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NLRB: Union lobbying expenses not chargeable to Beck dues objectors; objectors also entitled to verified audits

By Ronald Miller, J.D.

A union must provide Beck union dues objectors with a verified audit of the information that it provides to them; union lobbying activities are not representational duties for which objectors may be charged.

Private-sector unions subject to the “basic considerations of fairness” inherent in the statutory duty of fair representation are required to provide Beck objectors verification that the financial information disclosed to them has been independently verified by an auditor, ruled a four-member panel of the NLRB. Additionally, the Board held that charges for specified lobbying activities were unlawful; those activities are not related to the union’s representational duties to employees in the objecting employees’ bargaining unit to justify the compelled financial support of those activities by Beck objectors. Member McFerran filed a separate dissenting opinion disagreeing with the retroactive application of the audit verification requirement (United Nurses and Allied Professionals (Kent Hospital), March 1, 2019).

Verified audit. Since November 2008, the union has been the exclusive bargaining representative of unit nurses. In July 2009, the union and the employer entered into a collective bargaining agreement, effective through June 2011, which included a union-security provision requiring all new unit members to join the union by their 30th day of employment. In late September 2009, several unit members resigned their union membership and, citing Communications Workers v. Beck, objected to the assessment of dues and fees for activities unrelated to collective bargaining, contract administration, or grievance adjustment.

The union provided the objectors with their reduced fee amounts and charts setting forth the major categories of expenses for the union. The union asserted that the expenses had been verified by a certified public accountant, but the verification letter was not provided to the objectors.

The General Counsel alleged that the union had violated Section 8(b)(1)(A) of the NLRA by failing to provide the employees with evidence beyond a mere assertion that the financial data was based on an independent verified audit. An administrative law judge found that the union had not violated the Act.

Proof required. The Board agreed with the GC and the employees that the absence of a verification letter created uncertainty for the objectors as to whether the union’s claimed expenses were actually incurred, thereby preventing the objectors from making an informed decision about whether to challenge the union’s chargeability calculations.

Precedent. The Board considered whether basic considerations of fairness required that the union to provide Beck objectors with an audit verification letter. Referencing the Board’s 1995 decision in California Saw & Knife, as well as the U.S. Supreme Court’s decision in the public sector case of Chicago Teachers Union v. Hudson, the Board concluded that a union must inform an objector of the percentage of dues reduction, the basis of the calculation, and the right to challenge the union’s figures.

As to the union’s duty to verify, Hudson requires that the usual function of an auditor be performed to determine that the expenses claimed were in fact made. Moreover, the Board found persuasive the Ninth Circuit’s rationale in Cummings v. Connell, which applied Hudson to conclude unions must provide audit verification to adequately assure the reliability of the financial information provided to objectors.

Independent verification from auditor. The Board concluded that it inevitably follows from this precedent that it should explicitly hold that unions must take the “modest additional step” of supplying verification from the auditor that the provided financial information has been independently verified. It found that merely requiring an objector to accept the union’s bare representations that the figures it presented to objectors were appropriately audited to be unfair. Accordingly, the union violated Section 8(b)(1)(A) by failing to furnish Beck objectors with verification from the auditor that the financial information disclosed to them had been audited.

Chargeability of lobbying expenses. The Board next turned to consider the chargeability of lobbying expenses to the Beck objectors.The union is composed of 15 locals that vary significantly in size. It acts on behalf of the locals in all representational matters, including contract negotiations, grievance processing, and arbitrations. In 2009, the union used money from its general operating fund to subsidize lobbying efforts for various bills before the Rhode Island and Vermont legislatures. It deemed that lobbying chargeable to objectors.

Depends on which bills? The General Counsel alleged that the union violated Section 8(b)(1)(A) by charging objectors dues that it used to fund lobbying, which the GC categorized as nonrepresentational activity. The ALJ found that the union did indeed violate the Act by charging objectors for lobbying expenses for certain bills, reasoning that support for the bills was not germane to the union’s bargaining obligations; however, he found that the union lawfully charged objectors for expenses related to certain other bills.

Lobbying not representational activity. The Board concluded that relevant Supreme Court and lower court precedent compelled holding that lobbying costs are not chargeable as incurred during the union’s performance of statutory duties as the objectors’ exclusive bargaining agent. The Court has consistently treated the limits on compulsory union dues as rooted in the union’s duty of fair representation, regardless of the legal basis for challenging the expense. Consequently, the union’s authority to compel nonmembers’ financial support under the “free riders” rationale cannot go beyond the expenses “necessary to ‘performing the duties of an exclusive representative.’”

Lobbying activity is not a representational function simply because the proposed legislation involves a matter that may also be the subject of collective bargaining. Given the logic of Hudson and its progeny, lobbying must be considered farthest removed from germane activities, as it involves a union’s political actions. Accordingly, the Board concluded that lobbying expenses are not chargeable to Beck objectors under the NLRA.

Dissent. Member McFerran agreed with the majority that when a union receives a Beck objection, it should be required to include a copy of the cover verification letter it received from the independent auditor who reviewed the dues-related financial material the union sent to the objector. She acknowledged that such a requirement is an appropriate extension of current law.

However, she argued that the majority erred in applying the new requirement retroactively to the union in this case. McFerran observed that the Board has never before required a union to provide such verification letters to Beck objectors. She explained that the Board does not apply a new rule retroactively where the retroactive application would work a “manifest injustice” to any party.