Employment related Crimes

35 Am. Crim. L. Rev. 561, *

Spring, 1998

35 Am. Crim. L. Rev. 561

LENGTH: 29315 words

ARTICLE: Employment-Related Crimes

David B. Darden and Robyn J. Greenberg and Susannah C. Merritt

SUMMARY:
... This Article surveys the criminal penalties currently available to protect workers in the areas of occupational safety and employment practices. ... A. Occupational Safety and Health Act ... Criminal prosecutions have been initiated either when an employer's willful violation of a standard, rule, order or regulation causes the death of an employee, or when an employer makes a false representation regarding OSH Act compliance. ... Employer's Willful Violation of Standard Causes Death ... Criminal violations occur when (i) an employer's; (ii) willful violation of; (iii) a specific standard, rule, order or regulation; (iv) causes the death of an employee. ... In 1992, the Supreme Court held that state regulation of occupational safety and health issues already regulated by a federal standard was preempted by the OSH Act. ... Occupational Safety and Health Administration ("OSHA") regulations governing the working conditions of employees are themselves preempted by regulations or standards affecting occupational safety and health enacted by other federal agencies. ... The Clinton Administration has proclaimed that it "will not tolerate a lax attitude toward worker safety and health" through its "New OSHA" initiative. ... C. Federal Mine Safety and Health Act ... The Mine Safety and Health Administration ("MSHA") has a more vigorous criminal enforcement program than does OSHA, though the number of criminal referrals from the MSHA under FMSHA has fluctuated during the 1990s. ...

TEXT:
[*562] I. INTRODUCTION

This Article surveys the criminal penalties currently available to protect workers in the areas of occupational safety and employment practices. Section II discusses worker safety through the Occupational Safety and Health Act ("OSH Act"), ¹ state criminal law, and the Federal Mine Safety and Health Act ("FMSHA"). ² Section III analyzes the criminal law covering employment practices in the Fair Labor Standards Act ("FLSA"). ³ Section IV covers the Labor Management Relations Act ("LMRA"), which prohibits payments and loans by employers to employees or labor organizations. ⁴ Finally, Section V reviews § 501(c) of the Labor-Management Reporting and Disclosure Act ("LMRDA"), which prevents appropriations of union funds for non-union purposes. ⁵

II. WORKER SAFETY

This Section discusses the criminal laws relevant to aspects of worker safety. Part A analyzes the OSH Act, ⁶ including the offense of willful violation of a standard leading to the death of an employee, false representation, penalties, and enforcement. Part B discusses state criminal law and its effectiveness in deterring violations of the OSH Act. Additionally, Part B examines current efforts in reforming occupational safety and health. Part C discusses the FMSHA, ⁷ including offenses and current reform efforts under the law.

A. Occupational Safety and Health Act

Due to the trend of increasing employee deaths and injuries in the late 1960s, ⁸ [*563] Congress enacted the Occupational Safety and Health Act (OSH Act) ⁹ in an attempt to ensure worker safety. ¹⁰ The OSH Act includes a general duty clause requiring employers to furnish their employees with a working environment free from recognized hazards. ¹¹ Violation of the general duty clause may lead to criminal sanctions in addition to the civil sanctions already required by the OSH Act. ¹² The statute also requires employers to comply with specific occupational safety and health rules promulgated by the Secretary of Labor. ¹³

While the OSH Act provides for criminal sanctions in three situations, only two have been regularly enforced. Criminal prosecutions have been initiated either when an employer's willful violation of a standard, rule, order or regulation causes the death of an employee, or when an employer makes a false representation regarding OSH Act compliance. ¹⁴ The section of the OSH Act which contemplates criminal sanctions for any person giving advance notice of an inspection has not been a source of criminal prosecutions. ¹⁵ Finally, employers may be subject to [*564] both civil fines and criminal sanctions in separate prosecutions for the same violation. ¹⁶

1. Employer's Willful Violation of Standard Causes Death

a. Elements of the Offense

Criminal violations occur when (i) an employer's; (ii) willful violation of; (iii) a specific standard, rule, order or regulation; (iv) causes the death of an employee. ¹⁷

i. Employer

For a party to be an "employer" for OSH Act purposes, an employment relationship must exist. An "employee" is statutorily defined as "an employee of an employer who is employed in a business of his employer which affects commerce." ¹⁸

