Opinion ID: 427239
Heading Depth: 1
Heading Rank: 3

Heading: Back Pay Determination

Text: 19 In her cross-appeal, Craig contends the district court erroneously deducted unemployment benefits from her back pay award under Title VII. This issue, which we have not previously addressed, 1 has divided the circuits that have considered it. 20 The Eleventh, Ninth and Fourth Circuits have recently adopted the rule that there should be no deduction for unemployment benefits from a Title VII back pay award. See Brown v. A.J. Gerrard Manufacturing Co., 715 F.2d 1549, 1550 (11th Cir.1983) (in banc) (per curiam); Kauffman v. Sidereal Corp., 695 F.2d 343, 346-47 (9th Cir.1982) (per curiam); EEOC v. Ford Motor Co., 645 F.2d 183, 195-96 (4th Cir.1981), rev'd on other grounds, 458 U.S. 219, 102 S.Ct. 3057, 73 L.Ed.2d 721, adhered to original position on remand, 688 F.2d 951, 952 (4th Cir.1982) (per curiam). Contra Merriweather v. Hercules, Inc., 631 F.2d 1161, 1168 (5th Cir.1980); EEOC v. Enterprise Association Steamfitters Local No. 638, 542 F.2d 579, 592 (2d Cir.1976), cert. denied, 430 U.S. 911, 97 S.Ct. 1186, 51 L.Ed.2d 588 (1977); Satty v. Nashville Gas Co., 522 F.2d 850 (6th Cir.1975) (without discussion), aff'd in part, vacated in part on other grounds, 434 U.S. 136, 98 S.Ct. 347, 54 L.Ed.2d 356 (1977); Bowe v. Colgate-Palmolive Co., 416 F.2d 711, 721 (7th Cir.1969). 21 The district court here, after concluding that the proper remedy was reinstatement and back pay, including 10% prejudgment interest, reduced this amount by unemployment compensation to avoid something that would be in the neighborhood of unjust enrichment. The court reasoned, I see no reason in the statute and the equitable principles that inform it that should require the defendant to reimburse the plaintiff for sums which she has, by society's other devices, already received. 22 Nothing in the statutory language, the legislative history, or the case law is clearly dispositive of the issue raised by plaintiff Craig on cross-appeal. The statute does provide for a deduction from a back pay award for interim earnings or amounts earnable with reasonable diligence. 42 U.S.C. Sec. 2000e-5(g). Thus, a duty to mitigate damages is incorporated. But the statute makes no mention of unemployment compensation, and the legislative history does not specifically discuss such benefits. The relevant statutory text is as follows: 23 If the court finds that the respondent has intentionally engaged in or is intentionally engaging in an unlawful employment practice charged in the complaint, the court may enjoin the respondent from engaging in such unlawful employment practice, and order such affirmative action as may be appropriate, which may include, but is not limited to, reinstatement or hiring of employees, with or without back pay (payable by the employer, employment agency, or labor organization, as the case may be, responsible for the unlawful employment practice), or any other equitable relief as the court deems appropriate. Back pay liability shall not accrue from a date more than two years prior to the filing of a charge with the Commission. Interim earnings or amounts earnable with reasonable diligence by the person or persons discriminated against shall operate to reduce the back pay otherwise allowable. 24 42 U.S.C. Sec. 2000e-5(g). 25 Although the issue is extremely close and one over which reasonable persons could differ, we conclude that unemployment benefits should not be deducted from a Title VII back pay award for the following reasons: 26 (1) We begin with the statutory language. Section 2000e-5(g) explicitly provides that interim earnings and amounts earnable with reasonable diligence must be deducted from back pay otherwise allowable. If Congress intended other deductions, it could have so provided. Its failure to do so must be given some effect by the courts. 27 (2) Although the legislative history of Title VII does not specifically address whether unemployment compensation is to be regarded as deductible interim earnings, Congress was undoubtedly aware that under the National Labor Relations Act (NLRA) unemployment benefits are not deducted from back pay awards. The Supreme Court in Albemarle Paper Co. v. Moody, 422 U.S. 405, 419-22, 95 S.Ct. 2362, 2372-2374, 45 L.Ed.2d 280 (1975), noted that Congress modeled Title VII's back pay provision on that of the NLRA. Indeed, it was for that reason that the Court held back pay was normally to be awarded under Title VII absent special circumstances, relying on the NLRB's practice of awarding back pay. Thus, in analyzing the deductibility of unemployment benefits, we may reasonably turn for guidance to the practice under the NLRA. 28 The NLRB's refusal to deduct unemployment compensation from back pay was upheld in NLRB v. Gullett Gin Co., 340 U.S. 361, 71 S.Ct. 337, 95 L.Ed. 337 (1951). One of the bases relied on by the Court was the fact that when Congress amended the NLRA in 1947, the Board had been following this practice for many years. Thus, the Court concluded by reenacting without pertinent modification [the back pay provision], Congress accepted the construction placed thereon by the Board and approved by the courts. Id. at 366, 71 S.Ct. at 340-341. Since the Title VII back pay provision was based on the NLRA's, we may, by analogous reasoning, impute a similar construction to Congress. 