NLRB To Compound Interest On Daily Basis For Backpay Awards

In an October 22, 2010 National Labor Relations Board (“Board”) decision, Kentucky River Medical Center, 356 NLRB No. 8 (2010), the Board made a policy change by establishing that interest will be compounded on a daily basis for backpay awards. Accordingly, whenever backpay is awarded, interest will be compounded daily, regardless of any other fact, condition or circumstance.  The Board explained that “compounding interest, not simple interest, is the norm in connection with private lending practices” and that the Back Pay Act, applicable to federal employees, requires daily compounded interest on backpay awards. The Board saw no reason “why private-sector employees covered by the National Labor Relations Act [(“NLRA”)] should be treated less favorably than federal employees or, correspondingly, why violators of the NLRA should not be subject to the same remedies as the United States in its capacity as an employer.”  The Board concluded that compounding interest daily would “better serve the remedial policies of the NLRA,” as the Board’s primary focus is on making the employee whole.

The policy change applies to all pending cases, except for cases in the compliance stage, given the absence of any “manifest injustice.”  See Rome Elec. Sys., 356 NLRB No. 38 (2010).  To determine whether manifest injustice exists in applying this policy retroactively, the Board will consider “reliance of the parties on preexisting law, the effect of retroactivity on the purpose of the Act and any particular injustice arising from retroactive application.”

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