In work places where multiple employers are involved, the employer who creates a hazard may be liable to others' employees, such as those of a general contract or a subcontractor. ¹⁹ Use of a general contractor or subcontractor creates an employment relationship; thus, the party controlling the work or work environment can be liable to the contractor's employees. ²⁰ Subcontractors may also be [*565] liable to others' employees, including employees of the general contractor, even if the subcontractors have not created the hazard. ²¹

In addition, corporate officers also have been criminally sanctioned under the OSH Act. ²² In the Third, Fifth and Seventh Circuits, a "mere employee" who is not an officer cannot be liable as an aider and abettor of the employer's criminal liability. ²³ The potential liability of a third party or of an employee acting in a capacity separate from his or her role as an employee who aids and abets an employer has not been resolved. ²⁴

ii. Willful Violation

A willful violation for OSH Act purposes is one involving voluntary action, done either with an intentional disregard of, or plain indifference to, the statutory [*566] requirements. ²⁵ Thus, malicious intent is not necessary to impose liability in the majority of jurisdictions, including the First, Second, Fourth, Fifth, Sixth, Seventh, ²⁶ Eighth, Ninth, Tenth, Eleventh, and District of Columbia Circuits. ²⁷

In addition, a good faith belief in compliance with alternative measures is not sufficient to avoid liability. ²⁸

iii. Specific Standard

For a violation of the OSH Act to occur, an employer must fail to comply with a specific standard, rule, order or regulation. ²⁹ The burden of proof lies with the [*567] Secretary of Labor. ³⁰ Only a few employers have been cited for willful violations absent a specific safety standard. ³¹

iv. Causes Death

Finally, for the employer to be held criminally liable, the violation must result in the death of an employee. ³²

b. Defenses

Defenses available to an employer include preemption, isolated occurrence, impossibility of compliance, greater hazard, and technical issues.

First, an employer may be able to present a defense of preemption. In 1992, the Supreme Court held that state regulation of occupational safety and health issues already regulated by a federal standard was preempted by the OSH Act. ³³ States [*568] may, however, regulate worker safety if a state plan is approved as meeting the requirements of section 18(c) of the OSH Act by the Secretary of Labor. ³⁴ Thus far, twenty-one states and two territories have received the Secretary's approval for their plans. ³⁵

Occupational Safety and Health Administration ("OSHA") regulations governing the working conditions ³⁶ of employees are themselves preempted by regulations or standards affecting occupational safety and health enacted by other federal agencies. ³⁷ Although the rationale supporting such preemption is broadly phrased, ³⁸ individual determinations based upon preemption tests often turn on specific aspects of the other agency's regulation. ³⁹

In addition to preemption, employers may have other defenses available. Employers frequently argue that the death resulted from an isolated occurrence caused by the inappropriate or unforeseeable action of a single employee. ⁴⁰ When [*569] compliance cannot be achieved, an employer may claim the defense of impossibility. ⁴¹ If the hazard of compliance with a standard is greater than that of noncompliance and there are no alternative means, an employer may argue "greater hazard." ⁴² Finally, there may be a technical defense when delay in prosecution [*570] prejudices the employer. ⁴³ Additionally, several bills pending in Congress, if enacted, would increase the affirmative defenses available to employers. ⁴⁴

2. False Representations ⁴⁵

Anyone who knowingly makes a false statement, representation or certification in any application, record, report, plan or other document filed or required to be maintained pursuant to the OSH Act may be criminally prosecuted. ⁴⁶ Such prosecution, however, is infrequently pursued. ⁴⁷

