Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

Jacobs v. Teamsters Local 97


July 17, 2009


On appeal from the Public Employment Relations Commission Appeal Board, Docket No. AB-2006-005.

Per curiam.


Argued: April 1, 2009

Before Judges Fisher, C.L. Miniman and King.

Respondent Teamsters Local 97 (Local 97) appeals an order of the New Jersey Public Employment Relations Commission Appeal Board (Appeal Board) requiring the union to refund $300 of the sums deducted by the Teaneck Board of Education (Teaneck BOE) from Petitioner Michael Jacobs's pay as and for representation fees in lieu of dues. We affirm.

On April 26, 2006, Jacobs filed a petition of appeal with the Appeal Board contesting the representation fees deducted from his pay over a two-year period. At the time, Jacobs had been employed by the Teaneck BOE as a glazer and locksmith since 1996. Jacobs claimed in his petition that the representation fee should only be $1 per paycheck and Local 97 did not provide required reports accounting for the uses made of fees and dues, used fees for expenses not connected with the Teaneck BOE negotiations unit, and spent Political Action Committee (PAC) money for inappropriate and unlawful purposes. After Local 97 submitted its answer, the Appeal Board transferred the matter to the Office of Administrative Law (OAL) as a contested case.

On December 18, 2007, an Administrative Law Judge (ALJ) conducted an evidentiary hearing and rendered an Initial Decision recommending that Jacobs's petition be dismissed. Jacobs filed five exceptions with the Appeal Board seeking to modify or set aside the ALJ's Initial Decision; Local 97 did not file a response. The Appeal Board issued a Final Decision on June 19, 2008, in which it rejected three of Jacobs's exceptions and granted the remaining two exceptions, only one of which is at issue in this appeal.*fn1 That exception relates to the reliability of the financial statements Local 97 used to calculate the disputed representation fees. It required the Appeal Board to determine "whether Local 97 has properly distinguished between chargeable and non-chargeable [sic] expenses and whether the record is sufficient to sustain Local 97's burden in a challenge to the representation fees collected from the petition." The issue is best understood in the context of the applicable statutory scheme.

Public employees in New Jersey who work in a job that is part of a union-represented bargaining unit are not required to join the union. N.J.S.A. 34:13A-5.3. Jacobs withdrew from union membership sometime in 2004. As a result, he was required to pay representation fees in lieu of dues. N.J.S.A. 34:13A-5.5(a). At the time of his petition of appeal, those fees were $27.08 biweekly. Those fees are limited by statute.

The representation fee in lieu of dues shall be in an amount equivalent to the regular membership dues, initiation fees and assessments charged by the majority representative to its own members less the cost of benefits financed through the dues, fees and assessments and available to or benefitting only its members, but in no event shall such fee exceed 85% of the regular membership dues, fees and assessments. [N.J.S.A. 34:13A-5.5(b).]

The amount of the fee is negotiated by the public employer and the union. N.J.S.A. 34:13A-5.5(a). Any public employee paying such a fee has a right to institute a proceeding pursuant to N.J.S.A. 34:13A-5.6 and N.J.A.C. 1:20-3.2 before the Appeal Board for a return of any part of that fee paid by him which represents the employee's additional pro rata share of expenditures by the majority representative that is either in aid of activities or causes of a partisan political or ideological nature only incidentally related to the terms and conditions of employment or applied toward the cost of any other benefits available only to members of the majority representative. [N.J.S.A. 34:13A-5.5(c).]

This is called a demand-and-return system. N.J.S.A. 34:13A-5.6.

Excluded from return is the employee's pro-rata share of "the costs of support of lobbying activities designed to foster policy goals in collective negotiations and contract administration or to secure for the employees represented advantages in wages, hours, and other conditions of employment in addition to those secured through collective negotiations with the public employer." N.J.S.A. 34:13A-5.5(c).

