Social Security Administration, Baltimore, Maryland, Petitioner v. Federal Labor Relations Authority, Respondent American Federation of Government Employees, AFL-CIO, Intervenor

                  United States Court of Appeals


       Argued November 22, 1999   Decided January 18, 2000 

                           No. 99-1157

      Social Security Administration, Baltimore, Maryland, 


               Federal Labor Relations Authority, 

      American Federation of Government Employees, AFL-CIO, 

        On Petition for Review and Cross-Application for 
                 Enforcement of an Order of the 
                Federal Labor Relations Authority

     Anne Murphy, Attorney, U.S. Department of Justice, ar-
gued the cause for petitioner. With her on the briefs were 
David W. Ogden, Acting Assistant Attorney General, and 
Alfred Mollin, Senior Counsel.

     Ann M. Boehm, Attorney, Federal Labor Relations Au-
thority, argued the cause for respondent. With her on the 
brief were David M. Smith, Solicitor, and William R. Tobey, 
Deputy Solicitor.

     Before:  Williams, Sentelle and Randolph, Circuit 

     Opinion for the Court filed by Circuit Judge Sentelle.

     Sentelle, Circuit Judge:  The Social Security Administra-
tion (SSA) petitions for review of an unfair labor practice 
order of the Federal Labor Relations Authority (FLRA) 
requiring the SSA to pay post-judgment interest on liqui-
dated damages awarded through arbitration under the Fair 
Labor Standards Act (FLSA).  See Social Sec. Admin. Balti-
more, Md. and American Fed'n of Gov't Employees, AFL-
CIO, 55 F.L.R.A. 246 (1999).  In its order, the FLRA inter-
preted the Back Pay Act as requiring the SSA to pay such 
interest.  Because we find that the Back Pay Act does not 
authorize the FLRA to require an agency to pay interest on 
liquidated damages, we reverse the FLRA's order.

                          I. Background

     The present controversy arises from the implementation of 
awards in two earlier arbitration proceedings before arbitra-
tors Henry L. Segal and M. David Vaughn.  In those arbitra-
tion proceedings, a total of 7,500 SSA employees successfully 
contended that they had been misclassified and consequently 
denied payment for overtime work to which they would 
otherwise have been entitled.  See American Fed'n of Gov't 
Employees, AFL-CIO and Social Sec. Admin., No. BW-89-
R-0044, Grievance GC-UMG-88-01 and FO-UMG-87-10 
(1993) (Segal, Arb.) and (1995) (Vaughn, Arb.).  Pursuant to 
the FLSA, the arbitrators awarded the employees six years' 
back pay plus interest or liquidated damages equal to the 
underlying back pay amount, whichever would yield the 
greatest award on the date of payment as determined individ-
ually for each employee.  In other words, the only employees 
to receive liquidated damages would be those for whom 

accrued interest would not double their award.  The Segal 
award, applicable to 6,000 employees, became final in August 
of 1993.  The Vaughn award, which gives rise to the unfair 
labor practice order which is the subject of the present 
petition, became final in February of 1995.

     The SSA did not begin payments on the Segal award until 
after August 1995;  and the SSA postponed payment of the 
Vaughn award until the FLRA reached a decision in another 
case, Social Sec. Admin. Baltimore, Md. and American 
Fed'n of Gov't Employees, AFL-CIO, 53 F.L.R.A. 1053 
(1997), although the SSA made some payments under Vaughn 
in March 1996.  In May 1995 and October 1995 respectively, 
the American Federation of Government Employees, AFL-
CIO (the Union) filed unfair labor practice charges against 
the SSA for failure to comply with the Segal and Vaughn 
awards.  The Union and the SSA settled all aspects of their 
dispute except the Union's claim that the SSA should pay 
post-judgment interest on liquidated damages.  The Union 
and the SSA submitted to the FLRA for resolution the 
question of "whether interest on liquidated damages is legally 
required."  Social Sec. Admin. Baltimore, Md., 55 F.L.R.A. 
at 248.

