Public-Sector Unions Must Disclose Financial Dealings, District Court Rules

Published June 1, 2008

A U.S. District Court judge has ruled federal financial transparency laws apply to certain public-sector unions, traditionally exempt from such regulations.

If it stands, the decision will allow workers across the country to have increased access to records of their unions’ financial dealings.

The case, Alabama Education Association v. Chao, has worked its way up and down the court system for several years. The most recent decision, issued in late March, requires state-level public-sector unions to disclose their finances to the federal government if those unions are affiliated with a national union that must comply with the federal reporting laws.

Multiple Unions Affected

While the case deals directly with affiliates of the National Education Association, the same principle applies to other public-sector unions, including the American Federation of County, State, and Municipal Employees and Service Employees International Union.

Transparency proponent Ben DeGrow, an education policy analyst with the Colorado-based Independence Institute, praised the ruling.

“I’m glad to see the court recognize the value of transparency, so teachers and other public employees can get a fuller picture of where their union membership funds are going,” DeGrow said. “The thousands of busy public school teachers who belong to the Colorado Education Association deserve to see exactly what their hard-earned dues money is buying and whether the CEA represents their own values.”

Appeal Likely

The case will likely be appealed to the District of Columbia Circuit Court of Appeals. If upheld, the decision will mean financial reports from many state-level public-sector unions will be available on the Department of Labor’s disclosure Web site,

Union financial transparency is not a new concept. In 1959, Congress passed the Federal Labor-Management Reporting and Disclosure Act (LMRDA) in an attempt to curtail corruption in private-sector unions of the day.

That financial disclosure law, however, excluded state and local public-sector unions from reporting if they did not represent any private-sector workers.

Transparency Expanded in 2003

That exception opened a doorway for the U.S. Department of Labor to expand reporting requirements when it began updating its LMRDA filing rules in 2003. During that process, the department mandated that state-level public-sector unions–traditionally held as exempt from reporting–had to begin disclosing their finances if they are affiliated with national unions subject to federal disclosure.

The agency also revised the annual financial disclosure forms for the first time in four decades and posted received forms on a searchable Web site, allowing workers easy access to their unions’ income and expenditure records for the first time.

Several state teacher unions filed suit against the rule changes. However, U.S. District Court Judge Rosemary Collyer held the Department of Labor simply needed to–and did–provide a reasonable legal justification for its reinterpretation of the law.

The department argued its actions were consistent with Congress’s intent to have increased reporting and that under the revised rules private-sector unionized employees could track how their dues payments may be transferred from a national-level union to a lower, state-union affiliate or another union.

Some Already Disclose

States need not wait for federal laws or lawsuits to ensure their workers have the right to know about union finances. Thirteen states already have some form of financial disclosure law for state- and local-level public-sector unions.

“The remaining states should seriously consider transparency reforms,” said Michael Reitz, general counsel for the Evergreen Freedom Foundation in Washington.

“Financial transparency is essential for good stewardship. If there is no information, no transparency, there’s no accountability,” Reitz said. “Public employees cannot make informed decisions about the benefits of union representation unless they know the details of the union’s income and expenditures.”

Scott Dilley ([email protected]) is a labor policy analyst at the Evergreen Freedom Foundation in Olympia, Washington.