The Financing and Transparency of Unions - LabourWatch

The Financing and Transparency of UnionsExecutive SummaryPrivate organizations – businessesor charities – get their financingthrough voluntary transactions.As a result, they do not have to justifythemselves to the public at large.In government, appropriationsare made public and the law makesprovisions for other instruments oftransparency. Public organizations,because they receive funding thatcomes from taxpayers, also havegreater transparency requirementssince they are responsible for making judicioususe of the funding they receive.Union organizations are private organizations,but their financing relies on an indirectpower to tax known as the Rand formula. Theyalso enjoy various tax breaks, like a tax credit forunion dues, a tax exemption for strike pay as wellas tax credits for contributions to labour-sponsoredfunds. Despite these quasi-public financingprerogatives, Quebec union organizations generallydo not exhibit financial transparency andhave very few obligations in this regard.The authors of this research paperestimate that Quebec union revenuesfrom union dues amounted to $795million in 2008. Their tax benefitsare contrasted with the very limitedtransparency obligations imposed onunions through legislation.The authors also provide a briefdescription of the rules that existelsewhere in Canada and especiallyin the United States and in France,where the law requires greatertransparency. This has the advantage of raisingthe quality of governance of unions and the legitimacyof their activities. For this reason alone,union organizations themselves would benefitfrom the adoption of transparent financial practicesthat would improve their reputations.A union organization, like any private organization,might want to keep its financial informationaway from the eyes of the public, and fromits competitors, too. The authors recommend thatunion organizations that want this have the legitimatechoice of renouncing the Rand formulafor their financing in exchange for not havingto comply with transparency obligations. In thiscase, they would operate like true private organizations,with voluntary financing, and the transparencyconditions they would have to respectwould be those required of private organizations.8Montreal Economic Institute

The Financing and Transparency of UnionsIntroductionIn Quebec, as in other parts of the world, labourrelations are heavily regulated. Governmentalorganizations like the Quebec Labour RelationsBoard oversee the enforcement of the variouslaws and regulations. And yet, labour relationsare an area that essentially involves private actors.The majority of employers are private businesses.Some employees are represented by associationsof employees, 1 or unions, which are privateorganizations formed by their members.Public and private organizations are generallydistinguished by the fact that the former areanswerable to all taxpayers because they are the oneswho finance them, either directly or indirectly, butalmost always by obligation. Only the governmentcan legitimately impose financial obligations onits citizens. Private organizations, on the contrary,must rely on the voluntary exchange of goods andservices in return for payment, or on their powersof persuasion. They can never force someone togive them money. Public organizations, becausethey are publicly funded, are also saddled witha duty of increased transparency since they areresponsible for using their funding judiciously.On the one hand, although unions belong to theprivate domain, their financing does not fulfill theusual characteristics of private organizations. Thelabour relations system grants them powers thatare quite unusual in this regard. The law actuallyrequires all employees to pay union dues, whetheror not they belong to the union that representstheir coworkers. These dues are deducted directlyfrom their paycheques by their employer, who thenhands these sums over to the union.The amount of financing is decided by amajority of the union members present at the1. The expression association of employees is the one used in the QuebecLabour Code and defined as “a group of employees constituted as aprofessional syndicate, union, brotherhood or otherwise, having asits objects the study, safeguarding and development of the economic,social and educational interests of its members and particularly thenegotiation and application of collective agreements.”appropriate proceedings. However, those who arenot members of the union have no say in the mattereven though the consequences of this decisionalso applies to them. In practice, this law thereforegrants unions the equivalent of a power to tax.On the other hand, unions do not have thekind of transparency obligations that publicorganizations have. They do not need to divulgetheir financial statements to the general population.Both their revenues and their expenses remainhidden from the public at large. This state of affairs,normal for a private organization, nonethelessseems odd in the case of unions whose financingmodel is quasi-public in nature.Financial transparency is an essential requirementin the management of public funds. It isthrough this mechanism that taxpayers protectthemselves from the risks of arbitrary power,corruption, embezzlement of public funds and lossof responsibility that can arise, even within a publicadministration at the service of citizens. In the caseof unions, financed through an indirect power totax and through tax benefits, this transparencywould therefore also constitute a legitimate tool.The current situation of Quebec unions raisesserious questions concerning both financing andtransparency. The first chapter of this researchpaper partially lifts the veil on the overall financingof unions in Quebec by using tax data to estimateunion revenues in the province. The second chapterexplains the tax benefits granted to unions. In thethird chapter, the transparency obligations forQuebec unions are detailed and compared with therequirements in place in other countries like theUnited States and France.The use of mandatory dues for purposes otherthan collective bargaining (the reason for whichthey are deducted), a practice that is forbidden inthe United States and in Europe, is also analyzed.This example in fact illustrates an effect of thecurrent financial opaqueness of unions, which usetheir financing tools for multiple purposes.Finally, this paper concludes with concreteMontreal Economic Institute 9

The Financing and Transparency of Unionsrecommendations aimed at improving thetransparency of unions that decide to use quasipublicfinancing methods. What this meansconcretely is that unions that want to remain privateorganizations by relinquishing the benefits grantedto them by government would not be affectedby these recommendations. However, for thoseorganizations enjoying various benefits financedby taxpayers and with an indirect power to tax,transparency obligations would be strengthenedout for consideration for unionized employees andtaxpayers in general.10Montreal Economic Institute

The Financing and Transparency of UnionsChapter 1The financing of unionorganizationsIn Quebec, the scope of the revenues andexpenses of union organizations remains hiddenfrom the public at large. Before looking intothe sources of this financing, it therefore seemsappropriate to sketch a picture of the overallamount in play.Among union organizations, only theConfederation of National Trade Unions(Confédération des syndicats nationaux or CSN)makes its financial statements public. This isalso the case of the Union des artistes (UDA), anorganization that is not a union in the traditionalsense of the word, but that plays a role similar tothat of a trade union federation within the culturalsector. But the other umbrella organizations andlocal labour unions remain essentially opaque inthis regard. 1The following table sums up in broad strokesthe 2008-2011 financial statements of the CSNfiled during their 63 rd Congress held in May 2011.In short, the revenues collected from the 274,156CSN union members were $209 million, or $69.7million per year on average, and the surplus oftotal revenues over total expenses was nearly$10 million per year.We cannot know if the CSN’s financial pictureis truly representative of the overall situation oftrade union federations in Quebec. Since therewere 1.31 million unionized workers 2 in Quebecin 2009, the CSN represented barely one in five ofthem. The characteristics of CSN members, moreconcentrated in the public sector, could also affectthe operation and therefore the expenses of thislabour federation.Table 1.1CSN – 2008-2011 financial statementsTotal revenues (dues and interest) $215,571,801Average # of members (per month) $274,156Average rate (per month) $21.20Total expenses $185,974,101Management $37,040,454Unionization $17,836,973Labour relations $26,415,906Communications $8,310,085Mobilization $29,436,000Administration $9,079,236Professional defence fund $57,855,595Strikes $31,560,079Negotiations $23,523,646Demands $2,773,977(Doubtful debts recovered) ($2,107)Surplus of revenues over expenses $29,597,700Net assets on February 28, 2011 $22,015,456Source: CSN, Rapport des finances – États financiers 2008-2011, May2011, p. XI.Even though the other labour organizationsare not as transparent as the CSN, it is possible toestimate their total revenues. At both the federaland the provincial levels, there exists a nonrefundabletax credit for union or professionaldues. 3 By consulting the personal tax statisticsproduced by the Quebec Department of Finance,we get the total amount declared under this taxcredit. Then, we subtract away the total revenuesof professional orders recognized by Quebec’sProfessional Code. 4It is interesting to note that Quebec unionsbenefit from significant resources that arededucted automatically. We can evaluate the duescollected by unions at around $795 million in 2008(the last year for which data are available). Figure1.1 presents the financial results for the periodfrom 2005 to 2008. As this is an approximation,1. Websites of the various union organizations.2. Institut de la statistique du Québec, Nombre d’emplois syndiqués chezles travailleurs (employés), résultats selon diverses caractéristiques de lamain-d’œuvre et de l’emploi, moyennes annuelles, Québec, 2008-2010,April 20, 2011.3. Quebec Department of Revenue, Union, Professional or Other Dues,http://www.revenuquebec.ca/en/citoyen/credits/credits/credits_reduisant/autres.4. Schedule 1 of the Professional Code, R.S.Q., ch. C-26 lists the 46 professionalorders recognized in Quebec.Montreal Economic Institute 11

