Person Pointing out Objection in Contract.  Agency Fee Calculations and the Objection Process.

Agency Fee Calculations: The Objection Process

Once the labor organization calculates the agency fee and the certified public accounting firm (CPA firm) completes its subsequent audit, the labor organization must distribute a notice to all members of the bargaining unit informing them of their right to object to paying for the non-chargeable activity of the labor organization.

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The notice must explain the procedures for filing an objection and should be sent before the labor organization uses any of the agency fee for non-chargeable purposes. The notice should also include a copy of the agency fee audit report prepared by the CPA firm.  

The notice must detail the procedures the nonmember must follow to file an objection. The nonmember normally has 30 days to file, during which funds received from the nonmember should be placed in an interest-bearing escrow account. If the nonmember makes no timely objection after 30 days, all funds received from the nonmember are removed from escrow and added to the general fund of the labor organization. If the labor organization does receive a timely objection, it returns the non-chargeable portion of fees collected to the objector, with interest. In addition, the objector receives a reduction in agency fees paid for the remainder of the year.

An objector may also challenge the calculation of chargeable and non-chargeable expenses. The labor organization must inform objectors of the procedures for filing a challenge. The objector will be allowed a specified period of time to submit the challenge in the proper format. Once the challenge period has passed, the labor organization will arrange a hearing with an arbitration association such as the American Arbitration Association. The labor organization will provide a list of challengers to the arbitrator, and the arbitrator will set the date of the arbitration hearing.

On the day of the arbitration hearing, a challenger, if they wish, may appear in person or through a representative. The labor organization will be required to present evidence showing how its recordkeeping system is structured to calculate the chargeable and non-chargeable activity of the labor organization. In addition, the labor organization must show how it distributed the agency fee calculations to nonmembers and how it handled objections.  The labor organization may present witnesses, such as the labor organization’s bookkeeper and a representative of the certified public accounting firm that audited the agency fee calculation, to help present evidence.

The arbitrator will issue a decision and award based on the evidence and arguments presented. Based on the arbitrator’s decision, the remaining agency fees held in escrow for those who challenged the calculation may be released. If the arbitrator reduced the allowed agency fee, additional fees plus interest will be returned to the challenger. The fees representing the approved agency fee amount can be deposited in the labor organization’s general fund.

While the process of computing the agency fee calculation may seem daunting, once a good recordkeeping system is in place, as well as the communications process with nonmembers, the task will become routine. Each labor organization must look at its own specific situation and develop its own methodology for allocating expenses between chargeable and non-chargeable activity. There is no exact science to the calculation. As long as the methodology is reasonable and provides a fair representation for the chargeable activity of the labor organization, it is acceptable. At Lindquist LLP, we have extensive experience in helping labor organizations meet their agency fee obligations and would be happy to discuss this with you.

This article is the third in a four-part series on agency fee calculations. The final article will cover frequently asked questions about agency fee calculations. Lindquist LLP has extensive experience helping labor organizations meet their agency fee obligations. Contact Partner Rich Thiermann with any questions.

Rich Thiermann, CPA, is the partner-in-charge of Lindquist LLP’s Orange, California, office.  He has specialized expertise in audit and accounting services for labor organizations.  His labor organization clients span local unions with $4 million in total assets to regional councils with more than $200 million in total assets.  Rich also has extensive experience with agency fee calculations.  Contact him at (714) 257-0100 or

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