NLRB Again Rules Vs. Companies: Don’t Stick Workers with Tax Bill on Lump-Sum Back Pay

WASHINGTON –Reviving a decision it made when it lacked enough legal members to rule on worker-boss disputes, the National Labor Relations Board again ruled  workers should not get stuck with the tax bill on back pay lump sums they win when triumphing against management labor law-breaking.

In an August 8 ruling involving two Tucson, Ariz., workers and their employer – a tortilla plant — the board reinstated the NLRB’s 2012 ruling that ordered labor law-breaking employers  to reimburse the workers for extra state and federal income taxes they owe on those payouts.

And it reinstated another 2012 ruling, saying employers must report the back pay awards to the Social Security Administration, split into the quarters of the year when workers would have earned the pay, so the workers can get proper Social Security wage credit.

“A back pay order is a reparation order designed to vindicate the public policy of the statute by making employees whole for losses suffered on account of an unfair labor practice,” NLRB Chairman Mark Gaston Pearce and members Harry Johnson and Nancy Schiffer wrote.

“Accordingly, the board has revised and updated its remedial policies from time to time to ensure victims of unlawful conduct are actually made whole.”

The board’s 2012 pro-worker rulings on Social Security and income taxes got tossed out – along with dozens of other decisions – earlier this year.  That’s when the U.S. Supreme Court ruled the board then lacked a quorum to decide anything, because of illegal “recess appointees” by Democratic President Barack Obama.

The board, which now has a full five legal members, used the case pitting workers Mariella Soto and Anahi Figueroa against their employer, Tortillas Don Chavas, a Tucson, Ariz., tortilla manufacturer, to reinstate its two prior rulings.

Management fired Soto and Figueroa in 2011, through “constructive discharges” – the legal term describing cases where employers make conditions so bad for workers they have to quit.   Managers changed both workers to the night shift, knowing that doing so would prevent them from arranging for child care.

Management fired Soto for complaining about sexual harassment on the job.   It fired Figueroa for walking out over hazardous working conditions, including the overheated plant in the summer.  The board ordered the tortilla plant to rehire both, with back pay.

But the key part is NLRB’s statement ordering companies to credit workers for Social Security purposes and to compensate workers for extra income tax liability they face for the back pay.  Ordering firms to pay “effectuates the policies of “ the National Labor Relations Act.

Without the reimbursements from the employers for the higher state and federal taxes in the years they get back pay awards, the workers were effectively stuck with the tax bills.

Those workers “may be pushed into a higher tax bracket, and consequently may owe more in income taxes than if she had received her wages when they were or would have been earned.  The result is the discriminatee is disadvantaged a second time,” the board said.

“Accordingly, in this case and in all pending and future cases in which we find a violation of the act that results in make-whole relief, we will continue routinely to require” the law-breaking company to send documents to the Social Security Administration crediting the injured workers with earnings they would have had – and later got in the lump sum back pay — absent the employer’s labor law-breaking .

And the board will require offending companies “to reimburse the discriminatee(s) for any additional federal and state income taxes the discriminatee(s) may owe as a consequence of receiving a lump-sum back pay award in a calendar year other than the year in which the income would have been earned had the act not been violated.”

“The purpose of our tax compensation remedy, like that of the Social Security reporting requirement, is to ensure an employee who receives lump-sum back pay rather than regular income is truly made whole.”