3. Penalties

To enforce the OSH Act's worker safety mandate, Congress provided for the possibility of both civil and criminal penalties. ⁴⁸ For a first conviction on a willful violation causing death to an employee, an employer faces a fine of up to $ 10,000, imprisonment for up to six months, or both. ⁴⁹ For subsequent convictions, the [*571] employer faces fines of up to $ 20,000, imprisonment for up to one year, or both. ⁵⁰ A person convicted of providing unauthorized advance notice of any inspection conducted under the OSH Act may be subjected to a fine of up to $ 1,000, imprisonment for up to six months, or both. ⁵¹ Convictions for making false representations in documentation required under the OSH Act are punished with fines of up to $ 10,000, imprisonment for up to six months, or both. ⁵² Recent Democratic attempts to increase OSHA criminal penalties were defeated along partisan lines. ⁵³

4. Enforcement

The OSH Act has drawn criticism for its limited deterrent effect on employers, ⁵⁴ due to the small number of OSH Act cases prosecuted by the Department of Justice ⁵⁵ [*572] and because of the minimal civil fines levied upon employers coupled with the use of monetary settlements in place of criminal prosecution. ⁵⁶ Criminal fines are rarely used to punish employers. ⁵⁷ To date, only two employers have been imprisoned, ⁵⁸ although sentences involving home confinement and time in halfway [*573] houses are occasionally imposed. ⁵⁹ One commentator suggested that the "knowing endangerment" provisions of the Clean Water Act ⁶⁰ and the Resource Conservation and Recovery Act ⁶¹ may be effective supplements to enforcement of the OSH Act. ⁶²

The Clinton Administration has proclaimed that it "will not tolerate a lax attitude toward worker safety and health" ⁶³ through its "New OSHA" initiative. ⁶⁴ In addition to backing up its focus on enforcement with a needed increase in funding, ⁶⁵ OSHA has provided significant incentives for those participating in the program, including decreased fines ⁶⁶ and focused inspections. ⁶⁷ There is some doubt whether the current enforcement levels will provide effective [*574] deterrence. ⁶⁸

B. State Criminal Law

State criminal sanctions against employers, which are not completely preempted by the OSH Act, can also deter criminal employment violations. The following two sub-sections discuss the effectiveness of and practices under state criminal laws.

1. Effectiveness of State Criminal Law

Although the OSH Act preempts states from regulating safety in the workplace, the OSH Act does not prohibit states from imposing certain of their own criminal sanctions against employers. ⁶⁹ The OSH Act does not preempt the application of traditional state criminal laws in the context of the workplace. ⁷⁰ For example, employers whose OSH Act violations result in death may instead be prosecuted for homicide under state criminal statutes. ⁷¹

[*575] Several commentators have asserted that state criminal laws may best serve the purposes of deterrence and punishment for workplace safety and health violations since they feel that the OSH Act and its state equivalents are currently unable effectively to deter egregious conduct by employers and because state criminal law imposes prison sentences along with fines. ⁷²

2. State Criminal Practice

Only one employer has been convicted of murder for the workplace death of an employee. ⁷³ The conviction in that case, however, was reversed because the corporation and the individual defendant were charged with legally inconsistent offenses. ⁷⁴ More frequently, prosecutors resort to state criminal law in order to convict employers who cause the deaths of their employees by charging employers with the lesser crime of manslaughter. ⁷⁵

C. Federal Mine Safety and Health Act

The Federal Mine Safety and Health Act of 1977 ("FMSHA"), ⁷⁶ protects mine worker health and safety through a combination of civil, criminal, and administrative [*576] enforcement mechanisms. A mine is broadly defined by the statute to be "an area of land from which minerals are extracted in nonliquid form or, if in liquid form, are extracted with workers underground," and also includes all private roads, tailing ponds, retention dams and other facilities associated with the mine. ⁷⁷

If a violation of the statute is found to be willful, then the operator of the mine will be both criminally ⁷⁸ and civilly liable. ⁷⁹ If the violation was not willful, then the operator can be found liable in a civil proceeding without a showing of fault. ⁸⁰

The FMSHA imposes civil and criminal liability on corporate officers, directors, and agents of a corporate operator who knowingly authorize, order, or carry out a violation, ⁸¹ though agents of non-corporate operators are not subject to any penalties under FMSHA. ⁸² Criminal liability may also attach to any person who gives advance notice of any inspection to be conducted under FMSHA; ⁸³ who knowingly makes any false statement, representation, or certification in any application, record, report, plan or other document filed or required to be maintained pursuant to FMSHA; ⁸⁴ or who distributes, sells, offers for sale, introduces, or delivers in commerce any noncomplying equipment for use in a mine, including components and accessories of such equipment, which is represented as complying with FMSHA or other relevant provisions. ⁸⁵