The Financing and Transparency of Unions$ million8007006005004003002001000Figure 1.1Estimate of dues collected byQuebec union organizations(2005 to 2008)20052006 2007 2008Sources: Authors’ calculations based on statistics from theQuebec Professions Board for revenues of professionalorders and from the Quebec Department of Finance,Statistiques fiscales des particuliers, 2005 to 2008.and Safety Commission (CSST), ten milliondollars were disbursed to employers’ associationsand unions for this purpose. 7 We can hypothesizethat given a joint employers-unions organizationlike the CSST, half of this amount was paid tounions.In addition, union organizations can obtaincontracts with the government for specificprojects, like a contribution to publications onoccupational health and safety.Union organizations can also make variousinvestments. For example, the CSN plans tocollect $3.2 million in interest over the 2011-2014financial period, without detailing where thoseinterest payments will come from. 8All things considered, union dues remainthe primary source of income for unions, towhich is added the money received directly fromgovernment and investment income. Finally,initiation fees, fines and special dues can also beadded, these amounts all deducted directly fromworkers’ salaries.these data should be interpreted with caution.Since only dues are taken into account for Quebecunions and not other sources of revenue, thesedata underestimate their actual revenues.In addition to dues collected directly fromemployees, unions have other sources of revenue. Inthe past, subsidies for the education of workers weregranted to unions. 5 In addition, the governmentdistributes public funds to employers’ associationsand unions for them to act as co-administratorsof occupational health and safety files. 6 In 2009,according to the Quebec Occupational Health7. CSST, Statistiques annuelles 2009, 2010, p. 65.8. CSN, Rapport des finances – Budget 2011-2014, May 2011, p. VI.5. Mona-Josée Gagnon. Le syndicalisme : états des lieux et enjeux, Institutde la recherche sur la culture, 1994, pp. 71-72.6. Id., pp. 71-73.12Montreal Economic Institute

The Financing and Transparency of UnionsChapter 2The tax benefitsgranted to unionsAs was noted above, the deduction ofcompulsory dues bestows upon unions an indirectpower to tax. This power granted by the LabourCode is coupled with preferential tax treatment.The main fiscal levers that the Quebec governmentadopted to the benefit of union organizations are:1. the tax credit for union dues;2. the tax exemption for strike pay;3. tax credits for contributions to laboursponsoredfunds.The tax credit for union duesIn Quebec, there is a 20% tax credit on unionand professional dues. 1 At the federal level, thesedues are entirely deductible from taxable income. 2Professional dues allow one to join a professionalorder, and since such membership is generallyrequired to practice one’s trade, we can regard theseas a professional expense. Moreover, professionalorders are established by law for this purpose. Allthings considered, it is normal to allow people todeduct compulsory dues from taxable income, orto reduce their fiscal impact with a tax credit, sinceindividuals cannot use these sums as they see fit.The same logic applies to union dues, whichare not voluntary either for workers in a unionizedenvironment, since the Rand formula imposes thepayment of these dues. However, that is where thesimilarity ends between the two cases.A professional order has no other officialpurpose but to defend the public, and in theorydoes not exist to serve its own members. 3 From alegal point of view, professional dues thereforefinance a public service and entail no benefit to theprofessional, aside from the fact of having fulfilled aprerequisite to the exercise of his or her occupation.Unions, on the contrary, exist specifically for theirmembers only, and only serve their interests. Whileprofessional dues fulfill a legal obligation, uniondues correspond rather to the price paid in order tobenefit from the protection of an association.This protection not being to the public’sbenefit, but rather to the advantage of the employee,it seems legitimate to ask why it is given preferentialtax treatment. After all, when employees acquirea dental or prescription drug insurance plan, thisexpense does not receive a tax credit. Paymentsfor the “services” of a union, however, receive thispreferential tax treatment at taxpayer expense.The tax exemption for strike payUnion dues serve several purposes, includingthat of building up a strike fund that can be usedto compensate workers during a labour dispute.In the event of a strike or lockout, when this strikefund pays out compensation to union members,these earnings are tax exempt and constitute anet revenue. 4 The tax-free character of strike pay,despite the fact that the dues themselves are taxdeductible, was confirmed in 1990 by the SupremeCourt of Canada. 5 This is not the case for all typesof earnings, however, since even Employment1. Quebec Department of Finance, Tax Expenditures – 2010 Edition,2011, p. B.138. A tax credit reduces the taxes to be paid, in this caseby an amount equal to 20% of dues paid. A tax deduction subtracts acertain amount from one’s taxable income. As for the concept of taxexpenditures, this is the tax revenue not collected on account of a taxcredit or a tax deduction, for example.2. Canada Revenue Agency, General Income Tax and Benefits Guide, 2010,p. 25.3. It should nonetheless be noted that the real economic effects of thepresence of a professional order can be quite different from the officialpurpose.4. Quebec Department of Finance, Tax Expenditures – 2010 Edition,2011, p. A.10; Canada Revenue Agency, General Income Tax andBenefit Guide, 2010, p. 11.5. Canada v. Fries, [1990] 2 S.C.R. 1322.Montreal Economic Institute 13

