HOW MUCH BACK PAY IS TOO MUCH?

There have been many multi-million dollar arbitration awards in the federal sector.  Not long ago, the AFL-CIO unions teamed up to get $80 million out of the Indian Health Service. We also remember how AFGE tapped the State Department budget for almost $40 million in another case.  But sooner or later we are going to see a real whopper of an award in the federal sector.  A quarter of a billion dollars or more, e.g., an agency RIF is reversed forcing it to reinstate with back pay hundreds, if not over 1,000 people, who were let go five or more years ago in connection with a unilaterally implemented contracting out decision. Here is what agencies will do to overturn these nine-figure awards—and what union could do  in response.

Assuming the arbitrator correctly applied the laws, regulations, and contract provisions to deciding that there had been a violation entitling the employees to back pay, expect the agencies to argue that the arbitrator’s nine-figure award violates its right to determine its budget.  While the argument has yet to be successfully applied to overturn or limit an arbitrator’s award, FLRA has recognized it is a legitimate defense.  Back in 2005, the Authority wrote the following to describe the criteria it will use when this exception is raised:

The Authority’s test for determining whether a proposal affects management’s right to determine its budget under § 7106(a)(1) of the Statute is set forth in AFGE, AFL-CIO, 2 FLRA 604 (1980), enforced as to other matters 659 F.2d 1140, (D.C. Cir. 1981), cert. denied, 455 U.S. 945 (1982) (Wright-Patterson). Under the Wright-Patterson test, if a proposal prescribes either the particular programs to be included in an agency’s budget, or the amount to be allocated in the budget, then the award affects the agency’s right to determine its budget. United States Dep’t of the Treasury, United States Customs Serv., El Paso, Tex. 55 FLRA 553, 557 (1999). Alternatively, if the agency makes a substantial demonstration that an increase in costs is significant and unavoidable and is not offset by compensating benefits, then the Authority will find that the proposal affects the agency’s right to determine its budget. Id. at 557-58. …the Agency does not explain how any increase in costs resulting from the award is significant relative to that. Additionally, the Agency does not address whether any increase in costs is offset by compensating benefits. Accordingly, the Agency has not demonstrated that the award affects management’s right to determine the Agency’s budget, and we deny the exception. See AFGE, 61 FLRA 205 (2005)

The key passage is, “makes a substantial demonstration that an increase in costs is significant and unavoidable and is not offset by compensating benefits, then the Authority will find that the proposal affects the agency’s right to determine its budget.”  From where we sit it might not be that hard to make such a case. For example, in our hypothetical the agency will surely point out what percentage of its total budget that award equals, and anything over 1% is likely to get some judge’s attention given that for the last few years Congress has denied some agencies any annual increase. If Congress increased an agency’s budget by 1% to pay for a particular item such as an IT upgrade making public access much easier, it has a decent argument that the cost is quite significant.

Or, suppose that 250 employees retired immediately once RIF’d.  Is there really a “compensating benefit” for the agency from sending checks to retirees who will never work for the government again? How about those who are deceased or subsequently retired from another job?

A variation of the “compensating benefit” requirement likely will be that paying a huge amount of back pay will significantly disrupt or impair agency operations.  AFGE, 60 FLRA 549 (2004) While not yet part of the right to determine the agency’s budget defense, it is a recognized grounds for overturning an award applying an appropriate arrangement bargaining right. That could lead to the arbitrator’s award being remanded for a hearing on the issues of disruption and impairment, an across-the-board adjustment in the original amount for the same reason, or even an order that in lieu of an entitlement to back pay, the parties are to engage in retroactive bargaining (See NFFE, 60 FLRA 456 (2004)) to set the amount voluntarily or through FSIP if necessary. (See AFGE, 88 FSIP 102 (1988) where a Panel staff member lowered a backpay period from four months to ten days.)

Once the employees’ agency convinces the reviewing agency or court that its right to determine its budget has been impacted by the arbitrator’s awarded remedy, the inquiry is likely to turn to whether the arbitrator had any discretion in designing the remedy.  Using our example of the RIF implemented in violation of the union’s right to bargain, the FLRA has recently insisted that employees who are victims of unfair labor practices must receive back pay. “Additionally, the Authority has found that, where the requirements of the Act are satisfied, a grievant is entitled to back pay, not make-up overtime, as a remedy.” See, AFGE, 68 FLRA 718 (2015) But, that holding does not say anything about how the back pay is to be calculated.

• Perhaps those who took an immediate annuity should not get back pay because they effectively voluntarily resigned.
• Or perhaps their only remedy should be an adjustment in their annuities as funded by the agency.
• Or perhaps a rigorous criteria should be established for proving that the employee made the required effort to mitigate the cost of any back pay award. See AFGE, 53 FLRA 1053 (1997)
• Or perhaps the back pay period should be limited to a year for everyone on the assumption that had the agency had to finish bargaining first that would have been concluded no later than 18 months after the proposed notice with the employees being properly RIF’d.
• Or perhaps the award should be reduced by the agency’s data showing that there typically would have been an annual attrition rate of 7% and a LWOP rate of 1% of total staff hours.
• Or perhaps the five years of back pay should be reduced in proportion to the how much retaining the employees would have exceeded the agency’s actual budget for each of those five years.  For example, if retaining the employees would have cost the agency $20 million more than the cost of contracting out the work and records show that the agency finished each year with a surplus of only $5 million then an argument can be made that had the employees remained the agency would have  been unable to fully compensate them.  Consequently, the difference, namely $15 million per year, should be deducted from the back pay pot.

The message unions should take away from this is that there are very good reasons why they should work hard to reach a voluntary settlement on the amount of back pay due whenever it is over $100 million.  Aside from the greater potential for being overturned by a reviewing body, that segment of the media that delights in portraying federal employees and unions as greedy, overpaid parasites on the federal budget will have great material to work with when numbers reach that high. Each of the six bullets above provides some rationale for reducing the award systematically.