etc.'' See Instructions for
  Electronic Form LM-2 Labor Organizations Annual Report (3/23/04) at
  p.32, at  http://www.dol.gov/esa/regs/compliance/olms/erds/LM2Instr2-
2-04koREVISED.pdf.
\6\ These figures are taken from the Form LM-2 filed by AFT for its
  fiscal year beginning July 1, 2004 and ending June 30, 2005.
\7\ These figures are taken from the Form LM-2 filed by the NEA for its
  fiscal year beginning September 1, 2004 and ending August 31, 2005.
* State affiliates marked with an asterisk are parties in Alabama
  Education Ass'n v. Chao, 455 F.3d 386 (D.C. Cir. 2006), and have not
  filed financial disclosure reports with the Department. These state
  affiliates have stated in that litigation that they are intermediate
  bodies wholly composed of public sector affiliates. State affiliates
  that are not marked by an asterisk are not parties in Alabama
  Education Ass'n v. Chao, and have not filed current financial
  disclosure reports with the Department. The Department presumes that
  their non-filing status is due to their wholly public sector
  composition and not due to any other exception or exemption under the
  LMRDA.

    Taken together, Tables 1 and 2 demonstrate that two national 
teachers unions receive dues and fees from employees employed in the 
private-sector, and that money is, in turn, disbursed to intermediate 
bodies that have previously not been required to file financial 
disclosure reports.
* * * * *
    The expenditure of dues and fees of private-sector employees by 
intermediate-level state affiliates of national labor organizations 
without full public disclosure of those expenditures runs afoul of the 
purpose and intent of the LMRDA. As noted earlier, labor organizations 
that solely ``deal with'' public-sector employers are not covered by 
the first clause of Section 3(i), which applies only to labor 
organizations that deal with statutory, i.e., private sector employers. 
The second clause has no such limitation, and does not require that 
intermediate bodies deal with any employers, private or public. Given 
the scenario outlined above--that intermediate bodies may receive 
financial support based on dues received in part from private sector 
employees, the second clause of section 3(i) makes perfect sense. 
Coverage of intermediate bodies under the second clause does not turn 
on the entity's dealings with employers, but is based instead on the 
subordinate relationship with a covered national or international. The 
Department's rule corrects the problem of the non-transparency of funds 
provided by covered national or international labor organizations to 
subordinate intermediate bodies, and gives full meaning to the second 
clause of Section 3(i).
    It would undermine, rather than promote, the purposes of the LMRDA 
if a labor organization could disburse dues paid by private-sector 
employees to a subordinate labor body, and such subordinate labor body 
could spend that money in secrecy. Such a loophole does not exist on 
the face of the statute or anywhere in its legislative history, and was 
not deliberately created by Congress in 1959. Moreover, the 
Department's key statutory responsibility to promote union transparency 
and democracy under the LMRDA requires that this loophole created by 
prior interpretation be closed. As in the cases illustrated above, a 
private-sector employee represented by a private-sector local union 
covered by the LMRDA should not be prevented from tracing to its end-
point the expenditure of his or her own dues and fees, even if a labor 
organization ultimately receiving those private-sector dues is composed 
solely of public-sector unions. Thus, the ambiguity in Section 3(j)(5), 
see Alabama Education, 455 F.3d at 395, should be resolved in favor of 
coverage of an intermediate labor organization that is subordinate to a 
national or international labor organization that includes a private 
sector local, even if the intermediate itself is composed solely of 
public sector members. Under this interpretation, the private-sector 
employees in that local will have an improved ability to ascertain the 
nature of labor organizations expenditures derived from their dues.
    For several decades following the enactment of the LMRDA, the 
Department's administration of the statute did not reach intermediate 
labor organizations subordinate to a covered national or international 
labor organization but composed solely of local public-sector labor 
organizations. During that period of LMRDA administration, the 
Department's interpretation permitted LMRDA-covered national and 
international organizations to make financial disbursements to their 
intermediate affiliates without any requirement that the intermediate 
affiliates disclose the manner in which that money, some derived from 
private-sector employees, was spent. Private-sector local union members 
have been unable to ascertain whether their representatives spend their 
money wisely, foolishly, or even illegally. The LMRDA's primary goal of 
labor organization democracy achieved through labor organization 
transparency has been thwarted during this period.

[[Page 3742]]

The Department's revised interpretation is intended to shed light on 
the financial transactions of intermediate labor organizations that are 
subordinate to, and spend money conveyed to them by, covered labor 
organizations, thereby fully effectuating the purposes of the Act.
    For the reasons set forth above, the Department of Labor is issuing 
this Policy Statement; Interpretation under the authority at 29 U.S.C. 
431 and 438.

    Signed at Washington, DC, this 23rd day of January, 2007.
Victoria A. Lipnic,
Assistant Secretary for Employment Standards.
Don Todd,
Deputy Assistant Secretary for Labor-Management Programs.
 [FR Doc. E7-1275 Filed 1-25-07; 8:45 am]
BILLING CODE 4510-CP-P