BLW513 Labor Relations, and Securities Regulation


The purpose of a union is to represent the interests of employees to management. If there is a union representing employees, then proposed changes must be negotiated with the union.

The relationship between the union and management is governed by a collective bargaining agreement or union contract entered into between management and labor. The collective bargaining agreement contains all relevant issues that may arise in the workplace and will provide a means of resolving conflicts. Most collective bargaining agreements have an arbitration clause requiring disputes to be resolved through arbitration.

If the employee has a problem in the workplace with areas covered by the agreement, the employee goes to his or her union representative or shop steward, who, in turn, speaks with management to seek a resolution. By having a union representative to represent the employees’ interests with management, management has an efficient way to handle labor conflicts.

Ever so often, depending on the terms of the contract, management and labor will have to meet and hammer out a new collective bargaining agreement. Each will bring proposals to the table and negotiate them, hopefully, to resolution.

Union membership that we may take for granted today was not always a part of our workplace landscape. At one point in U.S. history, it was actually illegal for employees to work together in concert to gain workplace benefits. In 1932 in recognition of the toll that increasing labor unrest was levying on interstate commerce, Congress enacted legislation that led the way to organized labor in the United States.

The steadily declining union membership rates can be attributed in part on factors such as reduction in the labor force of traditionally heavily unionized industries like steel and other manufacturing, international competition, aggressive non-unionizing campaigns by employers, union concessions during downturns in the economy, and loss of jobs to other countries with cheaper labor.

There were unions that did not permit women or minorities to become members at all. In others, women and minorities were only grudgingly given membership. They had to fight to get into unions and had to fight to be represented equally once there.

Most employers would prefer not to have to deal with a union and instead be able to make unilateral decisions without employee input.

Once totally without the power that comes from being able to band together in concert to effect change, perhaps it was predictable that once they were able to do so, unions took full advantage of the situation. So much so that Congress finally had to pass legislation prohibiting unions from engaging in certain nefarious activities that had taken hold, including strong arming members, using union funds as their own personal piggy banks, rigging union elections, selective representation of union members, and so on.

The legislation initiating a move toward collective bargaining in the Unites States began with restricting court response to union activity (courts usually enjoined such activity) and establishing the right of employees to form labor organizations and be protected against unfair labor practices and provided union members with a bill of rights to protect them from union abuses.

Either management or labor can engage in activities that breach the agreement or labor laws. When this occurs the parties can file an unfair labor practice or an unfair management practice with the NLRB to have the matter resolved.

The Norris-LaGuardia Act

The Norris-LaGuardia Act was the first major U.S. labor law statute. The Norris-LaGuardia Act restricted the right of courts to issue such injunctions. The Act also outlawed yellow dog contracts that many employers required pledging that the employee did not belong to a union and would not join one while working for the employer.

The National Labor Relations Act (Wagner Act)

This law established the right of employees to form unions, to bargain collectively, and to strike. It also prohibited unfair labor practices and created the National Labor Relations Board (NLRB). NLRB is the independent federal agency that enforces the labor laws. Among other things, the NLRB conducts elections to determine which union is to represent employees once they have decided to bring a union in, decertifies unions that employees no longer wish to represent them, issues labor regulations, hears unfair labor practice complaints at the agency level, and otherwise administers the NLRA.

Employees may unionize either by signing a sufficient number of authorization cards, by voting in a union during a representation election or, in some cases by NLRB ordering an employer to bargain with a union. Specifically excluded from the law are agricultural and domestic workers, independent contractors, and those employed by a spouse or parent.

Nowadays, however, unions are not only open on a nondiscriminatory basis because of Title VII of the Civil Rights Act of 1964, but there is also a law requiring unions to fully and fairly represent all employees.

Unfair Labor Practices

Activities that would tend to attempt to control or influence the union or interfere with its affairs or that discriminate against employees who join or assist unions may also be unfair labor practices. The question is whether the activity tends to interfere with, restrain, or coerce employees who are exercising rights protected under the law. Management may not promise or give benefits, or, in the alternative, reduce benefits, in an effort to discourage unionizing efforts.

The NLRB and the courts take seriously any interference with right of employees to organize and bargain collectively without the interference or pressure of management. Given this, it probably will surprise you to know that it is not an unfair labor practice, however, for an employer to totally go out of business even if the reason is anti-union animus.

Note that if employers with at least one hundred employees (not including those working for less than 6 months) decide to go out of business or have a massive layoff, they are required by law to give the employees at least sixty days notice under the Worker Adjustment Retraining and Notification (WARN) Act of 1988.

The Taft -Hartley Act

The Taft-Hartley Act was enacted as a amendment to the NLRA to curb excesses by unions. Unfair labor practices by unions include such activities as the union refusing to bargain or refusing to do so in good faith, coercing employees to join unions (or not join, as the case may be) and charging members discriminatory dues and entrance fees.

