Labor & Employment Law Daily NLRB: Nursing home employer must compensate employees for losses on 401(k) plan
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Tuesday, October 20, 2020

NLRB: Nursing home employer must compensate employees for losses on 401(k) plan

By Ronald Miller, J.D.

An employer violated Section 8(a)(5) and (1) of the NLRA by failing to immediately secure a replacement 401(k) plan when a predecessor’s plan was terminated.

To remedy an employer’s failure to immediately secure a replacement 401(k) plan after a predecessor’s plan was terminated, a three-member panel agreed with an administrative law judge that remedial relief appropriately included making those employees whole for the delinquent 401(k) matching contributions the employer unlawfully failed to make on their behalf. Moreover, the employees were entitled to compensation for investment growth they lost on their 401(k) contributions due to employer’s unlawful failure to deduct and remit those amounts to 401(k) plan. However, the Board declined to require the employer to contribute from its own funds, the amounts the employees would have contributed to the 401(k) plan. Rather, the Board determined that requiring the employer to pay those amounts again would be punitive and result in a windfall to the employees (Alameda Center for Rehabilitation and Healthcare, Inc., October 14, 2020).

The employer purchased the nursing home at the center of this dispute on April 21, 2016. A union represented a unit of LPNs employed at the facility before and after the sale. The union and the predecessor employer were parties to a collective bargaining agreement that included a provision providing for participation in a 401(k) plan, and for employer matching contributions. On February 11, 2016, in anticipation of the sale, the employer signed a “Status Quo Agreement” adopting the terms of the union’s contract with the predecessor. Upon the sale’s completion in April, the predecessor terminated its 401(k) plan, but the employer did not obtain a replacement 401(k) plan until January 2017.

Remedial relief. An ALJ found that the employer violated Section 8(a)(5) and (1) of the NLRA by failing to immediately secure a replacement 401(k) plan when the predecessor’s plan was terminated. At issue in this supplemental compliance proceeding is the amount owed by the employer for its unlawful failure to withhold employees’ 401(k) contributions and to make matching employer contributions to the 401(k) plan from April 17, 2016, until January 7, 2017.

The ALJ determined that ten employees were entitled to remedial relief and that the employer was obligated to make them whole for both their employee 401(k) contributions and its matching 401(k) contributions during the delinquent period, plus the investment growth the amounts would have experienced during that period. The Board agreed with the law judge’s findings on the amounts each of the ten employees would have contributed to the 401(k) plan had it been available.

Delinquent 401(k) contributions. Here, the Board agreed with the ALJ that the General Counsel established a reasonable formula for determining which employees are entitled to remedial relief. It further agreed that remedial relief appropriately included making those employees whole for the delinquent 401(k) matching contributions the employer unlawfully failed to make on their behalf, plus the investment growth those amounts would have experienced.

However, the Board reversed the ALJ’s determination that the remedial relief properly included requiring the employer to contribute from its own funds, the amounts the employees would have contributed to the 401(k) plan. While the employer unlawfully failed to withhold the employees’ contributions and remit them to the 401(k) plan, it did pay the employees those amounts in their wages. Requiring the employer to pay those amounts again would be punitive and result in a windfall to the employees.

Nonetheless, it was appropriate remedial relief appropriate to compensate the employees for the investment growth they lost on their 401(k) contributions due to the employer’s unlawful failure to deduct and remit those amounts to the 401(k) plan. Providing relief for lost 401(k) investment growth on the missed employee contributions compensates the employees for their loss without a punitive, windfall payment of any kind, concluded the Board.

Accordingly, the Board remanded this proceeding for recalculation of the amounts owed the 401(k) plan for each of the ten employees.

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