FILED: December 21, 2006
IN THE SUPREME COURT OF THE STATE OF OREGON
SHERRY ZOTTOLA,
Petitioner on Review,
v.
THREE RIVERS SCHOOL DISTRICT
and FAIR DISMISSAL APPEALS BOARD,
Respondents on Review.
(FDA-01-5; CA A122463; SC S52944)
On review from the Court of Appeals.*
Argued and submitted September 12, 2006.
Elizabeth A. Joffe, of McKanna Bishop Joffe & Sullivan, LLP,
Portland, argued the cause and filed the brief for petitioner on
review.
Nancy Hungerford, Oregon City, argued the cause and filed
the brief for respondent on review Three Rivers School District.
Christina M. Hutchins, Assistant Attorney General, Salem,
argued the cause and filed the brief for respondent on review
Fair Dismissal Appeals Board.  With her on the brief were Hardy
Myers, Attorney General, and Mary H. Williams, Solicitor General.
Before De Muniz, Chief Justice, and Carson, Gillette,
Durham, and Balmer, Justices.**
GILLETTE, J.
The decision of the Court of Appeals is reversed.  The order
of the Fair Dismissal Appeals Board is remanded to the Fair
Dismissal Appeals Board for modification in accordance with this
opinion. 
*Judicial Review from order of the Fair Dismissal Appeals  Board.  202 Or App 235, 120 P3d 1255 (2005).
**Riggs, J., retired September 30, 2006, and did not
participate in the consideration or decision of this case. 
Kistler and Walters, JJ., did not participate in the
consideration or decision of this case.
GILLETTE, J.
The issue in this administrative law case is whether
the Fair Dismissal Appeals Board (FDAB) erred in concluding that
a school district could offset certain unemployment benefits
against a back pay award that FDAB ordered the school district to
pay to a wrongfully terminated employee.  The Court of Appeals,
in a brief per curiam opinion, affirmed the order of FDAB and,
hence, the offset.  Zottola v. Three Rivers School Dist., 202 Or
App 235, 120 P3d 1255 (2005) (Zottola II).  We allowed review
and, for the reasons that follow, now reverse the decision of the
Court of Appeals and modify the order of FDAB.  
The facts are undisputed.  Zottola is a teacher in the
Three Rivers School District (the district).  The district school
board dismissed her on August 6, 2001.  Zottola appealed that
dismissal to FDAB, which concluded that her dismissal was
unlawful and ordered the district to reinstate her.  The district
appealed that order to the Court of Appeals.  That court affirmed
FDAB's order without opinion.  Zottola v. Three Rivers School
Dist., 188 Or App 489, 72 P3d 684 (2003) (Zottola I).  The
district thereafter reinstated Zottola, effective January 7,
2003.  
The district then moved FDAB for a determination of the
amount of back pay that Zottola should receive.  In doing so, the
district contended that FDAB should reduce the back pay award by
the amount of unemployment benefits that Zottola had received
after her dismissal.  FDAB agreed in part.  It ruled that the
district was entitled to offset from Zottola's back pay award the
amount that the Oregon Employment Department had billed the
district for the employment benefits that Zottola had received
after her dismissal.  
In arriving at its conclusion, FDAB began by reviewing
the state unemployment compensation statutory scheme.  FDAB noted
that, under that scheme, eligible employees receive unemployment
benefits from the Unemployment Compensation Trust Fund (the Trust
Fund), to which employers contribute in one of two ways.  Some
employers, generally private entities, contribute through
quarterly taxes on employee wages.  See ORS 657.505(2) (so
providing).  Those employers are known as "contributing
employers."  Other employers, such as the state and its political
subdivisions (including the school district here), contribute by
paying quarterly bills that the Oregon Employment Department
sends them.  Those bills reflect the amount that the Trust Fund
actually paid out in benefits to the employer's employees during
the quarter.  See ORS 657.505(5), (6) (so providing).  Those
employers are known as "reimbursing employers." 
FDAB then reviewed two Court of Appeals cases that it
found to be dispositive:  Filter v. City of Vernonia, 95 Or App
550, 770 P2d 83 (1989), and German Auto Parts v. Bureau of Labor
and Ind., 111 Or App 522, 826 P2d 1026 (1992).  FDAB concluded
that those cases stood for the proposition that payments provided
though public benefits programs such as the unemployment
compensation program may be offset against an award for damages
for lost wages resulting from wrongful termination if a
significant correlation exists between the employer's direct
expense for the benefits and the actual benefits received by the
employee.  See German Auto Parts, 111 Or App at 526 (stating and
applying principle); Filter, 95 Or App at 552-53 (same).  It
followed, according to FDAB, that an offset of certain
unemployment benefits against back pay was appropriate in this
case because the school district, as a reimbursing employer, had
paid dollar-for-dollar for those benefits that it sought to
offset from Zottola's back pay.  
On Zottola's petition for judicial review, the Court of
Appeals affirmed, citing its earlier decisions in Filter and
German Auto Parts, as well as this court's decision in Seibel v.
Liberty Homes, Inc., 305 Or 362, 752 P2d 291 (1988).  We allowed
Zottola's petition for review. 
To determine whether it is permissible for the school
district to offset unemployment benefits in circumstances like
those presented in this case, we begin by considering the statute
that authorizes FDAB to order the school district to pay back
pay.  That statute, ORS 342.905(7), provides: 

