In the Matter of the Petition by

LARRY BOOMSMA
4400 64th Street, SW

               at

Grandville, MI 49418-9716

P.S. Docket No. DCA 00-101

APPEARANCE FOR PETITIONER:         Judith A. Buffmyer
                                                             National League of Postmasters
                                                             3310 N. Squirrel Road
                                                             Auburn Hills, MI 48326-3933

APPEARANCE FOR RESPONDENT:      Martha J. Schaut
                                                             Labor Relations Specialist
                                                             United States Postal Service
                                                             P.O. Box 999401
                                                             Grand Rapids, MI 49599-9401

FINAL DECISION UNDER THE DEBT COLLECTION ACT OF 1982

Petitioner, Larry Boomsma, filed a timely Petition after receiving a Notice of Involuntary Administrative Salary Offsets from his supervisor on March 1, 2000. This Notice stated the Postal Service's intention to withhold $902.98 from Petitioner's salary to recover an overpayment made in FY 1997.

A hearing was held in Grand Rapids, Michigan on April 29, 2000. The Postal Service presented testimony from Arthur Hotchkiss, Petitioner's supervisor, Robert Lancaster, the District Manager of Personnel Services, and James Eliopoulos, an accounting manager. Petitioner testified in his own behalf. Both sides also relied on documents filed with the Petition and the Answer. Petitioner's representative elected to file a written brief after reviewing the hearing transcript and Respondent's representative agreed to do the same. The following findings of fact are based on the entire record, including observation of the witnesses and their demeanor.

FINDINGS OF FACT

1. For the last several years the United States Postal Service has had an incentive-type bonus program for management-level employees, called a variable pay program. Modifications have been made to the program each year, and different rules have been applied to "exempt" and "non-exempt" employees. The terms "exempt" and "non-exempt" refer to whether employees are covered by the Fair Labor Standards Act, or whether they are "exempt" from it. The significant difference, for purposes of this case, is that employees covered by FLSA are entitled to be paid for any overtime worked, and exempt employees are not. For this reason, and also because exempt employees are usually at a higher management level, the bonus program is designed to pay a higher bonus to exempt employees. (Tr. 18-19, 69).(1)

2. Beginning in FY-96, the program was based on what is called "Economic Value Added (EVA)," a measurement of the financial success of the Postal Service as a whole. Bonus percentages varied among Postal Service Districts throughout the country, depending on each District's success in meeting certain goals. In FY-97, the year in issue in this case, the bonus percentage for the Michigan District was 9.45% of an employee's salary. For exempt employees, ½ of this (4.72%) was to be paid to the employee by check and the other ½ (4.72%) would go into a "reserve account."(2) Non-exempt employees were not participants in the variable pay program, but were to get a special payment, equal to ½ of the percentage that was paid directly to exempt employees (2.36%). Non-exempt employees were not entitled to have anything paid into reserve. (Tr. 19-24, 43-45, 57-60; Tab R-4; Tab R-5).(3)

3. The rules and procedures for implementing the FY-97 program were first published in an April 1, 1997 memorandum, with two attachments (Tab R-4). By the fall of 1997, through negotiations with the various postmaster and postal supervisor organizations (see fn. 3), the provision for the special payment to non-exempt employees was added (Tr. 19, 29-30). This provision was included in a memorandum titled "FY 97 Variable Pay Program Final Results" published to Postal Service officers, with several explanatory attachments, on November 26, 1997 (Tab R-5). One of the attachments to the November memo was a copy of the April 1, 1997 memo, which was referred to for "a program overview and the administrative rules." (Tab R-5, p. 1). The November memo also repeated the fact that non-exempt employees were not part of the program.

"For your communication needs we have included the EAS non-exempt special payment in Attachment B in column (6). It is important to recognize that EAS non-exempt employees are not in the FY '97 Variable Pay Program, . . .." (Tab R-5, p. 1).

Some sample letters to employees, designed to cover various circumstances, were also included with the November memo. Attachment C is a "FY 97 EAS Non-Exempt Special Payment Letter," that gives an example of how to use different percentages when an employee was exempt for part of the year and non-exempt at the end. It states that payment percentages are "applied to your base annual salary […] as of the end of the fiscal year (September 12, 1997)." (Tab R-5, p. 13).

4. Whether an employee was entitled to participate in the program was determined by his/her status, i.e., exempt or non-exempt, on the last day of the fiscal year. Nevertheless, an employee who was non-exempt at the end of FY-97, but who had been exempt for part of the year, was to be paid pro-rated shares, based on the amount of time in each status. As stated above, these employees were completely excluded from the reserve part of the EVA program. All payment calculations were based on the employee's salary at the end of the fiscal year. (Tr. 20, 26, 43, 49-50, 64-68; Tab R-4; Tab R-5).

5. When an employee, such as Petitioner, had a reserve account from prior years, but became an ineligible participant by moving to a non-exempt position during FY-97, his reserve account was "frozen," or placed in suspense. This meant that nothing could be added to it and no part of it could be paid out to him while he remained in a non-exempt position. If he returned to an exempt position, the reserve account would be re-activated, or if he retired or terminated his employment any funds remaining in the reserve account would be paid to him. (Tr. 47; Tab R-4, Attachment B(A.6.)).

