NLRB WANTS TO CHANGE BACKPAY AWARDS, by Roger L. Pettit

Posted by Attorney Roger L. Pettit in Human Resources / Comments

On July 21, 2012, the National Labor Relations Board (“Board”) rendered a decision in Latino Express, Inc. and related cases.  (13-CA-046528, 13-CA-046529 and 13-CA-046634.)  The Board found that Latino Express violated Section 8(a)(1) and 3 of the Act in several ways and as pertinent to this post, the Board found the respondent discriminatorily discharged 2 employees.

The Administrative Law Judge that heard the case awarded backpay to the discharged employees.  The acting general counsel however asked for additional related remedies.

The first remedy requested was that the employer submit appropriate documentation to the Social Security Administration so that when backpay is paid it will be allocated to the appropriate calendar quarters.  The argument was that unless wages are accredited to the proper year the result maybe to lower social security benefits or result in a failure to meet the requirements for benefits.

The second request was an order requiring the respondent to reimburse the employees for any excess federal and state income taxes they might owe if they receive a lump sum backpay award covering more than 1 calendar year.  The argument was that receipt of a lump sum backpay award covering more than 1 calendar year could lift an employee into a higher tax bracket for the year in which the award is received resulting in an employee bearing a greater tax burden than if the employee had received the same pay in the normal course of business.

Because the adoption of these remedies will change existing Board practice, the Board has decided to ask for legal briefs on the issues before making a final decision.  Accordingly the Board issued an interim Order stating:

“The Board invites all interested parties to file Briefs in this case regarding the questions  of whether, in connection with an award  of backpay, the Board should routinely require a respondent to: (1) submit the appropriate documentation to the Social Security Administration so that when backpay is paid, it will be allocated to the appropriate calendaring quarters, and/or (2) Reimburse a discriminatee for any excess federal and state income taxes the discriminatee may owe in receiving a lump sum backpay award covering more than one year.”

The briefs are not to exceed 25 pages in length and should be filed with the Board in Washington D.C. on or before October 1^st.  If you wish to file briefs electronically do so at https://mynlrb.nlrb.gov/efile.

If these 2 additional requirements of a backpay award are adopted, the increased cost to an employer ordered to make such an award could potentially be quite large.  The backpay award will already include compound interest so even a back pay award to a low waged employee could result in a substantial increased amount to cover tax consequences.  On the other hand, to suffer an adverse tax consequence due to the timing of an award seems harsh from the employee perspective as well.

If you have strong feelings one way or the other I encourage you to have your counsel submit a brief before October 1^st.   No extension will be granted according to the Order.