Labor Organization Officer and Employee Report, Form LM-30

Federal RegisterJul 2, 2007

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DEPARTMENT OF LABOR

Office of Labor-Management Standards

29 CFR Part 404

RIN 1215-AB49

Labor Organization Officer and Employee Report, Form LM-30

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

The Employment Standards Administration's (“ESA”) Office of Labor-Management Standards (“OLMS”) of the Department of Labor (“Department”) publishes this Final Rule to revise the Form LM-30, Labor Organization Officer and Employee Report, its instructions, and related provisions in the Department's regulations. The Form LM-30 implements section 202 of the Labor-Management Reporting and Disclosure Act of 1959 (“LMRDA” or “Act”), 29 U.S.C. 432, whose purpose is to require officers and employees of labor organizations to report specified financial transactions and holdings to effect public disclosure of any possible conflicts between their personal financial interests and their duty to the labor union and its members. This rule clarifies the Form LM-30 and its instructions by explaining key terms and providing examples of the financial matters that must be reported, eliminates or modifies administrative exceptions in the old Form LM-30 that impeded the full disclosure of financial matters that constitute conflicts, or potential conflicts, of interest, and improves the usability of the reports by union members and the public.

DATES:

Effective Date:

This rule will be effective August 16, 2007.

FOR FURTHER INFORMATION CONTACT:

Kay H. Oshel, Director, Office of Policy, Reports, and Disclosure, Office of Labor-Management Standards, U.S. Department of Labor, 200 Constitution Avenue, NW., Room N-5609, 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:

An outline of this information and a note regarding the references to statutory provisions in this document follow:

Table of Contents

I. Background

A. Statutory Authority

B. Departmental Authorization

C. Background to and Overview of Rule

1. The Reasons for Today's Revisions of the Form LM-30

2. Legislative History

II. Discussion of Comments Received on Proposed Rule and Department's Response

A. Why the Changes to the Form Are Needed Now

B. Why the Department Is Not Presently Requiring Unions To Notify Their Officers and Employees (“Officials”) About Their Annual Reporting Obligations

C. Why the De Minimis Exemption From Reporting Insubstantial Gifts and Other Financial Benefits Has Been Simplified and Subjected to a $250 Limit, With an Exclusion for Gifts Valued at $20 or Less and Certain Widely-Attended Gatherings

D. Why Reporting Exceptions Permitted Under the Old Rule Have Been Eliminated or Modified To Provide More Information to Union Members

1. Regular Course of Business Exception

2. Bona Fide Employee Exception for Transactions With an Employer Whose Employees the Official's Union Represents or Is Actively Seeking To Represent

3. Exception for Bona Fide Loans or Interest From a Banking Institution

4. Exceptions Relating to Stocks

5. Revision of Special Report Language

E. Why Union Officials, as a General Rule, Must Report Payments Received as Members of a Company's Board of Directors

F. Why Officers of International, National, and Intermediate Labor Unions, in Addition to Their Obligation to Report Payments and Other Financial Benefits Received From Businesses and Employers That Have a Direct Relationship With the Component of the Union to Which They are Elected or Appointed, Must Also Report Payments and Other Financial Benefits Received From Businesses and Employers Whose Relationship is With a Subordinate Body of Their Union

G. Why Union Officials Must Report Payments Under Union—Leave and No-Docking Practices Subject to an Exception for Payments of 250 Hours or Less Per Year Made in Accordance with a Collective Bargaining Agreement

H. What Payments and Other Financial Benefits, Received From an Employer or Business Whose Employees are not Represented by the Union and Which Does Not Conduct Business With the Official's Union, Must be Reported

I. When is a Union “Actively Seeking To Represent” Employees, Thereby Triggering a Union Official's Obligation To Report Payments and Other Financial Benefits Received From the Employer That is the Subject of the Organizing Drive

J. How Union Officials Will Determine Whether an Entity From Which They Receive a Payment or Other Financial Benefit Does a “A Substantial Part” of its Business With an Employer Whose Employees are Represented by the Official's Union or the Union it is Actively Seeking to Represent

K. Why Payments and Other Financial Benefits Received From Section 3(l) Trusts and Service Providers to Such Trusts Must Be Reported

1. Alleged Procedural Shortcoming

2. Routine Exceptions

3. Relationship With Other Statutes

4. Trusts as Employers and Businesses

L. When Payments and Other Financial Benefits Received From a Union Other Than an Official's Own Union Must be Reported

M. How the Proposed Definitions Have Been Clarified To Ease a Filer's Completion of the Form LM-30

1. Definitions Adopted by Today's Rule

2. Other Issues Related to Definitions

N. Details Relating To Proposed and Revised Form and Instructions

1. Comparison of the “Old” and Proposed Forms

2. Comments on Proposed Form

3. Completion of the Revised Form

III. Regulatory Procedures

A. Executive Order 12866

B. Small Business Regulatory Enforcement Fairness Act

C. Unfunded Mandates Reform

D. Executive Order 13132 (Federalism)

E. Regulatory Flexibility Act

F. Paperwork Reduction Act

G. Executive Order 13045 (Protection of Children From Environmental Health Risks and Safety Risks)

H. Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments)

I. Executive Order 12630 (Governmental Actions and Interference With Constitutionally Protected Property Rights)

J. Executive Order 12988 (Civil Justice Reform)

K. Environmental Impact Assessment

L. Executive Order 13211 (Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use)

IV. Text of Final Rule

Appendix

Note:

Throughout this document, the Department refers to various statutory provisions as “section __.” All such references, unless otherwise noted, are to Title 29 of the U.S. Code. Further, unless otherwise noted, all the sections are part of the Labor-Management Reporting and Disclosure Act of 1959, which is set forth in Chapter 11 of Title 29, 29 U.S.C. 401-531. Following is a list of the most frequently cited LMRDA provisions in this document with corresponding citations to the U.S. Code: section 3(l), 29 U.S.C. 402(l); 201, 29 U.S.C. 431; section 202, 29 U.S.C. 432; and section 203, 29 U.S.C. 433. The only other provision of the U.S. Code frequently referred to in the document by the section number in the public law in which it was enacted is “section 302(c),” a reference to a provision of the Labor Management Relations Act, as amended, 29 U.S.C. 141-188. A reference to

section 302(c), 29 U.S.C. 186(c), appears in the text of section 202(a)(6) of the LMRDA, 29 U.S.C. 432(a)(6).

I. Background

A. Statutory Authority

Section 208 of the LMRDA states in part:

The [Department] shall have authority to issue, amend and rescind rules and regulations prescribing the form and publication of reports required to be filed under this title and such other reasonable rules and regulations (including rules prescribing reports concerning trusts in which a labor organization is interested) as he may find necessary to prevent the circumvention or evasion of such reporting requirements.

29 U.S.C. 438. Today's rule prescribes the disclosure form required to be filed by a union officer or employee if such an official, his or her spouse, or minor child hold an interest in or receive payments from certain entities. The reporting requirements are contained in section 202, which provides in its entirety:

§ 202. (a) Every officer of a labor organization and every employee of a labor organization (other than an employee performing exclusively clerical or custodial services) shall file with the Secretary a signed report listing and describing for his preceding fiscal year—

(1) Any stock, bond, security, or other interest, legal or equitable, which he or his spouse or minor child directly or indirectly held in, and any income or any other benefit with monetary value (including reimbursed expenses) which he or his spouse or minor child derived directly or indirectly from, an employer whose employees such labor organization represents or is actively seeking to represent, except payments and other benefits received as a bona fide employee of such employer;

(2) Any transaction in which he or his spouse or minor child engaged, directly or indirectly, involving any stock, bond, security, or loan to or from, or other legal or equitable interest in the business of an employer whose employees such labor organization represents or is actively seeking to represent;

(3) Any stock, bond, security, or other interest, legal or equitable, which he or his spouse or minor child directly or indirectly held in, and any income or any other benefit with monetary value (including reimbursed expenses) which he or his spouse or minor child directly or indirectly derived from, any business a substantial part of which consists of buying from, selling or leasing to, or otherwise dealing with, the business of an employer whose employees such labor organization represents or is actively seeking to represent;

(4) Any stock, bond, security, or other interest, legal or equitable, which he or his spouse or minor child directly or indirectly held in, and any income or any other benefit with monetary value (including reimbursed expenses) which he or his spouse or minor child directly or indirectly derived from, a business any part of which consists of buying from, or selling or leasing directly or indirectly to, or otherwise dealing with such labor organization;

(5) Any direct or indirect business transaction or arrangement between him or his spouse or minor child and any employer whose employees his organization represents or is actively seeking to represent, except work performed and payments and benefits received as a bona fide employee of such employer and except purchases and sales of goods or services in the regular course of business at prices generally available to any employee of such employer; and

(6) Any payment of money or other thing of value (including reimbursed expenses) which he or his spouse or minor child received directly or indirectly from any employer or any person who acts as a labor relations consultant to an employer, except payments of the kinds referred to in section 302(c) of the Labor Management Relations Act, 1947, as amended.

(b) The provisions of paragraphs (1), (2), (3), (4), and (5) of subsection (a) shall not be construed to require any such officer or employee to report his bona fide investments in securities traded on a securities exchange registered as a national securities exchange under the Securities Exchange Act of 1934, in shares in an investment company registered under the Investment Company Act or in securities of a public utility holding company registered under the Public Utility Holding Company Act of 1935, or to report any income derived therefrom.

(c) Nothing contained in this section shall be construed to require any officer or employee of a labor organization to file a report under subsection (a) unless he or his spouse or minor child holds or has held an interest, has received income or any other benefit with monetary value or a loan, or has engaged in a transaction described therein.

B. Departmental Authorization

Section 208 of the Act, 29 U.S.C. 438, provides that the Secretary of Labor shall have the authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under Title II of the Act and such other reasonable rules and regulations as she may find necessary to prevent the circumvention or evasion of the reporting requirements. Secretary's Order 4-2007, issued May 2, 2007, and published in the

Federal Register

on May 8, 2007 (72 FR 26159), contains the delegation of authority and assignment of responsibility of the Secretary's functions under the LMRDA to the Assistant Secretary for Employment Standards and permits the redelegation of such authority.

C. Background to and Overview of Rule

In today's rule, the Department revises the Form LM-30, Labor Organization Officer and Employee Report based on its review of public comments received in response to its Notice of Proposed Rulemaking (“NPRM”), 70 FR 51166 (Aug. 29, 2005). The Form LM-30 is used by officers and employees of labor organizations subject to the LMRDA. Section 202 of the Act requires public disclosure of certain financial interests held, income received, and transactions engaged in by labor organization officers and employees (generally referred to herein as “union officials” or “officials”) and their spouses and minor children. Subject to exclusions, these interests, incomes, and transactions include:

1. Payments or benefits from, or interests in, an employer whose employees the filer's union represents or is actively seeking to represent;

2. Transactions involving interests in, or loans to or from, an employer whose employees the filer's union represents or is actively seeking to represent;

3. Interests in, income from, or transactions with a business a substantial part of which consists of dealing with an employer whose employees the filer's union represents or is actively seeking to represent;

4. Interests in, income from, or transactions with a business that deals with the filer's union or a trust in which the filer's union is interested;

5. Transactions or arrangements with an employer whose employees the filer's union represents or is actively seeking to represent; and

6. Payments from an employer or labor relations consultant to an employer.

As sometimes used herein, the short-hand phrase “payments or other financial interests” or its equivalent is used to refer to the various payments, transactions, arrangements and other monetary and financial interests that must be reported. Payments, as a general rule, include gifts, gratuities, restaurant meals, and entertainment.

The Form LM-30 must be filed annually by a union officer or employee (other than those solely engaged in performing clerical or custodial duties) if the official, the official's spouse, or minor child (or children) receives a payment or other financial interest from a business or employer in connection with certain activities, identified in section 202. Section 202's disclosure obligations for union officials (as embodied in the Form LM-30) are an integral part of the Act's reporting structure. The Act requires annual reports by unions as “institutions” under section 201 (Forms LM-2, LM-3, and LM-4), by employers, who must

report payments to unions and their representatives under section 203 (Form LM-10), and by unions for trusts in which they have an interest (“section 3(l) trusts,” a reference to section 3(l) of the Act defining such trusts) under sections 201 and 208 (Form T-1).

