Court: Non-Union Members Entitled To "True" Financial Audits

April 4, 2003 ( - Unions collecting fees from non-member public-sector employees must have their financial statements independently audited, a federal appeals court ruled.

>That would better protect the public workers’ First Amendment rights not to associate with labor unions and to pay their “fair share” of a union’s costs, the US 3 rd Circuit Court of Appeals ruled, according to a Legal Intelligencer report.

“We recognize that our decision might place high costs on some local unions. However, non-members’ First Amendment freedoms may not be eroded simply because they are costly to enforce,” Appeals Judge Thomas Ambro wrote. “We hold that every union collecting fair-share fees from non-members must subject its disclosed financial information to independent auditor verification.”

But the appeals judges also handed victories to both sides. The court ruled that local unions can require those same non-union-member workers to pay for litigation costs incurred in a pooling agreement with other local unions since such pooling of expenses is “akin to insurance.”

“Even if a local union party to such an arrangement does not litigate in any given year, it still derives a tangible benefit from participating in an expense-pooling agreement: the availability of on-call resources greater than those it could muster individually,” Ambro wrote.

And in a second victory for unions, the court rejected the non-union workers’ argument that they should not be required to pay for the union’s work on collective-bargaining issues for other professions. Ambro said unions “may pool costs across occupational groups,” because such an arrangement “generates economies of scale” that benefit all workers. “By spreading the costs of otherwise-chargeable expenses over a pool of employees,” Ambro said, the non-union workers “reduce their risk of being assessed unusually high chargeable expenses in any given year.”

A Teacher Challenge

In the case before the 3 rd Circuit, seven non-union educators challenged the fair-share fee procedure and assessments of the Shaler Area Education Association (SAEA), the exclusive bargaining representative for workers employed by the Shaler Area School District. SAEA is the local affiliate of both the Pennsylvania State Education Association, a statewide union that represents both education and healthcare professionals, and the National Education Association.

Because all three unions provide collective-bargaining services to the plaintiffs’ bargaining unit, the plaintiffs paid fair-share fees to all three, the appeals opinion said. Ambro found that the framework for charging fair-share assessments was established by the US Supreme Court in a 1986 decision known as the Hudson case. Under Hudson, a union may not collect fair-share dues to support ideological causes or other expenses unrelated to collective bargaining, such as organizing costs.

To comply with Hudson, unions must provide non-members with a “Hudson notice” that includes “sufficient information to gauge the propriety of the union’s fee.” Ambro found problems with limiting required disclosures to just the “Hudson notice,” writing that “when theory meets practice, questions abound.”

A True Audit

In the appeal brought by the SAEA plaintiffs, Ambro said, the court had to decide whether Hudson ‘s independent auditor requirement applies to a small union such as SAEA that says its costs of conducting such an audit would be greater than the fair-share payments it receives. Lawyers for the unions also argued that that SAEA’s finances are so simplistic that non-members can obtain “sufficient information” by simply examining its documents themselves.

Ambro found that Hudson requires a true audit. “Compilations and reviews do not provide an adequate basis for a non-member to decide whether to object to a fair-share fee,” Ambro wrote.The case is Otto v. Pennsylvania State Education Association.