Opinion ID: 746746
Heading Depth: 2
Heading Rank: 1

Heading: The Independent-Auditor Requirement

Text: 9 Beck did not address how unions were to verify their calculations of the proportion of expenses attributable to representational activities. However, the Court considered a related issue in Chicago Teachers Union v. Hudson, 475 U.S. 292, 106 S.Ct. 1066, 89 L.Ed.2d 232 (1986). Hudson involved an agency-shop arrangement negotiated by the Chicago Teachers Union and the Chicago Board of Education. Because this arrangement was the result of state action, the First Amendment barred the union from including expenditures for ideological activities unrelated to collective bargaining in the agency fees it charged to nonmembers. Hudson, 475 U.S. at 305, 106 S.Ct. at 1075 (quoting Abood v. Detroit Board of Education, 431 U.S. 209, 244, 97 S.Ct. 1782, 1804, 52 L.Ed.2d 261 (1977) (Stevens, J., concurring)). The union had established a procedure under which nonmembers who objected to the amount of their fees could challenge them through a procedure that culminated in arbitration; those who prevailed would then be issued a rebate of any excess charges. The Hudson Court found that this procedure fell short of constitutional standards in three respects: it did not provide sufficient assurance that funds would not be temporarily misused before a rebate was issued; it did not provide enough information about the basis of the union's calculations to allow nonmembers to make an informed decision about whether to bring a challenge; and it did not provide an adequately prompt opportunity for review by an impartial decisionmaker. Id. at 305-07, 106 S.Ct. at 1075-76. In discussing the second of these requirements, the Court observed that [t]he Union need not provide nonmembers with an exhaustive and detailed list of all its expenditures, but adequate disclosure surely would include the major categories of expenses, as well as verification by an independent auditor. Id. at 307 n. 18, 106 S.Ct. at 1076 n. 18. 10 Hudson does not apply directly to this case, because of the lack of state action. See Kolinske v. Lubbers, 712 F.2d 471 (D.C.Cir.1983) (finding that the NLRA's provision permitting agency-shop agreements does not suffice to render such agreements state action). But this circuit has found that the content of the NLRA's duty of fair representation is guided by the standards of Hudson. In Abrams v. Communications Workers of America, 59 F.3d 1373 (D.C.Cir.1995), we noted that the holding of Hudson was rooted in  '[b]asic considerations of fairness, as well as concern for the First Amendment rights at stake,'  and so applies equally to the statutory duty of fair representation. 59 F.3d at 1379 n. 7 (quoting Hudson, 475 U.S. at 306, 106 S.Ct. at 1076). We accordingly adopted Hudson's standard for the nature of the disclosure that unions must make under the NLRA to nonmembers of the right to opt out and pay less than full union dues. See also Miller v. Air Line Pilots Ass'n, 108 F.3d 1415, 1420 (D.C.Cir.1997) (finding that Hudson and Beck impose similar procedural obligations on unions, and therefore applying, in a case governed by Hudson, the holding of Abrams that employees may not be compelled to arbitrate agency-fee disputes). 11 Here, the NLRB found that Hudson's major categories of expenditures requirement is applicable under the NLRA, but that its independent auditor requirement is not. The NLRB based this conclusion on its previous decision in California Saw & Knife Works, 320 N.L.R.B. 224, 1995 WL 791959 (1995) (hereinafter California Saw ). Citing Abrams, California Saw had found that, because Hudson was based in part on basic considerations of fairness, its conclusions were applicable under the NLRA. 320 N.L.R.B. at 232-33. But the Board concluded in California Saw that the Court's basic considerations of fairness rationale expressly extended only to the notice requirement. Id. 320 N.L.R.B. at 233 n. 48. Because, with the exception of this requirement, the standards of Hudson were not formulated to comport with a union's obligations under Beck to represent its employees fairly, the Board concluded that Hudson's independent auditor requirement did not apply to actions brought under the NLRA. Id. 320 N.L.R.B. at 240-41. The Board apparently believed that the more exacting accounting standards in Hudson derive from first amendment intolerance of any compulsory subsidization of fees under a state-authorized agency shop, id. 320 N.L.R.B. at 240 n. 82, and therefore should not apply to a case in which there is no question of state action. Although the Board rejected Hudson's independent auditor formula, it did find that some form of verification was required, stating that it would examine whether the verification arrangement before it satisfied the union's duty of fair representation under Beck. Id. 320 N.L.R.B. at 241. 