In the NPRM the Department invited comment with respect to the benefits of the proposed changes, the ease or difficulty with which union officials would be able to comply with these changes, and whether the changes would be meaningful, useful, and in accord with the LMRDA disclosure purposes. The initial 60-day comment period provided for in the NPRM was subsequently extended to January 26, 2006. 70 FR 61400 (Oct. 24, 2005). The Department received over 1,000 comments. Of these comments about 50 were unique; the rest were form letters. Almost 300 of the comments were from unions or union members, most of whom were critical of all or parts of the proposal; about 700 were from individuals who generally supported the proposal, about 25 were from business or trade organizations, who expressed diverse views on the proposal; about 10 were from law firms, on their own behalf or their clients, who mostly opposed the proposal; two were from benefit fund administrators, who opposed the proposal; and one was from an academic who reported on his limited study of the reactions of union officials to the proposed form and instructions from which he concluded these documents needed substantial improvement. Over 280 of the union commenters were members of one local. In their form letters, they urged rejection of the rule “in its entirety.” They characterized the proposed requirements as “frivolous.” They asserted that the existing form was adequate to ensure “due diligence” by union officials, adding that the proposed union-leave and no-docking requirements would turn shop stewards into accountants because of the duty to “calculate their time.” Of the individuals supporting the proposal, the Department received about 660 form letters. These individuals asserted that such reforms were long overdue, noting that under the current form it is difficult to determine when a report is required and that the proposed form's inclusion of clear definitions and examples would improve reporting.

The historically low filing rates during the years preceding the initiation of this rulemaking process demonstrated substantial non-compliance with the Act. The Department recognized that its own compliance assistance efforts in this area needed improvement and thus it has retargeted its resources to educate the affected community about the Form LM-30 reporting obligation and to increase its enforcement efforts. At the same time as the Department was working on the proposed rule, it announced an initiative to improve Form LM-30 compliance. As part of this effort, the Department substantially augmented its published guidance to Form LM-30 filers, primarily by posting information on OLMS Web pages and by further disseminating this information by notifying subscribers to its free, automated list serve. On April 25, 2005, the Department announced a special enforcement policy under which new Form LM-30 filers, absent extraordinary circumstances, would not have to submit reports for prior years, even if such reports should have been filed. Specifically, the Department advised the regulated community that it would not require a new filer to submit reports covering the same financial interest for any prior years absent extraordinary circumstances. To take advantage of this grace period, the new filer had to submit his or her initial report voluntarily during a “grace period,” which ended August 15, 2005. With the substantial voluntary assistance of the AFL-CIO and other labor organizations to educate union officials about their reporting obligations, the Department experienced a large upsurge in the number of Form LM-30 filings over historical levels. To help union officials better understand their filing obligations, the Department proposed to change the instructions to the old form by defining and explaining key concepts and terms used by the statute and the form, and providing examples of situations where reporting is required. The Department also proposed to redesign the reporting format to better assist filers and improve the utility of the collected information to union members, the Department, and the general public. Following its review of the comments and taking into account the Department's recent Form LM-30 filing experience—as requested by some commenters, the Department remains convinced that this approach is sound and therefore today's rule preserves the overall approach outlined in the NPRM. At the same time, the comments were helpful in reconsidering some aspects of the rule and improving the content of the instructions and the form. The Department has revised the layout of the form. Instead of the subsection-by-subsection approach in the proposed form and instructions that parallels the structure of section 202 and its subsections (i.e., sections 202(a)(1) through 202(a)(6)), the rule organizes the form and instructions by the source of the reportable payment to a union official. Thus, the form lists the types of employer relationships that trigger a reporting requirement and the types of business relationships that trigger a reporting requirement. The instructions identify the types of payments and other financial interests that must be reported by a union official if received from an employer, differentiating between payments received from an employer whose employees the filer's union represents or is actively seeking to represent and those received from certain other employers. The instructions also identify the types of payments that must be reported if received from businesses that maintain business dealings with the official's union, a trust in which the official's union is interested, or certain employers. In the NPRM, the Department requested comment on whether labor organizations should be required to notify their officers and employees of their Form LM-30 reporting obligations. After review of the comments and the number of recent filers, the Department has decided to not require unions at this time to provide such notification to their officials.

In the NPRM, the Department proposed to revise its longstanding de minimis exception by adopting a quantitative standard of $25 as the amount that would trigger a reporting obligation. Numerous comments attacked the $25 threshold as unreasonably low, while other commenters argued that there should be no de minimis level at all. The Department adopts $250 as the amount above which a report is required and $20 as the amount above which payments or benefits must be counted when calculating whether the union official's $250 reporting threshold has been met. The rule also includes a limited exclusion for widely attended gatherings, allowing union officials to attend two such gatherings without incurring a reporting obligation provided the employer or business paying for the gathering spent $125 or less per attendee per gathering.

One provision of the Act, section 202(a)(6), may be read to impose a requirement on union officials to report payments from all employers. The Department's proposal to construe this obligation in this manner was opposed by most of the comments that discussed this point. In light of these comments, today's rule clarifies the scope of the reporting obligation under section 202(a)(6), identifying particular situations that pose a conflict of interest

that otherwise would not be captured by the other five subsections of section 202(a).

The Department also proposed to remove certain administrative exceptions that were available to filers under the old rule: Purchases and sales in the regular course of business at prices generally available to any employee of the employer; work performed and payments and benefits received as a bona fide employee of the employer; certain loans; and specified interests relating to stock ownership. The rule generally adopts the proposals as set forth in the NPRM to narrow the scope of these exceptions and thus makes reportable interests and payments that present previously unreported potential conflicts of interest.

The Department requested comment on whether to retain the distinction between securities traded on a registered national stock exchange and securities traded elsewhere, such as the NASDAQ stock market, notwithstanding the language in the Act limiting the exception to registered securities exchanges.

See

section 202(b) (ties exception to such exchanges registered under the Securities Exchange Act of 1934 and other enumerated statutes). After reviewing the comments, the Department retains its interpretation that it should not extend this limited exception to exchanges that have not been registered. The Department, however, notes that on July 15, 2006, the Securities and Exchange Commission (“SEC”) approved NASDAQ's application for registration as a national securities exchange, effective July 31, 2006.

Payments received by union officials from employers for work done on the union's behalf are reportable because such payments are not received as a bona fide employee of the employer making the payment. The Department explained in its proposal that union officials must report any payments for other than “productive work” for the employer, including union-leave and no-docking payments. Similarly, the proposed definition of “labor organization employee” clarified that an individual who is paid by an employer to perform union work is an employee of the union if he or she is under the control of the union, while so engaged. Today's rule adopts the proposed definition of “bona fide employee” and “labor organization employee,” making union-leave and no-docking payments reportable. However, today's rule stipulates that if such payments are made pursuant to a collective bargaining agreement and the payments are made for 250 or fewer hours during the year then there is no reporting obligation.

The meaning given “labor organization” defines the scope of a union official's obligation to report interests in or payments by certain employers and businesses. Essentially the question presented by the Department's proposal is whether this obligation applies to only an official's immediate organization,

e.g.

, a local union or international union in which he or she holds office, or whether it extends to situations involving organizations affiliated with the immediate organization. For instance, is an international officer required to report payments received from a business that sells products or services to intermediate and local affiliates or from employers whose employees are represented by a subordinate union? Under today's rule, an international union officer must report such payments. The same obligation exists under the old rule. Today's rule further clarifies that the same reporting obligation applies to payments received by an intermediate union officer. The Department, however, does not impose a reporting obligation on local or intermediate union officials who receive payments from an entity that does business with a higher affiliated organization. The rule also excepts

employees

of international, national, and intermediate unions from this reporting requirement. Further, the reporting obligation on officers of national and intermediate unions does not extend to payments received as employment compensation by their spouse or minor child that otherwise would be reportable because of the payer's relationship with a subordinate union.

Although the Department's old rule applies to payments received from a section 3(l) trust and the Department proposed no departure from this rule, numerous comments were received arguing that the Form LM-30 reporting obligation has never been applied to payments by trusts to union officials. These commenters are mistaken. The Department always has maintained the position that payments from trusts and vendors to such trusts enjoy no special excepted status under the Act's reporting provisions. Some commenters argued that such reporting would only be duplicative of reporting already required by ERISA and could discourage union trustees from attending conferences designed to educate trustees about their duties as trustees. The Department believes that the concerns about burden and overlap with ERISA disclosure requirements are overstated. In light of the comments, however, today's rule clarifies that a payment by a trust is treated no differently than other payments by an employer or a business to union officials.

Section 202(a)(3) imposes a limited reporting obligation on a union official who has an interest in or receives payments from a business that buys, sells, leases, or otherwise deals with the business of an employer if the latter's employees are represented by the official's union or it is actively seeking to represent these employees. The obligation attaches only if the vendor's dealings with the employer comprise a “substantial part” of the vendor's business. The Department proposed to define “substantial” as more than 5% of the vendor's business. Most of the comments criticized the threshold as too low. Today's rule sets the threshold at 10%.

In addition to some of the terms discussed above, the Department has clarified some of the proposed definitions. By clarifying these terms and the concepts that underlie the Act's reporting provisions, the rule ensures transparency in the personal financial affairs of union officials that may pose conflicts between the official's duty to their union and its members and the official's personal interests.

A number of comments were received from employer and industry associations. Most of these comments focused on the obligation of employers to file a Form LM-10 on certain payments made by employers or labor relations consultants to unions or union officials. Today's rule is specific to Form LM-30 filers. It does not amend the Department's current regulations or guidance specific to the Form LM-10. The Department, however, has carefully considered all the comments submitted by these groups and addresses them herein insofar as they address particular aspects of the Form LM-30 proposal. Form LM-10 Frequently Asked Questions (FAQs) on the OLMS Web site at

http://www.olms.dol.gov

informs the public that the Department will not enforce certain Form LM-10 reporting requirements until both the Form LM-30 rulemaking is completed and further written guidance is issued on the Form LM-10. This written guidance will be issued in revisions to the FAQs that will be announced through the OLMS list serve which can be subscribed to at

http://www.dol.gov/esa/aboutesa/org/olms/olms-mailinglist.htm.

1. The Reasons for Today's Revisions of the Form LM-30

The Form LM-30 has remained essentially unchanged since 1963.

During this time, there have been many significant changes in the ways in which unions operate and conduct their financial affairs. Individuals too have more and varied financial interests than was the case forty years ago. As explained in the NPRM, many unions manage benefit plans for their members, maintain close business relationships with financial service providers such as insurance companies and investment firms, operate revenue-producing subsidiaries, and participate in foundations and charitable activities. The complexity of these financial practices, including business relationships with outside firms and vendors, increases the likelihood that union officials may have interests in, or receive income from, these businesses. As more labor organizations conduct their financial activities through sophisticated trusts, increased numbers of businesses have commercial relationships with such trusts, creating financial opportunities for union officers and employees who may operate, receive income from, or hold an interest in such businesses. In addition, employers also have fostered multi-faceted business interests, creating further opportunities for financial relationships between employers and union officers and employees. In this context, disclosure is critical to promoting good union governance, fostering ethical behavior, and deterring and detecting self-dealing.

As noted in the NPRM, on many occasions the Department has discovered during an audit or investigation that a union officer or employee received a reportable payment or other financial benefit but had failed to file the Form LM-30 as required. The Department identified several such situations in the NPRM, including the following:

• A local president owned 50% of a business that resurfaced the union's parking lot. Over two years, the business received $9,000 from the union.

• A union designated certain attorneys to represent injured members. Some of these attorneys, who were employers, furnished cash or items of value such as trips and golf clubs to union officials.

• A union hired the accounting firm of an employee's spouse. The firm received over $29,000 from the union over two years.

• An officer of a union, whose members worked at a theater, formed a business with two partners. He put his share of the business in his wife's name although he actually managed the business, which employed members of his local to work for the theater. He and his wife received almost $75,000 in profits, expense reimbursements, and salary from the business.

• A union president owned the building in which the union rented office space.

• A union employee's spouse owned an advertising company that printed materials for the union and its funds. In one year, the company received over $245,000 as payment for her company's services.