     The FLRA ruled that the record in Segal was insufficient 
to determine whether the SSA had unreasonably delayed 
compliance with the award;  but with respect to the Vaughn 
award, the SSA conceded its failure to comply timely.  The 
FLRA, relying on the Back Pay Act, 5 U.S.C. s 5596(b)(1)-(2) 
(1994), ordered the SSA to pay interest on the entire award, 
inclusive of liquidated damages, "commencing from the date 
the award became final and binding."  Social Sec. Admin. 
Baltimore, Md., 55 F.L.R.A. at 251.  The FLRA recognized 
that the Back Pay Act waived sovereign immunity from 
claims for interest on claims of an aggrieved employee " 'af-
fected by an unjustified or unwarranted personnel action' " 
that " 'resulted in the withdrawal or reduction ... of the pay, 
allowances, or differentials of the employee[.]' "  See id. at 
250 (quoting 5 U.S.C. s 5596(b)(1)).  The FLRA concluded 
that the SSA's failure to comply timely with the Vaughn 

award satisfied these requirements.  The SSA appeals from 
that conclusion.

                           II. Analysis

     The issue before us is the same as that presented to the 
FLRA:  whether the Back Pay Act requires interest on 
liquidated damages.  Historically, sovereign immunity has 
shielded agencies of the federal government from interest 
claims.  See, e.g., Library of Congress v. Shaw, 478 U.S. 310, 
314-17 (1986);  Amax Land Co. v. Quarterman, 181 F.3d 
1356, 1359-60 (D.C. Cir. 1999).  Even where Congress has 
waived immunity to suit, a litigant against the government 
cannot recover interest unless Congress affirmatively, sepa-
rately, and unambiguously contemplated an award of interest.  
See Shaw, 478 U.S. at 315.  Congress has enacted various 
statutes waiving the government's immunity from interest 
claims, however.  See Shaw, 478 U.S. at 318 n.6 (listing 
several examples of congressional waivers of sovereign immu-
nity from interest claims).  We construe the scope of any 
statute waiving sovereign immunity strictly in the govern-
ment's favor.  See id. at 318;  Brown v. Secretary of the 
Army, 78 F.3d 645, 649 (D.C. Cir. 1996).  The FLRA main-
tains that, even under this high standard, the Back Pay Act 
authorizes it to require interest in this case.

     We have recognized the Back Pay Act as a congressional 
waiver of sovereign immunity from interest claims on awards 
arising under other statutes, such as the FLSA.  See Brown 
v. Secretary of the Army, 918 F.2d 214, 216-18 (D.C. Cir. 
1990).  Accord Edwards v. Lujan, 40 F.3d 1152, 1154 (10th 
Cir. 1994) (adopting Brown);  Woolf v. Bowles, 57 F.3d 407, 
410 (4th Cir. 1995) (same).  Like any other waiver of sover-
eign immunity, however, the Back Pay Act's allowance of 
interest against the government is effective only as to awards 
that come within the scope of the statute.  The Act provides 
recovery to any government employee who

     ha[s] been affected by an unjustified or unwarranted 
     personnel action which has resulted in the withdrawal or 
     reduction of all or part of the pay, allowances, or differ-
     entials of the employee ... is entitled ... to receive ... 
     an amount equal to all or any part of the pay, allowances, 
     or differentials, as applicable which the employee normal-
     ly would have earned or received during the period if the 
     personnel action had not occurred....
5 U.S.C. s 5596(b)(1) (emphasis added). Amounts awarded 
under this provision "shall be payable with interest."  5 
U.S.C. s 5596(b)(2)(A).  Thus, the Act does include a waiver 
of sovereign immunity as to interest on awards under the Act.  
But to meet the standard under the Act for an award to bear 
interest:  1) the employee must have been affected by an 
unjustified or unwarranted personnel action;  2) the employee 
must have suffered a withdrawal or reduction of all or part of 
his pay, allowances, or differentials;  and 3) but for the action, 
the employee would not have experienced the withdrawal or 
reduction.  The parties before us disagree as to whether the 
SSA's failure to pay the Vaughn award timely represents "a 
withdrawal or reduction of pay, allowances, or differentials" 
under 5 U.S.C. s 5596(b)(1), as defined by 5 C.F.R. s 550.803 