6. At the beginning of FY-97, Petitioner was a postmaster in an exempt position. In March 1997, for health reasons, Petitioner took a voluntary downgrade to a non-exempt position at a lower salary. Therefore, for the first 54% of the fiscal year he was exempt, and for the last 46% he was non-exempt. (Tr. 21, 71-72; Tab R-2; Tab R-3).(4)

7. On December 9, 1997, Petitioner was sent a form letter stating that his total payment was $2,602.68, calculated as 2.36% x 46% of his salary, and 9.45% x 54% of his salary. He also received a check for a net amount, after taxes and other required deductions were made. (Ex. K).

8. Under the rules described in Findings of Fact #2, #3 and #4, Mr. Boomsma should have received an EVA payment for FY-97 as follows: (1) for the part of the year that he was non-exempt he should have been paid 2.36% of his salary (x 46%, because it was for only 46% of the year) - this amount was $456.56; (2) for the part of the year that he was exempt he should have been paid 4.72% of his salary (x 54%, because it was for only 54% of the year) - this amount was $1,073.06. His total payment, therefore, should have been $1,529.62. Part (1) above was done correctly. Part (2) was not. As noted in Findings of Fact #2 and #4, an employee's status at the end of the fiscal year determined his/her eligibility, and a non-exempt employee was not entitled to have any amount paid into the reserve portion of the

EVA bonus. In the case of Petitioner, and some other Postal Service employees who had also been exempt for part of the year but non-exempt at the end, what would have been the reserve portion of their bonus was paid directly to them instead of being deleted altogether as it should have been. Petitioner, therefore, was paid an additional gross amount of $1,073.06. The net amount of this overpayment, after re-crediting taxes and Medicare deductions is $902.98. (Tr. 24-25, 59-61; Ex. E).

DECISION

Respondent's position is simply that an administrative error was made in computing the amount of Petitioner's FY-97 bonus and, even though Petitioner was not at fault in any way, he is not entitled to keep the overpayment.

Petitioner argues that Respondent relies too heavily on the April 1, 1997 instructions, which were written before the decision was made to include the special payment to non-exempt employees. He argues that he earned the full amount of the exempt portion of his EVA payment, and that because his non-exempt status placed his reserve account in suspense he was properly entitled to have the full amount paid to him. Therefore, he contends the payment and explanation he received in December 1997 followed the example given in Attachment C to the November 26 memo and was correct.

Although the rules governing the EVA program are somewhat complex, made more so by the fact that there have been modifications to the program each year, all the rules stated in the Findings of Fact are spelled out in the information memoranda that explained the FY-97 program (Tabs R-4 and R-5). These documents, plus the calculations pertaining to Petitioner's situation (Ex. E), and the testimony of Mr. Lancaster and Mr. Eliopoulos, make it clear that Petitioner was overpaid by the amount alleged. His argument that the original rules for the FY-97 program are inapplicable is unpersuasive because the November 26 memo specifically incorporated the April 1 rules for implementing the program (Finding of Fact #3). Petitioner's argument that the money he was paid in December 1997 was calculated in accordance with a sample letter attached to the November 26 memo is incorrect. His payment should have been calculated as was the example in that attachment, but it was not. As is explained in Finding of Fact #8, the portion of his payment for his exempt time was twice what it should have been.

There is no basis in the record for relieving Petitioner of the obligation to repay the overpayment. In essence, much of Petitioner's argument is a complaint about the fairness of the rules by which the EVA program for FY-97 was implemented. A Debt Collection Act Hearing Official, however, cannot change those rules and must apply them as they exist.

Petitioner also challenged the rate of repayment proposed in the Notice of Involuntary Administrative Salary Offsets, i.e., $265.00 per pay period. He asserts that his reduced salary, with no corresponding reduction in his monthly expenses, would make the additional deduction of $265.00 per pay period a financial hardship. Respondent presented no evidence to contest this issue, but argues that Petitioner should have been required to present documentary evidence to support his claim of hardship. Petitioner's testimony on this issue was credible and, with no contradictory evidence, it is sufficient.

The Petition is denied in part and granted in part. Respondent may collect $902.98 from Petitioner's salary, but at the rate of $100.00 per pay period.

                                                             Bruce R. Houston
                                                             Chief Administrative Law Judge

1 References are to pages in the hearing transcript. References to documents attached to Respondent's Answer will be by "Tab" number, and references to documents attached to the Petition will be by "Ex." number.

2 The purpose of the "reserve account" is to encourage sustained good performance. Portions of the reserve account are paid out in subsequent years, depending on the organization's success in meeting goals. Employees do not "own" the reserve account and cannot withdraw money from it, but any amount remaining in an employee's reserve account is paid to the employee on retirement or termination of employment. (Tab R-4).

3 The special payment provision for non-exempt employees is also stated in an October 17, 1997 letter to the presidents of NAPUS, NAPS, and the National League of Postmasters. A copy of this letter was filed by Petitioner on April 10, 2000.

4 Petitioner does not challenge the correctness of his re-classification to non-exempt status (Tr. 82-83).