• Four local officers formed a company that provided payroll services to the local as well as to theatrical companies that employed members of the local. Two other officers of the local received over $20,000 as employees of the company.

• The spouse of a union officer owned a company that provided cleaning and maintenance services to the union and a trust in which the union was interested. In one year, the company received over $94,000 from the union and the trust.

• A union officer's spouse owned a janitorial business that provided daily janitorial services to the union at $800 per month.

• A union officer was part-owner, along with his wife and daughter, of a copier supply company. He was an officer of several unions, including one that employed his daughter as a benefit representative and union trustee. All of the unions purchased office equipment and services from the family's company.

• During a campaign for a State government office, a business agent received contributions from employers who were covered by the union's collective bargaining agreement.

• A union employee owned a heating and air conditioning business that performed HVAC work for the union.

In these instances, compliance with the Form LM-30 requirements would have provided union members with valuable information concerning financial practices of their unions' officials. This information would have assisted union members in evaluating the efficacy of the work performed by union employees and the leadership provided by union officers. Furthermore, the information would have alerted them to potential conflicts of interests and guided them as to which actions or decisions of their officers and employees might require greater scrutiny in order to determine whether the conflicts had affected the union official's service to the union. Armed with this information, union members could express their concerns at membership meetings,

see

section 101(a), 29 U.S.C. 411(a), evaluate the use of union monies as reported on the union's annual financial report,

see

section 201(b), 29 U.S.C. 431(b), cast more informed votes at internal union elections,

see

sections 401-403, 29 U.S.C. 481-483, employ union procedures for removal of officers guilty of serious misconduct,

see

section 401(h), 29 U.S.C. 481(h), and exercise their right to obtain judicial relief for violations of the official's fiduciary responsibilities.

See

section 501(b), 29 U.S.C. 501(b).

In other instances, as described in the NPRM, compliance with Form LM-30 requirements would have revealed criminal conduct. For example, the president of a national union had the sole authority to appoint or remove attorneys from a list of “Designated Legal Counsel.” These attorneys represented injured union members who sought compensation from the railroad for on-the-job injuries. Rather than selecting attorneys on the basis of their skills, the president awarded the designation to attorneys who gave the union president cash or other things of value. In another instance, contractors were hired to make repairs and improvements to the offices of a local union. The contractors also performed work on the officers' homes. All the expenses of the work, including about $1.2 million for work on the officers' homes, was charged to and paid by the union. A third example involved a contractor, an investment firm that managed pension and investment accounts for unions. This company collapsed in September 2000, costing its clients about $355 million. The company's former chairman was indicted on counts of fraud, money laundering, witness tampering, and making illegal payments to union benefit plan trustees. As part of its scheme to buy the influence of pension fund trustees, who were union officers, the investment firm hired relatives of pension trustees as well as provided plan trustees with gifts including rifles, season tickets to sporting events, and fishing and hunting trips to various locations in the western U.S., Canada, Africa, Argentina and Mexico.

As the above incidents demonstrate, a statement made in 1986 continues to ring true: “The plunder of union resources remains an attractive [target for certain individuals and organizations]. * * * The most successful devices are the payment of excessive salaries and benefits to * * * union officials and the plunder of workers” health and pension funds.” President's Commission on Organized Crime,

Report to the President and Attorney General, The Edge: Organized Crime, Business, and Labor Unions

(1986), at 12. Added transparency about a union official's conflicts of interest will help ensure that all union officials keep paramount the interests of their union and its members. Most union officials will never be tempted to subordinate their union's interests to their own financial interests; the rule will help them avoid the perception that their financial interests, left unreported through inadvertence or misunderstanding, may engender unfair suspicion. Others, though tempted, will be deterred from taking such action. See Archibald Cox,

Internal Affairs of Labor Unions Under the Labor Reform Act of 1959

, 58 Mich.L.Rev. 819, 827 (1960) (“

Internal Affairs of Labor Unions

”) (“The official whose fingers itch for a “fast buck” but who is not a criminal will be deterred by the fear of prosecution if he files no report and by fear of reprisal from the members if he does”).

The Form LM-30 has been redesigned to facilitate full and accurate completion by the filer and review by members of the filer's union and the public. The instructions now contain useful definitions of key terms and concepts required to complete the form and numerous practical examples to assist filers in completing the form. Union officials will also better understand the disclosure obligations relating to actual or potential conflicts of interest and will be mindful of their duty to hold their union's interests above their own personal financial interests. Financial transparency, as noted above, also may deter fraud and self-dealing and facilitates discovery of such misconduct when it occurs. Transparency promotes the unions' own interests as democratic institutions. By these improvements, union members will obtain a more accurate picture of the personal financial interests of their union's officers and employees, as those interests may bear upon their actions on behalf of the union and its members. With this information, union members will be better able to understand any financial incentives or disincentives faced by their union's officers and employees and to make more informed choices about the leadership of their union and its management of its affairs. Through these actions, the Department advances the LMRDA's declared purpose “that labor organizations, employers, and their officials adhere to the highest standards of responsibility and ethical conduct in administering the affairs of their organizations.” Section 2(a). As such, today's rule will better achieve the purposes of the LMRDA than the old reporting regimen.

2. Legislative History

To better understand the purposes served by disclosure, a brief review of the history of the LMRDA's reporting and disclosure requirements for union officials is appropriate. As explained in the NPRM, at 70 FR 51166, the LMRDA was passed in 1959 by a bipartisan Congress that found: In labor and management fields:

[T]here have 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 which require further and supplementary legislation that will afford necessary protection of the rights and interests of employees and the public generally as they relate to the activities of labor organizations, employers, labor relations consultants, and their officers and representatives.

Section 2(a).

The legislation was the direct outgrowth of a Congressional investigation conducted by the Select Committee on Improper Activities in the Labor or Management Field, commonly known as the McClellan Committee, chaired by Senator John McClellan of Arkansas. In 1957, the committee began a highly publicized investigation of union racketeering and corruption; its findings of financial abuse, mismanagement of union funds, and unethical conduct provided much of the impetus for enactment of the LMRDA's remedial provisions.

See generally

Benjamin Aaron,

The Labor-Management Reporting and Disclosure Act of 1959,

73 Harv. L. Rev. 851, 851-55 (1960). During the investigation, the committee uncovered a host of improper financial arrangements between officials of several international and local unions and employers (and labor consultants aligned with the employers) whose employees were represented by the unions in question or might be organized by them. Similar arrangements also were found to exist between union officials and the companies that handled matters relating to the administration of union benefit funds.

See generally, Interim Report of the Select Committee on Improper Activities in the Labor or Management Field,

S. Report No. 85-1417 (1957) (“

Interim Report

”). For examples of some of the improper arrangements directly or indirectly involving officials of these unions,

see Interim Report,

pp. 42-86, 122-30, 150-57, 222-55, 376-420, 441-50.

See also The Enemy Within,

at 97, 99, 104-05, 106, 221-24.

As explained in the Senate Committee Report, S. Rep. No. 187 (1959) (“

Senate Report

”), at 15,

reprinted in 1 Leg. History,

at 411: “The hearings before the McClellan committee brought to light a number of instances in which union officials gained personal profit from a business which dealt with the very same employer with whom they engaged in collective bargaining on behalf of the union.”

Id.

The committee endorsed the concern expressed in the AFL-CIO's Ethical Practices Code that the union official “may be given special favors or contracts by the employer in return for less than a discharge of his obligations as a trade-union leader.”

Id.

In explaining the purpose of the disclosure rules for union officers and employees, the

Senate Report

presented “three reasons for relying upon the milder sanction of reporting and disclosure [relative to establishing criminal penalties] to eliminate improper conflicts of interest,” which we summarize as follows:

• Disclosure discourages questionable practices. “The searchlight of publicity is a strong deterrent.” Disclosure rules should be tried before more severe methods are employed.

• Disclosure aids union governance. Reporting and publication will enable unions “to better regulate their own affairs. The members may vote out of office any individual whose personal financial interests conflict with his duties to members,” and reporting and disclosure would facilitate legal action by members against “officers who violate their duty of loyalty to the members.”

• Disclosure creates a record. The reports will furnish a “sound factual basis for further action in the event that other legislation is required.”

Senate Report,

at 16,

reprinted in 1 Leg. History,

at 412.

The Report further stated: “No union officer or employee is obliged to file a report unless he holds a questionable interest or has engaged in a questionable transaction. The bill is drawn broadly enough, however, to require disclosure of any personal gain which an officer or employee may be securing at the expense of the union members.”

Senate Report,

at 14-15,

reprinted in 1 Leg. History,

at 410-11. The House Committee Report, H.R. Rep. No. 741 (1959) (“

House Report

”), at 11,

reprinted in 1 Leg. History,

at 769, conveyed the same message. Both the Senate and House Reports recognize that a reportable interest is not necessarily an illegal practice. As the

House Report

stated:

In some instances matters to be reported are not illegal and may not be improper but may serve to disclose conflicts of interest. Even in such instances, disclosure will enable the persons whose rights are affected, the public, and the Government, to determine whether the arrangements or activities are justifiable, ethical, and legal.

House Report

, at 4,

reprinted in 1 Leg. History

, at 762.

See Senate Report

, at 38,

reprinted in 1 Leg. History,

at 434 (“By requiring reports * * *, the committee is not to be construed as necessarily condemning the matters to be reported if they are not specifically declared to be improper or made illegal under other provisions of the bill or other laws”). “Reports are required as to matters which should be public knowledge so that their propriety can be explored in the light of known facts and conditions.”

Id.

As stated by Senator Barry Goldwater after the LMRDA had been passed:

Briefly, what must be reported are holdings of interest in or the receipt of economic benefits from employers who deal or might deal with such union official's union, or holdings in or benefits from enterprises which do business with such union official's union.

105 Cong. Rec. A8512 (daily ed. Oct. 2, 1959),

reprinted in 2 Leg. History

, at 1846.

Conflict of interest standards, including disclosure obligations of individuals and entities occupying positions of trust, are well grounded in U.S. law. As stated in the

House Report

, repeating almost verbatim the same point in the

Senate Report:

For centuries the law of fiduciaries has forbidden any person in a position of trust subject to such law to hold interests or enter into transactions in which self-interest may conflict with complete loyalty to those whom he serves. * * * The same principle * * * should be equally applicable to union officers and employees [quoting the AFL-CIO's Ethical Practices Code]: “[A] basic ethical principle in the conduct of union affairs is that no responsible trade union official should have a personal financial interest which conflicts with the full performance of his fiduciary duties as a worker's representative.”

Senate Report

, at 11,

reprinted in 1 Leg. History

, at 769.

See generally Restatement

(

Second) of Trusts

(1959) §§ 170, 173;

Restatement (Second) of Agency

(1958) §§ 381, 387-98.

Section 202 is an effort, in part, to make effective the disclosure requirements associated with the fiduciary standards applied to union officials in Title V of the LMRDA, a duty that includes an obligation to report potential conflicts of interest. Both Titles II and V of the Act represent an effort to codify various requirements

contained in an extensive code of ethics voluntarily adopted by the AFL-CIO in 1957 and applied to its affiliated unions and officials.

See Senate Report

, at 12-16,

reprinted in 1 Leg. History

, at 408-12;

House Report

, at 9-12,

reprinted in 1 Leg. History

, at 767-70.

See also Internal Affairs of Labor Unions

, 58 Mich. L. Rev. at 824-29. The following excerpts from this code demonstrate the similarities between a union official's fiduciary duty and the disclosure requirements of section 202.

[A] basic ethical principle in the conduct of trade union affairs is that no responsible trade union official should have a personal financial interest which conflicts with the full performance of his fiduciary duties as a workers' representative.

[U]nion officers and agents should not be prohibited from investing their personal funds in their own way in the American free enterprise system so long as they are scrupulously careful to avoid any actual or potential conflict of interest.

In a sense, a trade union official holds a position comparable to that of a public servant. Like a public servant, he has a high fiduciary duty not only to serve the members of his union honestly and faithfully, but also to avoid personal economic interest which may conflict or appear to conflict with the full performance of his responsibility to those whom he serves.

There is nothing in the essential ethical principles of the trade union movement which should prevent a trade union official, at any level, from investing personal funds in the publicly traded securities of corporate enterprises unrelated to the industry or area in which the official has a particular trade union responsibility.

