This is Why Your Union Audit Feels Like a Body Cavity Search

The audit notice always comes without warning or reason. You haven’t had any problems with the workers. They’ve (almost) always been great. No one has filed a grievance. The union men and women like working for you and you appreciate their skill. It’s not about them. Still, all of your wages, prevailing and otherwise have always been paid, and paid on time, and none of your fringe benefit pension fund contributions are delinquent. What gives?

Remember that trust agreement that was referenced in the collective bargaining agreement? No? Oh wait. You didn’t read the CBA. When you asked to see it, the Union sent you a couple pages with signature lines at the end. You signed it and sent it back, thinking that that was the agreement. It wasn’t. That was the signature page. You signed it and sent it back and entered into a relationship that requires that same level of commitment and is as difficult to terminate as a marriage, with breakups that are as financially devastating as a divorce. (This is overstatement for effect, but you get the idea).

Even if you had asked to see the entire CBA, you may not have been much better off. They’re usually unnecessarily long and disorganized, and filled with enough legalese to render the whole document absolutely incoherent, requiring a team of lawyers to untangle the provisions. And worse, even if you had pawed through the whole thing, you may have found that the CBA doesn’t cover whole “agreement.” Other documents and schedules and exhibits referenced in the CBA sometimes are not attached/included. Sometimes you have to specifically ask for those too. Important documents like the one that controls your liability under the audit we’re talking about—that is, the trust agreement.

We’re not suggesting that unions are intentionally trying to deceive employers. Many employers have great relationships with unions. It’s not the union’s job to explain to you your rights and obligations as a union employer. Employers should know what they’re getting into, that’s all.

Which brings us back to the union audit and that trust agreement. The audit notice says that the union wants to review your books and records covering a six-year period—the whole time that you’ve been a union employer. As audits go, that’s quite a long period of time. The auditors are also going to look at payroll and related personnel records for ALL of your employees, union and nonunion, to check employee classifications. Even those employees who the employer claims are not plan participants.

Here’s a list of what the union might ask to see:

Annual Tax Returns, Employer’s IRS Form 940

Employer’s Quarterly Returns, IRS Form 941

Employer’s State Payroll Tax Returns

Individual Employee Records

Weekly Payroll Books

Certified Payroll Timesheets

Cash Disbursement Journal

General Ledger Employees W-2’s and W-3

Copies of payroll reports to all benefit funds

Bank Statements

Copies of canceled checks

Weekly Payroll Remittance Reports

All this document review is with an eye to see if you owe additional fringe benefit fund contributions. And if you do, plan on receiving a whopping bill, including whatever penalties and interest they can assess, as provided for in that trust agreement you never read.

So how is this possible? How can union fringe benefit funds exert so much power and control over your business? You would think that employers had some kind of privacy right against such an intrusion.

Believe it or not, in 1985 one employer took this argument all the way up the United States Supreme Court, and lost. The case started in Michigan. A company named Central Transport was the employer. And the court ruled that by the power of ERISA laws (legislation that covers employee benefit / pension funds) and the trust agreement you signed when you also signed the CBA, unions, particularly their fringe benefit funds, can give employers the rubber glove treatment.

That is, the records of not-concededly-covered employees are deemed “pertinent records” because their examination is a “proper” means of verifying that the employer has accurately determined the class of covered employees. The plans have a substantial interest in verifying the employer’s determination of participant status, because an employer’s failure to report all those who perform bargaining unit work may prevent the plans from notifying participants and beneficiaries of their entitlements and obligations under the plans and may create unfunded liabilities chargeable against the plans.

And there it is—the reason why union auditors can dig so deep into your records.

Sometimes it’s good to understand what you’re up against.