The Financing and Transparency of UnionsInsurance Benefits, a federal government program,are taxable. 6In other words, taxes are not collected onamounts taken out of the strike fund, and thedues that served to build it up are also partially taxdeductible. This tax treatment is not the same inthe case of other plans aiming to set aside futureearnings. For the sake of comparison, in the caseof RRSPs, contributions are tax deductible, butwithdrawals are taxed. The income is in a sensedeferred. In the case of TFSAs, contributions arenot tax deductible, but withdrawals are tax free,which avoids double taxation of one’s savings.Strike funds have the distinctive feature of almostcompletely escaping taxation, both from the partialdeductibility of dues and from the exemption ofbenefits.Concretely, strike funds therefore benefit froma singularly advantageous system of tax credits andexemptions.Tax credits for contributionsto labour-sponsored fundsLabour-sponsored venture capital funds,namely the Fonds de solidarité FTQ and theFondaction CSN, are strictly speaking separateentities from the union organizations, although theties between these funds and the labour federationsthat set them up are sometimes close. For example,the presidents of the Quebec Federation of Labour(Fédération des travailleurs et travailleuses duQuébec or FTQ) and the CSN are chairmen of theboards of the Fonds de solidarité FTQ and of theFondaction CSN, respectively. These investmentfunds experienced strong growth in recent decadesthanks to a very interesting tax benefit obtainedfrom the very beginning.As is the case for all funds, the individualwho places his savings in the form of RRSPs in alabour-sponsored fund reduces his taxable income.However, labour-sponsored funds enjoy a uniquefiscal advantage: 7 the contributor benefits from a taxcredit (both at the federal and the provincial level)that amounts to a total of 30% for his investmentsin the Fonds de solidarité FTQ and 40% for theFondaction CSN. 8 As evaluated by the QuebecDepartment of Finance, the simple increase of thetax credit to the benefit of Fondaction entailed a$35.6-million reduction in tax revenue these pasttwo years. 9These funds represent an instrument forpromoting the availability of capital in the Quebececonomy, according to the government, which forthis reason grants them preferential tax treatmentas a “business capitalization measure,” one of severalcategories of tax assistance for businesses. 10Now, it is generally admitted in the economicand financial literature that labour-sponsored fundsdo not increase the total supply of venture capitalavailable, insofar as these funds replace other formsof venture capital investments, a phenomenoncalled the crowding out effect. In addition to thiscrowding out effect, there is an element of “unfair”competition limiting the creation of privateinvestment funds. According to a Canadian studyof the matter, the total supply of venture capitalin Canada is $1 billion smaller because of thiscompetition from labour-sponsored funds. 11What’s more, since the start of the 1990s, lessthan half of the funds raised by labour-sponsoredventure capital corporations are actually investedin businesses targeted by the government financial aid7. Quebec Department of Finance, Tax Expenditures – 2010 Edition,2011, p. B.103.8. This exceptional rate, adopted in the Quebec government’s 2009-2010budget, will be in effect until the capitalization of Fondaction CSNreaches $1.25 billion. Currently, the assets managed by FondactionCSN total $843 million (Fondaction, États financiers aux 31 mai 2011et 2010, p. 3) while those of the Fonds de solidarité FTQ total $8.2billion in 2011 (Fonds de solidarité FTQ, États financiers aux 31 mai2011 et 2010, p. 2).9. Quebec Department of Finance, Budget Plan 2009-2010, March 2009,p. A.15.10. Quebec Department of Finance, Tax Expenditures – 2010 Edition,2011, p. XII.11. Douglas Cumming and Jeffrey McIntosh, “Crowding out private equity:Canadian evidence,”Journal of Business Venturing, Vol. 21 (2006),No. 5, p. 601.6. Canada Revenue Agency, General Income Tax and Benefit Guide, 2010,p. 11.14Montreal Economic Institute

The Financing and Transparency of Unionsprogram, and this trend seems to have worsened since2001, according to an Industry Canada study. 12 Thisclearly shows that labour-sponsored funds haveonly partially played the role of venture capitalsupplier required by the government in exchangefor such a significant tax benefit.Other aspects of labour-sponsored funds,like high administrative expenses, governanceand manager remuneration independent ofperformance, raise questions regarding the relevanceof their preferential tax treatment. Moreover,by imposing strict conditions on shareholdersregarding their ability to withdraw their funds, theyare powerless should they be unhappy with thereturns obtained. In other words, the bad decisionsof managers are not penalized as they would be inother investment funds.In this context, it is not surprising that theperformance of these funds is weaker than thatobserved in regular financial markets, and by a longshot. For example, the actual return of the Fondsde solidarité FTQ according to the data providedon its website was 1.4% per year on average fromthe time of its creation up until 2010. During thisperiod, the Toronto (TSX) market index registeredan actual return of 5.6% per year. This means that inconstant dollars, $1,000 of savings would be worth$1,436 today if it had been entrusted to the Fondsde solidarité FTQ in 1984, while it would have beenworth $4,099 by following the TSX. 13All things considered, labour-sponsored fundsare financial instruments that fulfill neither theireconomic objectives, namely to make venturecapital available to help Quebec businesses, northeir financial objectives of offering a good returnto contributors, their performance being interestingonly by taking into account the additional taxcredit. However, in concrete terms, this tax creditrepresents billions of dollars in tax revenue whichthe government has renounced, which implies thatother taxpayers must make up this lost revenue.Once again, the generous tax treatment enjoyedby labour-sponsored funds imposes a cost ontaxpayers in favour of contributors to those funds,which are the financial instruments of privateorganizations. In their case, labour-sponsoredfunds clearly communicate their financial resultsand make them available to the public at large.However, the fulfillment of their objectives and therepercussions of their generous tax benefits are notevaluated by the government. In the case of unions,though, it is access to financial information that islacking.12. Industry Canada, Labour-Sponsored Venture Capital Corporations: AnOverview of Their Role and Activities (1991-2003), 2005.13. Authors’ calculations based on performance data from the Fonds desolidarité FTQ and from Bloomberg for the TSX. See also: Jean-MarcSuret, “Le financement des entreprises,” in Filip Palda, L’État interventionniste: le gouvernement provincial et l’économie du Québec, 1994,Fraser Institute, pp. 113-168; Jean-Marc Suret, Le marché de la financeentrepreneuriale et du capital de risque, CIRANO, 2011; Gérard Bérubé,“Les fonds de travailleurs rapportent moins,” Le Devoir, February12, 2011.Montreal Economic Institute 15