[These principles] apply not only where the investments are made by union officials, but also where third persons are used as blinds or covers to conceal the financial interests of union officials.

Ethical Practices Code IV: Investments and Business Interests of Union

, 105 Cong. Rec.*16379 (daily ed. Sept. 3, 1959),

reprinted in 2 Leg. History

, at 1408.

See also Ethical Practices Code II: Health and Welfare Funds, id.

, 2

Leg. History

, at 1406-07.

The Department intends by today's rule to better achieve the purposes of the LMRDA, as reflected by its legislative history.

II. Discussion of Comments Received on Proposed Rule and Department's Response

A. Why the Changes To the Form Are Needed Now

Several commenters recommended that the Department should evaluate its recent compliance experience with Form LM-30 reports submitted by union officials using the old form before considering any changes to the form. One commenter stated that there is no problem with the old form. Another asserted that the affected community has spent a “huge amount of time getting up to speed on the present form,” arguing that the proposed form is more confusing than the current form because it requires filers to identify for each reportable interest the particular statutory provision to which it relates.

A labor educator, noting the upsurge in Form LM-30 filings about the time of the comment period on the proposed rule, suggested that the Department should postpone any changes until it completed a thorough analysis of these submissions. Although this commenter acknowledged that the old form presents some challenges to a filer's easy understanding of the reporting requirements, he asserted that the proposed form poses greater opportunity for mistake and confusion. Two commenters argued: “[R]adically changing the form at the same time as the Department provides comprehensive guidance on what is considered reportable [on the old form] will only impede the efforts to encourage accurate and full reporting.”

The old Form LM-30 posed substantial challenges to filers. As discussed in the NPRM and as demonstrated by comments on the proposal, filers have been unsure about the kinds of payments that trigger the need to file a Form LM-30.

See

70 FR 51172-73, 51175. Keeping the status quo would leave in place exceptions that permit union officials to avoid disclosing payments that would otherwise be reportable under the statute, denying union members information about their officials' interests in and payments by employers and businesses that raise conflict of interest questions. Deferring the final rule for an exhaustive analysis of all the Form LM-30 filings during the April through mid-August 2006 “grace period,” numbering about 13,000 would cause undue delay with little additional gain. The Department's preliminary and ongoing review of these filings demonstrates that the old form is unclear and that today's rule will rectify many of the problems observed in those filings.

One commenter recommended that the Department, well in advance of the filing deadline, “should grant a reasonable extension for filing and/or make any aspects of the final rule that are more restrictive than the current rule prospective only. DOL should only apply any changes prospectively, and it should provide a reasonable opportunity for necessary recordkeeping and related efforts to facilitate accurate reports and compliance.” Another commenter argued that no new requirements should be imposed on service providers until rulemaking on the Form LM-10 is completed. Another commenter argued that no changes in reporting should occur any sooner than a filer's fiscal year that begins after the final rule takes effect.

DOL is applying these changes prospectively only. This final rule will apply to fiscal years beginning on or after ___, 2007. Therefore, no report subject to today's rule will be due until at least ___, 2008. There is ample time from publication of this final rule until ___, 2008 for all filers to obtain any information they need to comply with the filing requirements.

B. Why the Department Is Not Presently Requiring Unions to Notify Their Officers and Employees (“Officials”) About Their Annual Reporting Obligations

In the NPRM, the Department requested comments on whether the Department should require unions to provide notice of the filing requirements to their officers and employees. The NPRM discussed possible notification options. Under one option, unions would be required to notify their officers and employees of their Form LM-30 obligations within 30 days of their installation into office or hire, respectively. Unions would be required to provide initial notification within 60 days of the enactment of the regulation, and annually thereafter to all officers and employees. Under the proposal, a union could meet this requirement by providing a copy of the Form LM-30 and its instructions. E-mail notification might be considered. As an alternative, a general notice, provided in a union publication addressed to each officer and employee, might be adequate for this purpose.

A number of comments were received on the notification question. Commenters were divided on the question. Some commenters strongly supported mandatory notification, pointing to low numbers of past filers as evidence that notification is essential. No union commenter supported the proposal. Commenters were divided as to whether the Department has authority to require notification under sections 105 or 208 of the LMRDA. One commenter asserted that the Department lacks authority to issue a notification requirement under section 105, arguing that this provision does not allow imposition of a detailed code of union conduct. Another commenter used section 105 to illustrate its position that Congress knew how to establish a notification requirement, arguing that its

failure to so provide in section 202 evinces the intention to excuse unions from any obligation to provide such notice. Another commenter argued to the contrary, stating that mandatory notification is consistent with section 105 which states, “[e]very labor organization shall inform its members concerning the provisions of this Act.” While acknowledging that section 208 arguably permits a notification requirement, a commenter argued that the Department must first demonstrate that such a rule is necessary to prevent the circumvention or evasion of the reporting obligation. It argued that “circumvention” and “evasion” connote a willful disregard of the filing obligation, actions that require as a premise that the filer already is aware of the filing obligation.

A commenter argued that the Department should impose a broader notification requirement on unions. Unions should be required, in its view, to provide notice to both officials

and

their members about both the filing obligations of union officials and the union's own reporting obligations to file a Form LM-2, 3 or 4. Another commenter viewed notification as a “first-step in the right direction.” It stated a preference for a system whereby the Department would provide annual reminders about Form LM-30; each union would be required to file with the Department the names and addresses of all its officers and employees. On the other hand, several commenters argued that reliance on voluntary efforts would better achieve the goal of informing officials about their filing obligation. One of these commenters stated that voluntary education works better than mandatory notification given that unions have a variety of governance structures and that they operate, in effect, in different industries calling for different approaches. Another commenter suggested that DOL “work informally” to obtain compliance. This commenter explained that under the old regulation, unions take various steps to inform their officials about Form LM-30 requirements, such as by holding meetings or providing written notices. The commenter argued that the choice of a method to inform union members should be left to the union. Several commenters argued that notification was unnecessary in light of new Department guidance, pointing to the rise in filings to support its claim.

The Department believes it possesses the authority to impose a notification requirement. However, the Department has concluded, based on its review of the comments and the recent experience with Form LM-30 filers, that a mandatory notification requirement is unnecessary on the present record to effectuate the disclosure purpose served by section 202 of the Act. After unions and their counsel became aware of the Department's increased emphasis in securing compliance with section 202, many contacted their officers and employees to inform or at least remind them of their obligation to file a Form LM-30 if they engaged in any of the activities identified by the form and its instructions. While in previous years less than 100 forms were typically filed each year, during the 2005 grace period contemporaneous with this rulemaking, 13,326 reports were filed. During FY 2006, 4,348 Form LM-30 reports were filed. Given the historic increases in Form LM-30s during the grace period with stepped up Departmental compliance assistance and voluntary efforts by major unions to educate affiliates and officials, there is currently not a sufficient record to conclude that a mandatory requirement is needed.

The Department applauds the voluntary efforts by the AFL-CIO and other unions to apprise union officials about their Form LM-30 reporting obligations. However, insufficient time has passed to conclude that union officials, without receiving regular notice by their union of these obligations, will remain aware of these obligations. If future compliance figures indicate that new union officials are uninformed about their Form LM-30 filing obligations or that others appear to have forgotten their obligations, the Department may then reassess the need for imposing a notification requirement.

Section 202(a) of the LMRDA calls for disclosure of “any” stock, bond or other interest, “any” income, “any” loan, and “any” payment or other thing of value received by a union official, his or her spouse, or minor child[ren] from employers and businesses as defined in sections 202(a)(1) through 202(a)(6). While this inclusive language may be read to require a report on any such payments regardless of amount, the Department always has excepted from reporting payments of insubstantial or de minimis value. Thus, the old instructions to the Form LM-30 inform filers: “You do not have to report any sporadic or occasional gifts, gratuities, or loans of insubstantial value, given under circumstances or terms unrelated to the recipient's status in a labor organization.” This exemption applies by its terms to all reports due under section 202. The

LMRDA Interpretative Manual (“LMRDA Manual

”), as revised in March 2005, states that anything with a value of $25 or less will be considered de minimis and therefore not reportable if it is given on an “infrequent or sporadic” basis under circumstances unrelated to the recipient's status in a labor organization.

LMRDA Manual

, § 241.700.

The Department sought comments on the de minimis exception generally and specifically on whether the $25 threshold is appropriate, whether the burden is reasonable, and whether reporting of all transactions should be required without regard to their value. 70 FR 51175. In November 2005, following a review of Form LM-30 reports filed during the Department's grace period, which revealed the reporting of numerous payments that union members and the public would regard as trivial, and based on comments from union representatives that the threshold was too low, the Department issued guidance advising that “gifts, gratuities or loans with a value of $250 or less” would be considered insubstantial for the purposes of Form LM-30 reporting.

In the NPRM, the Department noted the inclusive language used by Congress in defining the scope of the reporting obligation and the absence of any general substantiality test for the LMRDA's reporting provisions.

See

section 202(a)(3); 29 U.S.C. 432(a) (limiting reports specific to certain “substantial” dealings). The Department also noted that exceptions based on insubstantiality are commonly read into statutes that do not expressly contain them and that the financial disclosure reports for certain Federal government employees contain a de minimis exemption.

The Department in today's rule retains a de minimis exemption. Under this exemption, payments or gifts totaling $250 or less from any one source during the reporting year need not be reported. In addition, the Department decides that payments or gifts valued at $20 or less need not be included in determining whether the $250 threshold has been met. The Department has concluded that a dollar-specific test for de minimis payments is preferable to one that requires filers to make a fact-specific determination of what is “insubstantial” or “unrelated to the filer's status in a labor organization” or “sporadic and occasional.” The Department also has crafted a limited reporting exclusion for a union official's

attendance at “widely attended gatherings.” If during the year, an officer or employee attends one or two widely-attended gatherings for which an employer has spent $125 or less per attendee per gathering, the officer or employee has no Form LM-30 obligation with regard to tracking or disclosing these events. A gathering will be considered “widely attended” if it is expected that a large number of persons will attend and that attendees will include both union officials and a substantial number of individuals with no relationship to a union or its section 3(l) trust.

The Department received numerous comments on the de minimis question, mostly in favor of retaining the exemption and the adoption of a quantitative threshold substantially higher than the $25 figure discussed in the NPRM. Particular comments are discussed below.

A few commenters argued that no de minimis level should be adopted at all. One commenter stated that full disclosure was appropriate because it allowed a union's members to decide whether a gift to a union official presented a negligible conflict of interest or not. The Department acknowledges that there would be some benefit in eliminating the exception; this change would allow individual union members to determine whether a particular payment poses a conflict of interest and more importantly could lead to further inquiry about a union official's actions. As stated in the NPRM, there is no statutory requirement for a de minimis level.

See Environmental Defense Fund, Inc.

EPA,

82 F.3d 451, 466 (D.C. Cir. 1996). Nonetheless, abandoning a de minimis threshold altogether would be a sharp departure from the Department's historical practice. Moreover, as further discussed below, the Department believes that elimination of the de minimis exception would only marginally increase meaningful transparency. Furthermore, the absence of a specific de minimis exception in section 202 is not determinative; exceptions based on insubstantiality are commonly read into statutes that do not expressly contain them, and this practice demonstrates their practical value.

See Wisconsin Dept. of Revenue

William Wrigley, Jr., Co.,

505 U.S. 214, 231 (1992). For these reasons, the Department retains the de minimis exception.

Many commenters noted the difficulty of applying the vague de minimis standard in the old instructions and the historical absence of helpful guidance in applying the exception. Several requested the Department to provide at least an illustrative dollar figure and to explain the meaning it attributes to the terms “unrelated to the filer's status in a labor organization” and “sporadic and occasional.” Some specifically requested the Department to provide additional examples so that filers could better understand the de minimis exception. Others argued for a test that was solely tied to the dollar value of any gift or payment.

As acknowledged in the NPRM, the qualitative aspects of the rule have proved difficult to apply. Based on its consideration of the comments and further review of this question, the Department has concluded that the purposes of section 202 can best be achieved by modifying the test so that the value of the payment or gift is the sole consideration affecting its disclosure. Additional conditions for claiming the exception would often present filers with the burden and expense of undertaking a fact-specific inquiry even though the amount of the gift or payment, as recognized by the dollar threshold, is insubstantial.

