June 26, 2002 | Testimony on Jobs, Jobs and Labor Policy

Union Reporting and Disclosure: Legislative Reform Proposals

Testimony before the US House of Representatives Committee on Education and the Workforce and Subcommittee on Employer-Employee Relations

Good morning Mr. Chairman and Members of the Subcommittee. Thank you for the opportunity to testify before you today on the topic of Union Reporting and Disclosure Requirements and, particularly, the utility of adding civil penalties to the Labor-Management Reporting and Disclosure Act ("LMRDA").

For the record, I am a Senior Legal Research Fellow in the Center for Legal and Judicial Studies at The Heritage Foundation, an independent research and educational organization. I am also an Adjunct Professor of Law at George Mason University where I teach Criminal Procedure and an advanced seminar on White Collar and Corporate Crime. I am a graduate of the University of Chicago Law School and a former law clerk to Chief Judge Anderson of the U.S. Court of Appeals for the Eleventh Circuit. For much of the past 15 years I have served as a prosecutor in the Department of Justice and elsewhere. During the two years immediately prior to joining The Heritage Foundation, I was in private practice representing criminal defendants.

Thus, as the Subcommittee will recognize, my perspective on the proposed legislation is different than that typically brought to the Subcommittee. I understand and appreciate the values of labor democracy and managerial transparency that animate the LMRDA. Certainly knowledge and information are among the most powerful tools in a democracy and union members are entitled to information about the activities of the organization to which they belong - just as the American public is entitled to information about Congress and shareholders are entitled to information about a corporation. But whether the particular substance and form of the reporting requirements of the LMRDA are good policy or not is a question I am, candidly, not qualified to answer.

The question I can answer, from the perspective of a former prosecutor and one who writes and teaches regularly on the criminal law, is the one that is the focus of today's hearing: Assuming that current LMRDA reporting and disclosure requirements are appropriate, what is the best means of enforcing those requirements and ensuring that labor unions and others obliged to report under the law comply with the law's requirements? That question is both normative and utilitarian - it asks both what is a just, or proper, method of enforcement for this type of law and also what method of enforcement will work most effectively. On both grounds the current structure of the LMRDA is wanting.

"Just Desert" and the Concept of Criminal Punishment

The LMRDA is unusual (and, perhaps, unique) in its enforcement structure - it authorizes the Secretary of Labor to seek civil injunctive relief or to refer matters for criminal prosecution (pursuant to section 209 of the Act, (29 U.S.C. § 439)) but it does not, presently, contain any provision authorizing the imposition of civil monetary damages (either in federal court or administratively) for violations of the Act.

With this structure, the LMRDA is different from virtually every other regulatory statute. Typically, regulatory statutes have a graduated enforcement scheme that provides for administrative enforcement by the regulatory agency, civil enforcement actions in federal district court, and, for the most egregious offenses, criminal prosecution. Thus, the Occupational Health and Safety Act provides for both civil and criminal penalties, as do all of the environmental statutes, the antitrust laws, and the other regulatory statutes that have become common in American governance. Indeed, though it is always difficult to prove a negative, in the time I have had to conduct research on the question I have found no other regulatory statute with criminal enforcement provisions that does not also contain civil enforcement penalty provisions. In other words, the LMRDA is exceedingly unusual - and frankly, one can offer no rational explanation for the structure.

As a matter of theory the current structure of the LMRDA is normatively objectionable. Put most succinctly, government properly imposes criminal liability only on those who commit acts of misconduct with bad intent, and not on those merely accused of negligence or mistake. This is the fundamental moral component of the criminal law - the "just deserts" aspect of punishment - and it is trivialized when the criminal law is used to address conduct that is not intentionally wrongful. The criminal law in a free society must be carefully crafted to target wrongful conduct, and not be used simply to ameliorate adverse consequences attributable to non-criminal conduct. The public interest is vindicated not based on successful prosecutions, but on successful administration of justice. Criminal sentencing should reflect society's collective judgment about the kind of conduct that warrants the most severe condemnation, seizure of property, and loss of liberty and life.

The LMRDA's criminalization of an essentially regulatory scheme is, in one sense, part of broad pattern diverging from this model of criminal sanctions. Increasingly, we are seeing across the spectrum of federal regulatory systems prosecutions for offenses that are better handled as civil matters. In modern America, as the regulatory state has grown, the number of such criminal offenses has grown apace. These types of criminal offenses are different from the classic frauds and personal wrongs that ought to be the focus criminal law. This new type of offense involves the criminalization of conduct that, in most instances, is not inherently wrongful in the same way that fraud and bribery are. The growth in this form of regulatory criminal offense is, as Professor John Coffee has said, the "technicalization" of crime.