The Mine Safety and Health Administration ("MSHA") has a more vigorous [*577] criminal enforcement program than does OSHA, ⁸⁶ though the number of criminal referrals from the MSHA under FMSHA has fluctuated during the 1990s. ⁸⁷

III. THE FAIR LABOR STANDARDS ACT

Congress enacted the Fair Labor Standards Act ⁸⁸ ("FLSA") in 1938 to eliminate labor conditions detrimental to the nation's commerce and the general welfare of workers. ⁸⁹ By vesting the Secretary of Labor with broad investigative and enforcement powers, Congress hoped to prevent employee subrogation and to improve both labor relations and the flow of commerce. ⁹⁰

The FLSA prohibits an employer from: failing to pay minimum wage ⁹¹ or overtime compensation to an employee; ⁹² failing to keep individual work records for each employee; ⁹³ discriminating on the basis of sex by paying different wages for equal work; ⁹⁴ or using oppressive child labor. ⁹⁵ The FLSA also makes it [*578] unlawful for an employer to discharge or to discriminate against an employee due to the employee's filing of a FLSA complaint or institution of a FLSA proceeding. ⁹⁶

Further, the FLSA prohibits the transport and sale of products manufactured by employees subjected to any of the unlawful practices described above. ⁹⁷ The FLSA also includes a "hot goods" ban, which makes it an offense to purchase goods from an establishment where a FLSA violation has occurred, unless the purchase was made in good faith and without knowledge of the business's violations or unless the purchaser is the ultimate consumer. ⁹⁸

A cause of action under the FLSA preempts general federal criminal statutes. ⁹⁹ Thus, prosecution of employers for violations covered by the FLSA may proceed only under the FLSA provisions, and only penalties provided in the statute may be sought. ¹⁰⁰ However, state wage statutes are enforceable if they are not in conflict with the applicable FLSA provisions. ¹⁰¹ The FLSA specifies that its minimum wage standards are the floor, not the ceiling, and that its provisions do not excuse an employer who violates a state or federal law which may set a higher minimum wage or a shorter work week. ¹⁰²

Part A of this section reviews the elements of an FLSA offense while Part B addresses penalties under the FLSA. Part C examines enforcement of this statute.

A. Elements of the Offense

To constitute an FLSA offense punishable by criminal sanctions: (1) an employee must show that (2) the employer (3) willfully violated the Act's [*579] provisions. ¹⁰³

1. Employee

The FLSA defines an employee as any individual "employed by an employer." ¹⁰⁴ In order to determine if the employee is covered by the FLSA, the court must look first to the activities of the employee, as opposed to the business of the employer. ¹⁰⁵ The Supreme Court has frequently found an employer-employee relationship under the FLSA where one may not necessarily have existed at common law. ¹⁰⁶ To "employ" in the context of the FLSA means "to suffer or permit to work." ¹⁰⁷

The FLSA has special overtime provisions to address the unique employment conditions of domestic servants, hospital workers, fire fighters, police officers, and transportation workers. ¹⁰⁸ To encourage the employment of certain individuals [*580] traditionally denied opportunities to work, the FLSA also provides for the issuance of special certificates authorizing work at lower wages. These individuals may include learners and apprentices, students, and handicapped workers. ¹⁰⁹ Since independent contractors are not considered employees for FLSA purposes, it is important to note the factors which distinguish them from employees. In determining whether a worker is an "employee" as opposed to an independent contractor, courts look to the amount of control and supervision exercised by the employer over the work of the individual concerned. ¹¹⁰ If that control is extensive, the worker will be considered an employee. ¹¹¹ There is no bright line rule for determining whether an individual is an independent contractor or employee under the FLSA; instead, a case-by-case determination is necessary. ¹¹²