               A. Pay, Allowances, or Differentials

     The Social Security Administration contends, and we agree, 
that liquidated damages do not constitute "pay, allowances, or 
differentials."  The Back Pay Act does not define the term 
pay, allowances, or differentials, although its use in the same 
provision as the phrase "which the employee normally would 
have earned or received" offers some guidance.  Since 1981, 
the Office of Personnel Management (OPM) regulations have 
defined pay, allowances, or differentials collectively as "mone-
tary and employment benefits to which an employee is enti-
tled by statute or regulation by virtue of the performance of a 
Federal function" rather than as separate terms.  5 C.F.R. 
s 550.803.  The SSA argues that we should interpret pay, 
allowances, or differentials narrowly as encompassing only 
payments or benefits in the nature of compensation which an 
employee would normally receive for performing his federal 
job.  The FLRA maintains that the OPM's regulation adopts 

a much broader reading of pay, allowances, or differentials 
which includes anything to which an employee is entitled that 
is in any way connected with his federal employment, includ-
ing the liquidated damages award before us, which arose out 
of a dispute originally connected with the claimants' employ-

     While there is no case directly on point, existing precedent 
supports the SSA's position.  The Tenth Circuit and the 
Court of Claims have both interpreted pay, allowances, or 
differentials consistent with its statutory context as including 
only those amounts and benefits that the employee normally 
would have earned as part of his regular compensation during 
the period in question if the adverse personnel action had not 
occurred.  See Hurley v. United States, 624 F.2d 93, 94-95 
(10th Cir. 1980);  Morris v. United States, 595 F.2d 591, 594 
(Ct. Cl. 1979).  Hurley and Morris involved claims for reim-
bursement of per diem and commuting expenditures incurred 
as a result of improper reassignments of military personnel to 
different geographical locations.  Since the employees would 
not have incurred the expenses in the first place had the 
erroneous reassignments never occurred, the reimbursements 
would not have been part of the claimants' compensation 
absent that unwarranted personnel action.  Therefore, the 
courts held that such reimbursements were not within the 
scope of pay, allowances, or differentials under the Back Pay 

     The award at issue before us involves not salary, allow-
ances, or employment benefits but liquidated damages.  
Again, there is no controlling authority directly on point, but 
the Supreme Court has considered the nature of liquidated 
damages in an interest award controversy, though not under 
the Back Pay Act.  In Brooklyn Savings Bank v. O'Neil, 324 
U.S. 697 (1945), the Supreme Court considered the claim of 
an employee in the private sector who had obtained a recov-
ery under the FLSA.  The FLSA specifically provided that in 
addition to a recovery of unpaid minimum wages or overtime 
compensation, a prevailing employee-claimant was entitled to 
"an additional equal amount as liquidated damages."  Id. at 
699 (quoting Fair Labor Standards Act of 1938, 52 Stat. 1060, 

at 1069).  The Supreme Court held that an employee could 
not recover interest on liquidated damages awarded under 
that statute.  The Court noted that, in the FLSA, Congress 
provided for liquidated damages because it recognized that 
the employer's failure to pay the full compensation owed 
without delay deprives the aggrieved employee of the use of 
those funds and may impair his ability to support himself.  
See id. at 707.  By authorizing liquidated damages, Congress 
sought to compensate the aggrieved employee for the employ-
er's delay and to restore him to a position as if the employer 
had not failed in its obligation to pay in a timely manner that 
compensation to which he was entitled.  See id.  The Court 
also recognized that interest likewise represents compensa-
tion for damages resulting from a delay in payment, and that 
permitting an employee to recover interest on liquidated 
damages would "produce the undesirable result of allowing 
interest on interest."  Id. at 715.

     In the case before us the liquidated damages clearly repre-
sent an alternative to interest as compensation for the gov-
ernment's delay in paying overtime, as opposed to some sort 
of remuneration for work performed, given that the Vaughn 
arbitrator ordered the greater of accrued interest or liqui-
dated damages to be added to each employee's individual 
overtime back pay award.  The SSA employees covered by 
the Vaughn award certainly would not have been entitled to 
either interest or liquidated damages as part of their regular 
compensation.  Following the reasoning of Hurley and Mor-
ris, and the implication of Brooklyn Savings, liquidated dam-
ages are not pay, allowances, or differentials.

