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The Agency Fee Calculation: Figuring What’s Fair

The agency fee calculation—what’s it all about? An agency fee is a fee that employees working for an employer signatory to a collective bargaining agreement (CBA) must pay in lieu of dues when they elect to not be a member of the labor organization. The legal system has recognized that not all employees will want to join a union for various personal reasons. 

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However, the legal system also has taken the position that, because the labor organization must represent all employees working in covered work under the CBA, the non-member is receiving a benefit. As a result, non-members are required to pay “agency fees” to the labor organization.

A non-member can be one of two types:  strictly a non-member, or a non-member who objects to paying for non-chargeable expenses of the labor organization. In most states, a non-member who does not file a formal objection can be required to pay an agency fee equal to the dues paid by a member of the labor organization. If the non-member files an objection, their agency fee payment will be reduced to their fair share of expenses considered necessary for administering the labor organization’s obligation as the representative of all employees covered by the CBA.

The labor organization is required to determine the expenses germane to labor organization business by determining whether expenses are chargeable or non-chargeable.

Chargeable expenses are those necessarily incurred by the labor organization as the employee representative on labor management issues, including the costs of negotiating and administering the collective bargaining agreement, settling grievances and disputes by mutual agreement or through arbitration, activities reasonably undertaken to implement the duties of the labor organization as the representative of the employees in the bargaining unit, and the necessary administrative expenses of the labor organization.

The following are examples of expenditures that would be considered chargeable:

  • Preparation for and negotiation of collective bargaining agreements
  • Contract administration, including investigating and processing grievances
  • Meetings, conferences, administrative, arbitration and court proceedings, and pertinent investigation and research in connection with work-related subjects and issues
  • Handling work-related problems of employees
  • Communications with community organizations, civic groups, government agencies and the media regarding the labor organization's position on work-related matters
  • Maintaining membership
  • Providing legal, economic and technical expertise on behalf of employees in all work-related matters

Non-chargeable expenses are those of a political or ideological nature and those that are not relative to the work-related interest of employees. The term "political" is defined as support for or against candidates for political office at any level of government and for any office in the union structure. The term "ideological" is defined as support for or against certain positions that the labor organization may take that are unrelated to work.

The following expenses are classified as non-chargeable:

  • Lobbying or political activities outside the limited context of contract ratification or implementation
  • Litigation expenses that do not concern the objecting employees' bargaining unit
  • Public relations efforts designed to enhance the reputation of the labor organization’s profession
  • Organizing expenses
  • Member-only activities

This article is the first in a four-part series on agency fee calculations. Future articles will cover the chargeability of expenses, the objection process and 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 rthiermann@lindquistcpa.com with any questions.

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