Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01157/USCOURTS-caDC-99-01157-0/pdf.json

Parties Involved:
American Federation of Government Employees, AFL-CIO
Intervenor for Respondent
Federal Labor Relations Authority
Respondent
Social Security Administration
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 22, 1999 Decided January 18, 2000

No. 99-1157

Social Security Administration, Baltimore, Maryland,

Petitioner

v.

Federal Labor Relations Authority,

Respondent

American Federation of Government Employees, AFL-CIO,

Intervenor

On Petition for Review and Cross-Application for

Enforcement of an Order of the

Federal Labor Relations Authority

Anne Murphy, Attorney, U.S. Department of Justice, argued the cause for petitioner. With her on the briefs were

David W. Ogden, Acting Assistant Attorney General, and

Alfred Mollin, Senior Counsel.

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Ann M. Boehm, Attorney, Federal Labor Relations Authority, argued the cause for respondent. With her on the

brief were David M. Smith, Solicitor, and William R. Tobey,

Deputy Solicitor.

Before: Williams, Sentelle and Randolph, Circuit

Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: The Social Security Administration (SSA) petitions for review of an unfair labor practice

order of the Federal Labor Relations Authority (FLRA)

requiring the SSA to pay post-judgment interest on liquidated damages awarded through arbitration under the Fair

Labor Standards Act (FLSA). See Social Sec. Admin. Baltimore, Md. and American Fed'n of Gov't Employees, AFLCIO, 55 F.L.R.A. 246 (1999). In its order, the FLRA interpreted the Back Pay Act as requiring the SSA to pay such

interest. Because we find that the Back Pay Act does not

authorize the FLRA to require an agency to pay interest on

liquidated damages, we reverse the FLRA's order.

I. Background

The present controversy arises from the implementation of

awards in two earlier arbitration proceedings before arbitrators Henry L. Segal and M. David Vaughn. In those arbitration proceedings, a total of 7,500 SSA employees successfully

contended that they had been misclassified and consequently

denied payment for overtime work to which they would

otherwise have been entitled. See American Fed'n of Gov't

Employees, AFL-CIO and Social Sec. Admin., No. BW-89-

R-0044, Grievance GC-UMG-88-01 and FO-UMG-87-10

(1993) (Segal, Arb.) and (1995) (Vaughn, Arb.). Pursuant to

the FLSA, the arbitrators awarded the employees six years'

back pay plus interest or liquidated damages equal to the

underlying back pay amount, whichever would yield the

greatest award on the date of payment as determined individually for each employee. In other words, the only employees

to receive liquidated damages would be those for whom

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accrued interest would not double their award. The Segal

award, applicable to 6,000 employees, became final in August

of 1993. The Vaughn award, which gives rise to the unfair

labor practice order which is the subject of the present

petition, became final in February of 1995.

The SSA did not begin payments on the Segal award until

after August 1995; and the SSA postponed payment of the

Vaughn award until the FLRA reached a decision in another

case, Social Sec. Admin. Baltimore, Md. and American

Fed'n of Gov't Employees, AFL-CIO, 53 F.L.R.A. 1053

(1997), although the SSA made some payments under Vaughn

in March 1996. In May 1995 and October 1995 respectively,

the American Federation of Government Employees, AFLCIO (the Union) filed unfair labor practice charges against

the SSA for failure to comply with the Segal and Vaughn

awards. The Union and the SSA settled all aspects of their

dispute except the Union's claim that the SSA should pay

post-judgment interest on liquidated damages. The Union

and the SSA submitted to the FLRA for resolution the

question of "whether interest on liquidated damages is legally

required." Social Sec. Admin. Baltimore, Md., 55 F.L.R.A.

at 248.

The FLRA ruled that the record in Segal was insufficient

to determine whether the SSA had unreasonably delayed

compliance with the award; but with respect to the Vaughn

award, the SSA conceded its failure to comply timely. The

FLRA, relying on the Back Pay Act, 5 U.S.C. s 5596(b)(1)-(2)

(1994), ordered the SSA to pay interest on the entire award,

inclusive of liquidated damages, "commencing from the date

the award became final and binding." Social Sec. Admin.

