New Horizons For The Retarded, Inc.

National Labor Relations Board - Board Decisions

May 28, 1987

283 N.L.R.B. 1173 (N.L.R.B. 1987)

NEW HORIZONS FOR THE RETARDED
New Horizons for the Retarded , Inc. and Profes-
sional and Commercial Employees Union, a/w
the International Ladies' Garment Workers'
Union, AFL-CIO. Cases 3-CA-12852, 3-CA-
12852-2, and 3-CA-12965
28 May 1987
SUPPLEMENTAL DECISION
BY CHAIRMAN DOTSON AND MEMBERS
JOHANSEN, BABSON, STEPHENS, AND
CRACRAFT
On 14 January 1987 the Board issued its decision
in this case.' On 25 February 1987 the General
Counsel filed a "Motion for Clarification."
The National Labor Relations Board has consid-
ered the motion and its earlier decision in light of
the Tax Reform Act of 19862 and has decided to
grant the General Counsel's motion. The General
Counsel asserts that clarification of the method
used by the Board to compute interest on backpay
is required because of the recent change in the
method used by the Internal Revenue Service
(IRS) to compute interest charged or paid on the
underpayment or overpayment of Federal taxes.
We agree that the current method of computing in-
terest on backpay is no longer appropriate and for
the reasons set out below we adopt the method
currently used by the IRS to compute interest
charged on the underpayment of Federal taxes.
In order to keep in line with current economic
conditions, the Board in Florida Steel Corp., 231
NLRB 651 (1977), abandoned the 6-percent interest
rate it had established in ,Isis Plumbing Co.3 and
adopted the sliding interest scale charged or paid
by the IRS on the underpayment or overpayment
of Federal taxes. This sliding rate was embodied in
§ 6621 of the Internal Revenue Code.4 The rate
was fixed at the adjusted prime rate5 recalculated
periodically by the Secretary of the Treasury to re-
flect changes in the money market. The Board
chose a rate keyed to the private sector money
market in order to' encourage timely compliance
with Board orders,, discourage the' commission of
unfair labor practices, and more fully, compensate
discrirninatees for their economic losses.
' 2&2 NLRB 760
2 Pub. L 99-514, 100 Stat 2085 (1986)
3 13''8 NLRB 716 (1962)
4 26 US C § 6621, added 3 Jan 1975 (Pub. L 93-625 § 7(a)(1), 88
Stat 2114).
The adjusted prime rate was defined as "90 percent of the average
predominant prime rate quoted by commercial banks to large businesses
as determined by the Board of Governors of the Federal Reserve
System" rounded to the nearest full percent 26 U S C § 6621(c) After
the Florida Steel decision issued, § 6621 was amended to require the ad-
justed prime rate to be changed every 6 months, instead of every 2 years,
and to eliminate the 10-percent reduction
1173
A number of factors led to the selection of the
IRS "adjusted prime rate" as the Board's interest
rate. First, it was directly tied to interest rates in
the private money market. It also was subject to
periodic semiautomatic adjustment and, finally, it
was easy to administer.6
The Tax Reform Act of 19805 changes the
method by which the interest rate is calculated
under § 6621.7 As of 1 January 1987, the IRS no
longer calculates, interest on tax underpayments and
overpayments based on the adjusted prime rate, but
rather uses the "short-term Federal rate." The
Secretary of the Treasury determines the short-
term Federal rate on a monthly basis; however,, the
IRS applies the rate quarterly.9 Thus, the short-
term Federal rate for any quarter is the rate deter-
mined by the Secretary of the Treasury for the first
month of the previous calendar quarter. Any such
rate so determined by the Secretary must be round-
ed to the nearest full percent.' ° The Tax Reform
Act also imposes different rates for the underpay-
ment and overpayment of Federal taxes. The over-
payment rate (paid by the IRS on refunds) is the
short-term Federal rate plus 2 percent, while the
underpayment rate (paid by the taxpayer on addi-
tional taxes) is the short-term Federal rate plus 3
percent.11
The General Counsel urges that we adopt the
method for computing interest set out in the
amendments to § 6621 and that we select the un-