"(a) Subject to subsection (6) of this section and
paragraph (b) of this subsection, if the Fair Dismissal
Appeals Board panel finds that the facts relied on to
support the recommendation of the district
superintendent are untrue or unsubstantiated, or if
true and substantiated, are not adequate to justify the
statutory grounds cited as reason for the dismissal  * * *, and so notifies the contract teacher, the
district superintendent, the district school board and
the Superintendent of Public Instruction, the teacher
shall be reinstated and the teacher shall receive such
back pay as ordered by the Fair Dismissal Appeals Board
panel for the period between the effective date of the
dismissal * * * and the date of the order reinstating
the teacher, or the date when the district actually
reinstates the teacher, whichever is later. However,
nothing in this section requires a school district to
pay the teacher until the reinstatement occurs if the
district has other legal grounds for not reinstating
the teacher."

(Emphasis added.)  
The operative wording in the statutory text is 
directive: "the teacher shall receive such back pay as ordered
by" FDAB.  (Emphasis added.)  At the same time, and
notwithstanding the use of the mandatory word "shall," that
directive refers to such back pay "as ordered by" FDAB.  The
question before the court, then, is whether that wording permits
FDAB to offset unemployment benefits like those at issue here
against otherwise-merited back pay.
Nothing in ORS 342.905(7) or in any related statute
expressly authorizes (much less requires) FDAB to offset
unemployment compensation against back pay.  Indeed, the words of
the statute indicate that the legislature did not contemplate
such an offset:  the employee is to receive "such back pay as
ordered by" FDAB.  (Emphasis added.)  The phrase "back pay" is
not defined in the statute, but it commonly is understood to mean
wages and fringe benefits that an employee would have received,
but for some legally impermissible action by the employer.  See
Black's Law Dictionary 148 (8th ed 2004) ("back pay award" is 
judicial or quasi-judicial determination that an employee "is
entitled to accrued but uncollected wages or benefits").  "Wage,"
in turn, is defined as "payment for labor or services."  Id. at
1610.  Unemployment compensation benefits are not wages; they are
not payments for labor or services.  Rather, they are payments
designed to provide interim assistance while a worker seeks to
re-enter the labor force.  Moreover, whether or not a wrongfully
dismissed employee received unemployment compensation benefits is
unrelated to the specific amount of wages that that employee
would have earned were it not for the wrongful dismissal,
although the level of benefits may be related to the employee's
wage level.  Thus, our review of the wording of ORS 342.905(7)
itself suggests that FDAB's authority is confined to a
determination of the amount of back pay, i.e., wages and
benefits, that the school district owes to the employee. 
The school district argues that the flexibility to
offset unemployment compensation benefits against back pay
inheres in the words "such * * * as ordered by" FDAB.  We think
the school district leans too heavily on that slender reed. 
Under ORS 342.905(7), FDAB clearly may decide such debatable
factual issues as the relevant dates on which the back-pay period
begins and ends and the employee's wage level for purposes of
awarding back pay, if the parties disagree about those matters. 
We understand the statutory phrase "such * * * as ordered by" to
be a recognition of and an allowance for the variable answers
that FDAB might give to such questions, among others, in response
to a bona fide dispute between the parties.  But we do not think
that that wording reasonably may be read in context to authorize
FDAB to redefine "back pay" to exclude money that an employee
received during the back-pay period pursuant to an unrelated
statutory benefit program.  
This court considered a similar issue in Seibel, 305 Or
362.  In that case, a jury awarded a plaintiff back pay in a
wrongful discharge case.  On appeal, the Court of Appeals agreed
with the defendant employer that the trial court should have
reduced the verdict by the amount of social security disability
benefits that the plaintiff had received and would continue to
receive until his projected retirement date.  
This court reversed that Court of Appeals decision. 
The court stated that "[w]hether the statutory benefit to a
discharged worker should reduce the cost to the employer of
choosing to breach the employment contract is properly an
interpretation of statutory policy."  Id. at 367.  The court then
examined the policy behind the statute authorizing social
security disability benefits and concluded that "support from
social funds such as unemployment compensation, disability
benefits, or welfare is intended as an exceptional replacement"
for wages.  Id.  The court further observed that those programs
are funded in different ways and that they differ in the speed
and finality of their benefit determinations; however, according
to the court, those exigencies