The Landrum-Griffin Act

The Landrum-Griffin Act, also called the Labor Management Reporting and Disclosure Act, was enacted to establish basis rules of union operation that would ensure a democratic process, provide union members with a minimum bill of rights attached to union membership, and regulate the activities of union officials and the use of union funds.

The act set forth procedures unions must adhere to in union elections, including voting for officers by secret ballot, elections at least every three years (other frequencies for various levels of the union such as international officers), candidates’ being allowed to see lists of eligible voters, and provisions for members having an election.

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Labor Relations in the Public Sector

Much of what has been discussed relates to the private sector. The NLRA applies only to the private sector. Federal, state and local government employees (e.g., public employers such as government workers, police officers, and so on) are governed by other laws. Federal employees are covered by the Civil Service Reform Act of 1978 which established the Federal Labor Relations Authority to administer federal sector labor laws. State and local employees are covered by their state’s public employee relations statute, usually administered by a state public employee relations commission.

The most significant difference between public and private collective bargaining is that government employees are generally not permitted to strike or to bargain over wages, hours and benefits.

Securities and the Need for Regulation

In the United States, the securities industry is one of the most highly regulated industries we have. Investors, who are the backbone of the industry, need protection from swindlers who would take their money and give little or nothing in return. So, what begins as a personal situation of one person investing his or her money, quickly becomes a huge business issue when multiplied by millions of investors, if not handled well. Strict regulation is a must.

Because investors are as important as they are to the capitalist system our country as a whole enjoys, the U.S. Congress has created a complicated regulatory system to protect these investors. The Securities Exchange Commission (SEC) oversees all the U.S. stock exchanges and any organization connected with the selling of securities.

What is Security?

A security is defined as a negotiable instrument that represents financial value. What is meant by negotiable is that the instrument may be bought, sold, or pledged freely on the market.

Stock, also known as shares, is one type of security. Stock represents an investor buying ownership in a company and becoming stockholders or shareholders.

There are two primary types of securities: debt and equity securities. Debt securities are represented by bank notes, for example. Equity securities are represented by stocks and other instruments that qualify as assets. Each stock that is sold represents an ownership interest in the corporation that sells it. Stock may be represented by a stock certificate, but most often is represented only in electronic form known as a non-certificated stock. Securities get distributed by issuers.

The Securities Act of 1933

The Securities Act of 1933 was the federal government’s first involvement in the sale of stocks and other securities. Congress believed that the stock market crash of 1929 precipitated the depression, and that the primary reason for the collapse of the market was the fraudulent transactions which created a false financial bubble. Congress assumed that the best way to protect investors from future fraud was to require complete and accurate disclosure. Congress’s position was that if the investor had all the information about the investment, he or she could protect himself or herself. Thus, full disclosure became the lynchpin of the legislation.

The Securities Act of 1933 is directed primarily at the original distribution of securities into the market. The Act has two basic objectives: (1) to require that investors receive financial and other significant information concerning securities being offered for public sale, and (2) prohibit deceit, misrepresentation, and other fraud in the sale of securities.9 The theory behind full disclosure is that the public is adequately protected if all aspects of the securities being marketed are fully and fairly disclosed. Investing is inherently risky, and since anything can happen in business, there are no guarantees of return.

Initial Public Offering

Not every business is a public one. However, there may come a time when the business decides that it wishes to expand or otherwise have an infusion of capital by allowing the public to own shares in the business. If and when a corporation decides to “go public” it offers its shares for sale through an initial public offering (IPO). The infusion of cash from an IPO for a company with a great product can be staggering,

Filing a Registration

When going public, full compliance with the Securities Act of 1933 involves the filing of a registration statement with the SEC. A registration statement consists of two parts: 1) a prospectus, a document that is to be distributed to potential and actual investors and 2) additional information that must be submitted to the SEC and is publicly available but need not be included in the prospectus.

The registration form must include: a description of the company’s property and business; a description of the security to be offered for sale; information about the management of the company, and financial statements certified by independent accountants.10

Prior to the final prospectus being filed with the SEC, the company must issue a red herring prospectus; the red herring prospectus is to give potential investors as much information as possible before the sale is actually consummated. Once complete the SEC reviews the registration statement and issues a comment to the corporation that usually contains areas in which the registration needs clarification.

Exempt Securities

Not all public offerings of securities must be registered with the SEC. Some offerings, like those filed under a “Regulation D” exemption, are exempt because the offering is being made to a select group of individuals, called accredited investors. Offerings of a limited size or that are being sold strictly intrastate, and securities of municipal, state, or federal governments are also exempt from registration. Corporations wishing to take advantage of Regulation D exemptions must first file a Form D, which notifies the SEC of their intent to sell securities under Regulation D.