derpayment rate for calculating interest on backpay
awards. We agree with the' General Counsel. The
short-term Federal rate has 'many of the character-
istics that prompted the Board in Florida Steel to
adopt the adjusted prime rate as used by ' the IRS
pursuant to 26 U.S.C. § 6621. Thus, while it is not
directly linked to interest rates in the private
money market, the short-term Federal rate is based
on average market yields on marketable Federal
obligations and is influenced by private economic
market forces. Further, it is subject to periodic ad-
justment and is relatively easy to administer. Under
the method used in Florida Steel, the adjusted
prime rate was determined semiannually, for the 6-
month periods ending on September 30 and March
31, with the rate for September 30 determinations
taking effect on the following ' January 1, and for
6 Florida Steel, 231 NLRB at 651-652
T Pub L 99-514 § 1511, 100 Stat 2744 (1986)
8 The short-term rate is determined by the Secretary of the Treasury
based on the average market yield on outstanding marketable obligations
of the United States with remaining periods to maturity of 3 years or less
26 U S C § 1274 (d)(1)(C)(i) (Supp 1985)
9 Pub L 99-514 § 1511(b)(2)(A), 100 Stat 2744 (to be codified at 26
U.S C. § 6621 (b)(2)(A))
1s Id at § 1511(b)(3) (to be codified at § 6621(b)(3))
11 Id . at § 1511 (a)(1) and (2) (to be codified at § 6621 (a)(1) and (2))
283 NLRB No. 181
1174 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
March 31 determinations the following July 1. By
contrast, the short-term Federal rate is determined
quarterly, with- the rate for any calendar quarter
being the rate determined by the Secretary of the
Treasury on the first month of the previous calen-
dar quarter (e.g., the rate determined in January
would be effective for the following' April through
June). While the interest rate may change four
times a year rather than twice a year, this does not
pose any greater administrative burden for the
Board because backpay -is usually computed quar-
terly.12 As in Florida Steel, any adjustment in the
rate will be known well ahead of the effective date
(in the short-term Federal rate case, 2 months,
rather than 3 months in Florida Steel); and the rate
-12 F W. Woolworth Co, 90 NLRB 289 (1950). In Ogle Protection Serv-
ice, 183 NLRB 682, 683 (1970), however, the Board held that backpay
owing, from the repudiation and failure to apply the terms of a collective-
bargaining agreement will not be computed using the Woolworth formula
because cessation of the employment status and interim earnings are not
involved We shall, nevertheless, use the quarterly method for computing
interest on backpay due in all backpay situations , because the determina-
tion of the rate of interest to be applied in any given backpay period is
not affected by the methods used to compute backpay
is rounded to the nearest whole percent. As noted,
we find that the underpayment rate is the appropri-
ate one to use-in computing interest on backpay
awards.13
Therefore, on the backpay due in this case, we
shall require that the Respondent pay interest to
accrue commencing with the last day of each cal-
endar quarter of the backpay period for the amount
due and owing for each quarterly period and con-
tinuing until - compliance' with the Order is
achieved, such interest to be computed at the
"short-term Federal rate" for the underpayment of
taxes as set out in the 1986 amendment to 26
U.S.C. § 6621.14
13 We note that at the present time, adoption of the underpayment rate
will result in no change from the interest computed under the Florida
Steel formula, which was 9 percent through March 1987. The underpay-
ment rate for the first quarter of 1987 was 9 percent and it has remained
so through the current quarter. See Rev Rul. 86-146, 1986-50 Internal
Revenue Bulletin 5 (Dec 15, 1986) (first quarter rate); and Rev Rul. 87-
23, 1987-13 Internal Revenue Bulletin 46 (Mar. 30, 1987) (second quarter
rate).
14 Interest on amounts accrued prior to 1 January 1987 (the effective
date of the 1986 amendment to 26 U.S C. § 6621) shall be 'computed in
accordance with Florida Steel Corp., 231 NLRB 651 (1977).