SAY “THANKS, BUT NO THANKS” TO BACK PAY FROM FSIP OR INTEREST ARBITRATORS- Part 2

Less than a month ago we posted an article warning the parties, but particularly unions, about the potential problems with asking the Panel or interest arbitrators to make a salary increase retroactive.  An imposed retroactive pay increase appears to be highly vulnerable to being overturned on appeal.  That could mean not only that the union would lose the imposed retroactive lump sum, but also delay implementation of the prospective pay increase part of the impasse order.  Millions could be lost if the union did not deal with the situation strategically—and correctly.  Given the importance of this issue, we have dug a little deeper than the first posting. Although the FLRA has not yet squarely addressed whether the Panel or an interest arbitrator can order that a negotiated salary increase be retroactively implemented, the Comptroller General (CG) has often. Once this issue gets before the Authority it is likely CG case law precedent will at least be considered. (See NWS and NWSEO, 69 FLRA 256 (2016)) And that means the parties bargaining over salary increases should too.

The CG has ruled that the foundation of compensation law rests on the following principles:

• “…as a general rule, a personnel action relating to compensation that results from an administrative determination is not effective retroactively. 58 Comp. Gen. 51 (1978).” B-317034 (Oct 21, 2008)
• “When an employee has been paid the compensation lawfully fixed for his services by the head of the agency he is not legally entitled to claim more and the Government’s obligation in the matter is fully satisfied. Payment to him of an additional amount solely upon an administrative determination that he is justly entitled thereto would be tantamount to granting him a gratuity or involve the exercise of a power which the Congress generally has reserved to itself.”  B-106475 (November 15, 1951)

However, the CG has recognized an exception to those foundational rules when pay is set by collective bargaining. In those cases, the CG generally allows an agreed upon or imposed pay increase to be retroactive if certain conditions are met.

To begin, the parties must have formally agreed in advance that an as yet unknown pay increase amount will be retroactive once established.  They may not make it retroactive beyond the date they reached the agreement to make it retroactive.  For example, if the parties bargaining over salary wish, they can agree on May 1, 2017 that whatever pay increase they ultimately agree upon down the road will be retroactively implemented to May 1, 2017.  They cannot make it retroactive to a date prior to May 1, 2017, and the agreement cannot be discretionary or vague.  (A union seeking to protect itself from having any future impasse decision ordering a retroactive pay increase voided should try to negotiate in the bargaining ground rules or elsewhere for a date on which any agreed or imposed pay increase will be effective. Waiting to address it in term negotiations means that the implementation date will be months later than it potentially could be.)

Although we are speculating here, if there is no explicit agreement to make a future pay increase retroactive, then it is likely that the FLRA will rely on its ruling that the terms and conditions of an existing agreement remain in effect until a new agreement is reached, approved and implemented.  Similarly, if the Duration article provides that an agreement under renegotiation remains in effect until the new agreement is implemented, the Authority would likely require the Panel or arbitrator to comply with that agreement under its disdain for a neutral’s “manifest disregard” for contract terms and disrupting the stability and repose of the workplace.

The CG has extended the exception to the general rule against retroactivity to include situations where the parties have agreed that an arbitrator or other neutral can set the effective date of the pay increase.  However, even the arbitrator cannot make the pay increase retroactive to a date prior to the date the parties reached the formal agreement to give him/her the power to set the effective date. See B-185506 (Sep 2, 1976) for a discussion of the above as well as 55 Comp. Gen. 162 (1975); 55 Comp. Gen. 1428 (1976); B-183083 (November 28, 1975); and B-126868 (April 8, 1963).

Where the parties have been unable to jointly agree on the effective date for a future pay increase or to let the arbitrator set the date, the CG has allowed the arbitrator to make the increase retroactive to the date on which the parties reached impasse.  “In 55 Comp. Gen. 1006, 1009 (1976) we stated that ‘[t]he agreement to arbitrate wage rate issues is the functional equivalent to the preliminary agreement setting the effective date….’”  See also B-190097 (November 11, 1977).  It does not appear that the CG has more specifically defined what constitutes an impasse.  Consequently, unions operating under the FLRA’s jurisdiction likely will have to litigate what constitutes an impasse if the Authority chooses to follow the CG’s lead on this issue.  Is it the date the parties petitioned for FSIP assistance, the date that they invoked binding interest arbitration, the date they rejected the non-binding recommendations of a fact-finder, the date a Panel member concluded the mediation portion of a med-arb process, etc.?