29 We recognize that the NLRA back pay provision does not contain the interim earnings deduction language contained in Title VII. It is clear, however, from the Gullett Gin decision that, in fact, the Board does deduct earnings of employees from other employment during the back pay period and also sums which they failed without excuse to earn. Id. at 363, 71 S.Ct. at 339 (citations omitted). Therefore, in practice, under the NLRA, and by statute under Title VII, interim earnings must be deducted. Given the parity between the back pay remedies in both statutes suggested by the Supreme Court, it follows that the NLRB's practice not to deduct unemployment compensation from the back pay award, notwithstanding its deduction of interim earnings, counsels a similar construction of Title VII. Brown v. A.J. Gerrard Manufacturing Co., 715 F.2d at 1550-51; see also EEOC v. Ford Motor Co., 645 F.2d at 195-96. 30 (3) Unemployment compensation most clearly resembles a collateral benefit which is ordinarily not deducted from a plaintiff's recovery. Under the collateral benefit rule, payment which a plaintiff receives for his or her loss from another source is not credited against the defendant's liability for all damages resulting from its wrongful or negligent act. Restatement (Second) of Torts Sec. 920A(2) (1979); 3 L. Frumer, R. Benoit & M. Friedman, Personal Injury Sec. 4.03 (1965); see also Smith v. United States, 587 F.2d 1013, 1015 (3d Cir.1978); Varlack v. SWC Caribbean, Inc., 550 F.2d 171, 179-180 & n. 3 (3d Cir.1977). In addition to unemployment compensation, payments under Social Security or welfare programs and similar benefits have been treated as collateral. See, e.g., Titchnell v. United States, 681 F.2d 165 (3d Cir.1982) (Medicare); Smith v. United States, supra (Social Security); Varlack v. SWC Caribbean, Inc., supra (government-reimbursed medical and rehabilitative expenses); see also 3 L. Frumer, R. Benoit & M. Friedman, supra, at Sec. 4.03; Restatement (Second) of Torts, supra, at Sec. 920A comment c(3). 31 The rationale for a rule that at first glance may appear to provide an inequitable double recovery is that a wrongdoer should not get the benefit of payments that come to the plaintiff from a source collateral to the defendant. See Kauffman, 695 F.2d at 346-47 (quoting Gullett Gin, 340 U.S. at 364, 71 S.Ct. at 339-340); Ford Motor, 645 F.2d at 195-96. There is no reason why the benefit should be shifted to the defendant, thereby depriving the plaintiff of the advantage it confers. See Kassman v. American University, 546 F.2d 1029, 1034 (D.C.Cir.1976) (per curiam). This policy also may have somewhat punitive undertones, as it focuses on what the defendant should pay rather than on what the plaintiff should receive. See Restatement (Second) of Torts, supra, at Sec. 920A comment b; 2 F. Harper & F. James, The Law of Torts, Sec. 25.22 at 1344 (1956 & Supp.1968). 2 Furthermore, although it appears to provide double recovery, in fact that is not the inevitable result. Often insurers have subrogation rights, and in some circumstances state benefits are recoupable. For example, a recently enacted Pennsylvania statute provides for recoupment of unemployment benefits when back pay has been awarded. Pa.Stat.Ann. tit. 43, Sec. 874(b)(3) (Purdon Supp.1982). 3 32 The collateral benefits rationale was one of the bases for the Supreme Court's decision in Gullett Gin. The Court expressly categorized unemployment compensation benefits as collateral, and stated that failure to take them into account in ordering back pay does not make the employees more than 'whole' as that phrase has been understood and applied. 340 U.S. at 364-65, 71 S.Ct. at 340 (footnote omitted). The Court explained that [s]ince no consideration has been given to collateral losses in framing an order to reimburse employees for their lost earnings, manifestly no consideration need be given to collateral benefits which employees may have received. Id. at 364, 71 S.Ct. at 339. 33 In Gullett Gin, the Court also rejected the employer's argument that unemployment benefits are direct rather than collateral benefits because they are financed partially through employer taxation. The Court stated: 34 Payments of unemployment compensation were not made to the employees by respondent but by the state out of state funds derived from taxation. True, these taxes were paid by employers, and thus to some extent respondent helped to create the fund. However, the payments to the employees were not made to discharge any liability or obligation of respondent, but to carry out a policy of social betterment for the benefit of the entire state. 35 340 U.S. at 364, 71 S.Ct. at 340. 