This statutory scheme, like similar agency-fee statutes, serves the dual goal of allowing unions to assess nonmembers for the benefits they derive from collective bargaining agreements while protecting nonmembers' First Amendment rights to refrain from engaging in political or ideological activities not needed to secure a negotiated agreement. See generally Locke v. Karass, ___ U.S. ___, ___, 129 S.Ct. 798, 803-06, 172 L.Ed. 2d 552, 558-61 (2009) (discussing and reaffirming the standard announced in Lehnert v. Ferris Faculty Ass'n, 500 U.S. 507, 520-22, 111 S.Ct. 1950, 1960-61, 114 L.Ed. 2d 572, 590-91 (1991)). Our Supreme Court has found New Jersey's agency-fee statute constitutional. In re Bd. of Educ. of Boonton, 99 N.J. 523, 548 (1985), cert. denied, 475 U.S. 1072, 106 S.Ct. 1388, 89 L.Ed. 2d 613 (1986); accord In re Hunterdon County, 369 N.J. Super. 572, 585 (App. Div.), certif. denied, 182 N.J. 139 (2004).

In setting the amount of representation fees, the Boonton Court construed the "demand-and-return system to require that the majority representative compute the annual representation fee charged to nonmembers on the basis of the union's actual expenditures during the prior year." 99 N.J. at 550.

In calculating the fee, the majority representative must take into account the ratio that prohibited expenditures bore to total union expenditures in its previous year's budget. This will require the computation of the current year's representation fee for nonmembers to exclude that percentage of the union's prior year's budget attributable to expenses that the law prohibits the union to charge to nonmembers. [Id. at 550-51 (footnote omitted).]

See also Chicago Teachers Union, Local No. 1 v. Hudson, 475 U.S. 292, 310, 106 S.Ct. 1066, 1078, 89 L.Ed. 2d 232, 249 (1986) (holding "the constitutional requirements for the Union's collection of agency fees include an adequate explanation of the basis for the fee, a reasonably prompt opportunity to challenge the amount of the fee before an impartial decision maker, and an escrow for the amounts reasonably in dispute while such challenges are pending"). This explanation is frequently called a "Hudson notice." Otto v. Pa. State Educ. Ass'n-NEA, 330 F.3d 125, 128 (3d. Cir.), cert. denied, 540 U.S. 982, 124 S.Ct. 467, 157 L.Ed. 2d 372 (2003). Its purpose is to give a nonmember sufficient information to understand the basis of the fee to permit the member to decide whether to seek a return. Hudson, supra, 475 U.S. at 306, 106 S.Ct. at 1075-76, 89 L.Ed. 2d at 247. Where a local union sends a portion of its dues and representation fees to its parent or affiliated unions, it is required to explain the expenditures of the parent and affiliated unions, although absolute precision is not required. Id. at 307 n.18, 106 S.Ct. at 1076 n.18, 89 L.Ed. 2d at 247 n.18.

We continue to recognize that there are practical reasons why "[absolute] precision" in the calculation of the charge to nonmembers cannot be "expected or required." Thus, for instance, the Union cannot be faulted for calculating its fee on the basis of its expenses during the preceding year. The Union need not provide nonmembers with an exhaustive and detailed list of all its expenditures, but adequate disclosure surely would include the major categories of expenses, as well as verification by an independent auditor. With respect to an item such as the Union's payment of $2,167,000 to its affiliated state and national labor organizations, for instance, either a showing that none of it was used to subsidize activities for which nonmembers may not be charged, or an explanation of the share that was so used was surely required. [Ibid. (citations omitted).]

Where a nonmember seeks a return of representation fees, New Jersey's agency-fee statute squarely places the burden to prove that the expenses reflected in the union's Hudson notice were properly chargeable. N.J.S.A. 34:13A-5.6. With this statutory scheme in mind, we turn to the issue before us, the reliability of Local 97's financial information and the evidence relevant to it.

Local 97's schedule setting forth the basis for the representation fees for the year ending December 31, 2006, contained thirty-nine line items. Only four line items were comprised of chargeable and nonchargeable expenses, including per capita taxes, the line item specifically at issue before us.