1 12 The NLRA does not speak directly to the question of whether an independent audit is required in these circumstances. In cases in which the NLRA is silent or ambiguous as to the specific issue before us, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984), we have traditionally accorded the Board deference with regard to its interpretation of the NLRA as long as its interpretation is rational and consistent with the statute. NLRB v. United Food & Commercial Workers Union, 484 U.S. 112, 123, 108 S.Ct. 413, 421, 98 L.Ed.2d 429 (1987). Ferriso points out that the Supreme Court has said that fair representation claims often involve matters not normally within the Board's unfair labor practice jurisdiction, which is typically aimed at effectuating the policies of the federal labor laws, not redressing the wrong done the individual employee, and expressed doubts as to whether the Board brings substantially greater expertise to bear on these problems than do the courts. Breininger v. Sheet Metal Workers International, 493 U.S. 67, 74, 110 S.Ct. 424, 430, 107 L.Ed.2d 388 (1989) (citations and internal quotations omitted). But in this passage the Court was considering only whether the NLRB's jurisdiction over fair representation claims should be exclusive, not whether the Board's decisions were entitled to Chevron deference. It is one thing to say, as the Court did in Breininger, that the Board's expertise in this area does not so dwarf that of the courts as to justify depriving the courts of jurisdiction to hear fair representation claims, and quite another to deny that the Board has any special expertise in this area at all. This circuit has heretofore accorded the NLRB the usual measure of Chevron deference in matters relating to the duty of fair representation, see Finerty v. NLRB, 113 F.3d 1288, 1291 (D.C.Cir.1997), and Breininger does not justify a significant departure from this practice. 13 We nevertheless find that the Board's rejection of the independent auditor requirement was not rational, because any rational interpretation of the NLRA's duty of fair representation will necessarily include an independent-auditor requirement. First, the Board was mistaken in finding that Hudson' § basic considerations of fairness language did not extend to its independent auditor requirement. Hudson found that [b]asic considerations of fairness required that potential objectors be given sufficient information to gauge the propriety of the union's fee. 475 U.S. at 306, 106 S.Ct. at 1076. The Court then explained in a footnote what it meant by sufficient information, saying that adequate disclosure surely would include the major categories of expenses, as well as verification by an independent auditor. 475 U.S. at 307 n. 18, 106 S.Ct. at 1076 n. 18. It follows that everything encompassed by the latter phrase, including verification by an independent auditor, is required by basic considerations of fairness. 14 California Saw suggested that the independent-auditor requirement might be peculiar to cases involving state action, observing that Hudson's more exacting accounting standards derived from first amendment intolerance of any compulsory subsidization of fees under a state-authorized agency shop. California Saw, 320 N.L.R.B. at 240 n. 82. We do not agree. Hudson grounded its discussion of information disclosure in both basic considerations of fairness and concern for the First Amendment rights at stake, 475 U.S. at 306, 106 S.Ct. at 1076, indicating that its disclosure requirements were not exclusively the product of First Amendment concerns. It is, of course, conceivable in the abstract that the content of the duty of fair representation under the NLRA might not coincide with that of the basic considerations of fairness discussed in Hudson. But we are persuaded that nonmembers cannot make a reliable decision as to whether to contest their agency fees without trustworthy information about the basis of the union's fee calculations, cf. Hudson, 475 U.S. at 306, 106 S.Ct. at 1075-76, and that an independent audit is the minimal guarantee of trustworthiness. See Miller, 108 F.3d at 1420 (holding that similar procedural obligations apply under NLRA and Hudson ); Abrams, 59 F.3d at 1379 n. 7 (same). 15 California Saw cited legislative history in support of its rejection of an independent-audit requirement, observing that, in the process of deliberating on what was to become the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA), the House considered but did not adopt proposals requiring unions to obtain independent audits. 320 N.L.R.B. at 241 n. 87. It is true that one of the bills that the House considered, H.R. 4473, would have required the financial records of unions to be independently audited, and that these provisions did not appear in the bill ultimately adopted by the House. See H.R. 4473 §§ 102(b)(10), 211(b), 86th Cong. (1959), reprinted in 1 NLRB, Legislative History of the Labor-Management Reporting and Disclosure Act of 1959 at 193, 237 (1959) (hereinafter Leg. Hist.). 2 The Beck Court, however, rejected a similar argument based on the LMRDA's legislative history, noting that the House bill in question did not purport to set out the rights of nonmembers who are compelled to pay union dues, but rather sought to establish 'a bill of rights for union members.'  487 U.S. at 758, 108 S.Ct. at 2655 (quoting H.R.REP. NO. 245, 80th Cong., 1st Sess. at 322 (1947)). The title and provisions of H.R. 4473 make clear that it, too, was addressed exclusively to the rights of union members. See, e.g., Title, 1 Leg. Hist. at 166 (referring to rights of union members); § 101(a), 1 Leg. Hist. at 174-75 (same). We therefore do not find this argument persuasive. 16