"should play no role in the employer's liability for
wrongfully discharging an employee.  A trial of the
employee's contract action should not be turned into a
trial of the employee's potential claims for benefits
from some administrative program, nor should the
outcome depend simply on whether cash benefits happen
to have been paid before the trial." 

Id. at 369.  Finally, the court recognized that, although
statutes respecting ancillary social programs may or may not
provide for recapturing some or all of the benefits received
pursuant to such programs when an employee successfully pursues a
wrongful discharge claim,

"whether to save or recapture those costs is properly
an issue between the provider of the benefits and its
beneficiaries, a policy choice in the design of the
program.  Absence of a recoupment provision does not
help the employer who causes the costs by improperly
terminating the employee's regular source of
compensation." 

Id. 
This court's analysis in Seibel is equally apt here. 
Unemployment compensation serves a different purpose from a back-
pay award under ORS 342.905(7), and whether or not an employee
received unemployment compensation has no necessary connection
with evaluating a school district's liability for wrongfully
dismissing a teacher.  Likewise, whether or not a dismissed
employee is permitted to keep unemployment benefits received
after a successful challenge to her dismissal is properly an
issue between the Oregon Employment Department and the employee;
the district has no stake in the question.  The district's
arguments are not well taken.
This court in Seibel implied in dictum that the result
in that case might have been different if the replacement income
or social benefit were funded only by the employer or if there
were evidence of a contrary legislative policy.  305 Or at 368. 
That, presumably, is the reason that the Court of Appeals cited
Seibel in its per curiam decision here.  The school district has
argued that, because it paid "dollar-for-dollar" for certain of
the unemployment compensation benefits that Zottola received
after her dismissal, this is a case of a social benefit being
funded only by the employer.  We disagree.  Zottola received
unemployment compensation benefits from the Employment
Department, not from the school district.  Zottola would have
received those benefits even if the school district had defaulted
on its quarterly bill from the Employment Department.  See ORS
657.507 and ORS 657.508 (setting out consequences for employer's
failure to make required contributions).  The fact that the
amount that the school district contributed to the unemployment
compensation program operated by the Employment Department on
account of Zottola's claim for unemployment compensation
reflected the dollar amount of that claim does not change the
fact that the school district did not itself provide the benefit
that it sought to offset from the back-pay award.    
For the foregoing reasons, we conclude that FDAB does
not have authority under ORS 342.905(7) or any other statute of
which we are aware to order an offset to a back-pay award under
that statute in the amount of certain unemployment compensation
benefits that a wrongfully dismissed employee received after
dismissal.  It follows that FDAB erred to the extent that its
order permitted the school district to offset such benefits from
Zottola's back-pay award and that the Court of Appeals erred in
affirming that order.  
The decision of the Court of Appeals is reversed.  The
order of the Fair Dismissal Appeals Board is remanded to the Fair
Dismissal Appeals Board for modification in accordance with this
opinion.  