Total expenditures were $4,225,693 for the year ending December 31, 2006, of which $406,721 was listed as nonchargeable. A similar schedule prepared for the year ending December 31, 2005, reflected total expenditures of $3,725,468, of which $106,594 was listed as nonchargeable. Because the chargeable expenses for both years exceeded eighty-five percent of the total expenditures, the statutory cap in N.J.S.A. 34:13A-5.5(b) applied.

The Local 97 Secretary Treasurer, Maria Perez, and a certified public accountant, Douglas Murray, testified on behalf of Local 97 at the OAL hearing. Jacobs also testified. Based on Murray's testimony, the ALJ found "that the expenditures on bargaining activities and the administration of such activities constitute at least ninety (90%) percent of the union's annual budget." The ALJ did not make specific fact-findings based on Murray's testimony. The ALJ also found that representation fees assessed on Jacobs "were fair and reasonable at a rate of eighty-five (85%) percent of the normal union membership fees." The Appeal Board disagreed.

Based on prior agency decisions, the Appeal Board held that the uses made of the dues and representation fees transmitted to affiliated or parent unions must be proven in a hearing when challenged. It found that per capita taxes for 2006 were $1,009,467. The amount of that line item allocated to nonchargeable expenses was $161,919. Per capita taxes for 2005 were $1,047,714, all of which was treated as chargeable. The 2006 numbers were derived from a letter that Murray receives each year from the International listing the percentage of International expenses that were not chargeable to nonmembers. Murray testified International nonchargeable expenses were 16.04% in 2006.

The Appeal Board noted that Murray did not audit the expenses of the International and his testimony about those expenses was hearsay. As such, the Appeal Board held the hearsay testimony was required to be supported by a residuum of legal and competent evidence, citing Negron v. New Jersey Department of Corrections, 220 N.J. Super. 425, 432 (App. Div. 1987). However, the record contained no document or other competent evidence supporting Murray's testimony on the portion of per capita taxes that were chargeable. There was also no testimony explaining why the 2005 statement allocated the entire amount of per capita taxes as chargeable, even though Murray testified that the International advises him yearly of the allocation of expenses between chargeable and nonchargeable. As a result, the Appeal Board concluded that Local 97 had not met its burden of proof. It required the removal of all per capita taxes from the chargeable column. The removal of per capita taxes and another line item not at issue here required reduction of the representation fees from eighty-five to seventy percent and required a refund to Jacobs of $300. This appeal followed.

Local 97 contends per capita taxes paid to the International pursuant to its organization documents "clearly benefit [Jacobs's] bargaining unit under the standard set forth in [applicable] case law . . . in that they further [Local 97's] mission of supporting the collective negotiations between" it and employers. Local 97 urges its two Hudson notices and the testimony of Murray met its burden of proof. It asserts hearsay is admissible in an agency proceeding pursuant to N.J.A.C. 1:1-15.5(a) and the ALJ exercised her discretion, which was subject to N.J.A.C. 1:1-15.1(c), to accept Murray's testimony about the letters he receives yearly from the International and accorded it the weight to which she deemed it entitled, concluding that Local 97 had met its burden of proof. Local 97 claims Murray's testimony about all of the expenditures on the Hudson notices was admissible hearsay and the International letters on which he relied for allocation of per capita taxes were no less reliable than his testimony about the information Local 97 supplied to him respecting all the other line items which he allocated.

Local 97 also argues that it should not be required to produce someone from the International to analyze its expenditures because the time and expense necessary for such an undertaking is not commensurate with the Uniform Administrative Procedure Rules, N.J.A.C. 1:1-1.1 to -21.6, which are to "be construed to achieve just results, simplicity in procedure, fairness in administration and the elimination of unjustifiable expense and delay," N.J.A.C. 1:1-1.3(a). Finally, it asserts that the admissibility of Murray's testimony about per capita taxes was not disputed before the ALJ and it had no opportunity to supplement the record with the detailed analysis the Appeal Board has required. As a consequence, it urges that the matter should be remanded for a new hearing before the OAL.