36 (4) A rule precluding deduction of unemployment benefits from a back pay award would further the two key objectives of Title VII's back pay provision, which have been described by the Supreme Court as primarily to end employment discrimination and secondarily to compensate injured victims in a make whole fashion. See Ford Motor Co. v. EEOC, --- U.S. ----, 102 S.Ct. 3057, 3063-64, 73 L.Ed.2d 721 (1982); Albemarle Paper Co. v. Moody, 422 U.S. at 421, 95 S.Ct. at 2373. 37 In Albemarle, the Court described the obvious connection between the prophylactic purpose of ending discrimination and the back pay provision as follows: 38 If employers faced only the prospect of an injunctive order, they would have little incentive to shun practices of dubious legality. It is the reasonably certain prospect of a backpay award that provide[s] the spur or catalyst which causes employers and unions to ... self-evaluate their employment practices and to endeavor to eliminate ... the last vestiges of an unfortunate and ignominious page in this country's history. 39 Id. at 417-18, 95 S.Ct. at 2371-2372 (quoting United States v. N.L. Industries, Inc., 479 F.2d 354, 379 (8th Cir.1973)). To the extent that a back pay award is reduced by unemployment benefits, this purpose is diluted. 40 The above considerations persuaded the Eleventh, Ninth, and Fourth Circuits to reach the conclusion that unemployment benefits should not be deducted from Title VII back pay awards. The Ninth Circuit reasoned that disallowance of an offset does not have the detrimental effect of discouraging discharged employees from seeking other work and that the logical solution to any unwanted double recovery was recoupment by state employment agencies. Kauffman, 695 F.2d at 347. The Fourth Circuit concluded,  '[A]wards of back pay under Title VII should not be affected by a system of compensation which is designed to serve a wholly independent social policy.' To decide otherwise would undercut to some degree the corrective force of a Title VII back pay award. Ford Motor, 645 F.2d at 196 (quoting opinion below). 41 Finally, and most recently, the Eleventh Circuit decision, in an in banc decision, rejected the earlier contrary Fifth Circuit precedent and stated, We now hold as a matter of law that unemployment compensation benefits received from a state fund, even if supported by a tax on employers, may not be deducted from a Title VII back pay award .... Brown v. A.J. Gerrard Manufacturing Co., 715 F.2d at 1550. 42 We recognize that because back pay is itself considered a discretionary remedy, it may be argued that deduction of unemployment compensation should be left to the discretion of the district court. This is essentially the position taken in Chief Judge Seitz' dissenting opinion and by those circuits which have upheld deduction of unemployment benefits. 43 While this approach has some attraction, we find it essentially inconsistent with the language in the Albemarle opinion which suggests a duty on the part of appellate courts to fashion uniform rules where necessary to further the statutory objectives: 44 The courts of appeals must maintain a consistent and principled application of the backpay provision, consonant with the twin statutory objectives, while at the same time recognizing that the trial court will often have the keener appreciation of those facts and circumstances peculiar to particular cases. 45 422 U.S. at 421-22, 95 S.Ct. at 2373 (emphasis added). See also Brown v. A.J. Gerrard Manufacturing Co., 715 F.2d at 1551. 46 The award of back pay is not left to the unbridled discretion of the trial court but instead has been made the presumptive remedy for unlawful employment discrimination, see Gurmankin v. Costanzo, 626 F.2d 1115, 1120-21 (3d Cir.1980), cert. denied, 450 U.S. 923, 101 S.Ct. 1375, 67 L.Ed.2d 352 (1980) (applying Albemarle rationale in a Sec. 1983 case), because such a decision implicates legal and policy considerations. Similarly, resolution of the deductibility question requires the principled application of standards consistent with those purposes and not 'equity [which] varies like the Chancellor's foot' . Albemarle, 422 U.S. at 417, 95 S.Ct. at 2371. 4 Accordingly, appellate guidance on this issue will avoid the conflicting results reached when such an issue is left to the discretion of the district courts, which may differ in their individual resolution of the legal and policy questions. Compare, e.g., Kyriazi v. Western Electric Co., 476 F.Supp. 335, 339 (D.N.J.1979) (unemployment benefits must be deducted), with Helbling v. Unclaimed Salvage & Freight Co., 489 F.Supp. 956, 963 (E.D.Pa.1980) (deduction is permissible). 47 In summary, we adopt the rule of nondeductibility of unemployment benefits because we conclude that the legislative history and Gullett Gin are persuasive, that the primary prophylactic policy of Title VII would thereby be better served, that the rule would foster uniformity in applying the back pay remedy, and that the recoupment of unemployment benefits by the state is the better way of dealing with any possible unfairness as between the state and recipient.