The FLSA further provides that "any employee employed in a bona fide executive, administrative, or professional capacity" is exempt from the overtime [*581] provisions of the FLSA. ¹¹³ The Wage and Hour Division of the Department of Labor has promulgated regulations and interpretations to use in determining whether an employee fits into one of these exemptions. ¹¹⁴

2. Employer

The FLSA defines an employer as "any person acting directly or indirectly in the interest of an employer in relation to an employee...." ¹¹⁵ The Supreme Court has characterized the FLSA's statutory definition of "employer" as the "broadest ... that has ever been included in any one act." ¹¹⁶ An employer can be an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons. ¹¹⁷ In addition to the corporation itself, a corporate officer with operational control is considered an employer and can be held jointly and severally liable under the FLSA for unpaid wages. ¹¹⁸ Such corporate officers are liable in their individual rather than their representative capacities. ¹¹⁹

The FLSA provisions apply to both individual employers and to employers constituting an "enterprise." ¹²⁰ The statute covers individual employers in "industries engaged in commerce or in the production of goods for commerce." ¹²¹ Liability applies to individual business entities if they constitute an "enterprise" where related activities are performed through a unified operation or where there exists common control for a common business purpose. ¹²² A significant amount of litigation has been devoted to determining which businesses constitute enterprises [*582] within the meaning of the statute. ¹²³

The definition of employer excludes any person acting as an officer or agent of a labor organization and the labor organization itself, except when it acts in the capacity of an employer. ¹²⁴ The situation of the labor organization is unique in that criminal, but not civil, remedies may be sought against it: § 216(a) provides for criminal penalties for willful violations by "any person," ¹²⁵ while § 216(b) allows for the maintenance of a civil action for monetary damages against "any employer." ¹²⁶ The FLSA, therefore, does not provide for private actions by employees against a labor union. ¹²⁷ The Act provides for enforcement against labor organizations by either injunctive proceedings instituted by the Secretary of Labor under § 217 or by criminal prosecutions for willful violations under § 216(a). ¹²⁸

3. Willful Violation

In order to be subject to criminal sanctions under the FLSA, an employer must be shown to have willfully violated its provisions. ¹²⁹ A violation of the FLSA is willful if the employer either knew of the illegality of its conduct or showed reckless disregard for such illegality. ¹³⁰ Thus, a violation is "willful" if the [*583] employer knew of the FLSA requirements ¹³¹ and took affirmative steps to conceal the violation. ¹³² However, where an employer can show that it has made an effort to find out how the FLSA applies to its business, it is less likely to be found to have willfully violated the statute. ¹³³ If an employer's violation resulted from good faith reliance on a ruling, interpretation, or enforcement policy, then the employer may not be guilty of a criminal violation. ¹³⁴

B. Penalties

The criminal penalties for violations of the FLSA are outlined in § 216(a): ¹³⁵ "Any person who willfully violates any of the provisions of section 215 [of the FLSA] shall upon conviction thereof be subject to a fine of not more than $ 10,000, or to imprisonment for not more than six months, or both." ¹³⁶

C. Enforcement

The Secretary of Labor may utilize several different methods to evaluate an employer's performance under the FLSA. A special Wage and Hour Division was created in the Labor Department to allow the Administrator and the Secretary to make periodic investigations and reports in order to keep the law up to date and to detect violations. ¹³⁷ The Division may compel the attendance of witnesses at [*584] hearings ¹³⁸ or the production of records during an investigation. ¹³⁹ It may also require an employer to keep records of its employees and to make those records available to the Administrator. ¹⁴⁰ Moreover, the Division is empowered to determine the applicability of exemptions from certain provisions of the FLSA. ¹⁴¹ The Secretary may also sue to restrain violations and, to a limited extent, to recover unpaid benefits on behalf of employees. ¹⁴²

An employer has no privilege against production of its records and, therefore, has no right against self-incrimination in this context. ¹⁴³ The Administrator has the authority to investigate by obtaining access to records without a prehearing on whether an employer is subject to the FLSA. ¹⁴⁴ Moreover, an employee bringing a wage suit is entitled to inspect the employer's wage and hour records pertaining solely to that employee. ¹⁴⁵ The FLSA also provides for a variety of civil proceedings to enforce compliance with its requirements. ¹⁴⁶

