Olms interpretative Manual

CONFLICTOFINTEREST–BONDING

536.001LMRDA, SECTION502(a)

...No such bond shall be placed through an agent or broker or with a surety company inwhichanylabor organizationorany officer,agent,shop steward,orotherrepresentativeofa labororganizationhas any interest or indirect interest...

536.002SEE 29CFR453.21

536.005SURETY, AGENTORBROKER–INTERESTIN

The section is designed to prevent placing of bonds through agents or brokers, and withsurety companies, in which any labor organization or any officer, agent, shop steward, or otherrepresentative of a labor organization holds more than a nominal interest. This could includesituations in which any of the above persons are in a position to influence or control the activitiesor operations of such brokers, agents, or surety companies, by virtue of interests held eitherdirectlyor indirectly bythem, orby relatives or third partieswhich theyown or control.

29CFR 453.21

(Revised:Dec. 2016)

536.010SALARIEDEMPLOYEE OFUNION ASAGENT

A salaried employee of a local union is precluded from acting as agent or broker on anyLMRDAbond requiredby theunion or anytrust inwhich theunion is interestedwhen hisdutiesareto overseethe union’svariousinsurance needs,collect delinquenthealth andwelfare

premiums, process life insurance for the members’ programs, process annual diagnosticexaminationsfor themembers andresearch anynew businessthe unionmight require.
From the description of his duties it appears that he falls within the scope of the definitioncontained in section 3(q) of the LMRDA with respect to officer, agent, shop steward or otherrepresentative of a labor organization and thus, he is barred under section 502(a) from acting asagentor brokeron any bondrequiredunder theLMRDA for anylabor organization orany trustinwhichany labor organization is interested.

536.100WHEREINSURANCEAGENTANDUNIONPRESIDENT ARERELATED

The fact that an insurance agent and union president are brothers would not be sufficient inand of itself to make the prohibition against direct or indirect interest contained in section 502applicable. While not controlling, the presence of the relationship would, however, appear to be acircumstance entitled to some weight, along with other circumstances, in determining whether adirect or indirect interest exists in any given case. If, for example, in addition to the familyrelationship, any business relationship exists between the president and his brother, including aloan ofanysort whichwouldgiverise to alegal interest orif theyare engagedinanyjointventure,trust relationship, etc.,it would seemthatthe brotherwould bedisqualified fromactingasagent. Similarly, if the brother’s wife or minor child has any business relationship with the unionpresident, the brother would be disqualified from acting as agent by virtue of his legal interest inthe estateofthe wife or child.

Fromapracticalstandpoint,astrongcasefordisqualificationmayexist whereacloserelativeholds acontrolling interestinorserves asexclusive agentfor abonding company.

However, in a case where the relative is one of thousands of agents who receive commissionsfromlargecompanies, andwherethe agentdoesnothavethe powerto varytheterms ofthebondor to conduct or to determine whether an investigation should be conducted, then disqualificationwouldnot appear to bewarranted.

29 CFR 453.21 states that the disqualification, “would be effective if a labor organizationor any of the specified persons are in a position to influence or control the activities…by virtue ofinterests held either directly by them or by relatives or third parties which they own or control.”This statement should be interpreted to mean that the disqualification is effective if the personsspecified can influence activities by virtue of interests owned or controlled by such persons orlabor organization, irrespective of the degree of relationship or affinity and without regard towherelegaltitle or ownership may happen to be vested.

(Revised:Dec. 2016 andDec. 2019)

536.200UNION’SOWNBONDINGFUND

Sections453.20and453.21containadiscussionofthesuretycompanieswithwhichbondsrequiredby theAct mustbe placed,andthe agentsthrough whichthis may bedone. Whileitis

evident that the disqualification of a union’s own Fidelity Department under the principles setforth in section 453.21 will make it necessary for such union to modify its past practice ofobtainingbondsthroughitsFidelityDepartmenttocarryouttheAct’sminimumrequirements,there is nothing in the Act which will prevent the uses of the Fidelity Department to provideadditionalprotection beyond the requirements of the Act.

536.300ANOTHERUNIONASSURETYFORBOND

As the statutory disqualification provisions regarding agents, brokers, and suretycompanies are based on the holding of any direct or indirect interest by “any” labor organizationor“any”officer,agent,shopsteward,orotherrepresentative ofalabororganization,itappears

that the disqualification applies even if such interest is held by a labor organization other than theonefor which the bond is tobe secured or by anypersonnelinany such labor organization.

See 29CFR 453.21.

(Revised:Dec.2016)