Labor & Employment Alert: NLRB Orders Daily Compound Interest on Backpay Awards

NLRB Decides to Compound Interest on a Daily Basis. In a decision released on October 25, 2010, the National Labor Relations Board ("Board") unanimously adopted the new remedial policy of adding daily compound interest to backpay awards under the National Labor Relations Act ("NLRA"), as opposed to the prior simple interest calculation. Jackson Hospital Corp. d/b/a Ky. River Med. Ctr., 356 N.L.R.B. No. 8, at 4–5 (10/22/10; released 10/25/10). The effect of the Board's new policy will be to significantly increase an employer's liability to employees who were discriminated against due to their union-related activities. The Board also decided that the new policy will apply retroactively to all currently pending cases in whatever stage. Id. at 4.


In Kentucky River, the Board determined that compound interest better effectuates the policies of the NLRA than the traditional practice of ordering simple interest. Id. at 3. Underscoring the Board's primary focus on "making employees whole," the Board concluded that compound interest better reflects the time value of money and therefore more accurately compensates employees. Id. The Board reasoned that compound interest comports with current practices of private lenders, such as credit card companies, as well as many monetary obligations imposed by federal law. Id.


The Board noted that: (1) interest on tax underpayments and overpayments is compounded daily under the Internal Revenue Code; and (2) the Back Pay Act, applicable to federal employees, requires daily compound interest on backpay awards. In reference to the Back Pay Act comparison, the Board stated: "We see no reason why private-sector employees covered by the [NLRA] should be treated less favorably than Federal employees, or, correspondingly, why violators of the [NLRA] should not be subject to the same remedies as the United States in its capacity as an employer." Id. The Board also reasoned "to the extent that enhanced monetary remedies also serve to deter the commission of unfair labor practices and to encourage compliance with Board orders … daily compounding is also preferable." Id. at 4.


The Board rejected the notion that it should decide interest calculations for backpay on a case-by-case basis, similar to most federal courts in employment cases, reasoning that its policy applies categorically and that as an administrative agency, it can operate "on a wider and fuller scale" than the judicial process. Id. at 2–3. Often, the new policy will apply where an employee prevails on a claim that he or she was terminated by the employer for union-organizing activities.


The Practical Impact of Kentucky River. The Board's decision in Kentucky River has clear implications for currently pending and future labor disputes, resulting in larger payments to prevailing employees. This in turn may provide an added incentive for employees (often supported by their union) to make more unfair labor practice claims. Additionally, this decision may cause some federal courts to reconsider how interest awards are calculated in employment cases.


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