The transactions that employers must report are listed in parts 8.a.-8.f. of the Form LM Among other things, employers must report:

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1 SULLIVAN & CROMWELL LLP July 27, 2005 M EMORANDUM Re: Department of Labor Issues New Guidelines Expanding the Scope of an Employer's Reporting Requirements under the Labor Management Reporting and Disclosure Act The Labor-Management Reporting and Disclosure Act of 1959 ( LMRDA ) requires disclosure of certain financial transactions or agreements made between an employer and a labor organization, union official, employee, or labor relations consultant. For years, these reporting requirements were not strictly enforced, but the United States Department of Labor ( DOL ) has recently announced a new enforcement initiative and, to that end, has issued guidelines concerning who must report and what transactions must be reported under the LMRDA. 1 The guidelines expand prior understandings of who is covered under the LMRDA and what a covered employer must report annually on what is known as a Form LM Under the new interpretation, for example, non-unionized employers who do business with unions will be required to report business entertainment payments as small as $25. The transactions that employers must report are listed in parts 8.a.-8.f. of the Form LM Among other things, employers must report: 1 The new guidelines are available at the DOL Website at 2 The Form LM-10 is available on the DOL Website at 3 Officers and employees of a labor organization who receive payments or things of value from an employer must file a parallel form, known as the LM-30.

2 any direct or indirect payment or loan of money or other thing of value (including reimbursed expenses) to, or any such agreement with, any labor organization or officer, agent, shop steward, or other representative of a labor organization; any direct or indirect payment to any employee or group of employees for the purpose of causing them to persuade other employees in relation to exercising their rights to organize; expenditures made where an object was to directly or indirectly interfere with employees right to organize; expenditures made where an object was to directly or indirectly obtain information regarding the activities of employees in connection with a labor dispute; agreements or arrangements with a labor relations consultant where an object was to directly or indirectly persuade employees regarding their right to organize; and agreements or arrangements with a labor relations consultant where an object was to directly or indirectly obtain information regarding activities of employees in connection with a labor dispute. 4 Significantly, an employer has a reporting obligation even if the labor organization does not represent the types of employees it employs. Section 3(e) of the LMRDA broadly defines employer to include an employer within the meaning of any law of the United States relating to the employment of employees. The DOL s guidelines advise that the definition of employer for purposes of a Form LM-10 is very broad and includes any individual or entity that employs one or more employees. To illustrate the scope of the definition of employer the DOL has stated that service providers such as consulting firms, accounting firms and law firms must disclose reportable transactions on a Form LM-10. This interpretation does not require the employer to have any union connection to be considered an employer who must report transactions on Form LM Employers must retain any record necessary to verify, explain, or clarify the report, including, among other things, vouchers, worksheets, receipts, and applicable resolutions for at least five (5) years after the date filed. Additional instructions for completing the Form LM-10 are available on the DOL Website at -2-

3 Thus, pursuant to the new guidelines, the DOL has clarified that employers should disclose anything of value given to officers or employees of a labor organization, such as, for example, expenses for meals and travel, charity golf tournament entrance fees, tickets to sporting events, or parties that employers sponsor gratuities and perquisites they may not have reported in the past. The DOL guidelines take the position that, if the recipient is a union officer or employee, the payment must be reported even if it was provided in the individual s capacity as a trustee or employee of a pension or welfare fund. Conversely, it seems clear from the guidelines that payments to fund administrators or employees who do not also hold a position with or work for a labor organization need not be reported. There is an exception for payments that are considered de minimis. Under this exception, otherwise reportable gifts need not be reported if they: (i) have a value of $25 or less, (ii) are sporadic or occasional, and (iii) are given under circumstances unrelated to the recipient s status in a labor organization. For example, under this exception, employers are not required to report traditional Christmas gifts, provided they cost less than $25. Further, if a consulting firm invites a union officer to a $20 dinner, the dinner would not be reportable if the consulting firm would take other clients to a similar dinner. Form LM-10 sets forth additional exceptions. Employers are not required to report: (i) payments made in the regular course of business to a class of persons determined without regard to whether they are identified with labor organizations and whose relationship to labor organizations is not readily known to the payer, such as interest on bonds and dividends on stock issued by the reporting employer; (ii) loans made to employees under circumstances and terms unrelated to the employees status in a labor organization; (iii) payments made to any regular employee as wages or by reason of his service as an employee during regular working hours in which such employee engages in activities other than productive work, so long as the payments for such period of time are: (a) required by law or a collective bargaining agreement (b) made pursuant to a custom or practice under such a collective agreement, or (c) made pursuant to a policy, custom, or practice which the employer has adopted without regard to the -3-

4 employee s position in a labor organization; and (iv) initiation fees and assessments paid to labor organizations and deducted from an employee s wages. Employers are also not required to report payments or agreements related to giving advice, representation before a court proceeding, administrative agency, or tribunal of arbitration or engaging in collective bargaining on behalf of the employer (such as payments to a law firm). An employer who has engaged in a reportable transaction that does not meet any exception is required to file a Form LM-10 to report the transaction. The employer s Form LM-10 report must include the date and amount of each transaction or agreement, the name, address, and position of the person with whom the agreement or transaction was made, and an explanation of the circumstances of the transaction, including the terms of any agreement or understanding pursuant to which they were made. The president and treasurer, or corresponding principal officers, of the reporting employer, are required to sign the Form LM-10. These individuals are personally responsible for the filing and accuracy of the Form LM-10 and are subject to criminal penalties for willful failure to file a required report, or for knowingly making any false statement or misrepresentation of material fact, or knowingly failing to disclose a material fact in a report. The reporting employer and officers are also subject to civil prosecution for violations of the filing requirements. These reporting requirements concern only the disclosure of payments, not their propriety. Section 302 of the Labor-Management Relations Act governs the legality of payments or transactions, and generally prohibits all payments by employers to or for the purpose of influencing the actions of representatives of unions which represent or seek to represent the employer s employees. Section 186 of the Labor-Management Relations Act provides: It shall be unlawful for any employer or association of employers or any person who acts as a labor relations expert, adviser, or consultant to an employer or who acts in the interest of an employer to pay, lend, or deliver, or agree to pay, lend or deliver, any money or other thing of value to any labor organization, or any officer or employee thereof, which represents, seeks to represent, or would admit to membership, any of the -4-

5 employees of such employer who are employed in any industry affecting commerce; or to any officer or employee of a labor organization engaged in an industry affecting commerce with intent to influence him in respect to any of his actions, decisions, or duties as a representative of employees or as such officer or employee of such labor organization. Employers must file a Form LM-10 within 90 days after the end of the employer s fiscal year. Because to a great extent, LM-10 and LM-30 forms have not been filed in the past, the DOL has announced a grace period for filing of the Form LM-30 for 2004 through August 15, 2005, during which there will be no enforcement action for late filing, except in extraordinary circumstances. The DOL has stated that it intends to implement a similar grace period in the near future for employers filing the LM-10 for * * * Clients having questions about the new guidelines or the LMRDA generally should communicate with Theodore O. Rogers, Jr. ( ) or John F. Fullerton III ( ) of our New York office. SULLIVAN & CROMWELL LLP Copyright 2005 by Sullivan & Cromwell LLP -5-