     The FLRA challenges the continued validity of Hurley and 
Morris, as they predate the OPM's present regulatory defini-
tion.  But the Hurley and Morris courts based their conclu-
sions on the plain meaning of the statute, not the then-
existing OPM regulation.  Further, the OPM in promulgating 
the current regulatory definition did not purport to alter the 
results of those decisions.  See 46 Fed. Reg. 58,271, 58,272-73 
(1981).  In the commentary accompanying the regulation's 
publication, the OPM recognized as examples of employment 
benefits "coverage under the Civil Service Retirement Sys-

tem and benefits received under the Federal employee health 
benefits and group life insurance programs prior to retire-
ment."  Id. at 58,272.  The OPM also stated that benefits 
received after retirement were not encompassed by its defini-
tion of pay, allowances, or differentials, despite the connection 
of such benefits to federal employment.  See id.  In short, 
the OPM's comments support a narrower construction of its 
regulation that is more consistent with the analysis of Hurley 
and Morris and the SSA's interpretation than with the 
FLRA's approach.

     Moreover, despite its position here, the FLRA itself has 
cited Hurley and Morris, even after the OPM promulgated 
its current regulation, for the continuing proposition that per 
diem and commuting expenses are not reimbursable under 
the Back Pay Act.  See Department of Defense Dependents 
Sch. and Overseas Fed'n of Teachers, 54 F.L.R.A. 259, 266-67 
(1998).  Also, in United States Dep't of Health and Human 
Services and National Treasury Employees Union, 54 
F.L.R.A. 1210 (1998), the FLRA applied the reasoning of 
Hurley and Morris in concluding that transit subsidies fell 
within the scope of pay, allowances, or differentials as "nor-
mal legitimate employee benefits in the nature of employment 
compensation or emoluments," rather than nonreimbursible 
per diem.  See id. at 1221-23 (citing Department of Defense 
Dependents Schools).  In both of these proceedings, the 
FLRA quoted the current definition of pay, allowances, or 
differentials from 5 C.F.R. s 550.803, then endeavored at 
length to demonstrate why the payments in question were in 
the nature of the employees' regular compensation as op-
posed to amounts that the employees would not have received 
had the erroneous personnel action not occurred.  Thus, the 
FLRA's own precedents support the reading of pay, allow-
ances, or differentials advanced by the SSA, not the expansive 
interpretation adopted by the FLRA.

     Nevertheless, before us the FLRA characterizes the OPM's 
regulation as adopting a broad reading of the Back Pay Act, 
covering anything to which an employee is entitled in connec-
tion with his federal employment.  Relying heavily on the 
word "received" from 5 U.S.C. s 5596(b)(1)(A)(i), together 

with the word "entitled" and the phrase "by virtue of the 
performance of a Federal function" from the OPM's regula-
tion, the FLRA maintains that because the employees were 
entitled to receive the liquidated damages for reasons related 
to the performance of their jobs with the federal government, 
the plain meaning of the Back Pay Act and the regulation 
supports the imposition of interest on those liquidated dam-
ages.  The FLRA's construction takes these words and 
phrases out of context, however, as if they have significance 
independent of the full sentences of which they are part.

     It is a "fundamental principle of statutory construction 
(and, indeed, of language itself) that the meaning of a word 
cannot be determined in isolation, but must be drawn from 
the context in which it is used."  Deal v. United States, 508 
U.S. 129, 132 (1993) (citations omitted).  The Back Pay Act 
authorizes interest only on amounts representing "the pay, 
allowances, or differentials, as applicable which the employ-
ee[s] normally would have earned or received...."  5 U.S.C. 
s 5596(b)(1)(A)(i) (emphasis added).  Contrary to the FLRA's 
rather circular construction, these words do not authorize 
interest for all amounts that employees are entitled to re-
ceive, nor does the statute's use of the word "received" 
purport to define what constitutes pay, allowances, or differ-
entials.  The adverb "normally" modifying "received" further 
restricts the pay, allowances, or differentials to which interest 
may be applied.  Likewise, 5 C.F.R. s 550.803 does not define 
pay, allowances, or differentials as including any amounts to 
which an employee is entitled, but limits the term to "mone-
tary and employment benefits," then employs the phrase "by 
virtue of the performance of a Federal function."  In short, in 
construing both the statute and the regulation, the FLRA 
disregards the subject, the dominant element, of the clause or 
sentence and relies on limiting words and phrases that broad-
en the scope of the statute only when taken completely out of 

