Will Trump Labor Department Follow Through on Preventing Union Corruption?

The Department of Labor’s Office of Labor-Management Standards, as NLPC readers well know, has identified and helped prosecute much union corruption over the years. But the agency’s efforts would be even better realized if it finalized a pair of dormant rules promised two years ago. The first would establish a new financial reporting form, T-1, requiring unions with at least some private-sector members to disclose financial data for pension funds and other trusts. The second would impose financial reporting upon intermediate-level unions. Each had been proposed during the first term of the Bush presidency but shelved under President Obama. Contrary to frequent assertions from labor leaders, these regulations would not be burdensome. But they are likely to make unions more responsive to dues-paying members.

The Office of Labor-Management Standards (OLMS) is a creation of the Labor Management Reporting and Disclosure Act, also known as the Landrum-Griffin Act, enacted in 1959 following extensive congressional hearings on fraud, theft, extortion and racketeering within the nation’s unions. Its mission is to increase transparency to members and to the general public – to prevent as well as expose corruption. Union officials and their supporters have resisted this effort from the start. On various occasions within the last two decades, they have gone to court to block attempts by OLMS to put in place stronger safeguards. In at least one initiative, the department has prevailed. In 2003, Bush-era Secretary of Labor Elaine Chao oversaw the development of a more detailed Form LM-2, the basic annual financial reporting form for larger unions. Such requirements, DOL officials believed, would make it harder for unions to hide unauthorized expenditures under vague, generic categories (e.g., “miscellaneous”), as they had been doing for years. The AFL-CIO went to District of Columbia federal district court to kill the rule, but was unsuccessful. The federation appealed. On May 31, 2005 the circuit court (AFL-CIO v. Chao) upheld the Department of Labor’s authority.

Other DOL initiatives from this period have not fared as well. The fate of proposed financial disclosure standards for union-sponsored pension plans, training funds, strike funds and other fiduciary-managed trusts via a new Form T-1 is a prime example. The original proposal was quite flexible. Only labor organizations with at least $250,000 in total annual receipts would be required to file. And only trust funds into which a union has contributed at least 50 percent of receipts during the most recent fiscal year would be affected. The rule was needed. Irresponsible if not criminal use of union benefit funds was increasingly common, and with large sums of money involved. In one extreme case, a San Francisco Plumbers local over the years had poured in about $36 million in member benefits into a money-losing resort spa in rural Northern California. Notwithstanding, the District of Columbia federal circuit court as part of its May 31, 2005 ruling in AFL-CIO v. Chao vacated the rule. The DOL announced a replacement rule in September 2006 ostensibly in accordance with court requirements, but the AFL-CIO would have nothing of it and went back to court. It would win that one, too; a District of Columbia federal court vacated the revised rule in July 2007. The Bush-era DOL issued yet another updated version in early fall 2008, but time would not be on its side. Less than two years after Barack Obama took office as president in January 2009, the Labor Department, headed by union partisan Secretary Hilda Solis, rescinded the proposal in late 2010.

An OLMS “intermediate bodies” rule, in which district councils, regional councils and state affiliates of unions would have to report annual revenues and expenses, met a similar fate. The agency in 2003 updated its jurisdictional reach over a union to include “intermediate bodies that are subordinate to a national or international labor organization.” Organized labor, predictably, mounted a court challenge. The DOL prevailed – at least temporarily. In 2006 a U.S. district court concluded that the proposal had a variety of reasonable interpretations. The next year the Labor Department provided a justification acceptable to the court. However, the Obama Labor Department, responding to a lawsuit filed by the National Education Association, rescinded the regulation in late 2010.

The Obama administration also stymied efforts to close key loopholes that remained in the revised Form LM-2. In January 2009, during the waning weeks of the Bush administration, OLMS issued a new LM-2 rule requiring union disclosure of the following information: in-kind benefits as well as wages/salaries received by officers and employees; itemization of receipts as well as expenses; and the names of persons and organizations buying and selling union assets. In the new Obama era, the Department quickly put a 60-day hold on the regulation, and by the end of that October, rescinded it outright.

The arrival of Donald Trump in the White House in January 2017 provided an opportunity for a reversal of the Obama-era rollbacks. The Office of Labor-Management Standards revived the Bush-era proposals for trusts and intermediate bodies in the Spring 2017 edition of its Unified Regulatory Agenda. A year and a half later, the Fall 2018 edition indicated that OLMS would post a Notice of Proposed Rulemaking by year’s end. Subsequent to this, however, no rules have been finalized. And if they are, labor lawyers are vowing to go to court to vacate them. “This is the third time in the past year the U.S. Department of Labor has posted a notice that it intends to try to resurrect the Bush-era proposal on intermediate labor organizations,” said Alice O’Brien, general counsel for the National Education Association, last October. “On behalf of the affiliates, the National Education Association challenged the Bush-era proposal, which was subsequently rescinded, and NEA stands ready to do so again.”

Unions long have claimed that such initiatives impose prohibitive compliance burdens in terms of time and money. Deborah Greenfield, chief counsel for the AFL-CIO prior to coming to work directly for Obama Labor Secretary Hilda Solis, was resolute about this during her tenure. AFL-CIO officials likewise long have made this argument. Back in 2002, when the Bush-era Form LM-2 revisions were in progress, then-federation President John Sweeney declared: “These requirements create an enormous amount of red tape that will cost union members an estimated billion dollars a year – a crushing burden for which there is no widespread support among union members at all.” Much more recently, Michael Hayes, an associate professor of law at the University of Baltimore who headed OLMS during President Obama’s second term, said in a similar vein, “It’s very burdensome and expensive to comply with these guidelines,” citing the costs of hiring people to review financial records, fill out disclosure forms, and submit forms on time. Yet according to OLMS’ own data, the AFL-CIO spent $54,150 to prepare its first LM-2 report following the 2003 revisions, a figure that included software costs. That’s probably a lot less than what the federation spent on lawyers to deep-six the rule. While this figure did not include compliance costs among member unions and affiliates, can anyone seriously believe the composite figure has ever remotely approached a billion dollars a year?

Even if the Labor Department transparency initiatives were as costly as critics claim, there is the separate and arguably more important issue of the behavior that regulation is intended to discourage. During the last decade, Union Corruption Update has summarized numerous cases of reckless or outright criminal behavior by trust fund fiduciaries, and intermediate-level union officials and members. Many wrongdoers have been caught, but not until after they had spent years, if not over a decade, undermining their organizational mission. The last couple years alone have seen successful prosecutions of the following cases: a theft ring of local union members who defrauded the Indiana/Kentucky/Ohio Regional Council of the United Association of Carpenters and Joiners out of more than $500,000; a member of an International Longshore and Warehouse Union local in the Los Angeles area who along with a co-defendant fleeced about $3 million from a union health plan; and a former United Auto Workers local president in New Jersey who with the help of a businessman illegally obtained about $6.6 million from a Blue Cross Blue Shield health plan. A good deal of money might have been saved in each case had appropriate financial reporting safeguards been in place years earlier.

As of now, the Department of Labor has yet to issue its proposed regulations for union trusts or intermediate-level unions. According to Trey Kovacs, labor policy analyst for the Washington, D.C.-based Competitive Enterprise Institute, the DOL briefly posted its trust rule on its web site this March 12, but for whatever reason quickly scrubbed it. The department has not gone even that far with respect to its intermediate bodies rule. One wonders as to the reticence. Yes, these rules, like all rules, would impose costs. But they also would protect unionized employees from potential ripoffs. That would seem the more important consideration.