P.S. Docket No. AO 14-60


August 5, 2014

In the Matter of the Petition by
LANEDA PITTS

P.S. Docket No. AO 14-60

APPEARANCE FOR PETITIONER:
Albert E. Lum
Scialla Associates

APPEARANCE FOR RESPONDENT: 
Jewel A. Taylor, Esq.
United States Postal Service
Office of Inspector General

INITIAL DECISION

Petitioner, Laneda Pitts, challenges a debt assessment issued by Respondent, United States Postal Service, seeking to collect $4,853.39 by administrative offset for a salary overpayment. I presided by telephone over a June 25, 2014 hearing. I deny the Petition on the merits, but grant Ms. Pitts’ proposed offset schedule.

FINDINGS OF FACT

  1. The Postal Service’s Office of Inspector General (OIG) employed Ms. Pitts as an audit evaluator (Tr. 72). The OIG approved a twelve-week absence for Ms. Pitts, through December 19, 2012, under the Family Medical Leave Act (FMLA). Ms. Pitts’ manager asked her to report to work with a medical release on December 20 when the FMLA leave was scheduled to end. He told Ms. Pitts that if she did not return, he intended to charge further absences as leave without pay (LWOP). (Exh. A at 5, 9-10; Tr. 13-14, 79, 89).
  2. Although Ms. Pitts did not return to work, the OIG placed her on annual leave and paid her salary for December 20 and 21, 2012. Her manager thereafter changed her leave status for December 21 from annual leave to LWOP, although he did not change her leave status for December 20. (Exh. A at 12; Tr. 16).
  3. Ms. Pitts subsequently provided medical documentation, based on which the OIG approved further leave requests. However, Ms. Pitts’ manager again asked Ms. Pitts for a medical release before she returned to work, and warned her that she could be removed from her job if she did not return (Exh. D; Tr. 16, 23).
  4. On January 2, 2013, Ms. Pitts filed an informal Equal Employment Opportunity (EEO) claim which did not involve a salary dispute (Tr. 26, 76-79, 92).
  5. On January 15, 2013, Ms. Pitts’ manager discovered that the Postal Service did not process his change of Ms. Pitts’ leave status for December 21, 2012 in time to cancel salary payment for that day (Exh. A at 12). He informed Ms. Pitts that the Postal Service would charge her with a debt for one-day’s salary (the December 21 payroll adjustment), but would authorize paid leave through January 31 (Exh. A at 12, Exh. D; Tr. 17).
  6. On January 31, Ms. Pitts’ doctor informed the OIG that she was unable to return to work (Exh. E; Tr. 105-106). On February 4, Ms. Pitts’ manager again warned that she could be removed from her job if she failed to return. He also stated that the OIG would authorize paid leave through February 8. (Exh. E).
  7. On February 15, 2013, Ms. Pitts and her representative met with Ms. Pitts’ manager and an OIG employee relations analyst in a mediation attempting to resolve the EEO complaint. The December 21 payroll adjustment was mentioned, although it was not the focus of the mediation. The EEO mediation ended without settlement. (Tr. 17, 20, 26-28, 35-36, 79, 92-94).
  8. At the time of the mediation, Ms. Pitts knew that she had been paid for using advanced annual leave that she had not yet earned. Ms. Pitts’ use of advanced, unearned annual leave (overdrawn leave), however, was not mentioned during the EEO mediation. (Tr. 27-28, 30, 80-83, 90-94, 97-99).
  9. After the mediation, Ms. Pitts asked her representative to offer a settlement to the OIG: she would retire in exchange for eliminating any debt concerning overdrawn leave, as well as any other payroll debt that she might owe (Tr. 80-84, 98-99).
  10. On February 21, Ms. Pitts’ representative offered the employee relations analyst a settlement during a telephone discussion. The terms of the offer provided Ms. Pitts’ agreement to retire “if the payroll adjustment were taken care of.” (Tr. 28, 39). Ms. Pitts’ representative was not more specific about the payroll adjustment to which he referred, and neither Ms. Pitts nor her representative previously had raised a potential debt involving her use of overdrawn leave with Ms. Pitts’ manager or any other OIG representative (Tr. 28, 64, 97).
  11. Neither Ms. Pitts’ manager nor the OIG’s employee relations analyst was aware of a payment to Ms. Pitts for overdrawn leave. They understood the settlement offer to involve only the December 21 payroll adjustment (Exh. K; Tr. 17-19, 28-32, 37, 41, 99). Later on February 21, 2013, after requesting and receiving OIG management approval to waive the December 21 payroll adjustment, the OIG’s employee relations analyst accepted the settlement offer by leaving a voice mail message with Ms. Pitts’ representative. The message acknowledged that Ms. Pitts would retire and stated that “[i]t is all squared away. She does not owe us any time and we do not owe her any time so it’s a clean slate as far as payroll records go.” (Exh. F; Tr. 33, 37, 57). The settlement agreement was not reduced to writing (Tr. 37-38, 70-71).
  12. On February 25, 2013, Ms. Pitts’ representative sent an email to Ms. Pitts informing her of the February 21 agreement: “you owe them nothing and they owe you nothing.” (Exh. F; Tr. 58). Based on her belief that all payroll adjustments had been settled, Ms. Pitts retired on February 28 (Tr. 67-68, 82, 85-89, 98-99, 102-03).
  13. At the time of her retirement, Ms. Pitts had been paid for 96 hours of annual leave that had been advanced to her but which she had not yet earned. Before payroll deductions, that overdrawn leave was valued at $4,912.19.1 (Exh. O, Exh. Q; Tr. 114-119). The salary overpayment was reduced for deductions of $1,007 for federal taxes, $245.61 for state taxes, $304.56 for social security taxes, and $71.23 for Medicare taxes (Exh. O). Also, at the time of her retirement, Ms. Pitts had a six-hour sick leave balance (Exh. O; Exh. Q).
  14. On December 31, 2013, the Postal Service sent Ms. Pitts a Notice of Intention to Collect a Debt by Administrative Offset Under the Debt Collection Act (Notice), seeking to collect $3,244.49 (Exh. G). The Notice did not propose an offset schedule. The reduction of the debt assessment from the $4,912.19 gross value of the overdrawn leave, to $3,244.49 was intended to account for payroll deductions taken from salary payments (Tr. 115).
  15. The Postal Service increased its debt assessment by $1,608.90 on January 22, 2014, seeking to recover taxes owed on the previously assessed debt (Exh. H, Exh. I). The Postal Service did not issue a Notice for the $1,608.90 portion of the debt assessment (April 8, 2014 Order and Memorandum of Telephone Conference (April Order)), and did not offer evidence supporting this calculation (Tr. 116).
  16. On February 3, 2014, Ms. Pitts filed a Petition under 39 C.F.R. Part 966 (Exh. 1; April Order). The parties waived additional notice, reconsideration, and other procedures for both elements of the debt assessment (April Order).