     We do not defer to the FLRA's interpretation of the Back 
Pay Act, a general statute not committed to the Authority's 
administration.  See, e.g., Professional Airways Sys. Special-
ists v. FLRA, 809 F.2d 855, 857 n.6 (D.C. Cir. 1987).  Nor do 

we defer to the FLRA's interpretation of a regulation promul-
gated by another agency, see United States Dep't of the Air 
Force v. FLRA, 952 F.2d 446, 450 (D.C. Cir. 1991), even if the 
OPM's regulation itself is entitled to deference under Chev-
ron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984).  We review 
this purely legal question de novo and conclude that, whether 
or not the OPM intended a broad reading of the statute, the 
FLRA's interpretation of the regulation stretches the OPM's 
arguably less restrictive phraseology to the broadest possible 
reading.  So far does the FLRA distort it that the regulation 
no longer comports with the statute it interprets.  "A regula-
tion which ... operates to create a rule out of harmony with 
the statute, is a mere nullity."  Manhattan Gen. Equip. Co. v. 
Commissioner of Internal Revenue, 297 U.S. 129, 134 (1936).  
In contrast, interpreting the regulatory definition as including 
only payments in the nature of compensation, such as literal 
"back pay" or regular employment benefits, is not only con-
sistent with the reasoning of Hurley and Morris, and with the 
OPM's own commentary, but also with the plain meaning of 
the statute.

     In summary, the phrase "pay, allowances, or differentials" 
includes only payments and benefits of the sort that an 
employee normally earns or receives as part the regular 
compensation for performing his job.  The statutory lan-
guage, the OPM regulation, and judicial and administrative 
precedent, as well as the command that we construe waivers 
of sovereign immunity narrowly, all mandate this measured 
interpretation of pay, allowances, and differentials.  Liqui-
dated damages are not within the scope of this construction.  
Accordingly, we hold that liquidated damages are not pay, 
allowances, or differentials within the context of the Back Pay 

                    B. Withdrawal or Reduction

     Our decision that the failure to pay timely the award of 
liquidated damages does not give rise to recoverable interest 
against a government agency rests not only on our conclusion 
that liquidated damages do not constitute "pay, allowances, or 

differentials" within the meaning of the statutory waiver of 
sovereign immunity, but also that the failure timely to pay 
those damages does not constitute a "withdrawal or reduc-
tion" of compensation as contemplated in the statute.  As the 
Supreme Court recognized in United States v. Testan, 424 
U.S. 392 (1976), not every failure to deliver to an individual 
employed by the government a sum of money to which he is 
entitled constitutes a withdrawal or reduction of such pay, 
allowances, or differentials.  Testan addressed a claim for 
back pay by two government employees who sued successful-
ly for reclassification to a higher grade.  The Court rejected a 
broadening interpretation of withdrawal or reduction in the 
Back Pay Act, holding:

     The statute's language was intended to provide a mone-
     tary remedy for wrongful reductions in grade, removals, 
     suspensions, and other unwarranted or unjustified ac-
     tions affecting pay or allowances [that] could occur in the 
     course of reassignments and change from full-time to 
     part-time work....
     ... [T]he Back Pay Act, as its words so clearly indicate, 
     was intended to grant a monetary cause of action only to 
     those who were subjected to a reduction in their duly 
     appointed emoluments or position.
Id. at 405-07 (internal quotation omitted) (emphasis added).  
Thus, because the employees in Testan had been paid the 
appropriate amount for the grade to which they were appoint-
ed, and had not experienced a reduction in pay or a decrease 
in grade, the Court held that they had not suffered a with-
drawal or reduction of their pay, allowances, or differentials 
as required for recovery under the Back Pay Act, even 
though they rightly should have been classified at the higher 
grade from the beginning.  Id. at 407;  see also Brown, 918 
F.2d at 218 (recognizing as the holding in Testan "that Back 
Pay Act relief is available only to compensate for a reduction 
in pay or a decrease in grade").

     As a general matter, the SSA's failure to pay this one-time 
equitable remedy as quickly as it might hardly deprived the 
recipient employees of any identifiable benefit.  Under the 
Vaughn remedy for the SSA's misclassification, interest con-
tinued to accrue through the final date of payment.  The only 
employees receiving liquidated damages were those for whom 
the amount of such damages continued to exceed the interest 
to which the employees otherwise would have been entitled 
after that accrual.  Thus, the liquidated damages accom-
plished the job for which they were intended--to compensate 
for the delay in payment.  At a minimum, however, the SSA's 
failure to pay the Vaughn award in a timely manner