The Financing and Transparency of UnionsChapter 3The transparencyobligations of unionsPrivate organizations generally financethemselves through voluntary transactions, whetherfrom commercial income or donations. Their clientsor donors always have the option of bringing suchfinancing to an end. Taxes not being optional, thisis not the case for the financing of governments andof public organizations in general. In this sense, thefinancing of unions has all the appearance of publicfinancing since it relies on a set of rules imposed onunionized employees and taxpayers.Government and public organizations mustsubmit themselves to the scrutiny of all in order toshow that their use of the funds they received respectsproper practices and the public ends for which theywere collected. In a democracy, this transparency isthe natural counterpart of compulsory financing.On this point, though, unions are treated like privateorganizations by the law. The disclosure of financialinformation is not common for unions, which havepractically no standards to meet in this regard. Theirambiguous status when it comes to this issue wouldjustify requiring them to conform to transparencyobligations allowing public scrutiny, or converselyrequiring them to renounce the privileges that allowthem to benefit from quasi-public financing.In order to properly understand the notionof transparency, we must first of all discuss thenotion of governance. In the following pages, thetransparency obligations of unions, both here andelsewhere in the world, will also be examined.Governance and transparencyThe notion of the transparency of organizationscan be applied to private organizations as much asto public organizations, since it is in fact a practicethat is tied to good governance. The chairmanof the board of the Institute for Governance ofPrivate and Public Organizations (IGPPO) definesgovernance as the answer to the question: “How cana small group of people (…) succeed in supervisingand controlling the actions and decisions of themanagers of an [organization]?” 1In other words, when there is a delegationof powers, as when a union executive is electedby its members, the administrators hold moreinformation about the management of theorganization than those who appoint them andwho evaluate their management. In economics,the expression principal-agent problem is used todescribe this type of situation in which one person,the “principal,” appoints an “agent” who will havemore information at his disposal than the principaland who could use this informational asymmetry tohis advantage. Studies on good governance proposethe kinds of solutions to adopt in order to rebalancethe relationship between principals and their agents,for example between shareholders and businessmanagement, or in the case that concerns us here,between union members and their representativesin the union executive.The OECD proposes to governments a numberof elements of good governance, among which is tobe found transparency: 21. Yvan Allaire and Mihaela Firsirotu, “La gouvernance en question,”La Presse, October 17, 2002, http://www.igopp.org/IMG/pdf/2002-10-17_La_Presse_YA_La_gouvernance_en_question.pdf.2. OECD, Principal elements of good governance, www.oecd.org/document/32/0,3746,en_2649_33735_1814560_1_1_1_1,00.html.16Montreal Economic Institute

The Financing and Transparency of UnionsAccountability: government is able andwilling to show the extent to which its actionsand decisions are consistent with clearlydefinedand agreed-upon objectives.Transparency: government actions, decisionsand decision-making processes are open toan appropriate level of scrutiny by othersparts of government, civil society and, insome instances, outside institutions andgovernments.Efficiency and effectiveness: governmentstrives to produce quality public outputs,including services delivered to citizens, at thebest cost, and ensures that outputs meet theoriginal intentions of policymakers.Responsiveness: government has the capacityand flexibility to respond rapidly to societalchanges, takes into account the expectations ofcivil society in identifying the general publicinterest, and is willing to critically re-examinethe role of government.Forward vision: government is able toanticipate future problems and issues basedon current data and trends and developpolicies that take into account future costsand anticipated changes (e.g. demographic,economic, environmental, etc.).Rule of law: government enforces equallytransparent laws, regulations and codes.The notion of transparency is broad, butit basically consists of financial transparency,sometimes also including transparency withregard to decision procedures and the everydaymanagement of the organization. Transparencyis a part of good governance practices because itmakes information available in order to ensure thatdecisions taken are properly implemented, thatadministrators are not guilty of misappropriationof funds and that the organization is properlyfulfilling its role.The question of transparency comes up especiallyfor public organizations since they manage publicfunds supplied by taxpayers. A private business, if itis listed on the stock market, must also make public agood amount of information about its finances, forexample. On the other hand, private organizationsthat do not receive public funds and that do notresort to financial markets usually do not sufferfrom the principal-agent problem and can moreeasily forego the constraints of governance. Thedistinction between a private organization and apublic one is therefore essential in this regard.Union organizations are usually thought ofas private organizations, but their role is definedby laws, like the Quebec Labour Code, and theirfinancing corresponds more to that of a publicorganization as we saw in the previous chapters.Certain transparency obligations are alreadyapplica ble to them currently.The transparency obligations ofunions in QuebecThe Quebec Labour Code specifies that a unionorganization “must disclose its financial statementto its members every year. It must also remit a copyof such financial statement free of charge to anymember who requests it.” 3 This is the only unionobligation regarding governance that is providedfor in the Labour Code.A union’s obligation to disclose financialstatements is thus limited to its members. Thisdisclosure often takes the form of a report fromthe union executive to the general assembly. Theway section 47.1 of the Labour Code is formulated,financial statements do not even have to be handedout to the assembled members to allow them tostudy them in detail. To obtain a copy, a member3. Labour Code, R.S.Q., ch. C-27, s. 47.1.Montreal Economic Institute 17

The Financing and Transparency of Unionsmust request one. If obtaining a copy of financialstatements is not automatic, such a request mightbe interpreted as challenging the union executiveand the member who makes the demand could beregarded with a suspicious eye.In short, the Labour Code provides for a minimalobligation. In practice, some unions go beyond thisrequirement and give out copies of their financialstatements to their members, sometimes severaltimes a year. Each union adopts the rules theyconsider advisable on the matter, since the LabourCode is not very strict.The public, though, does not have access tothe financial statements of union organizations.This is justified by the fact that a union’s financialstatements may contain privileged information thatwould disadvantage them if it fell into the hands of acompeting union. Like businesses, unions competeamong themselves, in their case to attract the mostmembers possible. However, this does not call intoquestion the need to disclose certain information ofa financial nature.The transparency obligations ofunions elsewhere in CanadaThe federal Labour Code also stipulates thata union “shall, forthwith on the request of anyof its members, provide the member, free ofcharge, with a copy of a financial statement of itsaffairs.” 4 As compared to the Quebec Labour Code,new specifications circumscribe the financialtransparency obligations of the union. Forexample, it is specified that the copy of the financialstatements must be from the most recent fiscal yearand “certified to be a true copy by its president andtreasurer” and that the financial statements “shallcontain information in sufficient detail to discloseaccurately the financial condition and operationsof the trade union (…).” However, these additional4. Canada Labour Code, R.S.C. (1985), c. L-2, s. 110.specifications do not add much since the unions’main obligation remains, as is the case with theQuebec law, to provide financial statements tomembers who request them.This is also the case of the Ontario LabourRelations Act, which differs in that it adds anadditional transparency requirement for theadministrators of funds managed by unions(vacation pay funds, pension plans or funds forunion members and their beneficiaries). Theseadministrators must annually file a certifiedfinancial statement with the Ontario Ministry ofLabour and furnish a copy to union members whorequest it in writing. 5In recent years, the transparency obligationsprovided for by Ontario law were the subject ofpublic debate. In 2010, a private members’ bill 6 froman opposition MP proposed to add an obligationfor unions to disclose their financial statements bydetailing each of their expenses in excess of $5,000.The same bill proposed to limit the compulsorydeduction for union dues to the amount allocatedfor collective bargaining, unless the union memberauthorizes an additional deduction to be usedfor other purposes. This “paycheque protection”keeps unionized employees from having to financepolitical causes that they do not support.Table 3.1 summarizes the financial transparencyobligations that unions must respect at the federallevel and in the different Canadian provinces. Thelaws are generally similar, especially because noprovince requires financial transparency to thepublic at large. Certain differences nonethelessremain, like disclosure to members who requestit or who apply to a board or to the Departmentof Labour as well as the professional auditing offinancial statements, which are not compulsoryeverywhere.5. Labour Relations Act, 1995, S.O. 1995, s. 93.6. Defending Employees’ Rights Act, Bill 71, 2010.18Montreal Economic Institute

