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On any wage claims, unless you agree otherwise or your contract
specifies otherwise, interest of 10% per year is due from the date of legal demand (this is called judicial interest). This interest would be awarded if you went to arbitration
or court, but it is not mandatory if it is part of a settlement agreement
. As far as taxes, they have to take money out for the taxes or you have to pay the taxes that would be due on those back wages and the employer does not have to give you more money to pay those taxes, they have to only make you whole under the terms of the contract and you would have had to have paid those taxes had they paid you properly.
If you agree to the settlement without interest, then you have no right to sue them for the interest as interest is not guaranteed unless you were in a lawsuit with them to get this backpay. If you are going to refuse the award over 10% interest, you need to think that if you need to go to arbitration the legal costs would exceed the interest you would be fighting over and economically from a practical standpoint the union will tell you they will not pursue it through arbitration because the employer is making you whole with a reasonable offer and the cost would exceed the additional amount you could receive.
I am afraid that if you want the money, you have to sign the agreement. The term "settlement" means an agreement that neither party is happy about, but both can live with. This means that while had you gone to court or arbitration you could have gotten the interest (likely not the taxes because you would have had to pay them no matter what), reasonableness and cost analysis dictates that the small amount you lose in interest would not justify the cost of litigation
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