The CG allows this exception to the foundational rules against retroactive pay because both parties concerned know that future liabilities would be incurred at the new, but as yet unknown, increased wage rate.  See B-190097, supra.  However, in the CG cases establishing that concept both parties were offering pay increases, although of different sizes.  It remains to be seen—and litigated—whether the knowledge of future liabilities criterion is met if one of the parties is not offering a pay increase, but demanding a continuation of the current salary scale.

Surprisingly, in none of the decisions involving the legality of retroactive pay did the CG consider the role of the Back Pay Act (BPA). The CG proceeded as if the BPA is mere surplusage, which is not how the FLRA is likely to treat it since the Supreme Court expressed its refusal to do so in Testan v. U.S., 424 U.S. 392 (1976).  Perhaps it was unaddressed because none of the parties thought to argue the relevance of a law on the books since 1912.  But that would be a major omission given that it long has been established that the United States, as sovereign, “is immune from suit save as it consents to be sued ….” United States v. Sherwood, 312 U.S. 584 (1941). Moreover, a waiver of the traditional sovereign immunity “cannot be implied but must be unequivocally expressed.” United States v. King, 395 U.S. 1 (1969)  The decisions leave us wondering just what federal statute the CG thought mandated retroactive compensation in those cases.

Inevitably, some party will assert that the Panel and interest arbitrators are bound by the Back Pay Act if they wish to distribute money for work done in the past.  The Panel itself has twice mentioned in back pay decisions that it believed it had to comply with the Act. “Moreover, these employees would be entitled to back pay only if the three requirements under the Back Pay Act, 5 U.S.C. Section 5596, are met. Such is not the case here.”  If the Panel felt bound to follow the criteria of the BPA there, why did it not do so in all back pay cases? See Department of the Navy, Norfolk Naval Shipyard, Portsmouth, VA and Local 4015, AFGE, 92 FSIP 109 (November 6, 1992). See also Department of the Air Force, Whiteman Air Force Base, MO and Local 2361, AFGE, 88 FSIP 102 (September 16, 1988).

Similarly, a fully litigated case before the Authority is likely to consider the impact of 5 USC 5344, which specifically authorizes parties to make an otherwise prospective salary increase retroactive under certain conditions.  Arguably, it shows that Congress not only knew how to write into law the authority to make increases retroactive, but also believed that it had to authorize them via statute.  The fact that Congress did not write into the Back Pay Act or even the collective bargaining provisions of 5 USC 7114 a similar authority to make negotiated pay increases retroactive is a substantial statutory construction hurdle unions will have to clear. Another argument likely to be made is that the FSIP is not listed as an “appropriate authority” empowered to award back pay under OPM regulations.  5 CFR 550.803.

We will be the first to admit that our two posts on this topic are based on speculation rather than dead-on, established case law right.  Maybe FLRA will allow the Panel and arbitrators to make pay increases retroactive for years just because the Panel/arbitrator thinks that would be “swell.”  But on the chance that it will not, unions have to think hard about what is best for members when an agency opposes retroactive pay increases as non-negotiable.  It could do that by  disapproving the Panel/arbitrator order as part of agency head review or even refuse to execute the agreement to trigger the agency head review process. The union can fight an agency head disapproval of the new term agreement based solely on the inclusion of the retroactivity clause. If it wins, that is great.  If it loses, not only is the back pay gone, but the prospective pay increase also will have been delayed a year or more without any way to make up the loss—much less to recoup any attorney fees incurred for that litigation fight.  From a bottom line perspective it may be better for unions to drop (or severely shave) the retroactive salary demand and implement the prospective increase immediately.  Better yet, don’t ask the Panel or interest arbitrator for retroactive pay increases.  Encourage them to steer any concerns about the past into structuring the future pay scale.