Some commenters favored replacing or at least supplementing the de minimis rule with the creation of broad exceptions to the various reporting requirements. These commenters requested exceptions for what they viewed as routine activities necessary for conducting business. Thus, exceptions, among others, were proposed for the following: any expenses related to an employee benefit plan including educational benefits, receptions and meals, routine business functions and luncheons, all marketing expenses, marketing and entertainment expenses provided equally to union and management trustees, and any promotional or branded good containing a company name or logo. Most of these comments were from employers or industry associations that anticipate that union officials will rely on the vendors to keep track of any gifts or payments so that they can readily determine whether they have incurred a reporting obligation. Another commenter suggested that no report should be required for any gratuity that would be considered a “business expense” by the IRS. One commenter characterized the rule as “incredibly burdensome” and an “unprecedented imposition” on service providers to trusts. Another commenter suggested, in effect, that the Department should adopt the rules and exceptions provided under the disclosure rules for Federal employees in place of the Department's proposed de minimis rule.

Several comments expressed concern about the need to report educational materials and seminars provided union trustees by vendors offering or providing services to welfare and pension plans. These commenters argued that even a high de minimis level would have a chilling effect because union trustees would refuse the materials or decline to attend a seminar in order to avoid the recordkeeping and reporting burden or the perception by union members that the trustee's attendance would be inappropriate. One commenter suggested that no report should be required for educational resources provided to union officials, so long as the sponsoring organization retained a statement of the educational purpose of the resource, a list of its total expenses relating to the otherwise reportable event, and if a seminar, the list of attendees.

The Department declines to create any suggested broad category of exceptions. Creating the broad exceptions suggested would frustrate the purpose of the statute to make transparent possible conflicts and would deny union members the ability to evaluate any concerns they might have about the possibility that a union official might put his or her own interests above those of the union and its members. Educational seminars and resources may benefit trustees to pension or welfare plans and the workers whom the plan is meant to benefit. The same event, however, may well include gifts, meals, travel, lodging and entertainment provided by service providers, or potential service providers, to these plans. By requiring reporting, the Department need not attempt the highly difficult task of crafting a rule that will identify the questionable payments. Rather, union members and the public can evaluate the situation on a case-by-case basis, and make their own decisions on the choices made by their officials. Furthermore, these commenters fail to recognize that the Secretary's authority to fashion a de minimis exception is a limited one. The LMRDA does not confer on the Secretary the authority to except from reporting matters which Congress has evinced no intention to withhold from disclosure and the de minimis principle, as evidenced by its name, only applies to matters of relative insignificance. Although the disclosure rules for Federal employees provide an alternative system for reporting financial interests that may pose a conflict with an individual's duties, that system was designed to meet the special needs and interests of Federal employment and the various laws that govern such employment. The

Department has borrowed some ideas from the disclosure rules for Federal employees but to adopt the Federal disclosure rules wholesale would be impracticable.

Most of the commenters advocated a dollar threshold substantially higher than the $25 figure mentioned in the NPRM; many urged a figure higher than $250. These commenters and others requested the Department to exclude from the aggregate amount “hospitality gifts” of nominal value, variously defined by particular commenters. Several commenters urged the Department to adopt a two-tier approach similar to Federal conflict of interest disclosure requirements for Office of Government Ethics (OGE) Form 450 and Form SF 278. In general, these commenters recommended that gifts totaling $250 or less from any one source need not be reported and that “insubstantial” gifts (ranging from $75 to $250) should not be included in determining whether the $250 threshold has been met. Otherwise, many commenters argued, the recordkeeping burden would be unreasonable because union officials would have to track every cup of coffee and every lunch to determine whether and when the $250 level was met. The general rule for employees covered by the Federal disclosure rules is that they are prohibited from accepting any gift because of their government position. Examples of prohibited gifts are those that come from persons or firms that have contracts, grants, or other business with the employee's agency, or are seeking such contracts, grants or other business. These employees are also prohibited from accepting gifts from entities that are either regulated by the employee's agency or may be affected by the performance of the employee's duties. An exception to this general rule applies to unsolicited non-cash gifts of $20 or less up to a maximum of $50 per year from a single source. 5 CFR 2635.204(a).

The Department believes that, by setting the threshold at $250 and providing that payments or gifts valued at $20 or less need not be included in determining whether the $250 threshold has been met, it has achieved the appropriate balance between ensuring transparency of potential conflicts and minimizing the reporting burden. This two-tier approach has precedent in the Federal employee disclosure regime. By excluding expenses of $20 or less from the $250 computation, the Department substantially reduces the burden associated with aggregating gifts or payments from a particular employer or business. There will be no need to keep records of coffee and pastry service, modest lunches, or similar “hospitality gifts.”

Some commenters expressed the concern that requiring large numbers of reports on relatively small amounts of payments “buries” from view reports of greater value. The Department believes this fear is unfounded, especially in light of the $250 aggregate threshold established by today's rule. Even at a much lower figure, the number of reports of interest to a particular union member would constitute only a small fraction of the total number of reports filed and these reports could easily be culled electronically from the other reports.

The Department does not find persuasive the comments urging that payments higher than $20 should be excluded from the $250 reporting threshold. While there may be merit to some arguments urging a somewhat higher or lower amount, a $20 initial threshold minimizes reporting burden and ensures disclosure of financial relationships that may pose a conflict of interest. The Department, however, rejects the suggestion that items valued substantially more than $20 should go unreported. While in the Department's view, a single gift of $75 or even $100 is unlikely to be a matter of substantial concern to some members, even a few gifts of this magnitude would be of concern to most members. And almost every member would be concerned if a union official received several gifts of such value. By setting the amount at $100, for example, a union official could receive a respectable set of golf clubs, gloves, shoes, and other golfing attire through a series of $100 gifts without filing a Form LM-30. Most union members and members of the public, the Department believes, would view the gift of a complete set of clubs or other serial or packaged gifts as posing a potential conflict of interest between the union duties of the recipient and matters affecting the donor of the gifts.

The purpose of the de minimis exception is to minimize reporting burden. A filer may not use the exception to hide the receipt of a series of payments or gifts that are purposely set at $20 or less to avoid reaching the $250 reporting threshold. For example, a filer would have to report his or her receipt of individual tickets worth $20 or less to all of a professional baseball team's home games that are provided before each game rather than given as a complete package at the start of the season. The Department is sensitive to the concern that by setting the de minimis level at $250 today's rule could lead to the unintended consequence that some union officials will choose not to attend some widely-attended gatherings of value to them and their union's members. However, the Department also believes that reporting attendance at legitimate educational gatherings will also benefit the filer by showing their union members that the filer is taking steps to learn and advance the skills needed for their position. As stated above, the Department's authority to fashion a de minimis exception is constrained by the language of section 202. In the Department's view, however, the Department is within the bounds of its discretion to craft a limited reporting exception for such gatherings. Thus, the Department concludes that no union official need report their attendance at one or two such gatherings annually provided the expense incurred by the employer or business holding the gathering is $125 or less per expected attendee. The Department believes this change meets the concern of some commenters that union officials and trustees would be discouraged from attending educational seminars related to their union or trustee duties if they were required to report such activities. The Department considered, but rejected as impractical and perhaps beyond the Department's authority, a broader qualitative exception for meetings. None of the comments provided a ready basis for distinguishing between the purposes of various meetings that would reduce the reporting burden without impeding the disclosure of information relevant to assessing the potential conflict of interest from the value of attendance at several meetings or a single meeting of significant economic value to a union official present at the meeting.

D. Why Reporting Exceptions Permitted Under the Old Rule Have Been Eliminated or Modified To Provide More Information to Union Members

In the NPRM, the Department proposed the elimination of regulatory exceptions from the reporting requirements of section 202. One of these exceptions relates to the reporting by union officials of payments received under “union-leave” and “no-docking” policies; this exception is discussed separately. Although each exception is based on statutory language excepting the reporting of specific interests in or payments from an employer, the old Form LM-30 and its instructions apply these specific exceptions more generally to other matters that otherwise would have to be reported. As discussed in the NPRM, by administratively enlarging exceptions to reporting, the Department deprived union members of information

to which they were entitled under particular provisions of section 202. 70 FR 51175-78. The Department also proposed to eliminate a provision in its regulations, 29 CFR 404.4, which now states that the Department may require a union official to file a special report in situations where the administrative exceptions departed from the language of the statute. 70 FR 51178.

Under today's rule, as discussed below, the Department generally has adopted the proposals set forth in the NPRM to narrow the scope of these exceptions in order to better adhere to the statutory design. The Department also has eliminated the “special reports” language as unnecessary given the Department's express statutory mandate to conduct investigations under the Act.

1. Regular Course of Business Exception

Section 202(a)(5) of the LMRDA requires union officials to report any “business transaction or arrangement” with an employer whose employees the union represents or is actively seeking to represent. This section excepts from reporting two categories of transactions and arrangements: (1) Payments and benefits received as a bona fide employee of an employer whose employees the official's union represents or is actively seeking to represent; and (2)

“purchases and sales of goods or services in the regular course of business at prices generally available to any employee of such employer.”

(Emphasis added). Sections 202(a)(1) and 202(a)(2) require union officers and employees to report payments from and other financial interests with such an employer. These sections do not contain this “employee discount in the regular course of business” exception, but the prior instructions applied it to financial matters covered by these subsections.

The Department adopts its proposal to limit the exception to financial matters reportable under section 202(a)(5). Thus, this exception will no longer apply to matters reportable under sections 202(a)(1) or 202(a)(2). It will not be applicable to (1) Holdings in an employer whose employees the union represents or is actively seeking to represent, (2) transactions in such holdings, (3) loans to or from such employer, and (4) income or any other benefit with monetary value (including reimbursed expenses) received from such an employer.

The Department received a few comments specific to this issue. One commenter supported the proposal to remove the exception, while two others objected to the proposal. One commenter based its support of the Department's proposal in the statutory language, noting that the “regular course of business/employee discount” exception is found only in section 202(a)(5) and not in sections 202(a)(1) and 202(a)(2). Therefore, this commenter contended, “the current instructions create an exception for transactions under the latter two subsections that Congress did not envision.” Numerous commenters objected generally to reporting related to the routine conduct of business, especially in connection with business conducted between section 3(l) trusts and service providers, including financial institutions. For example, one commenter asserted that the Department should not focus on “routine business transactions conducted at arms length,” but rather on those transactions that may be evidence of a potential conflict of interest.

One commenter offered a general argument against reporting of what it considers to be routine business transactions, including payments or loans to union officials. The commenter argued, in effect, that the proviso in section 202(a)(6), excepting reporting on “payments of the kinds referred to in section 302(c) of the Labor Management Relations Act,” should be applied broadly to all the subsections of section 202(a). Thus, this commenter argues implicitly that section 302(c) of the Labor Management Relations Act excepts from the section's criminal prohibition the payment of money or other thing of value “with respect to the sale or purchase of an article or commodity at the prevailing market price in the regular course of business.” 29 U.S.C. 186(c)(3). This commenter apparently believes that Congress also intended to exclude such payments from any reporting by union officials, notwithstanding the absence of such exception from subsections (a)(1)-(5) of section 202.

The Department disagrees that Congress intended the section 302(c) proviso in section 202(a)(6) to supplant the specific reporting obligations prescribed by the other five subsections of section 202(a), several which have unique exceptions narrowly applicable to the types of payments for which reports must be filed. The Department concludes that this construction is contrary to the plain language of the Act, and would render superfluous specific exclusions Congress crafted for particular types of payments. It would make no sense for Congress to craft a disclosure-specific statute with explicit reporting obligations and explicit exceptions and, at the same time, undo those specific provisions by a vague reference to another statute.

