On January 20, 2016, the Tenth Circuit Court of Appeals affirmed the National Labor Relations Board’s (the “Board”) decision to disregard interim earnings when calculating the backpay awards for employees whose injuries fell short of unlawful termination. NLRB v. Community Health Services, Inc., No. 14-9614 (10th Cir. Jan. 20, 2016).  Rejecting the employer’s argument that the Board failed to provide adequate support for its decision, the Tenth Circuit deferred to the Board’s policy-based rationale that declining to deduct interim earnings offers employees greater incentive to voluntarily seek interim employment and promotes production and employment.

In 1999, the employer-hospital decided to reduce the hours of its full-time, respiratory-department employees. As a result of this decision, the employees’ union representative filed unfair labor practice charges.  The Board ruled in favor of the union and ordered the employer to “make whole any employee for any loss of earnings and other benefits suffered.”  During the compliance phase, the Administrative Law Judge rejected the employer’s argument that any income an employee earned from secondary employment during the backpay period (i.e., the interim earnings) should be deducted from that employee’s backpay award.  In reaching that conclusion, the Administrative Law Judge applied the backpay formula set forth in Ogle Protection Services, Inc., 183 NLRB 682 (1970) in which the Board determined that interim earnings should not be deducted from backpay awards when the underlying violation is something other than a wrongful termination.  In 2007, the Tenth Circuit enforced the Board’s order, but the dispute went to the D.C. Circuit, which remanded the case for further explanation by the Board.  After the Board issued a supplemental decision offering additional policy justifications for excluding interim earnings from the backpay calculation, the employer again appealed to the Tenth Circuit.

The sole question on appeal was whether “the Board provided sufficient support for its decision to exclude interim earnings from backpay calculations when the employer has wrongfully reduced employee hours, but not terminated employment.” Writing for the 2-1 majority, Judge McHugh held that it had.  Specifically, Judge McHugh deferred to the Board’s five policy justifications for its decision.  As the Board reasoned:

  1. “[D]educting interim earnings from backpay calculations in this context would discourage production and employment by making employees who seek additional work no better off than their counterparts who remain underemployed.”
  2. “[D]eclining to deduct interim earnings in this situation is more consistent with [the Board’s] backpay calculations in other contexts[,]” such as where employees “who perform more work than required [to mitigate damages] are entitled to retain the benefit of such ‘extra effort.’”
  3. “[A]n employee who seeks work from a secondary employer generally suffered additional hardships, ‘such as resolving scheduling conflicts between the two jobs and traveling to a second workplace,” such that the employee should be allowed to retain the benefit of undertaking these hardships.
  4. “[D]educting interim earnings from a backpay calculation would create an incentive for wrongdoing employers to delay rescinding their unlawful conduct, ‘knowing that the longer an employee worked a second job, the greater could be the reduction in backpay owed.”
  5. “[W]here one of the parties will obtain a windfall, it is more appropriate for it to be the employee whose extra effort resulted in the interim earnings, rather than the recalcitrant employer.”

Over Judge Gorsuch’s dissent, which called the backpay award excessive and beyond the Board’s remedial powers, the Tenth Circuit ultimately concluded that, “[a]lthough other reasonable remedies undoubtedly exist,” the Board’s calculation of backpay damages was not contrary to the policies of the National Labor Relations Act and thus proper. The Tenth Circuit’s decision is a stark reminder that employers found liable for unlawfully reducing its employees’ hours will not be permitted to reduce their liability by showing their employees’ willingness to work other jobs.