IV. PAYMENT OR LOANS BY EMPLOYER TO EMPLOYEES OR LABOR ORGANIZATIONS

In 1984, Congress amended § 302 of the Taft-Hartley Act ¹⁴⁷ ("the LMRA") in [*585] order to provide labor unions and their members greater protection from corrupt union and management officials by elevating the offense of bribery or payoff of employees, labor representatives, or organizations from a misdemeanor to a felony. ¹⁴⁸ The amendments provide that such payments or loans by employers are criminal ¹⁴⁹ only if made willfully and, in certain circumstances, ¹⁵⁰ with the intent to benefit the employer or other persons. ¹⁵¹ Under the LMRA, it is illegal for any employer in an industry affecting commerce ¹⁵² to pay anything of value to representatives of its employees or to union officials. ¹⁵³ The LMRA also prohibits [*586] employees and union representatives from accepting such payments. ¹⁵⁴ The statute prohibits all such payments but enumerates nine exceptions. ¹⁵⁵

A. Elements of the Offense

To constitute an offense punishable by criminal sanctions under the LMRA: (1) an employer must (2) willfully pay or lend (3) money or another thing of value (4) to any representative of its employees (5) or an employee or representative of employees must willfully request or receive such thing of value. ¹⁵⁶

1. Employer

The LMRA's definition of an "employer" includes any person acting as an agent of an employer. ¹⁵⁷ The statute specifically excludes federal or state governments or their subdivisions, the Federal Reserve Bank, employers subject to the Railway Labor Act, and labor organizations from the definition of "employer." ¹⁵⁸ Private companies who perform municipal functions are also excluded. ¹⁵⁹ Prohibited payments made by an employer via a non-employer private corporation, [*587] however, are sufficient to constitute a violation of the statute. ¹⁶⁰

2. Willfulness

Willfulness is required for a court to find a criminal violation of the LMRA. ¹⁶¹ Most circuits which have ruled on the definition of willfulness in the context of § 302(d) have held that a finding of general intent that the defendant knowingly committed the act in question is sufficient to satisfy this element of the offense. ¹⁶² The Seventh Circuit, however, has held that a finding of willfulness requires proof of specific intent; the defendant must know he or she is violating a law. ¹⁶³ Mutuality of guilt is not necessary for a conviction under LMRA. ¹⁶⁴

3. Money or Thing of Value

The terms "money" and "thing of value" are to be construed as distinct terms. ¹⁶⁵ "Thing of value" includes benefits flowing from the use of monetary payments. ¹⁶⁶ Courts have interpreted what constitutes a thing of value broadly. ¹⁶⁷

[*588] 4. Representative of an Employee

The LMRA broadly defines the term "employees" to include almost everyone within the common meaning of the term. ¹⁶⁸ Certain employees are not covered, however, including: managers, ¹⁶⁹ full-time faculty members of private universities, ¹⁷⁰ supervisors, ¹⁷¹ confidential employees, ¹⁷² agricultural workers, ¹⁷³ domestic workers, ¹⁷⁴ employees covered by the Railway Labor Act, ¹⁷⁵ and independent contractors. ¹⁷⁶ "Representative of employees" includes any person authorized by employees to act for them in dealings with their employer and is not limited to a bargaining representative. ¹⁷⁷

[*589] 5. Requests or Receives

Section 302(b) makes it unlawful for any person to request, demand, receive, accept, or agree to receive or accept, any payment, loan, or delivery of any money or other thing of value prohibited by § 302(a). ¹⁷⁸ Violations under this section include requesting unearned pension benefits, ¹⁷⁹ accepting kickbacks or other payoffs, ¹⁸⁰ and receiving payments as a labor consultant while employed as a union official. ¹⁸¹ Each receipt of a thing of value can constitute a separate offense. ¹⁸²