Baltimore, Md., 55 F.L.R.A. at 251. The FLRA recognized

that the Back Pay Act waived sovereign immunity from

claims for interest on claims of an aggrieved employee " 'affected by an unjustified or unwarranted personnel action' "

that " 'resulted in the withdrawal or reduction ... of the pay,

allowances, or differentials of the employee[.]' " See id. at

250 (quoting 5 U.S.C. s 5596(b)(1)). The FLRA concluded

that the SSA's failure to comply timely with the Vaughn

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award satisfied these requirements. The SSA appeals from

that conclusion.

II. Analysis

The issue before us is the same as that presented to the

FLRA: whether the Back Pay Act requires interest on

liquidated damages. Historically, sovereign immunity has

shielded agencies of the federal government from interest

claims. See, e.g., Library of Congress v. Shaw, 478 U.S. 310,

314-17 (1986); Amax Land Co. v. Quarterman, 181 F.3d

1356, 1359-60 (D.C. Cir. 1999). Even where Congress has

waived immunity to suit, a litigant against the government

cannot recover interest unless Congress affirmatively, separately, and unambiguously contemplated an award of interest.

See Shaw, 478 U.S. at 315. Congress has enacted various

statutes waiving the government's immunity from interest

claims, however. See Shaw, 478 U.S. at 318 n.6 (listing

several examples of congressional waivers of sovereign immunity from interest claims). We construe the scope of any

statute waiving sovereign immunity strictly in the government's favor. See id. at 318; Brown v. Secretary of the

Army, 78 F.3d 645, 649 (D.C. Cir. 1996). The FLRA maintains that, even under this high standard, the Back Pay Act

authorizes it to require interest in this case.

We have recognized the Back Pay Act as a congressional

waiver of sovereign immunity from interest claims on awards

arising under other statutes, such as the FLSA. See Brown

v. Secretary of the Army, 918 F.2d 214, 216-18 (D.C. Cir.

1990). Accord Edwards v. Lujan, 40 F.3d 1152, 1154 (10th

Cir. 1994) (adopting Brown); Woolf v. Bowles, 57 F.3d 407,

410 (4th Cir. 1995) (same). Like any other waiver of sovereign immunity, however, the Back Pay Act's allowance of

interest against the government is effective only as to awards

that come within the scope of the statute. The Act provides

recovery to any government employee who

ha[s] been affected by an unjustified or unwarranted

personnel action which has resulted in the withdrawal or

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entials of the employee ... is entitled ... to receive ...

an amount equal to all or any part of the pay, allowances,

or differentials, as applicable which the employee normally would have earned or received during the period if the

personnel action had not occurred....

5 U.S.C. s 5596(b)(1) (emphasis added). Amounts awarded

under this provision "shall be payable with interest." 5

U.S.C. s 5596(b)(2)(A). Thus, the Act does include a waiver

of sovereign immunity as to interest on awards under the Act.

But to meet the standard under the Act for an award to bear

interest: 1) the employee must have been affected by an

unjustified or unwarranted personnel action; 2) the employee

must have suffered a withdrawal or reduction of all or part of

his pay, allowances, or differentials; and 3) but for the action,

the employee would not have experienced the withdrawal or

reduction. The parties before us disagree as to whether the

SSA's failure to pay the Vaughn award timely represents "a

withdrawal or reduction of pay, allowances, or differentials"

under 5 U.S.C. s 5596(b)(1), as defined by 5 C.F.R. s 550.803

(1999).

A. Pay, Allowances, or Differentials

The Social Security Administration contends, and we agree,

that liquidated damages do not constitute "pay, allowances, or

differentials." The Back Pay Act does not define the term

pay, allowances, or differentials, although its use in the same

provision as the phrase "which the employee normally would

have earned or received" offers some guidance. Since 1981,

the Office of Personnel Management (OPM) regulations have

defined pay, allowances, or differentials collectively as "monetary and employment benefits to which an employee is entitled by statute or regulation by virtue of the performance of a

Federal function" rather than as separate terms. 5 C.F.R.

s 550.803. The SSA argues that we should interpret pay,

allowances, or differentials narrowly as encompassing only

payments or benefits in the nature of compensation which an

employee would normally receive for performing his federal

job. The FLRA maintains that the OPM's regulation adopts

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a much broader reading of pay, allowances, or differentials

which includes anything to which an employee is entitled that

is in any way connected with his federal employment, including the liquidated damages award before us, which arose out

of a dispute originally connected with the claimants' employment.