 

DECISION

Entitlement analysis

A retiring employee’s negative annual leave balance equates to a salary overpayment, entitling the Postal Service to recover the monetary value of that overdrawn annual leave under the Debt Collection Act. See Margaret L. Marshall, P.S. Docket No. AO 14-35 (I.D. April 7, 2014); Exh. M at 12. To recover, the Postal Service must prove that it made the salary payments, the amount of the payments, and that the employee was not entitled to the payments. See Glenda A. Higgins, P.S. Docket No. AO 13-376 (I.D. February 27, 2014).

The Postal Service proved that it paid Ms. Pitts for 96 hours of annual leave that she had not earned by the time she retired (Finding 13). Accordingly, absent a valid defense, the Postal Service is entitled to the amount of the debt that it proves. See Glenda A. Higgins. Thus, the merits of this case turn on Ms. Pitts’ defense that her overdrawn leave debt was covered by the settlement agreement. Ms. Pitts bears the burden of proof for her defense. See Matthew J. Williams, Jr., P.S. Docket No. AO 13-375 (I.D. March 20, 2014).

Ms. Pitts argues that she intended that the settlement would eliminate her overdrawn leave debt, relying on the OIG’s broadly-worded acceptance of her settlement offer. She also argues that by retiring, she relied to her detriment on her reasonable understanding of the scope of the OIG’s debt release, and that therefore the Postal Service should be prevented from collecting the debt. The Postal Service argues that the settlement agreement should not be construed to include the overdrawn leave debt because the Postal Service did not know about the debt when accepting the settlement offer. It only intended to settle the December 21 payroll adjustment.

A settlement agreement is a contract, the interpretation of which is a question of law. To interpret this settlement agreement, I start by examining its objective words, not the parties’ subjective intentions. See Novamedix, Ltd. v. NDM Acquisition Corp., 166 F.3d 1177, 1180 (Fed. Cir. 1999). However, the parties inexplicably failed to reduce their settlement agreement to writing, making analysis of the agreement’s objective words substantially more difficult (Finding 11). Nonetheless, an oral settlement is valid and enforceable. See Brown v. Dept. of the Navy, 60 M.S.P.R. 461, 462–63 (M.S.P.B. 1994).