Consider: In 1999, the ABA Task Force on the Federalization of Criminal Law noted that there were now more than 3,500 federal criminal offenses. Those offenses incorporate either directly or by reference prohibitions contained in more than 10,000 separate regulations. Remarkably, nobody knows the exact number either of criminal statutes or criminal regulations. They are so diverse and so widely scattered throughout the federal code that they are literally uncollectable. I am told that, when it was recently asked to undertake the project, the Congressional Research Service said that the task was virtually impossible. This, too, breeds disrespect for the law and disaffection from the judicial system: When those who make the laws cannot themselves identify all the laws they have made, it borders on the arbitrary and capricious to allow prosecutors to select from among those laws and to criminalize conduct that, in the eyes of others, might warrant only civil sanctions.

This trend is exacerbated in the context of the LMRDA. The failure to timely file a required disclosure report is precisely this sort of technicalized offense and is inappropriately treated as a crime. The reporting requirements of the LMRDA, while certainly of great significance and importance to union democracy and the efficacy of the Act, are not the sort of requirement for which criminal sanctions are typically thought necessary. With the exception of situations in which a union official, for example, willfully and deliberately violates his known legal duty to report society ought not impose criminal sanctions.

The current LMRDA criminal provisions are not, however, completely objectionable. In one important sense section 209(a) is consistent with the general principle of criminal law. It punishes only those who act willfully. And, as the Second Circuit construed the statute more than 25 years ago, in United States v. Ottley, 509 F.2d 456 (2d Cir. 1975), an act in violation of the statute is done willfully only if it is done with a wrongful purpose - that is, if the defendant knew what the law required and failed to comply with it or was willfully blind to its requirements.

It is useful to note, parenthetically, that as a practical matter this standard is difficult for a prosecutor to prove - and deliberately so. It reflects a judgment (in my view a correct one) that the criminal sanctions should be rarely imposed and only on those who deliberately and willfully refuse to conform their conduct to societal norms.

But this does not, of course, exhaust the scope of appropriate governmental sanctions. Social behavior in a free society is governed by governmental norms that broadly distinguish between two kinds of wrongful acts: Crimes, which typically require such elements as malicious intent and harm, and deal with offenses against the state rather than merely against an individual; and civil wrongs, which are torts against persons or property, or violations of regulatory requirements, which are more loosely defined, typically carry lesser penalties or no penalties, and are adjudicated under less-rigorous procedural rules.

In the absence of applicable civil penalties, the LMRDA's structure leaves the latter category of wrongful conduct unaddressed. Just as it is inappropriate to criminalize conduct for which there is no deliberate wrongful act, it is equally inappropriate for the civil law to ignore the wrongful act and the civil harm that flows from the act in those situations where the wrongful act is the product of mistake, accident, neglect of a legal duty or otherwise non?willful conduct. Imagine a world in which there were only criminal law and no tort system to redress civil wrong. Surely we would not think that structure well designed - yet that is precisely how the LMRDA works.

Therefore, as a matter of just deserts the current structure of the LMRDA is simply flawed. It is necessary to recapture the balance between criminal and civil law by providing an alternate civil sanction in those situations where enforcement is necessary but criminal prosecution is simply inappropriate.

Effective Deterrence

Now, I turn to the second aspect of the inquiry in today's hearing -- the question of effectiveness. As Horace Mann said, "The object of punishment is the prevention of evil." We might tolerate an oddly structured enforcement system, however philosophically objectionable, if it were effective. But it seems evident that the present enforcement regime is not as effective as it ought to be.

In report year 2000, the most recent year for which data are available at the Department of Labor, over 34% of required reports were either late or not filed at all. Preliminary figures for 2001 are even worse: According to the Department of Labor it appears that as many as 60% of the filings are delinquent. That's simply an unacceptable record of non-compliance.

Imagine if 34% of all corporations failed to file their SEC disclosure forms timely (or at all). Or if 34% of production plants in America didn't file their pollution monitoring reports. In those contexts that rate of non-compliance would be a scandal. The only explanation for this rate of non-compliance that one can posit is that the absence of a sure and certain enforcement regime causes a failure in deterrence and thus a lack of incentive to comply.