The Financing and Transparency of UnionsTable 3.1Financial transparency obligations of unions in CanadaDisclosure ofDisclosure of unionAnonymous access toAudit of financialunion financialfinancial statementsfinancial statementsstatements bystatements to theto members ifthrough a boardprofessionalpublic required?requested?or the Minister ofauditors?Labour? (A)British ColumbiaNoYesYesYesAlbertaNoNoNoNoSaskatchewanNoNoNoNoManitobaNoYesYesNoOntarioNoYesYesYesQuebecNoYesNoNoNew BrunswickNoYesYesYesNova ScotiaNoYesYes (B)No (B)Prince Edward IslandNoNoNoNoNewfoundland and LabradorNoYesYesYesFederalNoYesYesNo (C)Source: Milagros Palacios, Jason Clemens, Keith Godin and Niels Veldhuis, Union Disclosure in Canada and the United States, FraserInstitute, September 2006, p. 11.(A) Through the Labour Relations Board, except for Nova Scotia where the request is made through the Department of Labour.(B) Although the financial statements have not been audited, a sworn statement is required, which still guarantees to union members that thefinancial statements were reviewed by an independent third party not affiliated with the union.(C) Even if it is not required by the Canada Labour Code, it is current practice for unions to furnish their members with financial statementsaudited by professional auditors.The transparency obligations ofunions in the United StatesIn 1959, following allegations of corruptionand embezzlement in the world of unions, theAmerican Congress adopted the Labor ManagementReporting and Disclosure Act (LMRDA, also knownas the Landrum-Griffin Act) in order to requirethe country’s union organizations to disclose theiractivities. 7 The US Senate Select Committee onImproper Activities in Labor and Management, orMcClellan Committee, which led to the adoption ofthis law, had been formed to study the corruption,7. A summary of the clauses of the LMRDA can also be found at the followingaddress: www.dol.gov/olms/regs/compliance/lmr da-factsheet.htm. While the LMRDA basically covers private-sector unions, theCivil Service Reform Act (CSRA) sets the standards for public-sectorunion organizations.criminal infiltration and illegal activities of severallarge unions in the United States.The transparency obligations providedfor by the LMRDA are based on the disclosureof detailed reports in order to supervise thefinancial relationships and activities betweenunion leaders and employees, employers, andlabour relations consultants. American unions arerequired to answer questionnaires from the Officeof Labor-Management Standards 8 of the federalDepartment of Labor regarding their financialsituation. Their answers are then made public.Union organizations must also disclose all of theirpolitical contributions.8. This organization’s website makes public the reports of numerousunions for the current year and for several years prior. In all, tens ofthousands of reports and forms are accessible on this website.Montreal Economic Institute 19

The Financing and Transparency of UnionsUnion officers and employees engaged incertain activities or having certain financial interestsmust file a form known as an LM-30 once a year. 9They are asked, for example, to declare the interestsof their family members in a company where theunion is present. When they manage various funds,union leaders must be bonded, which serves as akind of insurance for the proper management ofthose funds and provides a guarantee for unionmembers that should financial losses arise due toembezzlement, those funds will be reimbursed. 10Thanks to the LMRDA, the American justicesystem obtained 877 indictments for corruptionand embezzlement from 2001 to 2007. As a result,$103 million were returned to unions whose uniondues had been used inappropriately. 11 Financialdisclosure concerning in particular union fundsheld in trust, strike funds and training funds ofall kinds was especially useful for identifying andtrying to counter acts of corruption.This method does have its drawbacks. All ofthose forms represent a burden for many unionsand employers, who especially denounce theircomplexity. But it remains the method usedbecause it represents the best way of obtainingaccurate information subject to auditing.In sum, all of these transparency obligations,which are much more extensive than those in placein Quebec, comprise a set of rules that reinforcethe internal democracy of unions. The LMRDAeven includes a charter of rights granted to unionmembers vis-a-vis their unions. In short, in theUnited States, control of union governance is muchstricter and more extensive than it is in Quebec orin Canada as a whole.9. Information concerning Form LM-30 was adapted based on informationavailable at www.olms.dol.gov.10. Information related to bonding requirements can be found at: www.dol.gov/olms/regs/compliance/bonding.htm.11. U.S. Department of Labor, US Labor Department enforcement agencyannounces eight criminal convictions for December 2007, press release,January 15, 2008,The transparency obligations ofunions in FranceThe financial transparency of union organizationshas undergone new development in France with theadoption of the Loi portant rénovation de la démocratiesociale et réforme du temps de travail, which also targetsbusiness organizations. The clauses of this law havebeen coming into effect gradually since 2009. 12 Afterdoubts were expressed regarding the quality of thegovernance of certain unions, this law establishednew financial transparency obligations. Mainly, unionorganizations must respect strict accounting standardsand make their financial statements available online. 13It is important to specify that in France, unionsare not only financed by union dues, but also receivegovernment subsidies. Dues represent from 20%to 60% of the revenues of the five main labourfederations. 14The primary objective of this reform was toequip the French Labour Code with new ruleson representativeness and collective bargaining.Previously, five union confederations were recognizedas representative at the national level, 15 which by defaultallowed them to negotiate collective agreements on acountry, industry and business level. 16 More recentindependent unions had a different status. All unionsmust now satisfy a set of representativeness criteriato be able to run collective negotiations as employeerepresentatives. One of the representativeness criteriais the obligation of financial transparency. This newcriterion is ensured by rules regarding certification12. The motives for adopting this law as well as the law itself can beconsulted on the Légifrance website.13. See: Comité de la réglementation comptable, Règlement no 2009-10Afférent aux règles comptables des organisations syndicales, December3, 2009 and the website: http://www.journal-officiel.gouv.fr/comptessyndicats/.14. Raphaël Hadas-Lebel, Pour un dialogue social efficace et légitime :Représentativité et financement des organisations professionnelles etsyndicales, May 2006, p. 58. These figures are from 2003. Newer datawill gradually become available thanks to the implementation of thenew law.15. These five unions were the Confédération générale du travail (CGT),the Confédération générale du travail – Force ouvrière (CGT-FO),the Confédération française démocratique du travail (CFDT), theConfédération française des travailleurs chrétiens (CFTC) and theConfédération française de l’encadrement – Confédération généraledes cadres (CFE-CGC).16. Udo Rehfeldt, “The French System of Collective Bargaining,” SocialEurope Journal, Vol. 5 (2010), No. 1, p. 34.20Montreal Economic Institute

