201 F.3d 465 (D.C. Cir. 2000)
Social Security Administration, Baltimore, Maryland, Petitionerv.Federal Labor Relations Authority, RespondentAmerican Federation of Government Employees, AFL-CIO, Intervenor
No. 99-1157
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 22, 1999Decided January 18, 2000

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, argued 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 Authority, 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  Judges.
Opinion for the Court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge:


1
The Social Security Administration (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 liquidated damages awarded through arbitration under the Fair  Labor Standards Act (FLSA).  See Social Sec. Admin. Baltimore, Md. and American Fed'n of Gov't Employees, AFLCIO, 55 F.L.R.A. 246 (1999).  In its order, the FLRA interpreted 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

2
The present controversy arises from the implementation of  awards in two earlier arbitration proceedings before arbitrators Henry L. Segal and M. David Vaughn.  In those arbitration 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-89R-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 individually 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.


3
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, AFLCIO (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.


4
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. § 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 " 'affected 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.§ 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

5
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, separately, 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 immunity from interest claims).  We construe the scope of any  statute waiving sovereign immunity strictly in the government's favor.  See id. at 318;  Brown v. Secretary of the  Army, 78 F.3d 645, 649 (D.C. Cir. 1996).  The FLRA maintains that, even under this high standard, the Back Pay Act  authorizes it to require interest in this case.


6
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 sovereign 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


7
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 differentials 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....


8
5 U.S.C. § 5596(b)(1) (emphasis added). Amounts awarded  under this provision "shall be payable with interest."  5  U.S.C. § 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. § 5596(b)(1), as defined by 5 C.F.R. § 550.803  (1999).

A. Pay, Allowances, or Differentials

9
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 "monetary and employment benefits to which an employee is entitled by statute or regulation by virtue of the performance of a  Federal function" rather than as separate terms.  5 C.F.R.  § 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, including the liquidated damages award before us, which arose out  of a dispute originally connected with the claimants' employment.


10
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 reimbursement 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  Act.


11
The award at issue before us involves not salary, allowances, 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 recovery 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 employer'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 compensation 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.


12
In the case before us the liquidated damages clearly represent an alternative to interest as compensation for the government's delay in paying overtime, as opposed to some sort  of remuneration for work performed, given that the Vaughn  arbitrator ordered the greater of accruedinterest or liquidated 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 Morris, and the implication of Brooklyn Savings, liquidated damages are not pay, allowances, or differentials.


13
The FLRA challenges the continued validity of Hurley and  Morris, as they predate the OPM's present regulatory definition.  But the Hurley and Morris courts based their conclusions 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 System and benefits received under the Federal employee health  benefits and group life insurance programs prior to retirement."  Id. at 58,272.  The OPM also stated that benefits  received after retirement were not encompassed by its definition 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.


14
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 "normal 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. § 550.803, then endeavored at  length to demonstrate why the payments in question were in  the nature of the employees' regular compensation as opposed 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, allowances, or differentials advanced by the SSA, not the expansive  interpretation adopted by the FLRA.


15
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 connection with his federal employment.  Relying heavily on the  word "received" from 5 U.S.C. § 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 regulation, 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 damages.  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.


16
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 bedrawn 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 employee[s] normally would have earned or received...."  5 U.S.C.  § 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 receive, nor does the statute's use of the word "received"  purport to define what constitutes pay, allowances, or differentials.  The adverb "normally" modifying "received" further  restricts the pay, allowances, or differentials to which interest  may be applied.  Likewise, 5 C.F.R. § 550.803 does not define  pay, allowances, or differentials as including any amounts to  which an employee is entitled, but limits the term to "monetary 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 broaden the scope of the statute only when taken completely out of  context.


17
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. Specialists 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 promulgated 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 Chevron 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 regulation 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 consistent with the reasoning of Hurley and Morris, and with the  OPM's own commentary, but also with the plain meaning of  the statute.


18
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 language, 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.  Liquidated 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

19
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 reduction" 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 successfully for reclassification to a higher grade.  The Court rejected a  broadening interpretation of withdrawal or reduction in the  Back Pay Act, holding:


20
The statute's language was intended to provide a monetary remedy for wrongful reductions in grade, removals, suspensions, and other unwarranted or unjustified actions affecting pay or allowances [that] could occur in the course of reassignments and change from full-time to part-time work...


21
....


22
.... [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.


23
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 appointed, and had not experienced a reduction in pay or a decrease  in grade, the Court held that they had not suffered a withdrawal 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").


24
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 mis classification, interest continued 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 accomplished 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.


25
The FLRA erroneously suggests that Test an is inapplicable  since the present case involves an unfair labor practice as  opposed to a reclassification action.  Nothing in the Test an  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. § 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 Test an is  not determinative of the present inquiry.  Thus, Testan controls, and we conclude that the FLRA's conceded failure to  comply with the Vaughn award does not constitute a withdrawal or reduction within the context of the Back Pay Act.

Conclusion

26
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 inremitting those payments represented a withdrawal or reduction of the employees' 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.

