DOL's LMRDA Enforcement Initiative Raises Significant Issues For Employers

Thursday, December 1, 2005 - 01:00
Chase A. Karsman

In the last few months, the United States Department of Labor (DOL) has moved forward with its renewed focus on compliance by unions and employers under the Labor Management Reporting and Disclosure Act (LMRDA). Although in effect since 1959, most of the LMRDA obligations largely have been ignored by DOL, employers, and union representatives alike. Because criminal sanctions may result from a violation of the LMRDA (or as discussed below, even from compliance with the LMRDA), DOL's LMRDA enforcement initiative raises significant questions for employers.

Congress enacted the LMRDA in 1959 "to correct widespread abuses of power and instances of corruption by union officials." Franza v. IBT, Local 671, 869 F.2d 41, 44 (2d Cir. 1989). The LMRDA addressed the corruption by limiting the ability of unions to operate in secrecy. Toward that end, unions are required to file on an annual basis either form LM-2 or LM-3. Broadly speaking, employees of a union, excluding clerical and custodial employees, must report on form LM-30 any "income or any other benefit with monetary value (including reimbursed expenses)" received from an employer, excluding de minimis amounts. 29 U.S.C. §§ 432(a)(1)-(5). Employers have a parallel obligation to disclose on form LM-10 "anything of value" that they have provided to union representatives or labor consultants. 29 U.S.C. § 433. Violation of these provisions, submitting a false report or concealing records are criminal offenses, punishable by a fine of up to $10,000 or imprisonment for up to one year. 29 U.S.C. § 439.

The LMRDA reporting requirements are related closely to the criminal provisions of the Labor Management Relations Act (LMRA or Taft-Hartley Act) of 1947. Congress enacted Section 302 of the LMRA for the stated purpose of "stamping out . . . all forms of bribery between management and labor officials." United States v. Lanni, 466 F.2d 1102 (3d Cir. 1972); 29 U.S.C. § 186. It sought to accomplish this objective by prohibiting most dealings between employers and union representatives. Subject to certain enumerated exemptions, Section 302 prohibits the employer from giving "anything of value" to a union or union representative. The LMRA is a criminal statute, with violations punishable by fines of up to $15,000 or imprisonment for up to five years. 29 U.S.C. § 186(d). Each prohibited payment of money or thing of value constitutes a separate violation of the LMRA. See United States v. Alaimo, 297 F.2d 604 (3d Cir. 1961), cert. denied, 369 U.S. 817 (1962).

It is the overlap between the LMRA and the LMRDA that creates significant issues for employers, creating a "catch-22" for employers. The LMRDA requires the filing of reports that disclose transactions between employers and unions, while the LMRA makes many of those same transactions illegal. DOL has taken the position that "[r]eports required of employers . . . must be submitted notwithstanding the fact that . . . the report[s] may disclose a violation of section 302 of the Taft-Hartley Act." LMRA Interpretive Manual, § 251.100. Thus, under DOL's LMRDA initiative, both unions and employers are required to report transactions that could result in criminal liability under the LMRA.

DOL launched its LMRDA initiative on October 9, 2003, when it revised the reporting obligations of unions under the LMRDA. A lawsuit brought by the AFL-CIO temporarily delayed implementation of the regulations. In May 2005 that lawsuit was resolved, freeing DOL to proceed.

Initially, DOL focused on LM-2 filing requirements for unions, applicable to unions with gross receipts of over $250,000. From an employer's perspective, the most significant change to the LM-2 is the new obligation of unions to itemize all major receipts. A "major receipt" is a single receipt or aggregate receipts from one individual source of $5,000 or more during the reporting period. See 68 Fed. Reg. 58374. Most importantly, unions now are required to list the name and address of the source from which the union received a receipt. This new requirement not only makes it easier for DOL to determine whether employers are meeting their own reporting obligations under the LMRDA, but also enables DOL to identify employers who may have violated the LMRA.

Following its revision of the LM-2 filing requirements, DOL turned its attention to LM-30 filing requirements for union representatives. Under the LMRDA regulations, union representatives must file form LM-30 on an annual basis. Initially, DOL focused on obtaining a higher level of compliance from union representatives by offering an amnesty to first-time filers who filed their LM-30 reports by July 15, 2005, subsequently extended to August 15, 2005. The amnesty had its intended effect, and over 10,000 LM-30 reports already have been filed, as compared to only 244 LM-30 filings from 2001 to 2004.

While many employers are familiar with the prohibition on payments to union representatives, they may not understand the breadth of the LMRDA's reach. For example, a thing of value includes "free use of automobiles, reduced hotel rental rates, loans with an unusually low interest rate, and other transfers of goods and services." Milan Kosanovich et al., Twentieth Survey of White Collar Crime: Employment-Related Crimes, 42 Am. Crim. L. Rev. 305, 333 (2005); see also United States v. Kopituk, 690 F.2d 1289, 1330 (11th Cir. 1982); United States v. Carlock, 806 F.2d 535, 555 (5th Cir. 1986). In short, if an act by an employer, or even a failure to act, confers a benefit on a union representative, the act may trigger a filing obligation.