While there is no case directly on point, existing precedent

supports the SSA's position. The Tenth Circuit and the

Court of Claims have both interpreted pay, allowances, or

differentials consistent with its statutory context as including

only those amounts and benefits that the employee normally

would have earned as part of his regular compensation during

the period in question if the adverse personnel action had not

occurred. See Hurley v. United States, 624 F.2d 93, 94-95

(10th Cir. 1980); Morris v. United States, 595 F.2d 591, 594

(Ct. Cl. 1979). Hurley and Morris involved claims for reimbursement of per diem and commuting expenditures incurred

as a result of improper reassignments of military personnel to

different geographical locations. Since the employees would

not have incurred the expenses in the first place had the

erroneous reassignments never occurred, the reimbursements

would not have been part of the claimants' compensation

absent that unwarranted personnel action. Therefore, the

courts held that such reimbursements were not within the

scope of pay, allowances, or differentials under the Back Pay

Act.

The award at issue before us involves not salary, allowances, or employment benefits but liquidated damages.

Again, there is no controlling authority directly on point, but

the Supreme Court has considered the nature of liquidated

damages in an interest award controversy, though not under

the Back Pay Act. In Brooklyn Savings Bank v. O'Neil, 324

U.S. 697 (1945), the Supreme Court considered the claim of

an employee in the private sector who had obtained a recovery under the FLSA. The FLSA specifically provided that in

addition to a recovery of unpaid minimum wages or overtime

compensation, a prevailing employee-claimant was entitled to

"an additional equal amount as liquidated damages." Id. at

699 (quoting Fair Labor Standards Act of 1938, 52 Stat. 1060,

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at 1069). The Supreme Court held that an employee could

not recover interest on liquidated damages awarded under

that statute. The Court noted that, in the FLSA, Congress

provided for liquidated damages because it recognized that

the employer's failure to pay the full compensation owed

without delay deprives the aggrieved employee of the use of

those funds and may impair his ability to support himself.

See id. at 707. By authorizing liquidated damages, Congress

sought to compensate the aggrieved employee for the employer's delay and to restore him to a position as if the employer

had not failed in its obligation to pay in a timely manner that

compensation to which he was entitled. See id. The Court

also recognized that interest likewise represents compensation for damages resulting from a delay in payment, and that

permitting an employee to recover interest on liquidated

damages would "produce the undesirable result of allowing

interest on interest." Id. at 715.

In the case before us the liquidated damages clearly represent an alternative to interest as compensation for the government's delay in paying overtime, as opposed to some sort

of remuneration for work performed, given that the Vaughn

arbitrator ordered the greater of accrued interest or liquidated damages to be added to each employee's individual

overtime back pay award. The SSA employees covered by

the Vaughn award certainly would not have been entitled to

either interest or liquidated damages as part of their regular

compensation. Following the reasoning of Hurley and Morris, and the implication of Brooklyn Savings, liquidated damages are not pay, allowances, or differentials.

The FLRA challenges the continued validity of Hurley and

Morris, as they predate the OPM's present regulatory definition. But the Hurley and Morris courts based their conclusions on the plain meaning of the statute, not the thenexisting OPM regulation. Further, the OPM in promulgating

the current regulatory definition did not purport to alter the

results of those decisions. See 46 Fed. Reg. 58,271, 58,272-73

(1981). In the commentary accompanying the regulation's

publication, the OPM recognized as examples of employment

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tem and benefits received under the Federal employee health

benefits and group life insurance programs prior to retirement." Id. at 58,272. The OPM also stated that benefits

received after retirement were not encompassed by its definition of pay, allowances, or differentials, despite the connection

of such benefits to federal employment. See id. In short,

the OPM's comments support a narrower construction of its

regulation that is more consistent with the analysis of Hurley

and Morris and the SSA's interpretation than with the

FLRA's approach.