B. Exceptions

Section 302(c) contains nine exceptions to the provisions of LMRA. ¹⁸³ The first three exceptions ¹⁸⁴ describe payments that do not have the potential for corrupting the labor movement. ¹⁸⁵ The first exception involves payments to an employee who acts openly as a representative of the employer in labor relations and compensation to an employee for services rendered. ¹⁸⁶ The second exception involves payments [*590] made in satisfaction of a judgment of any court, a decision or award of an arbitrator or impartial chairperson, or payments for the settlement of claims or disputes. ¹⁸⁷ The third exception includes payments for the purchase of a product at the prevailing market price in the regular course of business, ¹⁸⁸ where the buyer and seller satisfy the employer-employee relationship covered by the statute. ¹⁸⁹

The last six exceptions ¹⁹⁰ describe payments that are believed to have the potential to corrupt the labor movement unless LMRA's protective requirements are met. ¹⁹¹ Section 302(c)(4) exempts money deducted from the wages of an employee to pay membership dues to a labor organization, but only if the employee has given written approval. ¹⁹² The next four exceptions, found in § 302(c)(5)-(8), exempt money or other things of value paid to a trust fund established by a representative of employees for the sole and exclusive benefit of the employees and their families and dependents, including trusts for the purposes of vacation, severance or holiday benefits, scholarships, child care and housing funds, and legal service funds, under certain conditions. ¹⁹³ Employers and employees must be equally represented among the trustees who administer such trusts. ¹⁹⁴

[*591] The four exemptions found in § 302(c)(5)-(8) together with the exemption in § 302(c)(9), which covers funds paid to a labor-management committee established for the purposes of the Labor Management Cooperation Act of 1978, ¹⁹⁵ define payments from management representatives to labor representatives that are legal so long as the LMRA's technical requirements are met. ¹⁹⁶ Violations of § 302(c)(4)-(9) are subject to the enforcement provisions in § 302(d)(1), which require both willfulness and the intent to wrongfully benefit another person or to personally benefit oneself. ¹⁹⁷ Other violations of LMRA require only willfulness in order for the defendant to be subject to criminal penalties. ¹⁹⁸

C. Penalties

Violation of any part of LMRA is a felony punishable by a fine of not more than $ 15,000; imprisonment for not more than five years; or both, if the money or thing of value involved in the crime is worth more than one thousand dollars. ¹⁹⁹ If the value of the money or other thing involved is less than one thousand dollars, the violation is a misdemeanor punishable by a fine of $ 10,000; imprisonment of one year; or both. ²⁰⁰

In addition, federal courts have jurisdiction to restrain violations of LMRA by eliminating any features in the structure or operation of a trust that would cause it to fail to qualify for a § 302(c)(5) exception. ²⁰¹ However, federal courts do not [*592] have the power to issue injunctions against a trust fund or its trustees to force it to comply with the standards delineated in the LMRA. ²⁰²

V. PROTECTING UNION FUNDS UNDER THE LABOR-MANAGEMENT REPORTING AND DISCLOSURE ACT

In 1959, Congress enacted the Labor-Management Reporting and Disclosure Act ²⁰³ ("LMDRA") in response to investigations which revealed corrupt and unethical management of some labor unions. ²⁰⁴ Section 501(c) of the LMRDA penalizes appropriations of union funds for non-union purposes by creating a new statutory crime whose scope extends beyond the common-law offense of larceny and the old statutory crime of embezzlement ²⁰⁵ to include nearly every kind of taking. ²⁰⁶

This provision prohibits an officer or an employee of a union from embezzling, stealing, abstracting or converting the assets of the union to his own use, or to the use of another. ²⁰⁷ The provision also subjects officers or employees to criminal sanctions for passively accepting unauthorized funds. ²⁰⁸ Actual or good faith belief in union benefit or authorization, as well as accident and mistake are available defenses to fraudulent intent.