The Financing and Transparency of Unionsand the publication of the accounts of confederations,federations and regional groups of unions, as well asall unions above a resource threshold set by decree.With regard to confederations themselves, thelaw also imposes the obligation either to produceconsolidated financial statements or “to provide,annexed to their own accounts, the accounts [of the]corporations [that they oversee], as well as informationon the nature of the control relationship. In this case,the accounts of these corporations must have beensubjected to legal control.”For all unions, the new law means an obligationto produce annual financial statements and to ensuretheir “publicity.” What’s more, above a certain amountof financial resources, each union must name anauditor. The internal approval procedures for unions’financial statements must also meet new requirements.Interestingly, this transparency obligation was featuredon a list of common demands of union and businessorganizations presented to the government during thedebates that preceded the adoption of the law. 17The preliminary results of this reform arebeginning to be seen. For example, in May 2011, theConfédération française démocratique du travail(CFDT) unveiled certified financial statements, ahistorical first for this labour organization. 18 Theconsolidated financial statements, which is to sayincluding all affiliated union entities, had beenapproved beforehand by the CFDT’s auditor.The union culture in France therefore seems to beadapting rather well to this transparency obligation,in particular because these new obligations followcriticisms of union governance. By respecting a lawthat is more restrictive than it was in the past, theseunions are contributing to the reestablishment of theirown credibility.17. MEDEF et al., Position commune sur la représentativité, le développementdu dialogue syndical et le financement du syndicalisme, April 9,2008, p. 1.18. CFDT, Nos comptes, www.cfdt.fr/rewrite/nocache/article/11390quisommes-nous/nos-chiffres/rapports-financiers/nos-comptes.htm?idRubrique=9092.The transparency obligations ofunions in GermanyGermany is somewhat of a special case. The legalframework for unions there is minimal, allowing themsignificant autonomy. 19 In particular, relations betweena union and its members are basically only governedby the statutes of the organization. The federalgovernment audits the fiscal declarations of unions, asfor any association. A union must justify its activitiesin order to continue to enjoy a tax exemption, namelyhaving to pay neither corporate taxes nor sales taxes onmost of the activities financed by union dues. 20Unions voluntarily set up internal and externalcontrol systems in reaction to scandals and financiallosses in the 1980s and 1990s. The internal reviewfocuses on the legality of expenses and their advisability.The accounts, or financial statements, are also auditedby external inspectors in many cases. Auditors canjust as easily inspect organizations connected tounions as unions themselves. Their annual reportsare made public through a union publication and arepresented to members during general assemblies everyfour years.Lessons for Quebec unions?Given the allegations circulated in the mediaagainst certain unions in the construction sector inQuebec, including charges of links with organizedcrime and entrepreneurs suspected of corruption, theFrench and German unions’ strategy of respectingfinancial transparency obligations, whether legal orself-imposed, could prove to be an attractive pathfor their colleagues here. It is also worth noting thatthe requirement to disclose financial information issometimes linked to the tax benefits enjoyed by unions,as in Germany, while unions here enjoy regulatory andtax benefits and without having to reveal anything at19. Jérôme Guedj, Pierre de Saintignon, Valérie Jeske-Saintoyant andHolger Osterrieder, Le financement des syndicats : étude d’administrationcomparée – Le cas de l’Allemagne, September 2004, p. 25.20. Id., p. 24.Montreal Economic Institute 21

The Financing and Transparency of Unionsall of a financial nature. Finally, the law in effect in theUnited States, being more exhaustive, leads to concreteresults in terms of convictions and of restitution ofsums embezzled by unscrupulous individuals.22Montreal Economic Institute

The Financing and Transparency of UnionsChapter 4The Rand formula andthe causes supportedby unionsAs we saw above, the Labour Code forces allemployees of a business represented by a union topay dues to that union, whether they belong to itor not. This obligation to pay union dues, knownas the Rand formula, is based on the notion thatall employees benefit from the actions of theirunion and that even the worker who is not a unionmember will benefit from the working conditionsnegotiated for members. Several aspects of workingconditions obtained by unions to benefit theirmembers during negotiations with the employercan be considered in some sense “public goods” thatall employees would receive, whether they paid theirunion dues or not. 1 The money collected thereforeserves to pay for collective bargaining, mediation ofmembers’ complaints or grievances, pressure tacticsthrough the setting up of a strike fund, training,union activities, etc., which could be defined asactivities connected to labour relations.Now, it is obvious that union dues are not usedexclusively to finance labour relations. Examplesabound of unions using employees’ dues for otherpurposes, like supporting various ideological causes.Yet not only does the logic of the Rand formulanot apply to spending for these causes, since notall employees benefit, but furthermore, some seetheir values trampled by this process, howeverdemocratic it may be.The opaqueness of union finances makes itimpossible to know what portion of their expenses1. See especially: Richard B. Freeman and James L. Medoff, “Le syndicalismeà deux visages,” Revue économique, Vol. 31 (1980), No. 3, pp.505-539.is devoted to ends other than labour relations. Wecannot know which causes they support, how muchis spent supporting them, and in the end, whatproportion of compulsory dues finance activitieswith no connection to labour relations.The use of compulsory dues forpurposes other than labour relationsThe use of compulsory dues for purposes otherthan labour relations can raise several problemsfrom the point of view of an employee. When aunion offers financial support to foreign unioncauses, the tenuous link between these activities andthe defence of union members’ interests does notjustify their imposition since these activities are notlinked to the labour relations of the union membersin question. If some can see in such activities acontribution to the “union cause” in general, othersdo not believe their interests are served and shouldnot be forced to contribute.Support for causes being subjective, unionmembers do not all share the same preferenceswhen it comes time to choose one cause or another.For example, sums paid out to fight homophobia,an important cause for some members, are not paidout to an organization coming to the aid of womenin need that other members might prefer. Or again,some union members might have preferred to putmoney aside for their children’s studies rather thanpay dues to finance a student scholarship offered bylabour organizations.Finally, even if some union members think thata cause is good, others might believe that it goescompletely against their values and therefore feelwronged to have to contribute to it. For instance,the formation of the Coalition Against User Feesand the Privatization of Public Services goes againstthe political preferences of those union members forwhom free-market solutions favouring consumersand taxpayers are preferable to greater governmentintervention.Montreal Economic Institute 23