Moreover, despite its position here, the FLRA itself has

cited Hurley and Morris, even after the OPM promulgated

its current regulation, for the continuing proposition that per

diem and commuting expenses are not reimbursable under

the Back Pay Act. See Department of Defense Dependents

Sch. and Overseas Fed'n of Teachers, 54 F.L.R.A. 259, 266-67

(1998). Also, in United States Dep't of Health and Human

Services and National Treasury Employees Union, 54

F.L.R.A. 1210 (1998), the FLRA applied the reasoning of

Hurley and Morris in concluding that transit subsidies fell

within the scope of pay, allowances, or differentials as "normal legitimate employee benefits in the nature of employment

compensation or emoluments," rather than nonreimbursible

per diem. See id. at 1221-23 (citing Department of Defense

Dependents Schools). In both of these proceedings, the

FLRA quoted the current definition of pay, allowances, or

differentials from 5 C.F.R. s 550.803, then endeavored at

length to demonstrate why the payments in question were in

the nature of the employees' regular compensation as opposed to amounts that the employees would not have received

had the erroneous personnel action not occurred. Thus, the

FLRA's own precedents support the reading of pay, allowances, or differentials advanced by the SSA, not the expansive

interpretation adopted by the FLRA.

Nevertheless, before us the FLRA characterizes the OPM's

regulation as adopting a broad reading of the Back Pay Act,

covering anything to which an employee is entitled in connection with his federal employment. Relying heavily on the

word "received" from 5 U.S.C. s 5596(b)(1)(A)(i), together

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with the word "entitled" and the phrase "by virtue of the

performance of a Federal function" from the OPM's regulation, the FLRA maintains that because the employees were

entitled to receive the liquidated damages for reasons related

to the performance of their jobs with the federal government,

the plain meaning of the Back Pay Act and the regulation

supports the imposition of interest on those liquidated damages. The FLRA's construction takes these words and

phrases out of context, however, as if they have significance

independent of the full sentences of which they are part.

It is a "fundamental principle of statutory construction

(and, indeed, of language itself) that the meaning of a word

cannot be determined in isolation, but must be drawn from

the context in which it is used." Deal v. United States, 508

U.S. 129, 132 (1993) (citations omitted). The Back Pay Act

authorizes interest only on amounts representing "the pay,

allowances, or differentials, as applicable which the employee[s] normally would have earned or received...." 5 U.S.C.

s 5596(b)(1)(A)(i) (emphasis added). Contrary to the FLRA's

rather circular construction, these words do not authorize

interest for all amounts that employees are entitled to receive, nor does the statute's use of the word "received"

purport to define what constitutes pay, allowances, or differentials. The adverb "normally" modifying "received" further

restricts the pay, allowances, or differentials to which interest

may be applied. Likewise, 5 C.F.R. s 550.803 does not define

pay, allowances, or differentials as including any amounts to

which an employee is entitled, but limits the term to "monetary and employment benefits," then employs the phrase "by

virtue of the performance of a Federal function." In short, in

construing both the statute and the regulation, the FLRA

disregards the subject, the dominant element, of the clause or

sentence and relies on limiting words and phrases that broaden the scope of the statute only when taken completely out of

context.

We do not defer to the FLRA's interpretation of the Back

Pay Act, a general statute not committed to the Authority's

administration. See, e.g., Professional Airways Sys. Specialists v. FLRA, 809 F.2d 855, 857 n.6 (D.C. Cir. 1987). Nor do

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we defer to the FLRA's interpretation of a regulation promulgated by another agency, see United States Dep't of the Air

Force v. FLRA, 952 F.2d 446, 450 (D.C. Cir. 1991), even if the

OPM's regulation itself is entitled to deference under Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984). We review

this purely legal question de novo and conclude that, whether

or not the OPM intended a broad reading of the statute, the

FLRA's interpretation of the regulation stretches the OPM's

arguably less restrictive phraseology to the broadest possible

reading. So far does the FLRA distort it that the regulation

no longer comports with the statute it interprets. "A regulation which ... operates to create a rule out of harmony with

the statute, is a mere nullity." Manhattan Gen. Equip. Co. v.

Commissioner of Internal Revenue, 297 U.S. 129, 134 (1936).

In contrast, interpreting the regulatory definition as including

only payments in the nature of compensation, such as literal

"back pay" or regular employment benefits, is not only consistent with the reasoning of Hurley and Morris, and with the

OPM's own commentary, but also with the plain meaning of

the statute.

In summary, the phrase "pay, allowances, or differentials"

includes only payments and benefits of the sort that an

employee normally earns or receives as part the regular

compensation for performing his job. The statutory language, the OPM regulation, and judicial and administrative

precedent, as well as the command that we construe waivers

of sovereign immunity narrowly, all mandate this measured

interpretation of pay, allowances, and differentials. Liquidated damages are not within the scope of this construction.