Violation of the Securities Act of 1933

Investors who are injured by purchasing shares from corporations whose registrations contain false or misleading information have remedies available under the law.
The most important of these is Section 11 of the Act that allows investors to bring a suit for losses incurred if the prospectus contains misleading statements of material facts unknown to the purchaser when making the purchase. Investors may also bring a lawsuit under Section 12(1) of the Act. Section 12(1) allows any purchaser of securities that should have been registered but were not to rescind the purchase without regard to fault or misstatement.

The Securities Act of 1934: Formation of the Securities and Exchange Commission

With the Securities Exchange Act of 1934, Congress enacted a more expansive act and created the Securities and Exchange Commission to oversee and enforce the law. The Act empowers the SEC with broad authority over all aspects of the securities industry. SROs are important to the regulation of the security industry. Congress empowers SROs as enforcement agencies.

Liability Under Rule 10b-5

The foundational rule against fraudulent activities is SEC Rule 10b-5. A cause of action exists under Rule 10b-5 for every person who buys or sells securities as a result of fraud or misrepresentation. Thus, Rule 10b-5 is applicable to virtually every securities transaction. It is important to note that any suit alleging a Rule 10b-5 violation arises in federal court. Rule 10b-5 applies not only to false and misleading statements, but it also applies if the seller fails to disclose or makes only half-true statements if those statements are misleading and material.

Materiality Under Rule 10b-5

A statement is material if a reasonable person would attach importance to the information in determining a course of action. If the information would affect the value of the securities, then it should be considered material and it should be disclosed

Insider Trading Liability Under Rule 10b-5

Rule 10b-5 is also a rule that prohibits trading on the basis of inside information. Information is said to be “inside” when it is known to certain individuals inside the corporation, but that information has not been disseminated to the general public. Because the rule speaks of “any person,” it has been interpreted to apply to insiders and any person with whom the insider shares the information – a tippee. A tippee is a person who gets an inside tip, that is, learns of the non-public information from the insider. Those who receive insider information from the issuer in connection with other duties such as accountants or lawyers, are said to have misappropriated information and are considered insiders under Rule 10b-5.

Insider Trading Liability under Section 16

Section 16 is designed to prevent certain persons from unfairly profiting from inside information by engaging in transactions that may have a temporary effect, and to prevent in-and-out transactions that might be used to manipulate securities. These transactions are called “short swing profits” and are prohibited. Unlike Rule 10b-5, Section 16 imposes automatic liability once the purchase or sale is proven. The SEC monitors for Section 16 transactions by requiring all persons covered by the section to file periodic reports with the SEC.

Communication between Shareholders and the Corporation

Rule 14 regulates the information and circumstances under which the corporation or its members can give information to the shareholders.

Proxy Statements

Virtually every public corporation has an obligation to disclose information to shareholders and to members of the general public.11 This is done via a proxy statement. A proxy statement is a statement required of a U.S. corporation when soliciting shareholders’ votes. A proxy statement includes the voting procedures, background information about the company’s nominated directors, director compensation, the compensation of its executives, and information about auditor fees.

Proxy Solicitations

Proxy solicitations are communications with potential absentee voters. A proxy solicitation is a writing signed by a shareholder of a corporation authorizing a named person to vote his or her shares of stock at a specified meeting of the shareholders.

Mandatory Reporting Under the Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 (SOX) is a federal law enacted in reaction to a number of major corporation and accounting scandals. The act established new standards for all U.S. company boards of directors, management, and accounting firms. It was enacted to restore public confidence in the financial markets, which had been shaken by corporate scandals and resulted in millions of dollars of investment lost by corporate mismanagement and mal-management. SOX covers auditor independence, corporate governance, internal control assessment, and financial disclosures.

Accountant Activities

In dealing with corporations and their responsibilities to provide investors with relevant information, auditing plays a vital role. Not only are there legal requirements regarding proper auditing of corporate assets and financial position for information purposes, but the information auditors provide is crucial to the making of effective decisions.

Board of Director Activities

Boards of Directors, especially those directors that sit on the Audit Committee, are charged with establishing oversight mechanisms for financial reporting. Section 202 of the Sarbanes-Oxley Act imposes significant new responsibilities on audit committees. All audit services must be pre-approved by corporate management and the company’s audit committee. The auditors must report to the audit committee all critical accounting policies and practices, all alternative treatments of financial information within GAAP, the ramifications of such alternative procedures, and all significant conversations between management and the accounting firm. The CEO and CFO of each public company must certify that he/she has reviewed each quarterly or annual report filed with the SEC, and that to his or her knowledge the report does not contain any material false statements or omissions, and that it fairly represents, in all material respects, the financial condition and results of the operations of the company for the period being reported.