The Financing and Transparency of UnionsOf course, union members who feel wrongedalways have the possibility of having theirdisagreements heard within the framework of theirunion’s internal proceedings where the budgetsthat include the expenses in question are adopted.The causes supported, however, are not necessarilyclearly identified in those budgets. The amountsused to finance different causes may be groupedunder “support for mobilizations and regionallife,” or “support for strikes,” or “support for ourprotests.”Even if these union expenses for purposesother than labour relations were transparent anddemocratically approved by members, democraticdecision-making allows the majority to impose costson the minority, while nothing would prevent thesedecisions from being made at the individual level.Should dues used for purposes otherthan labour relations be voluntary?Currently, the Rand formula generates revenuethat unions are free to use as they see fit. In theLavigne case, 2 the Supreme Court of Canadaconcluded in a majority ruling that the Randformula did not violate the right to freedom ofexpression. However, this ruling was made in 1991.Today, in just about every democratic country inthe world, it is forbidden for a union to spend themoney collected through compulsory union duesto support ideological or social causes withoutthe individual consent of its members. This is thecase in the United States, in Australia and in NewZealand, as well as in the European Union ever sincea ruling of the European Court of Human Rights,handed down in 2007. 3 Who knows if the SupremeCourt would come to a different conclusion werethe matter referred to it again today, knowing thatCanada is clearly the exception among the world’sfree and democratic societies.By making the financing of political andideological causes voluntary, unions would gainlegitimacy and could still finance such causes. Forone thing, a union’s support for such causes wouldbe legitimized by the fact that its own memberswould truly have chosen to support them. Also,purely voluntary financing means that if the causessupported are truly popular among members, theseexpenses will find sufficient financing. If this is notthe case, however, it is even more important forthe legitimacy of the union for members who donot wish to contribute to these causes to be able tochoose not to do so.Distinguishing between dues forlabour relations and dues forother purposesAs we saw, in most free and democratic countries,unions cannot force employees to finance ideological orsocial causes through compulsory dues. Unfortunately,it is difficult to clearly separate spending for purposesof labour relations from spending in support ofother causes. For one thing, unions do not exhibitsufficient transparency, and for another, making suchdistinctions is never simple.In the United States, only that portion ofdues intended for labour relations, like collectivebargaining, contract management and grievanceresolution procedures, can be demanded by unionsfrom the employees they cover. 4 No employees canbe forced to pay any amounts intended for mattersof politics, lobbying or ideology. The conclusionreached by the Supreme Court in the Abood caseis that it is unconstitutional to spend the financialresources of non-members for the “expression ofpolitical views, on behalf of political candidates, ortoward the advancement of other ideological causesnot germane to its duties as collective-bargainingrepresentative.” 52. Lavigne v. Ontario Public Service Employees Union, [1991] 2 S.C.R.211.3. Evaldsson and others v. Sweden, no. 75252/01 (2007).4. Communications Workers of America v. Beck, 487 U.S. 735 (1988). Inthose States without right-to-work laws, members and non-memberspay their dues for labour relations purposes. For States with right-toworklaws, see: Louis Fortin and Michel Kelly-Gagnon, The Quebecunionization model: correcting the anomaly, MEI, February 2011.5. Abood v. Detroit Board of Education., 431 U.S. 209 (1977).24Montreal Economic Institute

The Financing and Transparency of UnionsConcretely, it was established that the followingunion expenses were not among those activitieslinked to labour relations and could therefore notbe subject to compulsory financing: 6• the election of candidates to public service,including contributions to a political party,political organization or candidate;• the recruitment (or efforts devoted to it) ofnew members;• lobbying (with the exception of lobbyingdirectly connected with the ratification or thecreation of a collective agreement);• dues for a union federation;• contributions to charitable and educationalorganizations;• activities intended to promote an ideology;• public relations activities;• illegal strikes;• a corresponding part of the cost of unionpublica tions devoted to covering the subjectsmentioned above or other subjects not directlyrelated to workers.Of course, the costs of activities connected tolabour relations and the costs of other activitiesare not recorded separately and the same unionrepresentatives who sit at the negotiating tablesalso attend the ideological pressure group meetingsunrelated to labour relations. To resolve thisdifficulty, when it comes time to determine whichexpenses are for activities directly related to unionresponsibilities, it was established that it is theunion that bears the burden of proof to show thatan expense financed by all dues really is related tocollective bargaining, contract management orgrievance resolution.As for Europe, when reading the ruling of theEuropean Court of Human Rights forbidding theuse of compulsory union dues for purposes otherthan labour relations, 7 it becomes clear that thecriteria for distinguishing labour relations activitiesfrom ideological or political activities are not yetwell defined. It must be said that the European banis still very recent, as it only dates back to 2007. Theruling does, however, highlight the link between thedifficulty of making this distinction and the lack oftransparency of unions in this regard. Therefore,The Court found that the applicants had notbeen given sufficient information for them toverify how the fees they paid were actually used,information to which they were all the moreentitled given that those fees were paid againsttheir will and to an organization with a politicalagenda they did not support. The Courtconsiders that the Union’s wage monitoringactivities, as applied in the present case in thecontext of the Swedish system of collectivebargaining, lacked the necessary transparency. 8Somewhat in the image of the United States,where the burden of proof falls on unions, theEuropean Court of Human Rights added thatthe budget reports of unions did not allow themto conclude that no amounts had been used forpurposes other than labour relations.This difficulty in distinguishing union expensestherefore appears to be a recurring problem. Themost obvious solution seems to be to explicitlyauthorize unions to incur these expenses solely onthe basis of a voluntary call for contributions fromtheir members. Such a solution rests in large parton the good faith of unions and their completefinancial transparency. It would be appropriate, as isthe case in Europe and the United States, for unionsto have to justify their expenses at all times and toshow their connection to labour relations.7. Evaldsson and others v. Sweden, op. cit., footnote 3.8. Id.6. See: National Right to Work Legal Defense Foundation, http://www.nrtw.org/nce.htm and International Association of Machinists andAerospace Workers, http://www.goiam.org/images/articles/tcunion/constitution-and-bylaws/agency%20fee.pdf.Montreal Economic Institute 25

The Financing and Transparency of UnionsConclusion andrecommendationsIn Quebec, union organizations have at theirdisposal some $800 million of revenue from uniondues thanks to their indirect power to tax grantedby the Labour Code, known as the “Rand formula.”Unions also enjoy particularly advantageoustax treatment since both union dues and strikepay are eligible for a tax credit or are completelytax exempt. By comparison, even employmentinsurance benefits are taxable. The tax benefitsof unions also extend to labour-sponsored funds,creations of central labour unions that have grownsignificantly in recent decades. These funds areat a significant advantage as they can offer theircontributors a substantial tax credit not availableto other investment funds. This advantage actuallyexplains their success, since without this extratax credit, the performance of labour-sponsoredfunds is quite underwhelming.In the end, although unions are in theoryprivate organizations independent of government,they benefit from a very particular form offinancing based on indirect taxation and frompreferential tax treatment that looks a lot like apublic financing model.In any case, the double tax benefit on uniondues and strike pay must be reviewed. If benefitsfrom a public insurance plan like employmentinsurance are taxable, there is no reason for thecurrent tax system favouring unions to continue.Federal and provincial tax exemptions for strikepay should be abolished. The preferential taxtreatment of union dues would be maintained.It should be noted that this might not changemuch financially speaking, since extra incomelike employment insurance or strike pay usuallyrepresents a fraction of normal income. The taxeffectively paid on strike pay would therefore notbe very high.Choosing between publictransparency and private financingPrivate organizations, businesses or charities,are financed first through voluntary transactions.Financing that stems from an indirect power totax – and therefore from a quasi-public prerogative– should be coupled with great transparency withregard to the sources of those funds and the usesto which they are put. In government, budgetaryprovisions are public and the Public AdministrationAct even provides for other instruments oftransparency. 1And yet, Quebec union organizations do notpractice financial transparency. Only the CSN, toits credit, publishes its budget online. This financialinformation is presented according to the labourfederation’s own standards since no regulationsexist on the matter.According to the results of a recent poll, eight outof ten Canadian workers (83.1%) either completelyagreed or somewhat agreed with mandatory publicdisclosure of unions’ detailed financial statementson a regular basis. 2 This proportion rises to 94.6%for Quebec workers.Such a transparency obligation exists elsewhere:in the United States since 1959, and in Francesince 2008, for example. This transparency has theadvantage of raising the quality of governance ofunions as well as the legitimacy of their activities.For this reason alone, union organizationsthemselves would benefit from the adoption oftransparent financial practices which, in addition,would improve their reputation.A union organization, like any privateorganization, could want to keep its financialinformation far from the gaze of the public, notto mention its competitors. It seems fair for unionorganizations to have the legitimate choice ofgiving up the quasi-public financing benefits theyenjoy in order to avoid submitting themselves1. Section 12 of the Public Administration Act provides, for example, thata “performance and accountability agreement” may be entered into.2. LabourWatch, State of the Unions 2011, August 2011, p. 3.Montreal Economic Institute 27

