Christopher David Ruiz Cameron

Justice Marshall F. McComb Professor of Law Southwestern Law School

In the typical wrongful termination claim tried in a court of law, the prevailing employee expects to collect interest for every day that her award of backpay goes unpaid by the employer, starting on the date that she was fired and ending on the date that judgment is entered in her favor. The same expectation holds if the claim is diverted to mandatory, pre-dispute employment arbitration. Although a dispute may arise over how much interest should be paid - that is, what the precise interest rate should be - it is relatively rare for a dispute to arise over whether interest is owed.

In the typical wrongful termination grievance pursued in labor arbitration, however, the prevailing grievant and her union may not know what to expect, at least when it comes to interest. Absent a specific requirement imposed by the relevant collective bargaining agreement (CBA) or memorandum of understanding (MOU), some labor arbitrators will grant pre-judgment interest on backpay awards and some will not. A similar split can be found among hearing officers who entertain civil service appeals.

So, to clarify things I was asked the following question at a recent labor arbitration conference:

Q. When is it appropriate to expect pre-judgment interest on a back pay award in labor arbitration? What about post-judgment interest?

A. The short answer is that it depends on what the contract says and who the arbitrator is. If the CBA or MOU is silent - as is so often the case- and if the arbitrator is me, then the answer is easy: I will award pre-judgment interest. And I may award post-judgment interest as well, especially if the employer unreasonably delays payment of the full sum owed.

My reason for awarding pre-judgment interest is the same reason that interest is awarded on back pay in a court of law: it is necessary to make the claimant whole. Pre-judgment interest compensates the employee for earnings lost due to her inability to invest or spend the money while the dispute was being litigated and the money owed was being wrongfully withheld by the employer.

In my view, the typical arguments against awarding interest on back pay are unpersuasive. These arguments are that such an award exceeds the arbitrator's authority because it is not explicitly authorized by contract, punitive in nature, and/or against past practice or tradition. But absent clear language to the contrary, a CBA is widely understood as giving the arbitrator broad remedial power to make the affected party whole. Awarding interest does this. Moreover, such an award is restorative rather than punitive in nature. And although I will respect a past practice if it is proven, I will not honor tradition for tradition's sake if it fails to make the grievant whole. Perhaps that is why even arbitrators who do not typically award pre-judgment interest say they may do so when the aggrieved party makes a specific request. In my experience, however, it is unusual for an advocate to specify that interest is sought, at least until the remedy phase of the matter.  

But labor arbitrators in general are split over whether and in what measure interest should be paid (see Elkouri & Elkouri, How Arbitration Works at pp. 18-31 to 18-32 (8th ed. 2016)).

Outside labor arbitration, however, the law is clear that pre-judgment interest on back pay is owed, even if the law is a bit unclear on what the precise interest rate should be.  

For example, in California, the interest rate on breach of contract damages is set by law at 10% (see Cal. Civ. Code § 3289(b); see also Cal. Const. art. XV, § 1 (permitting pre-judgment interest of up to 10%).   

The exact interest rate may vary from setting to setting. For example, the California Public Employment Relations Board (PERB) has approved interest at the rate of 7%. And the last time I checked, the National Labor Relations Board (NLRB) imposed interest at the rate of 8%. Among the formulas that may be used to set the rate are some types of adjusted prime interest rate, the rate at which an individual could borrow the funds from a private lender, or the rate at which the employer is collecting interest on the sum being withheld.

A related question is whether interest on back pay should be compounded daily or yearly. I have awarded interest that is compounded yearly, but in recent years, PERB, following the NLRB, has opted to award interest that is compounded daily (see, e.g., El Centro Regional Medical Center, Decision No. 2980-M (Feb. 21, 2024)).

As a practical matter, it is rare for any remedy dispute to come before me. When I have ruled in favor of the grievant, my practice is to remand the matter to the parties with general instructions to negotiate a make-whole remedy that includes back pay with interest - and leave the details to the negotiations. I retain jurisdiction only to resolve any remedy dispute that may arise within one year of my award being issued. In the vast majority of cases, I hear nothing further. But once in a while, I do hear back from the parties. And lately, they have been arguing over interest.

For example, in a case involving a municipal employer, I sustained the grievance and awarded back pay with interest. Then I remanded the case to the parties so that the particulars could be worked out. The city objected on two grounds: first, it had never paid interest because there was no past practice requiring it to do so; and second, even if the city was ordered to pay interest, it should pay only 1.5%, which was the return earned by money sitting in some general fund account. Under these unique circumstances, I split the difference between 1.5% and 10% and imposed an interest rate of 5%.

And in a separate case involving the same employer, I was asked to intervene when over 12 months of remedy negotiations had broken down over the city's inability to calculate the principal sum of back pay that was owed to each grievant. At a status conference called to discuss the remedy, I reminded the city that it would owe not only pre-judgment but also post-judgment interest due to its unreasonable delay in making the grievants whole.  

The takeaway for most advocates in arbitration is this: if you plan to ask for (or oppose) an award of interest, then you should be prepared to make a timely request, state the rate you expect, and offer the appropriate authorities supporting your position. And it wouldn't hurt to know what your arbitrator's views on the subject are - in advance of selecting her.