Knowingly false certifications may be punishable by fines up to $1 million and imprisonment not exceeding 10 years.

The Role of Attorneys under the Sarbanes-Oxley Act

Attorneys appearing and practicing before the SEC in the representation of issuers are covered by the reporting requirements of Sarbanes-Oxley. An attorney who practices before the SEC includes any attorney transacting business or corresponding with the SEC, representing issuers, providing advice on securities law or SEC rules and regulations regarding documents to be filed with the SEC, and any attorney advising issuers as to whether any document must be filed with the SEC. The attorney’s duty to report is triggered whenever there is credible evidence that a material violation has occurred, is ongoing, or is about to occur. An attorney has the duty to “report up” any evidence of material violation by an issuer, its officer, director, employee or agent. Many states permit withdrawal (reporting out) by an attorney when the highest authority of the corporation insists on a criminal action that will substantially injure the corporation.

Other Key Provisions of Sarbanes-Oxley

Section 302 of the act mandates a set of internal procedures to ensure accurate financial disclosure. Section 404 requires management and the external auditor to report on the adequacy of the company’s internal control over financial reporting. Section 802 makes it a crime to alter, falsify, or destroy any record with an attempt to impede an investigation. Section 1107 makes it a criminal offense to retaliate against any person who provides any truthful information relating to any crime committed under the act.

Criticism of the Sarbanes-Oxley Act

Some critics of the act state it places an unnecessary burden on U.S. companies to comply with the act and this burden places U.S. companies at a competitive disadvantage with foreign companies. Others criticize the cost of compliance. Other criticism states that international business is listing on foreign exchanges instead of the NYSE; that IPOs have dried up because of the cost issues complying with SOX.

State Securities Laws

In addition to the federal laws regulating the sale of securities, the states have their own laws regulating such sales within the state. They are known as “blue sky” laws12. Each state has a regulatory agency that administers the law, generally known as the state Securities Commissioner. Federal law preempts many state laws; however, there are notice and filing requirements in each state with which companies must comply before selling securities in the state.

Accountability for Actions: Ethical Responsibility

One of the most controversial parts of the Sarbanes-Oxley Act was Section 404 which requires the attorneys to “report up” if he or she suspected the company was violating federal or state laws.

Lesson Learning Objectives

By the conclusion of this Lesson you should be able to:

  • Explain the need for labor laws how the laws came to be.
  • Give the names of the major labor laws and tell what they do.
  • Distinguish between unfair labor practices and unfair management practices
  • Recite several collective bargaining agreement clauses
  • Explain the purpose of securities regulation in the U.S.
  • Describe insider trading and the effects of fraud on the market.
  • Explain the Sarbanes-Oxley Act of 2002.
  • Evaluate the blue sky laws.
  • Analyze some of the ethical issues involved in the securities area.


  • Study Chapters 12 and 13 of the text.


The following Assignments should be completed and submitted to the course faculty via the learning platform for evaluation and grading. Submit your responses to these questions in one WORD document. List the question first, and then your response.
Be sure to properly site your sources, both in-text and with a reference list at the conclusion. If you use an online source to support your answers, you must provide a properly formatted link to the source. You should use APA citation format and make sure your sources are credible. In most cases, your responses should be no more than 100 words.

Short Answer Questions

  1. What are yellow dog contracts?
  2. Describe the responsibilities of the National Labor Relations Board (NLRB). What is a Ponzi scheme?
  3. What are the steps involved in the formation of a union?
  4. What are wildcat strikes? When are they subject to unfair labor practice charges?
  5. What are "right to work states?" Name any two such states.
  6. In what ways did the Taft-Hartley Act of 1947 curb union abuses and excesses?
  7. What is a Ponzi Scheme? ?
  8. What is the difference between debt securities and equity securities?
  9. Discuss the following statement "Not all public offerings of securities must be registered with the SEC."
  10. What are some of the criticisms of Sarbanes-Oxley?

Professional Development Questions

  1. Bennina Industries is non-union, but wants to stay that way. In an effort to do so, it wants to be proactive about employee concerns. Bennina tells some of the more popular employees it thinks they should meet after work and hash out some of their issues and present them to management. Does this violate the law?
  2. Inventco, Inc had applied for a patent for one of its inventions and learned that it was going to be issued. Inventco suspected that its stock would increase once the patent was announced. Elaine, the president’s secretary, overheard his conversation with the company attorney and called her husband telling him about the impending stock increase. Her husband, hearing an opportunity to make some money, purchased as much of the company’s stock as possible. As anticipated, the stock increased and Elaine and her husband made a considerable sum on their purchase. What violation occurred and how would they be prosecuted for it?

Lesson 6 Quiz

Use the quiz to test your knowledge of the concepts covered in this lesson. You may take the quiz as many times as you wish. The results are not calculated into your grade.

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