The Financing and Transparency of Unionsto transparency obligations. In this case, theywould then operate like real private organizations,with voluntary financing, and the transparencyobligations they would have to respect would bethose required of a private organization.Modifying the Labour CodeIn practice, the choice of whether or not to befinancially transparent in order to benefit from theRand formula should be explicit in the Labour Code.Its first section would introduce a distinction in thedefinitions of employees’ associations and certifiedassociations, namely that an association can bepublic or private. The privileges and responsibilitiesof an association would be adjusted in relation tothis distinction as follows.For a private association:1. It would retain the possibility of unioncertific ation that confers the representativenessof a bargaining unit, and the privilegesassociated with it. However, it wouldlose the right to the Rand formula, definedin section 47.2. No new rule would restrict the financialsupport of social and ideological causessince, in the absence of the Rand formula,union members would always have theoption of contributing or not. A union’sinternal rules could of course address thismatter. 33. The obligation to disclose its financialstatements would be the same as the currentobligation, defined in section 47.1, namelya disclosure to members once a year as wellas to any member who requests a copy.3. See for example the 2009-08, -09 and -10 opinions of France’s accountingstandards authority: www.anc.gouv.fr/sections/textes_et_reponses_2/textes_adoptes_en_20/avis/avis_2009/view.For a public association:1. Section 47, requiring the deduction andpayment of union dues, would apply.2. On the other hand, financial transparencyobligations would be more demanding.They would be stipulated in a new section47.1 of the Labour Code that would specifythe situation that is applicable to eachcategory of certified association:A certified private association must discloseits financial statements to its membersevery year. It must also remit a copy of suchfinancial statements free of charge to anymember who requests it.A certified public association must discloseits financial statements to its membersevery year. It must also remit a copy ofsuch financial statements to the Minister ofLabour, who will make them public.3. A provision would add that the presentationstandards for financial statements wouldbe defined by regulation. These standardscould be modeled in part on the Frenchrules on the matter. In particular, thefinancial statements of public unions willneed to be audited by external, independentauditors. Unions will also need to accountfor their expenses by breaking them downenough to give an accurate picture of theway they use their revenues.4. Another provision would specify that whena certified public association wants to takeon expenses that are not connected withlabour relations like collective bargaining,grievance arbitration or the improvement oflabour conditions, it must solicit voluntaryfinancial contributions from its membersand cannot use sums received through theRand formula. The same provision wouldestablish that a certified association must28Montreal Economic Institute

The Financing and Transparency of UnionsTable C.1Proposed model for union financing and transparencyCHOICEBetween the status of private union and public unionPRIVATE UNIONPUBLIC UNIONCannot use the Rand formula (s. 47)Benefits from compulsory financing through theRand formula (s. 47)Has no new financial transparency obligations(retains the current section 47.1)Must practice financial transparency by makingits financial statements public (new section 47.1),according to presentation standards defined byregulationThe financing of ideological or social causes is notrestricted by any rules other than the ones adopted bythe unionThe financing of ideological and social causes isstrictly voluntaryIN ANY CASE…Income received in the form of strike pay becomes taxableat all times be able to demonstrate that anexpense really is connected with labourrelations if it used compulsory dues to payfor it, and must remain able to do so for acertain number of years after the paymentis made.The above table illustrates in a logical fashion themain legislative and fiscal changes advanced here.These simple changes would significantlyimprove the quality of governance of unions throughthe simple requirement of financial transparency, anindispensable criterion for an organization that ismeant to be democratic.Montreal Economic Institute 29

About the authorsLouis Fortin, certified industrial relations consultantLouis Fortin was Vice President of Human Resources at Bell HelicopterTextron Canada Limited in Mirabel (Quebec) from 1986 to 2009. Prior tothis, he was Manager of Employee Relations at RCA Inc. from 1982 to 1986and Labour Relations Counselor at Domtar Inc. from 1978 to 1982. Today,Mr. Fortin heads up his own consulting firm which focuses on strategicmanagement of human capital. He is an associate researcher at the MontrealEconomic Institute, the Quebec representative for LabourWatch, and alsoa lecturer at McGill University in industrial relations. He holds a bachelor’sdegree in industrial relations from this university and a master’s degree inlabour relations from the Université de Montréal.Youri Chassin, economistYouri Chassin holds a master’s degree in economics from the Universitéde Montréal and spent a term in Mexico City during his studies. He wasan economic analyst at the Quebec Employers Council (CPQ) and aneconomist at the Center for Interuniversity Research and Analysis onOrganizations (CIRANO), where he worked in particular on the bookLe Québec économique 2009. His interest towards public policy issues goesback to his university days during which he collaborated with the QuebecFederation of University Students (FEUQ), with the Conseil permanent dela jeunesse and with Force Jeunesse. He is the author of several studies onpublic finance, youth employment, universities and taxation. He joined theMontreal Economic Institute in November 2010.Michel Kelly-Gagnon, president and CEOAfter having been head of the Montreal Economic Institute from 1999 to2006, Michel Kelly-Gagnon was president of the Quebec Employers Counciluntil January 2009. He graduated in law from the Université de Montréaland early in his career he practiced with Colas & Associates in Montreal,and then went into business as an associate of Formatrad, a companyspecializing in employee training. Mr. Kelly-Gagnon is a member of theMont Pelerin Society and president of the Canadian organization Civitas.He is president of the advisory committee of Global Ressources Humainesand he served on the board of directors of Quebec’s Occupational Healthand Safety Commission (CSST) from 2006 to 2009. He was one of six peoplefrom Quebec honoured in Canada’s Top 40 Under 40 2008 awards. He isalso actively involved in the board of directors of the Canada Foundationfor Innovation and of charitable organizations including the Fondationuniversitaire Pierre Arbour and the John W. Dobson Foundation.