UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


SSA

v.

FLRA


99-1157a

D.C. Cir. 2000


*	*	*


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


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


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


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  (1999).


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


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- ment.


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


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


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  context.


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


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  Act.


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,


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 clearly  did not reduce the regular pay or
benefits the employees  were receiving in relation to their ongoing
employment, nor  did it reduce their grade, as Testan requires.
Therefore,  regardless of whether liquidated damages fall within the 
scope of pay, allowances, and differentials, according to the  Supreme
Court's instruction in Testan, the SSA's inaction in  this case does
not represent a withdrawal or reduction under  the Back Pay Act.


The FLRA erroneously suggests that Testan is inapplicable  since the
present case involves an unfair labor practice as  opposed to a
reclassification action. Nothing in the Testan  opinion or the
relevant Back Pay Act provisions suggests that  classification errors
and unfair labor practices should be  treated differently. In fact, 5
U.S.C. s 5596(b)(1) expressly  includes unfair labor practices but
does not distinguish them  from other unjustified or unwarranted
personnel actions.  The fact upon which the FLRA seeks to distinguish
Testan is  not determinative of the present inquiry. Thus, Testan con-
trols, and we conclude that the FLRA's conceded failure to  comply
with the Vaughn award does not constitute a with- drawal or reduction
within the context of the Back Pay Act.


Conclusion


In summary, the Back Pay Act would only waive sovereign  immunity
against interest on the liquidated damages portion  of the Vaughn
award if the SSA's delay in remitting those 


payments represented a withdrawal or reduction of the em- ployees' pay,
allowances, or differentials. The liquidated  damages are not "pay,
allowances, or differentials" and the  FLRA's failure to pay them in a
timely manner is not a  "withdrawal or reduction." Accordingly, we
hold that the  Back Pay Act does not authorize the FLRA to require an 
agency to pay interest on liquidated damages awarded under  the Fair
Labor Standards Act. The FLRA's order to the  contrary is reversed.
The petition for review is granted.