This is not pure supposition - the limited data available support the conclusion. Because of their draconian nature, the criminal sanctions of the Act are rarely utilized. As the GAO reported in 2000, Department of Justice officials are (appropriately) reluctant to prosecute cases criminally where reporting violations are the only basis for the case. An electronic database search reveals approximately 50 cases in the last 43 years prosecuted under section 209 of the Act. And of these, the vast majority of the reported cases were prosecutions for knowing false statements on required forms - that is deliberate willful lies. Typically these frauds were in service a larger criminal enterprise - they were, for example, used for the purpose of concealing some other substantive crime (e.g. embezzlement of union funds).

Indeed, my research disclosed only one case - United States v. Spignola, 464 F.2d 909 (7th Cir. 1972) - involving a pure willful "failure to file" case, without any indicia of personal benefit to the union official or union who failed to file the requisite forms. And that case resulted in a reversal of the conviction.

Plainly this search may understate the instances of criminal enforcement of the Act under section 209 - not all criminal cases brought are reported in the electronic databases. But I think it is fair to say that the criminal enforcement authority of section 209 is rarely used. And this is understandable - the criminal sanction is the societal blunderbuss reflecting, as I've already noted, a high degree of moral opprobrium. Criminal penalties are not appropriate in most failure to file cases and the Departments of Labor and Justice are rightly hesitant to seek criminal penalties for such conduct.

But in the absence of alternative civil sanctions, as the GAO noted, when criminal penalties are not appropriate the Secretary is reduced to hoping for the voluntary compliance of unions with their LMRDA reporting obligations. There is no middle ground sanction to be applied between the blunderbuss of criminal law and the paring knife of voluntary compliance. In effect, the substantial and serious penalties attending criminal sanctions make them effectively unusable for the run-of-the-mill case where a reporting requirement is not met.

And thus, with no fear of the blunderbuss that is never used and no other incentive for voluntary compliance, individuals have no reason to act vigorously to ensure compliance with the LMRDA. The civil sanctions proposed in H.R. 4054 are tools, appropriate to the enforcement task and commensurate with the scope of the regulatory injuries they seek to address.

H.R. 4054 and H.R. 4055

Finally, let me turn to the text of the two bills before you. In general they are salutary efforts to remedy the flaws in the current enforcement structure of the LMRDA. By giving the Secretary of Labor civil authority to secure monetary penalties from delinquent or deficient unions the legislation will give the Secretary an important, indeed, essential tool for achieving compliance with the reporting requirements of the Act.

With respect to H.R. 4054, it is highly likely that the imposition of civil penalties will have a deterrent effect of precisely the sort that is necessary. The structure for the administrative penalties chosen is both moderate and measured. The bill requires the Secretary to takes into account the nature of the violations involved; the revenues of the violator; and the violator's prior enforcement history. Thus, it focuses accurately on questions of the magnitude of the harm and recidivism that are commonly understood as the appropriate metrics for calibrating punishment.

If I could offer one suggestion concerning this bill it would it would be to explicitly incorporate a graduated civil sanction based upon the intentional nature or scienter of the conduct in question - accidental violations or those arising through neglect ought to result in fines less severe that those arising from gross negligence or deliberate but non-willful conduct. Perhaps that is what the bill intends to capture by specifying that the Secretary take account of the "nature of the violations involved" but greater clarity on the issue would be welcome.

With respect to H.R. 4055, this bill too appears to be well structured. My principal observation is that the bill sets the standard for the initiation of a civil action too high and will therefore result in fewer civil actions than appropriate. The "probable cause" standard is a common one in the criminal law - it is the standard police must meet before they may invade a home with a search warrant and it is the standard a prosecutor must meet before asking a grand jury to return a criminal indictment. Both of these are highly intrusive, dislocating acts - much more intrusive than the mere act of filing a civil suit. It would, in my view, be unwise to cabin the Secretary's discretion to bring a civil suit to only those instances where the probability of a violation of law is as great as that a crime has been committed. Like any other civil litigant, the Secretary should be obliged to have a good faith basis for the allegations of the Department's lawsuit, but I see no ground for imposing a higher burden of justification on the Secretary before the government may sue.

Mr. Chairman, thank you for the opportunity to testify before the Subcommittee. I look forward to answering any questions you might have.

Paul Rosenzweig, is a Senior Legal Research Fellow, The Heritage Foundation.

About the Author

Paul Rosenzweig
Edwin Meese III Center for Legal and Judicial Studies

Related Issues: Jobs, Jobs and Labor Policy