The most obvious dose of legal reality is there is already a legislative requirement for financial disclosure to union members in every jurisdiction in the country. In fact, bill C-377 overleaps provincial jurisdiction by amending the Income Tax Act. The long list of items to be disclosed does not stop at mere financial information but requires identification of the name and address of the payer and payee, the purpose and description and amount of every transaction paid or received over $5,000, as well a record of the percentage of time employees have dedicated to political activities and lobbying activities.
During the political rhetoric regarding the proposals, unions have been compared on the one hand to charities and to private corporations on the other, when in fact they are tax-exempt entities, more akin to professional trade organizations and think-tanks, which are noticeably absent from the union-specific legislation. While the courts have repeatedly characterized trade unions as private entities, this legislation attempts to move unions into the same sphere as registered charities, which are required to provide a large amount of information which is then posted on the Canada Revenue Agency’s website.
“The position is that because union dues are deductible, there is a beneficial tax position,” explains Andrew Tremayne, a partner at Emond Harnden, a management-side labour and employment law firm in Toronto. “The dues are not treated as income, so there is taxpayer subsidy to a degree.” But, he says, unions are not fully comparable to charities. “Charities are funded by donors and the donors get the tax benefits, but unions need to be a little more transparent than other private companies because of the analogy of beneficial treatment.”
Tony Glavin, of Glavin Gordon Clements in Vancouver, disagrees. “Charities are held to public account because tax dollars are used to assist them, whether through the use of tax receipts or direct funding. But unions do not receive government funds. They are completely funded by members and should only have to be accountable to members.”
Tremayne believes the legislation is necessary for reasons of transparency and the use of the Income Tax Act is preferable to province-by-province amendments. “You would end up with a patchwork, much like labour law provincially is a patchwork. Bargaining units might move to jurisdictions they thought were more favourable. Amendments to the Income Tax Act will create a level playing field.”
Other lawyers question the use of the tax act for purposes unrelated to taxation. The first incarnation of this legislation, tabled in bill C-317 in late 2011, purported to take away the tax exempt status for labour organizations and labour trusts if they did not comply with all of its disclosure requirements. That bill was withdrawn by the Speaker of the House of Commons. In his opinion, the bill amendments would have created a new category of labour organization constituting a class of taxpayer that does not currently exist, so should have been brought as a government bill.
“Bill C-317 was peripherally involved in tax matters,” recalls James Harnum, a pension and benefits lawyer at Koskie Minsky LLP in Toronto. “Bill C-377 is no longer in any way related to taxation. It is using the Income Tax Act to attack unions, which the federal government is not generally able to do because it is not their jurisdiction. They’ve said: ‘Okay, we can’t take away your tax exempt status so we’ll just penalize you.’ It simply serves as an impediment to organizing and strike activities without any taxation justification.”
Harnum notes that at $1,000 a day per infraction, the penalty would be significant for a small local branch, a small pension fund, or unit benefit fund. He also points to the cost of compliance. “For a pension fund that administers billions of dollar in benefits, the cost would be absolutely astronomical.” He refers to the United States Office of Management and Budget that estimates that in the U.S., completing the forms under similar legislation introduced in 2005, requires over 550 hours of work each year for some unions. There will also be a significant amount of government money required to ensure compliance.
As written, the disclosure requirements appear to be well in excess of those imposed on other corporate entities. “In the relatively new regime for charities, the disclosure requirements are far, far less,” states Harnum. He finds Hiebert’s argument that unions are more complex entities and therefore require greater scrutiny “disingenuous.” “I query whether the Red Cross or the Canadian Cancer Society would be any less sophisticated than a small union organization that may have 10 members and no administration at all.” He also finds the requirements far more broad than the variety of filings a public company is required to provide by virtue of the fact that the public is being invited to invest in it.
When considering private corporations, which he points out can also receive many types of government benefits, he does not see them ever being required to meet similar standards. “I can’t imagine a corporation being required to disclose the percentage of time they spent in meetings, or lobbying, in HR work, or anti-organizing activities.”
The legislation will also affect union trust funds that administer pension and health and disability funds. “There are all sorts of funds set up for the benefit of employees,” notes Harnum. “If a fund serves 1,000 people, there might only be five to 10 unionized employees among them. Many are sponsored by the employer and administered by the employer and have nothing to do with union dues or labour activities.”
Harnum does not think the proposed legislation will assist the Canadian public in gauging the effectiveness of how union dues are spent, and this raises the question whether anyone but members have a right to the information. “The importance of disclosure is not for the public, but for members so they can scrutinize the financial goings-on of the organization they are members of,” says Glavin.
A frequently aired argument is that the information should at least be available to those who pay union dues but are not members of the union. While union responsibilities clearly extend to represent those who pay dues but are not members, the requirements for financial disclosure do not. “I think that an argument could be made that if you are paying dues you have a right to look at the financial statements,” agrees Glavin. “If that’s the big concern, it wouldn’t be a problem to fix it in the existing financial disclosure legislation. However, there are very few individuals who work in a bargaining unit who are not members — probably a fraction of one per cent.”
There is, however, some major noise coming from those concerned with privacy rights. David Fraser, of McInnes Cooper in Halifax, points out that particulars of how much is paid and to whom will not only include union employees and officers but striking employees. “I think people would be legitimately concerned at the release of that information. If you are not a public employee, most people expect salary information to be treated confidentially. Most people would also expect benefit information to remain private.”
Glavin says: “Clearly the legislation in its current form would clash with privacy rights legislation. It would require reporting and disclosure and repositing on a government web site accessible by all Canadians and non-Canadians. It will have a search engine that will allow individuals to collate statistics from the information. No one would countenance this in the corporate world. It would be seen as Big Brother run amok.”
For information about an organization, Fraser says trade secrets protections would not apply as the union is not competing in a full and open market as anticipated by that system of rights.
Labour lawyer Ron Pink, of Pink Larkin in Halifax, anticipates more impact on private business from open information about union payments. “The competition can find out how many man hours you worked by seeing how much was contributed to the union and therefore see how competitive you are. It will also be possible to see how much the union has paid to suppliers and consultants which will enable their competitors to underbid them.”
Then there is strategically sensitive information. Glavin was counsel for the United Food Commercial Workers Union in 2008’s Hubner v. United Food Commercial Workers Union, Local 2008, where the union tried to withhold information from its members until they signed a non-disclosure clause. While the Labour Board ultimately found the union could not withhold the financial records for this reason, it also found it was within the powers of the union organization to provide for such measures in its constitution. The Superior Court of B.C. found the UFCWU was not in contempt of court by taking this position.
“The reason the union didn’t want disclosure on the Internet of detailed information is that, generally speaking, it is a private organization but more so, because it is strategically important,” explains Glavin. “The defence fund, the strike fund, the general coffers; those are of considerable interest to employers engaged in collective bargaining, informing them of the union’s relative strength to resist a lock-out or engage in a strike.” Glavin also points out that when legal opinions are obtained, their subject matter would have to be at least generally described.
In Fraser’s view, bill C-377 tips the balance too strongly in favour of employers. “Unions are in an inherently adversarial position with employers, and they don’t have a commensurate obligation for transparency.” Tremayne also concedes the bill will need to be fine tuned to be more focussed on particular interests such as political contributions and salaries of executive directors, but even targeting the disclosure of political activities and contributions is legally controversial. The Supreme Court of Canada has repeatedly characterized unions as “mini-democracies” that are rightfully entitled to support political causes. “To the extent that members are concerned, they can get involved and attempt to influence the direction of the trade union with respect to the position it takes on economic and social issues. The Supreme Court found that members can hold the leaders accountable,” says Glavin.