On Tuesday, December 18, 2012, the National Labor Relations Board ruled in Latino Express, Inc., 359 NLRB No. 44 (2012), that employers will now be required to compensate workers for any extra taxes resulting from lump-sum backpay awards. The Board further held that when issuing backpay awards, employers must report the pay to the Social Security Administration in a manner that properly allocates back wages to the appropriate timeframe in which it was, or would have been, earned.
The new remedies stem from the Board’s review of an earlier decision, Latino Express, Inc., 358 NLRB No. 94 (July 2012). Upon finding violations of the Act in that case, the Board severed the two remedial issues of requiring the employer to bear the burden of: (1) tax compensation to discriminatees for additional taxes on backpay awards and, (2) Social Security reporting to properly allocate the backpay. The Board invited briefs from interested parties and after consideration of the materials submitted, the Board adopted both measures in its current opinion.
In the decision, the Board explained how lump-sum awards might disadvantage workers by pushing them into a higher tax bracket. The Board also considered the ways in which improper allocation of lump-sum awards can negatively impact workers with regard to Social Security benefits, including creating the potential for insufficient credits for meeting the qualification threshold, as well as possibly reducing benefits later if a lump-sum award has resulted in a reduction of the payments made on the employee’s behalf. With regard to the reporting requirement, the Board characterized the “burden of filing this report” as “not a heavy one” and explained that “as between the two parties, it is appropriate to place the burden for filing the report on the Respondent.” In its current decision announcing the remedies, the Board stated that:
Because of the Board’s unique role in determining how best to remedy violations of the National Labor Relations Act, it is incumbent on us to periodically revisit and revise the Board’s remedial strategies, drawing on enlightenment gained from its experience.
The recent ruling, which stands to impact all labor cases involving backpay awards, was characterized by the NLRB as a way to “better serve the remedial policies of the National Labor Relations Act by ensuring that discriminates are truly made whole for the discrimination they have suffered.” Unlike a number of case decisions handed down in December, these changes will be applied retroactively and therefore will be included in remedial orders issued in all future and currently pending cases.