Union members have an interest in knowing of such holdings, transactions in holdings, loans, and income so they can evaluate whether each is significant enough, or of such a nature, to constitute a conflict of interest. The statutory exemption for payments and other benefits received as a bona fide employee of the employer is sufficient to exempt all the ordinary payments received as part of an employment relationship; the exemption in the current form, the Department finds, may provide a means to exclude other items that present conflicts of interest for union officials. For example, a union officer who receives income from the employer of union members for contract work could, at least arguably, avoid disclosing the payment by relying on this exemption. A union employee who purchases certain types of ownership interests could avoid disclosing the holding by relying on this exemption. A union official with an employer as a client has a conflict between personal interests and union loyalties, as does an official with an ownership interest in the employer. The change is consistent with the plain language of the statute, which applies this exception only to financial matters reportable under section 202(a)(5), not to section 202(a)(1) or 202(a)(2). The elimination of this exemption will result in more detailed and transparent reporting of financial information that union members may find helpful in determining whether their union's officers and employees are subject to financial pressures inconsistent with their responsibilities to the union and its members.

2. Bona Fide Employee Exception for Transactions With an Employer Whose Employees the Official's Union Represents or Is Actively Seeking To Represent

Sections 202(a)(1) and 202(a)(5) include language that specifically excepts “payments and other benefits received as a bona fide employee of such employer” from reporting. Under the old Form LM-30 and the instructions, however, this exception also was applied to matters for which reports were required under section 202(a)(2). Section 202(a)(2) requires union officials to report: (1) Transactions in holdings in an employer whose employees the union represents or is actively seeking to represent, and (2) loans to or from such an employer. Section 202(a)(2) does not include the “bona fide employee” exception.

The Department proposed to limit this exception only to reports due under sections 202(a)(1) and 202(a)(5), thereby eliminating the old exception for reports (on payments other than loans) due under section 202(a)(2).

See

70 FR 51176-78, 51188. The Department received only one comment on this issue. It supported the proposal. Today's rule adopts the proposal, which is consistent with the plain language of the statute. A union official's decision to purchase or divest holdings in the employer could be of significant importance to union members and its reporting would prevent a possible conflict from escaping the scrutiny of members. As noted in the proposal, sales and purchases of an ownership interest in the employer are unlikely to constitute payments received as a bona fide employee; by eliminating this exception, a union official must now, for example, report payments made to officials as stock options where the employer buys back such options.

3. Exception for Bona Fide Loans or Interest From a Banking Institution

Section 202(a)(6) requires union officials to report “any payment of money or other thing of value (including reimbursed expenses)” received from “any employer” or any labor relations consultant to an employer. Under the old Form LM-30 and its instructions, the following are excepted from reporting: “[B]ona fide loans, interest or dividends from national or state banks, credit unions, savings or loan associations, insurance companies, or other bona fide credit institutions.”

See

Part C (ii) of the instructions to the old form. The Department proposed to eliminate the exemption.

Upon review of the comments, the Department

retains

the general exception but limits its scope because the Department has determined that the exception is too broad. Under the final rule, this exception will not apply to “national or state banks, credit unions, savings or loan associations, insurance companies, or other bona fide credit institutions that constitute a `trust in which your labor organization is interested'.”

The Department received two comments in support of the proposal to eliminate this exception

in toto

. One commenter argued that the exception in the Form LM-30 instructions had no statutory basis, and that its existence tended to shield transactions that should be reported. The Department received four comments opposed to this proposal. These commenters stated that the elimination of this exception would burden union officers and employees, employers, and the Department; interfere with the privacy of the employees as well as the financial institutions by revealing confidential information; and fail to advance the goal of disclosing potential conflicts of interest. One commenter argued that the Department's proposal to eliminate the exception was an “unwarranted intrusion on privacy,” while providing only minimal benefit to union members. This commenter questioned why the public should be made aware of a “bona fide mortgage” from a financial institution unrelated to the union and given on terms generally offered to the public. Most mortgages along with other encumbrances on property must be recorded with a government office, typically at the county level, to be effective. These filings are publicly available and as such the insinuation that the Department is now making public information that was secret is unfounded. Further, the vast majority of these loans will be made on neutral criteria not related to the filer's status with a labor organization and as such will not be reportable. The rare instance where the filer's status with the labor organization is a criterion for issuance of the loan is exactly the type of situation where a possible conflict of interest exists. As such, reporting on transactions of this type is warranted.

Another commenter recommended that the Department only require reporting of loans made to employees in whole or in part due to their union status. The commenter expressed concern over the volume and diversity of new transactions that would come under the scope of the new Form LM-30, such as payroll advances, and the burdensome recordkeeping requirements that would accompany the elimination of this exception. One commenter argued that the “overwhelming majority” of the estimated 206,000 union officers and employees would now have to report under the new Form LM-30.

The Department has concluded that the exception as drawn in the instructions to the old Form LM-30 is too broad. While there is a strong argument that elimination of the exception would best serve the disclosure purposes of the Act, the total burden associated with requiring reports on payments received from all financial institutions would be considerable. Loans, interest, and dividends earned during the regular course of business with a bona fide financial institution are among the most common financial transactions undertaken by individuals. For example, without this exception, a union official would have to report each mortgage or other bank loan received from any financial institution in competition with a financial institution that deals with the official's union. A union official would first have to identify all the financial transactions with the official, his or her spouse or minor children and then look at the corresponding institutions to see whether they do business with the official's union, or compete with those that deal with the official's union. In the Department's view, the burden would outweigh the value of the additional information disclosed.

The current exception has kept improper transactions from being disclosed. As noted in the NPRM, the Department only belatedly became aware of a situation where a credit union controlled by a local union made 61% of its loans to four of its loan officers, three of whom were officers of the local. 70 FR 51177. If the officials had been required to report these loans, the members would have learned that their credit union was making loans for reasons related to union status, not on a borrower's ability to repay the debt, which posed a risk to the credit union by failing to spread the lending risk more broadly. In short, the members would have been able to determine whether the officials had placed their own personal interests above the union's interest in the credit union that it ostensibly controlled. By eliminating the exception for institutions that are trusts, valuable information regarding potential conflicts of interest will be publicly disclosed.

While the Department recognizes that an official's interest in preserving the confidentiality of such information may be considerable; nonetheless, this interest is outweighed by the need for union members and the public to know of transactions between union officials and related organizations. Thus, here the balance tips in favor of disclosure in the limited situations proposed by today's rule.

This exception applies, and has always applied, only to reports due under section 202(a)(6). Where the financial institution is an employer whose employees the filer's union represents or is actively seeking to represent, the exception would not apply. Nor would it apply where the financial institution is a business that buys, sells, leases or otherwise deals with the union, a trust in which the union is interested, or in substantial part with the employer of the union members.

One commenter “strongly” disagreed with the proposal, arguing that it would impose a reporting obligation on union

officials, even though financial institutions are expressly relieved from reporting such loans by section 203(a)(1) of the Act. Section 203(a)(1) specifically exempts “payments or loans made by any national or State bank, credit union, insurance company, savings and loan association or other credit institution.” The commenter pointed out the potential “reporting inequities” of the Department's proposal and argued that the inconsistent reporting obligation would make comparative analysis of Forms LM-10 and LM-30 impossible. The Department acknowledges that by modifying the exception, union officials will be required to report on matters about which the financial institutions themselves have no LMRDA reporting responsibility. However, the commenter overlooked the limited scope of the divergence. Section 203(a)(1)'s exception for “credit institutions” does not extend to any payments or loans made by such institutions to persuade or otherwise interfere with employee collective bargaining or representation rights.

See

29 U.S.C. 203(a)(2) and (3). Furthermore, strong policy reasons exist for requiring union officials to report their arrangements with financial institutions in the limited circumstances required by today's rule.

4. Exceptions Relating to Stocks

The Department invited comments about whether to remove or retain the administratively created exception related to the reporting of holdings, transactions or receipts of income from securities that do not meet the registration requirements of the Act, are of insubstantial value, and occur under terms unrelated to an employee's status in a labor organization. The old rule states: “For purposes of this exclusion, holdings or transactions involving $1,000 or less and receipt of income of $100 or less in any one security shall be considered insubstantial.” 70 FR 51176.

On a related issue, the Department sought comments on whether to retain the distinction between, on the one hand, securities traded on a registered national stock exchange and, on the other hand, securities that while traded on a high volume exchange, are not traded on a

registered

national exchange (as was the case with NASDAQ until recently). 70 FR 51177. Section 202(b) provides that a union official is not required “to report his bona fide investments in securities traded on a securities exchange registered as a national securities exchange under the Securities Exchange Act of 1934, in shares in an investment company registered under the Investment Company Act of 1940, or in securities of a public utility holding company registered under the Public Utility Holding Company Act of 1935, or to report any income derived therefrom.” The NPRM listed all of the stock exchanges currently registered under the Securities and Exchange Act of 1934: “The American Stock Exchange, Chicago Board Options Stock Exchange, International Securities Exchange, National Stock Exchange (formerly the Cincinnati Stock Exchange), New York Stock Exchange, Pacific Exchange, and Philadelphia Stock Exchange.” The proposal noted that NASDAQ was not registered as a national securities exchange.

Two commenters favored the complete elimination of the insubstantiality exception for securities not meeting the registration requirements. One of these commenters argued that the insubstantiality exception flies in the face of clear statutory intent to require the reporting of all stock transactions apart from bona fide investments in securities traded on a national securities exchange. The other commenter argued that union members, not this Department, should determine what is and is not insubstantial. One commenter also supported the exception for small holdings of unregistered securities as long as the holdings are too small to give rise to a controlling interest. Focusing on the comprehensibility of the exceptions to “end-user” union officials and members, another commenter stated that the “$1,000/100” and “publicly-traded securities” exceptions are specific and easily understood. By contrast, all of the union commenters, along with a labor educator, favored the exception and supported its broadening.

The Department believes that the $1,000/$100 exception is warranted, and therefore it is

retained

in today's rule. Where the value of securities and any interest thereon is less than these threshold amounts, there is little risk of potential conflict between an official's personal interests and his or her duties to the union. Moreover, any such risk is outweighed by the burden associated with such reporting. Thus, for these and the reasons already expressed more generally herein on the application of the de minimis principle to the reporting obligation, today's rule retains this limited reporting exception.

One commenter objected to maintaining the exception for stock traded on other than a registered, national stock exchange on the ground that the statute does not provide for such an exception. Another commenter argued that there should be no exceptions for transactions involving the stock of the employer, regardless of whether the stock is traded on a registered securities exchange. This commenter expressed concern about the potential for insider trading by union officials who have knowledge about the position of the company that the rank and file members do not have. In support of his position, the commenter provides an example in which members of a union executive board sell stock options in a national exchange or private exchange shortly before authorizing a strike against the company that issued the stock.

Other commenters argued that the existing exception for securities traded on a registered, national stock exchange should be continued and extended to cover stock transactions for shares traded on NASDAQ. All of the union commenters, along with a labor educator, favored the exception and supported broadening it. A commenter supported maintaining the exception for stock that is held in a company unrelated to the filer's labor organization because, in its view, there is no potential for a conflict of interest. In support of their position, they argued that the LMRDA's legislative history demonstrates that Congress did not want to burden officials with reporting holdings of publicly traded or regulated stocks “because of the unlikelihood that such holdings will amount to a substantial or controlling interest * * * in the company in question. The argument follows that because NASDAQ securities are publicly regulated and publicly traded, they fall within the purview of what Congress sought to exempt from reporting under section 202(b). One commenter illustrated its position with the different reporting requirements that would apply if a union official owned both Gateway and Dell stock: the Dell stock (traded on NASDAQ) would be reported, whereas the Gateway stock (traded on the NYSE) would not be reported. According to this commenter, there is no conflict of interest in either instance, and accordingly neither transaction should be reported. Another commenter noted that when the LMRDA was enacted in 1959, the shares of large corporations were exclusively traded on registered exchanges. It explains that now, however, the shares of many of those same large corporations are traded on the NASDAQ and that shares traded on NASDAQ are subject to Federal registration requirements.

The Department

retains

the rule set forth in the instructions to the old rule, continuing the obligation of union officials to report transactions with any

exchange unless and until they meet the requirements embodied in section 202(b). As a pure matter of policy, the argument for adding securities traded on a highly regulated, albeit “unregistered,” market to the general exception for stock traded on a registered, national stock exchange may have merit. However, such argument founders on the plain language used by Congress to craft the exception for securities traded on a registered exchange as provided in the statute. By conditioning a reporting exception on registration, Congress obviously considered whether unregistered stocks should be similarly exempted and decided against it. Similarly, the statutory language prevents the Department from adopting a rule, as suggested by one commenter, to require officials to report their holdings in such securities that he or she has purchased in a company whose employees the official's union represents or is actively seeking to represent.