Accordingly, we hold that liquidated damages are not pay,

allowances, or differentials within the context of the Back Pay

Act.

B. Withdrawal or Reduction

Our decision that the failure to pay timely the award of

liquidated damages does not give rise to recoverable interest

against a government agency rests not only on our conclusion

that liquidated damages do not constitute "pay, allowances, or

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differentials" within the meaning of the statutory waiver of

sovereign immunity, but also that the failure timely to pay

those damages does not constitute a "withdrawal or reduction" of compensation as contemplated in the statute. As the

Supreme Court recognized in United States v. Testan, 424

U.S. 392 (1976), not every failure to deliver to an individual

employed by the government a sum of money to which he is

entitled constitutes a withdrawal or reduction of such pay,

allowances, or differentials. Testan addressed a claim for

back pay by two government employees who sued successfully for reclassification to a higher grade. The Court rejected a

broadening interpretation of withdrawal or reduction in the

Back Pay Act, holding:

The statute's language was intended to provide a monetary remedy for wrongful reductions in grade, removals,

suspensions, and other unwarranted or unjustified actions affecting pay or allowances [that] could occur in the

course of reassignments and change from full-time to

part-time work....

....

... [T]he Back Pay Act, as its words so clearly indicate,

was intended to grant a monetary cause of action only to

those who were subjected to a reduction in their duly

appointed emoluments or position.

Id. at 405-07 (internal quotation omitted) (emphasis added).

Thus, because the employees in Testan had been paid the

appropriate amount for the grade to which they were appointed, and had not experienced a reduction in pay or a decrease

in grade, the Court held that they had not suffered a withdrawal or reduction of their pay, allowances, or differentials

as required for recovery under the Back Pay Act, even

though they rightly should have been classified at the higher

grade from the beginning. Id. at 407; see also Brown, 918

F.2d at 218 (recognizing as the holding in Testan "that Back

Pay Act relief is available only to compensate for a reduction

in pay or a decrease in grade").

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As a general matter, the SSA's failure to pay this one-time

equitable remedy as quickly as it might hardly deprived the

recipient employees of any identifiable benefit. Under the

Vaughn remedy for the SSA's misclassification, interest continued to accrue through the final date of payment. The only

employees receiving liquidated damages were those for whom

the amount of such damages continued to exceed the interest

to which the employees otherwise would have been entitled

after that accrual. Thus, the liquidated damages accomplished the job for which they were intended--to compensate

for the delay in payment. At a minimum, however, the SSA's

failure to pay the Vaughn award in a timely manner clearly

did not reduce the regular pay or benefits the employees

were receiving in relation to their ongoing employment, nor

did it reduce their grade, as Testan requires. Therefore,

regardless of whether liquidated damages fall within the

scope of pay, allowances, and differentials, according to the

Supreme Court's instruction in Testan, the SSA's inaction in

this case does not represent a withdrawal or reduction under

the Back Pay Act.

The FLRA erroneously suggests that Testan is inapplicable

since the present case involves an unfair labor practice as

opposed to a reclassification action. Nothing in the Testan

opinion or the relevant Back Pay Act provisions suggests that

classification errors and unfair labor practices should be

treated differently. In fact, 5 U.S.C. s 5596(b)(1) expressly

includes unfair labor practices but does not distinguish them

from other unjustified or unwarranted personnel actions.

The fact upon which the FLRA seeks to distinguish Testan is

not determinative of the present inquiry. Thus, Testan controls, and we conclude that the FLRA's conceded failure to

comply with the Vaughn award does not constitute a withdrawal or reduction within the context of the Back Pay Act.

Conclusion

In summary, the Back Pay Act would only waive sovereign

immunity against interest on the liquidated damages portion

of the Vaughn award if the SSA's delay in remitting those

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payments represented a withdrawal or reduction of the employees' pay, allowances, or differentials. The liquidated

damages are not "pay, allowances, or differentials" and the

FLRA's failure to pay them in a timely manner is not a

"withdrawal or reduction." Accordingly, we hold that the

Back Pay Act does not authorize the FLRA to require an

agency to pay interest on liquidated damages awarded under

the Fair Labor Standards Act. The FLRA's order to the

contrary is reversed. The petition for review is granted.

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