The scope of our review of a final agency decision is limited. Carter v. Twp. of Bordentown, 191 N.J. 474, 482 (2007) (citation omitted). "[W]e do not ordinarily overturn such a decision 'in the absence of a showing that it was arbitrary, capricious or unreasonable, or that it lacked fair support in the evidence.'" Ibid. (quoting Campbell v. Dep't of Civil Serv. 39 N.J. 556, 562 (1963)). Our role generally is limited to deciding:

"(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors." [Id. at 482-83 (quoting Mazza v. Bd. of Trs., Police & Fireman's Ret. Sys., 143 N.J. 22, 25 (1995)).]

Additionally, "an administrative agency's interpretation of a statute it is charged with enforcing is entitled to substantial weight." Bd. of Educ. of Boonton, supra, 99 N.J. at 534 (reviewing final agency action of the Public Employment Relations Committee (PERC), which construed the statutes here at issue).

Murray testified that he audits the books and records of Local 97 on an annual basis, usually in February or March, in accordance with the requirements of the "Accounting Institute." As a result of Jacobs's petition of appeal, Murray prepared the schedule of chargeable and nonchargeable expenses for the year ending December 31, 2006. To do so, he went through Local 97's journal entries, reports, and accounts, analyzing the expenses to determine chargeability. However, with respect to per capita taxes paid to the International, Murray simply relied on the letter from the International which indicated that its nonchargeable expenses were 16.04%. Murray testified that he had the letter, but neither the ALJ nor Local 97's counsel asked him to present it.

It is clear from Murray's testimony that there was a qualitative difference between his calculation of chargeable and nonchargeable expenses for thirty-eight of the line items on the schedule for the year ending December 31, 2006, and his calculation of chargeable and nonchargeable per capita taxes. As to the former, he performed an audit of Local 97's books and records and thereafter prepared the 2006 schedule, which, like the audit, was his work product. Murray did not audit the International's books and records and the letter from the International was not his work product. The record does not disclose who authored the letter nor does it establish the qualifications of the author to perform a calculation of chargeable and nonchargeable expenses nor the business records on which the author relied in doing so.

Local 97 concedes that the Uniform Administrative Procedure Rules contain a residuum rule with respect to hearsay. N.J.A.C. 1:1-15.5(b) provides: "Notwithstanding the admissibility of hearsay evidence, some legally competent evidence must exist to support each ultimate finding of fact to an extent sufficient to provide assurances of reliability and to avoid the fact or appearance of arbitrariness." We find no error in the Appeal Board's conclusion that Murray's reliance on an unidentified letter from the International did not meet this requirement.

This brings us to the issue of whether Local 97 met its burden to prove that chargeable expenses exceeded eighty-five percent. In a similar context, federal courts have required a local union to bear the burden to prove how the affiliates to which it sent dues allocated those dues to chargeable and nonchargeable expenses. Locke, supra, ___ U.S. at ___, 129 S.Ct. at 803, 172 L.Ed. 2d at 557; Penrod v. NLRB, 203 F.3d 41, 47 (D.C. Cir. 2000) (holding that Hudson requires a local union to demonstrate that none of the amounts it paid to affiliates were used for nonchargeable expenses and to explain how its affiliates used the money). The Appeal Board's decision in this matter imposing such a requirement was consistent with similar agency decisions. E.g., Wieczorek v. Commc'ns. Workers of Am., Local 1034, 33 N.J.P.E.R. 28 (PERC 2006); Stracker v. Local 195, Int'l Fed'n of Prof'l & Techn'l Eng'rs, 12 N.J.P.E.R. 388 (PERC 1986).

Local 97 simply did not meet its burden of proof with respect to the allocation of per capita taxes. It did not offer any admissible business records of the International nor did it offer any audited financial reports tracking the International's chargeable and nonchargeable expenses. Because the requirement for competent proof of parent and affiliate expenses is not new law, there was no injustice in the Appeal Board's exclusion of per capita taxes from chargeable expenses without a remand to permit supplementation of the record. We find no other basis for reversing the final agency decision before us.


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.