LABOR BOARD TO REQUIRE GROSS-UP OF BACKPAY TO COMPENSATE FOR ADVERSE TAX CONSEQUENCES

The National Labor Relations Act states that the NLRB will order those found to have committed unfair labor practice to take such affirmative action including reinstatement of employees with or without back pay, as well effectuate the policies of the Act. Backpay is generally designed to support that public policy by making employees whole for losses suffered on account of an unfair labor practice. Traditionally, backpay has been rewarded computed on a quarterly basis, with interest. In December, the NLRB rules that in the future employers will be required to compensate employees for adverse tax consequences where the backpay awards cover periods longer than one year. Latino Express, Inc., 359 NLRB No. 44. The Board concludes that, in this manner, employees who receive lump-sum backpay rather than regular income are truly made whole, rather than suffering adverse tax consequences. In addition, the Board will now require the filing of a report with the Social Security Administration allocating back pay awards to the appropriate calendar quarters.

Editor’s Note - Although the Board notes that some courts or agencies have applied similar remedies to avoid adverse tax consequences to claimants, such cases are extremely rare. The WKYC-TV and the Latino Express, Inc. cases, both issued in December, demonstrates the NLRB is expanding claimant and union rights and overruling years of NLRB precedents in the process.