Although the commenters have demonstrated that the exception crafted by Congress, differentiating between certain kinds of stock depending upon how they are traded, may lead to some perceived anomalies, they do not show that this reporting obligation will impose any undue burden on filers. Furthermore, on July 15, 2006, the SEC approved NASDAQ's application for registration as a national securities exchange, effective July 31, 2006. In announcing its decision, the SEC stated that the “vast majority” of the companies listed on NASDAQ have previously registered their securities under the Exchange Act. Press Release, SEC (July 31, 2006), available at

http://www.sec.gov/news/press/2006/2006-127.htm

(last visited on Nov. 21, 2006). Thus, under today's rule, the exception provided by section 202(b) applies to registered stocks traded on NASDAQ; and the instructions have been revised to reflect this change. As some of the commenters suggested, the distinction between highly regulated stocks that are traded on a national, but unregistered exchange, and those traded on a registered national exchange is not immediately apparent to many filers, particularly insofar as NASDAQ-traded securities were concerned. The Department believes that its proposed definition of “publicly-traded securities” (albeit something of a misnomer in that registration of a national exchange, not “public trading,” is the distinguishing characteristic for reporting purposes) accurately set forth the statutory reporting obligation. At the same time, however, the change in the registration status of NASDAQ has largely eliminated the need for a lengthy discussion of this point in the instructions. For this reason, the final instructions more closely follow the abbreviated discussion of this point in the current instructions, without the need for a separate definition of “publicly-traded securities” or an equivalent term.

5. Revision of Special Report Language

As noted, the old Form LM-30 administratively excepts union officials from reporting various matters that otherwise would have to be reported under the particular subsections of section 202(a). A special report was intended to be used to obtain such information about such unreported matters upon demand of the Department.

See

29 CFR 404.4. The Department proposed to delete the special report provision.

At the time the Form LM-30 was created, the Department apparently believed that more complete reporting, consistent with the reporting requirements of section 202, could be realized through an ad hoc special report that could be selectively required by the Department.

See

29 CFR 404.4. As discussed in the NPRM, these reports would allow the Department to require the disclosure of the information that was exempted from disclosure by operation of the administrative exceptions. No procedures were established, however, to identify the circumstances for which a special report would be required; and apparently the Department has never requested a union official to provide a special report. As noted in the NPRM, the elimination of the special report provision does not diminish the Department's authority to assess each Form LM-30 report for sufficiency, require amended reports, and to commence investigations where it is necessary to determine whether any person has or is about to violate any provision of the Act. 29 U.S.C. 440, 521.

E. Why Union Officials, as a General Rule, Must Report Payments Received as Members of a Company's Board of Directors

If a union official serves as a director for an employer and receives compensation or reimbursement for attendance at meetings, the official must report such payments. Such payments may not have been reported on the old Form LM-30 because of an official's reliance on an earlier opinion by the Department on this issue. In the NPRM, the proposed instructions provided the following example of a transaction to be reported under section 202(a)(4):

You are a national union president and a trustee of a jointly administered health care trust that insures union members through an insurance company. Premiums for coverage are paid by the trust to the insurance company. You are a member of the board of directors of the health insurance company, which pays you an annual fee and reimburses expenses for your attendance at board meetings. * * * As the insurance company is doing business with a trust in which your union is interested, you must report your annual fee and reimbursed expenses under this subsection. The dealings between the health insurance company and the trust must also be reported.

70 FR 51215.

The Department only received one comment on this point. The commenter opposed the proposal, arguing that the Department should confirm its 1986 opinion that directors' fees paid to union officers serving on a corporate board need not be reported “so long as the corporation pays the union officer/director at the same rate it pays the other directors, for the same services.” The opposition was based on the commenter's broader premise that Congress intended to generally except any payments to union officials that are made in the regular course of business. The Department disagrees.

In the commenter's view, the old Form LM-30, in effect, applies language in section 202(a)(5)—excepting from reporting certain transactions involving the “purchases and sales of goods or services in the regular course of business at prices generally available to any employee of [the] employer” who sold the goods or service—to modify generally the reporting obligations under section 202. The commenter argued that the instructions to the old Form LM-30 also apply, in effect, language in section 202(a)(6)—excepting from reporting certain payments “of the kinds referred to in section 302(c) of the Labor Management Relations Act”—to modify generally the reporting obligations of section 202. The commenter, in essence, asserts that the instructions to the old form, like the 1986 opinion on directors' fees, which draws on similar language in section 302(c), properly effectuate the intent of Congress and therefore should be preserved. The commenter further asserts that there is no justification for additional recordkeeping and reporting if the union representatives are being treated the same as their fellow directors on a corporate board.

The Department disagrees with this commenter's opposition to this reporting requirement. The commenter's reference to the 1986 opinion on directors' fees refers to a letter by a senior Department official responding to

a request for an opinion concerning directors' fees paid to union officers serving on a corporate board. The official concluded that “so long as the corporation pays the union officer/director at the same rate that it pays the other directors, for the same services,” the payments are not reportable. The opinion letter reversed a 1983 determination by another senior Department official that the fees must be reported. After again carefully reviewing this question and the example discussed above in the NPRM, the Department concludes that the NPRM correctly illustrated a payment that is required under section 202(a)(4) (a business dealing directly or indirectly with an official's union) and section 404.2 of the Department's regulations on reporting by union officials (a business dealing with a section 3(l) trust that involves the official's union).

If a union official serves on an employer's board of directors and receives a fee, the employer has made a payment to a union official. Such payments are typically not of the kind referred to in section 302(c) because the exception concerning compensation to employees is not applicable unless the director is employed by the company on whose board he or she sits, an atypical status for a corporate director. Further, directors' fees are not an article or commodity, and it is questionable whether such payments for these types of personal services can be said to have a prevailing market price. Significantly, these payments raise potential questions of a conflict of interest, due to the employer's role in selecting the directors and setting the amount of the fee. A union member has an interest in knowing whether decisions made by his or her union officials may have been affected by the official's competing personal financial interest. The commenter's contention that no report should be filed where union-affiliated directors receive the same compensation as non-union directors is not persuasive. The LMRDA's reach extends only to regulating the conduct of union officials, not to setting general standards of corporate governance.

Thus, under today's rule, no separate reporting exception is made for directors' fees. A union official must report his or her receipt of directors' fees when made by an employer whose employees the payment recipient's union represents or is actively seeking to represent. Sections 202(a)(1), (2) and (5). Such fees will also be reportable when made by a business, a substantial part of which consists of buying, selling, or otherwise dealing with an employer whose employees the payment recipient's union represents or is actively seeking to represent, or any part of which consists of buying, selling, or otherwise dealing with the recipient's union, or a trust in which the recipient's union is interested. Section 202(a)(4). Finally, as discussed in greater detail, the official must report his or her receipt of directors' fees from an employer defined by this rule under 202(a)(6) including an employer in competition with an employer whose employees the payment recipient's union represents or is actively seeking to represent.

In the NPRM, the Department proposed to clarify the obligation of a union official to report his or her interests in and payments (and those of the official's spouse and minor children) from employers and businesses that have a relationship with the official's union, albeit at a different hierarchical level than the level at which the official serves as an officer or employee. Under sections 202(a)(1) through (a)(5), union officers and employees must report payments from, holdings in, or transactions with: (1) An employer whose employees the filer's labor organization represents or is actively seeking to represent; (2) a business a substantial part of which consists of dealing with an employer whose employees the filer's labor organization represents or is actively seeking to represent; or (3) a business that deals with the filer's labor organization or a trust in which the filer's labor organization is interested. The scope of the reporting obligation thus depends on what organization constitutes the filer's “labor organization.” As explained in the NPRM, many labor organizations consist of a three-tier hierarchy, such as a local labor organization, an intermediate body, and a national or international labor organization. 70 FR 51182. The NPRM explained that the Department's proposal clarifies the reach of the disclosure obligation to include conflicts that arise between a union official and his or her responsibility to both the immediate unit of the union that he or she serves and any of its parent or subordinate bodies. The NPRM noted that the

LMRDA Manual

provides that an officer at the highest tier of a three-tier labor organization must report payments from businesses that deal with employers whose employees are represented by a subordinate union local. “An international union officer must report his income from [a] business [that has dealings with an employer whose employees a local union represents] even though he is not an officer of the local which represents the employees of the business, and even though his duties as an international officer do not include representation activities.”

LMRDA Manual,

§ 241.100. The proposed rulemaking noted that members of an LMRDA-covered labor organization would have an interest in knowing if a subordinate labor organization purchases goods or services from a business entity owned by a higher level labor organization officer because local union personnel may choose to deal with this business entity out of fear of alienating the higher level officer. 70 FR 51183.

The old instructions are silent about the obligation of an officer or employee to report interests or income from businesses that have a relationship with parent or subordinate labor organizations of the filer's immediate union body,

i.e.

, the particular component of the official's union in which he or she holds office or is employed.

See

29 U.S.C. 432(a)(4). In the same way, the instructions are silent as to whether labor unions affiliated with that of the union officer or employee are encompassed by the phrase “an employer whose employees

such labor organization represents or is actively seeking to represent.

”

See

29 U.S.C. 202(a)(1), (2), (5) (emphasis added). The Department proposed to establish a rule requiring a union official to report payments he or she received from a business or employer that had a relationship with any component of the overall union hierarchy to which the official belongs or whose employees any components of that union represent or are actively seeking to represent. To accomplish this result, the Department proposed to define “labor organization,” for purposes of Form LM-30 reporting as “the local, intermediate, or national or international labor organization that employed the filer, or in which the filer held office, during the reporting period, and any parent or subordinate labor organization of the filer's labor organization.” 70 FR 51174.

Commenters were divided on the proposal, with most opposed to what

they viewed as an expanded reporting obligation. Representative of the comments favoring the proposal is the following: Union members deserve to know whether union officers or employees “receive benefits from businesses whose employees are represented by, or are actively seeking to be represented by, a parent or subordinate union, to form an opinion about whether a conflict of interests exists.” Representative of the opposing viewpoint is the following: Union officers do not have the resources to “trace the repercussions of each potentially reportable interest * * * up or down the organizational hierarchy and throughout the national marketplace.” As discussed below, the Department has decided to modify the reporting obligation by excluding local officials from reporting financial interests in businesses and employers that are involved with higher level components of their union's hierarchy and clarifying and reducing the reporting obligation of officials of national, international, and intermediate level unions. Thus, the Department has narrowed the reporting obligation from that proposed in the NPRM by adopting the existing “top-down” approach.

See LMRDA Manual,

§ 241.100.

The Department adopts a revised definition of “labor organization,” which reads in the instructions as follows:

Labor organization means the local, intermediate, or national or international labor organization that employed the filer, or in which the filer held office, during the reporting period, and, in the case of a national or international union officer or an intermediate union officer, any subordinate labor organization of the officer's labor organization. Item 6 of the Form LM-30 identifies the relationships between employers and “your labor organization” or “your union” that trigger a reporting requirement. Item 7 of the Form LM-30 identifies the direct and indirect relationships between a business (such as a goods vendor or a service provider) and “your labor organization” that trigger a reporting requirement. The terms “your labor organization” and “your union” mean:

For officers and employees of a local labor organization.

Your local labor organization.

For officers of an international or national labor organization.

Your national or international labor organization and all of its affiliated intermediate bodies and all of its affiliated local labor organizations.

But note:

A national or international union officer does not have to report, payments from, or interests in businesses that deal with employers represented by, or actively being organized by, any lower level of the officer's labor organization. Such officers are also not required to report payments and other financial benefits received by their spouses or minor children as bona fide employees of a business or employer involved with a lower level of the officer's labor organization.

For employees of a national or international labor organization.

Your national or international labor organization.

For officers of intermediate bodies.

Your intermediate body and all of its affiliated local labor organizations.

But note:

An officer of an intermediate body does not have to report payments from or interests in businesses that deal with employers represented by, or actively being organized by, any lower level of the officer's labor organization. Such officers are also not required to report payments and other financial benefits received by their spouses or minor children as bona fide employees of a business or employer involved with a lower level of the officer's labor organization.

