• New Board Policy Permits Front Pay to be Included in Settlement Agreements
  • January 25, 2013
  • Law Firm: Ford Harrison LLP - Atlanta Office
  • Executive Summary:  A recent Memorandum issued by the National Labor Relations Board's (NLRB) Acting General Counsel Lafe Solomon may reflect a subtle effort by the Board to encourage the recovery of front pay for individuals claiming they were unlawfully fired or disciplined.  GC 13-02, issued January 9, 2013, modifies existing policy to permit Board settlements to include front pay instead of requiring such agreements to be set forth in non-Board "side letters," which was the prior practice.

    The Memorandum emphasizes that Board policy prefers reinstatement over front pay and notes that under current law the Board does not include front pay as a remedy in remedial orders.  Nevertheless, the Memorandum also acknowledges that payment of compensation in lieu of reinstatement - that is, front pay - is commonly included as part of voluntary settlement agreements.  Because of the Board's practice of requiring that settlement terms for the provision of front pay be included in a side letter separate from documentation of a Board settlement, most settlement agreements including front pay are entirely non-Board.  The Memorandum notes that Board policy should favor Board settlements, not discourage them.  Accordingly, the Board's Case Handling Manual (CHM) will be revised to permit front pay to be included in the terms of Board settlement agreements.

    The current CHM directs Regions to communicate or relay offers that include front pay as an inducement to waive reinstatement, but also admonishes them not to "encourage" a waiver or "advocate a premium above the make-whole remedy [that is, back pay] for any purpose whatsoever."  The Memorandum notes that the difference between communicating an offer and encouraging its acceptance can be difficult to ascertain, especially in light of CHM § 10128.6, which requires Regions to advise parties of the factors favoring settlement, such as the risk, time, expense and emotional impact of litigation.  As a result Regions have interpreted the guidance differently with regard to negotiations over front pay.

    The Memorandum states that it is revising the CHM to incorporate a different approach, one that seeks to ensure that the parties are fully informed of the Board's position.  The Memorandum also notes that a Region may raise the issue of front pay if "the region is confident that reinstatement will not be achieved absent litigation."      The CHM will also be revised to require a written waiver of reinstatement, unless Operations-Management approves proceeding without a written waiver in a particular case.

    Revisions to the Reinstatement provision of the CHM will clarify that: 

    • Where an employer conditions an offer of back pay on the individual's waiver of reinstatement, the Region should convey the offer but also inform the individual that the Region believes the individual is entitled to reinstatement and, absent settlement, the Region intends to pursue formal proceedings to obtain an order requiring reinstatement as well as 100% back pay.
    • If the individual voluntarily agrees to waive reinstatement, the Region should obtain a written waiver of reinstatement if the individual is not a charging party.
    • If the employer offers front pay in lieu of reinstatement, or if the individual proposes front pay as compensation for a waiver of reinstatement, the Region should relay the settlement proposal but should make it clear that the Region is "only serving as a conduit for the proposal and is not seeking front pay in formal proceedings." 
    • When the Region is confident that reinstatement will not be achieved absent litigation, the Region may raise the issue of whether front pay would be acceptable to the parties but should make it clear to them that the Region is not seeking front pay in formal proceedings.
    • Agreed-upon front pay, as compensation for a waiver of reinstatement, may be included in any Board settlement.
    • If the employer convinces the Region that the individual is unsuitable for reinstatement, the Region may approve a settlement agreement that does not include reinstatement after obtaining approval from the Division of Operations-Management and, in post-judgment cases, the Contempt Litigation & Compliance Branch.

    Employers' Bottom Line:

    The Memorandum states that its purpose is to ensure more consistency among the Regions with regard to the issue of front pay.  However, based on the Memorandum's language permitting the Region to raise the issue of front pay when it is confident reinstatement will not be achieved without litigation, employers may see the Board raising this issue more frequently in settlement negotiations.