A U.S. Appeals Court has served notice to the nation’s organized labor leaders that full financial disclosure is not an option, but a necessity. But in rendering its two decisions on May 31 it appeared to be sending mixed signals. In AFL-CIO v. Chao, by a 3-0 margin, the U.S. Court of Appeals, District of Columbia Circuit, upheld a set of regulations the Department of Labor had unveiled a little over two years ago that required unions to spell out in greater detail how they spend their money. The AFL-CIO had challenged the new rule, claiming that the new reporting requirements created an undue burden on unions and that Labor Secretary Elaine Chao lacked the authority to expand the existing requirements. But the circuit court rejected these claims, arguing that since union expenditures are derived from worker dues, workers have the right to see, as much as possible, where their money is going. The revised reporting form was necessary to combat the corruption continuing to plague organized labor.
The main focus of concern was DOL’s revised LM-2 reporting form. The new form requires unions with a total annual revenue of at least $250,000 to itemize all expenditures of at least $5,000. The original LM-2 form had remained all but unchanged since its authorization by the Landrum-Griffin Act of 1959 (and implementation four years later). But in the subsequent decades, the form had sporadic success in preventing embezzlement and fraud. Critics, including Chao, argued that the spending categories were vague to the point of allowing union officials to falsify or hide expenses. The revised LM-2 form, upheld by the court, will make it harder for unions to get away with bookkeeping tricks.
At the same time, the court, by 2 to 1, ruled against the Labor Department’s financial reporting initiative for union trusts, the T-1 form. Union trusts are credit unions, training funds, strike funds, building funds, and pension funds. It is particularly in the latter type where so much theft has occurred in recent years. The court concluded that while DOL has the authority to regulate pension and other trust funds, its T-1 form, at least as designed, was an inappropriate method. As of this writing, neither the department nor the AFL-CIO plan to appeal to the Supreme Court. (Stop Union Political Abuse, 5/31).