For employees of an intermediate body.

Your intermediate body.

The first sentence of the definition is also adopted as part of the definitions section of the Department's regulations (to be codified as 29 CFR 404.1(f)). A summary of the principal comments on this issue and the Department's response to the comments follows.

Some commenters expressed a belief that the proposed definition is not supported by the statutory definition of “labor organization” at section 3(i). Instead, they argued that the term “labor organization” refers to the immediate labor organization of the filer, exclusive of any parent and subordinate entities. A commenter claimed support for its argument in the legislative history of the LMRDA, specifically the

Senate Report,

which discusses the conflict of interest that develops when a union officer is involved in collective bargaining with a business in which he or she has a financial interest.

Id.,

at 15,

reprinted in 1 Leg. History,

at 411. Some commenters argued that interests and payments that would be reported under the Department's proposal do not present conflicts of interest; one commenter explained that transactions involving parent and subordinate organizations are not reportable because the union officer is not bargaining on behalf of those organizations.

The Department is not persuaded that the language of the statute compels, or even that it can be best read to support, the conclusion that Congress intended to confine a union official's reporting obligation solely to the entity of a national or international union to which a particular union official is elected, appointed, or hired. As defined by the Act:

“Labor organization” means a labor organization engaged in an industry affecting commerce and includes any organization of any kind, any agency, or employee representation committee, group, association, or plan so engaged 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 and conditions of employment, and 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.

Section 3(i); 29 U.S.C. 402(i). This definition, broad in scope, does not answer the question posed by the Department's proposal. Section 3(i) serves mostly a functional purpose, to distinguish labor organizations from other groups or associations to which employees may belong by focusing on the organization's purpose and activities to collectively represent the employees in their dealings with employers about matters affecting various aspects of its members' employment. Section 3(j) of the Act, 29 U.S.C. 402(j), albeit focused on the nexus between an organization and its effect on interstate commerce, is more helpful in discerning whether Congress proceeded upon a general premise that it was creating rights and obligations that would be specific to only a particular component of a larger organization,

i.e.

, legislating on a separate, component-by-component basis. If Congress had that intent, the Act should provide precise boundaries between entities that otherwise are often combined in everyday usage. The statute, however, does not contain such precision. Congress instead took an approach, consistent with the common understanding of the term “labor organization” and its flexible usage in which the existence and overlapping responsibilities of entities that constitute or comprise a labor organization are inferred unless otherwise indicated. Thus, Congress understood that a union engages in representation through various means, including certification, or through the employer's “recognition or acting as the representative of employees.”

Id.

This section also recognizes that the term “labor organization” includes a “local or subordinate body” to such an organization and a higher body of which it is part. See sections 3(j)(1) through 3(j)(5).

As section 3(j) recognizes, the term “labor organization” requires a flexible meaning, depending upon the particular context in which it is used. For example, while section 101 of the Act establishes a bill of rights conferring on “every member” of a labor organization “equal rights and privileges within such organization,” it obviously does not

create for every member of a national “labor organization,” the same rights as members of a particular component of the organization in voting for that component's officers, but it does confer such rights insofar as they are exercised within the “larger organization.” In contrast, section 104 takes a different approach; in imposing on a “labor organization” the duty to provide copies of collective bargaining agreements, it distinguishes between the particular duty “in the case of a local labor organization” and the duty “in the case of a labor organization other than a local labor organization.” This approach obviously contrasts with the approach taken by Congress in crafting the reporting obligation to file labor organization annual financial reports in section 201 of the Act. Although the filing obligation is cast in terms of “each labor organization,” the context makes clear that the obligation applies to the financial affairs of a particular component of a labor organization. With respect to section 202, the context does not make clear whether the obligation is limited to a particular component of the union or not. Each of the particular requirements may be applied to an official's “immediate labor organization” or the “larger labor organization” to which the official belongs. As discussed below, the Department believes that this ambiguity, based on its review of the statute's legislative history and public policy considerations, should be resolved in favor of disclosure. At the same time, as discussed below, the Department has taken into account the burden which such a reporting obligation may entail and has crafted a rule that achieves a balance between disclosure and undue burden.

Although some commenters apparently would argue that the language in section 202 evinces an intention to restrict the reporting obligation to the official's immediate union, this contention begs the question of what was intended by the referent, “such labor organization,” as used in that section. As explained above, the structure of the LMRDA does not compel nor even strongly suggest that intention. The Department believes that the disclosure purposes of the Act are best met by giving the term “labor organization” its broader reach in applying the reporting obligation. As discussed above, section 3(j) recognizes that representation of employees is exercised in different ways, not merely through a union component that holds “certified” status. Moreover, as the statute's legislative history and the Department's own experience bear out, national and international unions often exercise authority that affects subordinate bodies (and their members) in their relationship with employers even though a subordinate union holds the certification or recognition with the employer and may have retained formal authority over such matters. Given the broad reach of the term labor organization section 202's use of the term “such” in combination with “labor organization” does not qualify or restrict the reporting obligation.

The argument, in effect, that Congress intended to restrict a union official's reporting obligation to the particular component of the union he or she serves as an officer or employee also is belied by the legislative history of the LMRDA. As discussed in greater detail herein, the genesis of the LMRDA's reporting provisions was the conflicts of interest between the personal financial interests of national and international union officials and their duty to promote the interest of all the members of their union. The hearings of the McClellan Committee revealed numerous instances whereby such officials took actions to advance the interests of employers with whom they had obtained financial benefits or the officials' own personal financial interests, overriding local officials and the interests of these locals.

See Interim Report

, at 4-5, 69-70, 73-74, 85-86, 122-28, 130-31, 228, 230, 240-41, 250, 252, 262, 265-66, 298, 441-45;

The Enemy Within

, at 26, 94, 97-98, 104-06, 219-20. At the same time, the hearing did not show a reciprocal pattern whereby local officials were able to interject themselves into matters handled at higher levels of their union to advance the interests of an employer with whom the local official had a financial relationship.

Apart from the question of legal authority, several commenters expressed concern about the wisdom of the Department's proposal, suggesting that the information sought by the Department did not pose a conflict of interest and that, even if it did, the burden of reporting outweighed any benefit from obtaining the information. For example, a commenter asserted that filers will be confused by the requirements and many individuals will unintentionally fail to report transactions because “they lack knowledge of any connection between the employer involved and the newly expanded ‘labor organization’ of which the individual is considered to be an officer or employee.”

The Department believes that union members have an interest in knowing if an international, national, or intermediate union officer receives payments and benefits from, or holds an ownership interest in, a business that deals with subordinate labor organizations or trusts in which these labor organizations are interested. The national or international officer could use his or her position to influence subordinate labor organizations to utilize the services of that business. Moreover, his or her financial interests in those businesses create the same potential for putting the official's personal financial interests above his or her duties to the union and its members. The proposed instructions include several examples of situations that would create a tension between a union official's duty to the “larger union” which the official serves and his or her own personal finances.

See

70 FR 51189-91. Union members are entitled to this information in order to determine if their interests are best served where a union official has such financial ties. Without such disclosure, it is unlikely that a union member would be able to determine whether such payments reflected a “cut” of the union's funds that were advanced for a particular purchase or to disguise a payment for services rendered by the official in favor of an employer whose employees are represented by or may be the target of organizing by a subordinate union of the official's union. Such reporting also prevents circumvention or evasion of the Act's other reporting obligations. Requiring union officials to report such payments not only allows members to “follow the money” that otherwise would be identified in the union's Form LM-2, but also increases the likelihood that the employer making the payment also will comply with its own obligations under section 203 of the Act.

The concern about the conflicts between the personal financial interests of national and international officials and the interests of the union's members at all levels of the union underlies the Department's interpretation in the

LMRDA Manual

, at § 241.100, quoted above. After carefully considering the comments received on this point and reevaluating the legislative history, the Department has decided to impose the reporting obligation only on union officers who have dealings with businesses and employers that deal with components of the union

subordinate

to the level of the union which the official serves as an officer. In reaching this decision, the Department recognized that a much greater probability exists that an official with a position higher in the union hierarchy would be able to

wield influence on matters affecting a subordinate entity than the reverse situation, and that officials in higher positions are more readily able to obtain the information needed to meet this obligation than someone lower placed in the union hierarchy. For similar reasons, the Department has determined to limit the reporting obligation to the national or international union's

officers

; under today's rule,

employees

of the national or international union are not required to report payments or other financial interests that solely relate to subordinate entities of the international. Although section 202 would allow such reporting, the Department believes that potential conflicts are much more likely to arise where a payment or other financial interest is received by a union officer rather than by an employee. Furthermore, given the typically much larger number of employees than officers in national and international unions, the overall reporting burden of the rule is minimized by excepting employees from this particular reporting obligation. To further reduce the overall reporting burden, the Department has decided to except from reporting payments or other financial interests received, as a bona fide employee, by an officer's

spouse

minor child

in connection with dealings relating to subordinate components of the officer's union—payments that if made to the officer would be reportable. In this way, the rule also represents a reduction in burden from the prior rule, which required officers of international unions to report all payments to their spouses and minor children from vendors to subordinate locals.

As noted, the cited interpretation in the Department's

LMRDA Manual

only refers to officers of an international union (and by extension to national unions); however, the same concerns that require such officers to report possible conflicts involving subordinate components of the union counsel for requiring intermediate union officers to report possible conflicts involving locals or members that the intermediate union oversees. The same potential for conflicts and manipulation exists as to the relationship between intermediate union officers and businesses and employers dealing with local labor organizations. For example, local union personnel may choose to deal with a business entity owned or controlled in whole or in part by an intermediate or national or international union officer out of fear of alienating the higher level officer. 70 FR 51183.

Some commenters expressed concern that the Department's proposal would impose a substantial burden on union officials, requiring them to identify the “spider web like” connections between the various components of their union and the businesses and employers who are represented by any of the components or who any of the components is actively seeking to represent. As a general rule, local officials need only report payments from and other financial interests in businesses that sell products or services to the local or the local's section 3(l) trusts and employers whose employees are represented by the local or it is actively seeking to represent. The only other payments or interests that they must report are those from “other employers” that involve identified conflicts of interest. Thus, for reporting purposes, the local official need only identify those entities which he or she holds an interest in or receives a payment from and the relationship between these entities and the official's local.

The burden is potentially greater for an officer of an international, national, or intermediate labor organization, but so too, as evidenced by the McClellan Committee hearings discussed above, is the potential for a conflict between the officer's personal finances and his or her duty both to the component of the union in which he or she serves and its subordinate bodies. In the Department's view, when officers have an ownership interest in a business, they should either have personal knowledge of whether the business deals with subordinate labor organizations or the ability to obtain this information from the business. While the information may be more difficult to obtain where the officer is an employee of the entity in question, rather than an owner, any burden is outweighed by the benefit to union members of obtaining reports of their official's conflicts of interests.

G. Why Union Officials Must Report Payments Under Union-Leave and No-Docking Practices Subject to an Exception for Payments of 250 Hours or Less Per Year Made in Accordance With a Collective Bargaining Agreement

The Department proposed to require union officials to report payments received from employers for activities engaged in by the officials on the union's behalf. The most common payments by employers to individuals for conducting union business are made pursuant to “union-leave” or “no-docking” policies established in collective bargaining agreements or by customary practice. Under a union-leave policy, the employer continues the pay and benefits of an individual who works full time for a union. Under a no-docking policy, the employer permits individuals to devote portions of their day or work week to union business, such as processing grievances, with no loss of pay. The Department proposed that an officer or employee would have to report any payments for other than “productive work,” including union-leave and no-docking payments. The Department explained in its proposed definition of bona fide employee that these payments are not received as a bona fide employee of the employer; rather, they are received as a representative or employee of the union.

Under the instructions to the old Form LM-30, such payments are not reportable if they are: “(a) Required by law or a bona fide collective bargaining agreement, or (b) made pursuant to a custom or practice under such a collective bargaining agreement, or (c) made pursuant to a policy, custom, or practice with respect to employment in the establishment which the employer has adopted without regard to any holding by such employee of a position with a labor organization.” See instructions, Part A, exception (iv);