On August 29, 2005, DOL issued a proposed rule that underscores the breadth of the LM-30 filing requirements for union representatives. Generally speaking, the proposed rule would make virtually all transactions between employers and union representatives reportable on form LM-30. Because employers have parallel reporting obligations under the LMRDA, the proposed LM-30 revisions presage the scope of an employer's own filing obligations.

The LM-30 revisions raise issues that will be of concern to employers. One such issue is DOL's proposal to require reporting of "union leave" or "no docking" agreements, which provide for continued payment of wages to employees while they perform union business. Historically, such payments were exempt "on the theory that the employee officer is being paid for work performed of value to the employer who is interested in seeing to it that grievances are immediately adjusted." LMRDA Manual, § 248.005. These payments have not been considered a violation of the LMRA under the same rationale.

DOL's proposal suggests a dramatic shift in approach. Indeed, in support of its proposal, DOL relied in part on the dissenting opinion of Judge Mansmann in Caterpillar v. United Auto Workers, 107 F.3d 1052 (3d Cir. 1997) ( en banc ). In his dissent, Judge Mansmann observed that such payments should be outlawed because they "create a conflict of interest for union negotiators who may agree to reduced benefits for employees in exchange for financial support for the union." The Supreme Court granted review, indicating that the law in this area is far from settled. Caterpillar, Inc. v. UAW, 521 U.S. 1152 (1997).

DOL's proposed rule seeks to limit the "regular course of business" exemption for transactions between employers and unions. Under this change, a union representative who receives compensation from an employer for contract work would have to report such payment. DOL also is seeking comment on whether to eliminate the de minimis exemption for anything with a value of $25 or less.

The detailed union reporting necessarily will identify payments from employers that trigger the employers' own obligation to file form LM-10. 29 U.S.C. § 433. Similar to form LM-30, there is no threshold amount limiting disclosure of receipts covered by form LM-10. If a union or union representative files a form LM-2 or LM-30 identifying a transaction with an employer, then the employer should similarly have identified that transaction in its own LM-10 filing.

On November 4, 2005, DOL issued the promised guidance and amnesty for employers required to file form LM-10. DOL's guidance for employers establishes a new de minimis exemption, which exempts payments to a union or union representative that total $250 or less in the aggregate for the fiscal year. Interestingly, the threshold far exceeds the $25 de minimis threshold for union representative reporting. DOL has stated that it will reconcile this disparity when it finalizes its LM-30 filing rules, but until then employers should use the $250 threshold.

DOL also is providing an amnesty for employers who have not filed an LM-10 report in the past. Such first-time filers that submit reports for the fiscal year beginning on or after January 1, 2005, will not be required to submit reports for prior years absent "extraordinary circumstances." Filing within the amnesty period will allow first-time filers to avoid liability for any failure to file in prior years. If an employer fails to file and later is investigated by DOL, DOL may seek reports covering a five-year period.

Recognizing that it historically has not enforced the LM-10 filing requirements, DOL is waiving the requirement that the LM-10 form be signed under penalty of perjury. First-time filers may strike out the penalty-of-perjury language contained in the LM-10 and replace it with language stating that "after good faith investigation and diligent inquiry, all of the information submitted in this report . . . is, to the best of the undersigned's knowledge and belief, as complete as possible based on existing and reconstructed records."

However, this concession by DOL contains two important caveats. First, the exception applies only where the employer did not have procedures for tracking payments to unions or union representatives because of the employer's belief that the LMRDA did not apply. This caveat itself raises significant questions as to how DOL will evaluate an employer's "belief" and whether the exemption applies if the employer was unaware of its LMRDA obligations.

The second caveat is that the employer act "diligently and in good faith to identify the covered transactions, and prepare[] a report that discloses all the transactions revealed by [the employer's] good faith inquiry . . . ." Because the amnesty applies exclusively to the LMRDA filing requirements and excludes any LMRA violations, employers must consider carefully the results of their actions under multiple statutes before reporting what may be LMRA violations.

DOL also is waiving the requirement that the employer's president and treasurer sign form LM-10, because DOL "recognizes that the president and treasurer may themselves have limited knowledge of the results of the good faith investigation." Because the "good faith search will be necessarily ad hoc," employers filing now may "authorize key officials in their organization who supervised or conducted the good faith search to sign the Form LM-10."

In sum, employers should consider carefully the impact of the LMRDA and LMRA compliance obligations. For public companies, DOL's new enforcement initiatives may raise additional concerns under corporate law reporting requirements that they should evaluate.

Joseph A. Turzi is a Partner and Chase A. Karsman is an Associate in the Labor and Employment Practice Group of Akin Gump Strauss Hauer & Feld LLP in Washington, DC.

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