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Washington, D.C.—After a 19-year fight through the federal courts, the National Treasury Employees Union (NTEU) has reached agreement with the federal government on payment of over $173.5 million to more than 212,000 current and former “special salary rate” federal employees, NTEU President Colleen M. Kelley said today.

The NTEU leader called settlement of the class action lawsuit, which must be approved by the court, “a great victory which would not have occurred without the determination of NTEU to carry it forward until the rights of these federal employees were vindicated.”

The case arose when NTEU challenged an illegal regulation put in place in 1982 by the Office of Personnel Management (OPM). That regulation ended the government’s long-standing practice of passing on the entire annual general schedule pay increase to special rate employees. The result was that many special rate employees—those paid higher rates because they work in positions that are hard to fill—received no salary increases, or only very modest ones, between October 1, 1982, and September 30, 1988, when the government rescinded the illegal rule.

“We said all along we would stay with this case until we reached a successful conclusion,” Kelley said, “and I am extremely pleased that we have now done so.” She added: “This historic settlement will result in one

of the largest back pay awards ever made to federal employees,” and she called the outcome “a tremendous victory for federal employees.”

Several steps still must occur before payments are made. They include preliminary approval by the court, notice to members of the class and an opportunity to comment on it at a court hearing, followed by final court approval.

Class members will receive full information by mail, and it will be available on a new web site called www.SpecialRatesSettlement.com. Information also will be available via a new telephone hotline. The number is (800) 750-3406.

NTEU President Kelley said that calculation of the individual payment amounts will not be made until final court approval of the settlement.

She noted, however, that the vast majority of members of the class will receive payment, since they were “shortchanged” by the illegal OPM rule. Some special salary rate employees did receive the full pay to which they were entitled during the 1982-88 period, despite the existence of the OPM rule, and thus will not be entitled to any payment, she added.

An individual’s payment will have three components, Kelley said—back pay, an additional three percent to account for premium pay lost as a result of the OPM rule, and interest on those amounts.

In addition, the NTEU leader said, class members who retired during a time when their last three years of salary were adversely affected by the invalid rule, and who received an immediate annuity upon retirement, will receive, at the same time as any back pay they are owed, a one-time, lump-sum payment intended to compensate them for the impact the rule had on their annuities.

“This has been a long, difficult fight and it is now headed toward the proper conclusion,” Kelley said.

Special Rates Class Action Fact Sheet

Status:

NTEU and the Office of Personnel Management (OPM) have reached agreement on settlement of this long-running case. The settlement does not become final until the court has ruled that it is fair and reasonable. The first step in that process is for the parties to transfer the case to the Court of Federal Claims. The transfer is required for procedural reasons and will not affect the substantive rights of the parties. The parties will then ask that the court grant the requisite preliminary approval. Once that has been granted, notices containing detailed information about the settlement will be mailed to members of the class. The settlement documents will be made available on a new web site—www.SpecialRatesSettlement.com.

After notices are mailed, class members will have an opportunity to comment on the proposed settlement. The Court will schedule a fairness hearing to consider the comments of class members, after which, if the Court determines the settlement to be fair and reasonable, it will enter an order granting final approval to the settlement. Once that occurs, the government will make the settlement payment into a trust account established for the class and under the control of a court-appointed trustee. Class members will be mailed distribution packages describing amounts they are owed and telling them what to do to claim those amounts; and payments will be made.

Background:

NTEU litigated this case for 19 years on behalf of a class of current and former federal employees paid special salary rates who were denied proper pay increases in the 1980s. Special salary rates are paid to federal employees who occupy positions for which the government has a difficult time recruiting or retaining employees.

The case arose in response to a 1982 OPM regulation specifying that the annual statutory adjustment made to the general salary schedule would have no effect on special rate pay schedules. That regulation ended the government’s long-standing practice of passing on the entire annual general schedule increase to special rate employees. Because the 1982 regulation left special rate increases to OPM’s discretion, many special rate employees either received no salary increases at all between October 1, 1982 and September 30, 1988, or received very modest increases.

NTEU filed a legal challenge to the OPM regulation in 1983. The case was certified as a class action. In 1987, Judge John Garrett Penn of the U.S. District Court for the District of Columbia ruled that the OPM rule was illegal. The government appealed that decision, and about a year later, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s decision on the OPM rule. The appeals court, however, rejected the lower court’s formulation of the rules by which special salary rates should be adjusted. It sent the case back to the district court for determination of the appropriate remedy.

An extended legal battle followed, and in a decision ultimately issued in 1995, the district court approved an OPM-proposed formulation under which only a small handful of class members would have received a nominal amount of back pay. NTEU appealed to the Federal Circuit court of appeals, which in January 1998 issued a ruling supporting NTEU’s argument that the back pay should be calculated by applying the “alignment” rule that was in effect prior to the illegal 1982 rule. Under that rule, special rates were aligned to the closest step on the same grade of the general schedule that does not result in a salary decrease.

Negotiations between NTEU and the Justice Department ensued.

Some Frequently Asked Questions:

Who are the class members?

All federal employees who were paid special pay rates under Title V of the U.S. Code during fiscal years 1982 to 1988 are members of the class.

How will back pay be calculated?

A mechanism known as the “alignment rule” will form the foundation for calculations of back pay. This rule was advanced by NTEU as an alternative to the district court’s rule which would have resulted in only a small number of employees receiving a minimal amount of back pay. The alignment rule provides that special pay rates should be matched to the closest step on the same grade of the general schedule that does not result in a lower salary rate. The difference between the general schedule rate to which the special rate is aligned and the rate the employee was actually paid under the special rate schedule forms the basis for that employee’s back pay award.

The award will consist of three components: back pay calculated using the “alignment rule;” an additional three percent to account for premium pay lost because of the illegal OPM rule; and interest on these amounts. In addition, there will be a one-time, lump-sum payment to class members who retired during a time when their last three years of salary were adversely affected by the rule.

Will every member of the class be entitled to payment?

No. In accordance with the court’s decision, a class member must have been shortchanged as a result of the illegal OPM rule in order to be entitled to a payment. The majority of class members were shortchanged, and thus are entitled to payment. However, some class members received the salary to which they were entitled, despite the illegal OPM rule, and will not receive back pay.

When will class members be paid?

In any class action settlement, class members must be notified of the terms of the settlement and have an opportunity to comment on it. The court must then approve the settlement. Because of the legal requirements, it will therefore take some time before class members are paid. NTEU will proceed as expeditiously as the court permits. Class members will begin to receive payments nine months after final court approval of the settlement.