A. Elements of the Offense

A violation of § 501(c) of the LMRDA occurs where: (1) an officer or employee of a union (2) engages in the appropriation of union assets for his own or another's purpose (3) with fraudulent intent. Depending on the circuit, demonstrating the lack of a benefit to the union or the lack of union authorization may also be [*593] necessary. ²⁰⁹

1. Officer or Employee

Section 501(c) of the LMRDA applies to those who are officers of, or who are employed by, a labor organization. Courts have interpreted the terms "officer" and "employed by" broadly to assure the protection of union funds. Any elected officer of a union, no matter how ceremonial the post, is subject to the LMRDA. ²¹⁰ An individual who has designated duties as representative of the union, albeit not elected by union members, is also an officer for purposes of prosecution under § 501(c). ²¹¹ In addition to conventional employees on the union payroll, those hired by a union as independent contractors may also be "employed by" the union within the meaning of the statute. ²¹² Courts have also refused to limit the statute to those who have a fiduciary relationship within the union. ²¹³

2. Appropriation of Union Assets for One's Own or Another's Purpose

Under § 501(c), an appropriation occurs when a union employee deprives the union of funds which belong solely to the union. ²¹⁴ Four means of appropriation are prohibited by the statute; embezzling, stealing, unlawfully and willfully abstracting, and unlawfully and willfully converting. ²¹⁵ Indirect and direct methods of accomplishing such takings are treated equally by courts and prohibited under the statute. ²¹⁶

Courts have given a broad interpretation to the definition of "union assets" to [*594] include almost all property associated with a union. ²¹⁷ However, moneys which a union employee earns in a private capacity are not classified as union assets. ²¹⁸ The prosecution must also prove that the union employee took union assets for his own use or the use of another, rather than a union purpose. Circumstantial evidence may be used to draw an inference that money was expended for a non-union purpose. ²¹⁹ At trial, the evidence will be viewed by the court in the light most favorable to the government. ²²⁰

3. Fraudulent Intent

Courts generally require a showing that the union employee acted with fraudulent intent. ²²¹ The defendant must have acted willfully, with the knowledge he was acting unlawfully, and not by mistake. ²²² Since the concept of intent reflects a subjective state of mind that can not be established solely upon objective proof, the prosecution must demonstrate, on the basis of all available evidence, that the union employee acted knowing his conduct was wrong under the circumstances. ²²³

[*595] 4. Lack of Benefit to Union or Lack of Union Authorization

Although there are some differences in how the circuit courts treat the elements of union benefit and lack of union authorization in determining fraudulent intent under § 501(c), there seems to be a trend toward treating these elements as parts of a whole picture rather than as distinct essential elements to the offense.

While the First and Fourth Circuits favor the union authorization approach, ²²⁴ the Second Circuit places equal weight on both union authorization and benefit. ²²⁵ The Sixth Circuit has placed a lower burden of proof on the government, requiring only a showing that the defendant did not in good faith believe the expenditure would legitimately benefit the union. ²²⁶

Where expenditures are unauthorized, courts generally have held that the prosecution need only prove a lack of proper union authorization. ²²⁷ The Third, Seventh, Eighth, and Ninth Circuits have offered an alternative view: a lack of union authorization and a lack of a good faith belief in union benefit bear upon fraudulent intent, but are not distinct elements of a LMRDA offense. ²²⁸

B. Defenses

Although it is unclear whether union benefit, union authorization, or good faith belief in union authorization or benefit are elements of the LMRDA offense, these theories may serve as successful defenses for defendants seeking to negate the fraudulent intent requirement at the crux of the offense. ²²⁹ Theories of mistake or accident can also serve as defenses. ²³⁰

[*596] C. Penalties

Violation of LMRDA is a felony punishable by a fine of not more than $ 10,000, or imprisonment for not more than five years, or both. ²³¹ Separate violations of the LMRDA constitute separate offenses, unless the violations constitute a single course of conduct. ²³²

FOOTNOTES:

n1 29 U.S.C. §§ 651-678 (1994 & Supp. 1995).

n2 30 U.S.C. §§ 801-962 (1994 & Supp. 1995).

n3 Fair Labor Standards Act of 1938, ch. 676, § 1, 52 Stat. 1060 (codified as amended in various sections of 29 U.S.C.).

n4 Labor Management Relations (Taft-Hartley) Act § 302, 29 U.S.C. § 186 (1994 & Supp. I 1995). See generally Labor Management Relations (Taft-Hartley) Act, 29 U.S.C. §§ 141-197 (1994) (providing all provisions of this Act).