The settlement offer from Ms. Pitts’ representative included a general provision regarding the resolution of a payroll adjustment (Finding 10). It did not, however, specifically identify either the December 21 payroll adjustment or the unquantified overdrawn leave adjustment – despite both Ms. Pitts and her representative having known about both debts (Findings 8-9).

The language in the OIG’s acceptance was not more specific, and also did not identify the payroll adjustment being resolved. The OIG representative’s acceptance stated generally that “[s]he does not owe us any time and we do not owe her any time so it’s a clean slate as far as payroll records go.” (Finding 11). I find the settlement agreement susceptible to more than one reasonable interpretation: (1) Ms. Pitts agreed to retire and only the December 21 payroll adjustment was resolved as alleged by the Postal Service; or (2) Ms. Pitts agreed to retire and both payroll adjustments were resolved, as alleged by Ms. Pitts.

Because the settlement agreement is susceptible to more than one reasonable interpretation, it is ambiguous. See Romano v. U.S. Postal Serv., 49 M.S.P.R. 319, 323 (M.S.P.B. 1991), op. after remand, 52 M.S.P.R. 125 (M.S.P.B. 1992). I therefore review evidence of the parties’ intentions at the time of the agreement. See Young v. U.S. Postal Serv., 113 M.S.P.R. 609, 616 (2010), op. after remand, 117 M.S.P.R. 211 (M.S.P.B. 2012), aff’d, 494 Fed. Appx. 65 (Fed. Cir. 2012); Peter G. Harris, P.S. Docket No. AO 09-41 (I.D. August 26, 2009). As explained below, the evidence establishes that a meeting of the minds did not occur. See S & T Mfg. Co. v. Hillsborough Cnty., Fla., 815 F.2d 676, 678 (Fed. Cir. 1987).

At the time of the settlement, Ms. Pitts and her representative knew that she had overdrawn annual leave, although they did not know its monetary value (Findings 8-9). However, they did not raise that issue with the OIG during the mediation or settlement discussion, and the OIG’s representatives were unaware of the overdrawn leave at the time (Findings 8, 10-11)2 . While Ms. Pitts’ representative could have referenced the overdrawn leave adjustment specifically in his offer or in a resulting written settlement agreement, he did not do so. It is clear that the Postal Service only intended to settle the December 21 payroll adjustment (Finding 11). See Peter G. Harris (one party’s unexpressed intentions cannot bind the other party to a settlement agreement where the other party is unaware of that intent).

A meeting of the minds is an essential element of a settlement. See S.E.R., Jobs for Progress, Inc. v. United States, 759 F.2d 1, 4 (Fed. Cir. 1985). A meeting of the minds occurs where expressions would have made a party understand, or make it unreasonable not to understand, the matter offered to satisfy a claim. See Holland v. United States, 621 F.3d 1366, 1382 (Fed. Cir. 2010). Here, a meeting of the minds did not occur with respect to the material term of release of the debt for Ms. Pitts’ overdrawn leave. See Allen v. United States, 78 F.3d 605 (Fed. Cir. 1996). The settlement agreement therefore is unenforceable as to that term, and cannot serve as a defense in this case. See Walker-King v. Dept. of Veterans Affairs, 119 M.S.P.R. 414, 420 (M.S.P.B. 2013).

To her credit, Ms. Pitts’ July 29, 2014 post-hearing brief acknowledges that a meeting of the minds did not occur and suggests that the agreement is void. However, Ms. Pitts argues that when she retired, she detrimentally relied on the OIG’s broad acceptance language which she interpreted as covering both debts. She maintains that had she known that she would be required to pay for the overdrawn leave, she would have returned to work until she accrued sufficient leave to pay for that overdrawn leave. She argues that her retirement decision is irreversible and that it would be unfair for the Postal Service to retain the benefits of the settlement agreement without an ability to restore the previous status quo.

In this case, Ms. Pitts cannot prove detrimental reliance. Ms. Pitts’ doctor had declared her unable to return to work (Finding 6). She therefore could not have returned to earn annual leave credits to offset this debt, as she argues. Further, even if Ms. Pitts could have returned to work, deciding to retire based solely on her, and her representative’s, subjective (mis)understanding of the agreement was not reasonable under the circumstances. They knew about both debts but failed to raise them both during settlement discussions, and of course, the agreement was never clarified in writing. Having failed to clarify the terms of the agreement, Ms. Pitts’ subjective intent cannot control, and I find that any resulting retirement action in the face of that ambiguity not to have been reasonable so as to bind the Postal Service to an agreement that never occurred.

Ms. Pitts presents a related argument that the OIG breached an affirmative duty to provide her with correct and adequate information to permit her to make an informed retirement decision. I am not persuaded by this argument because the OIG did not provide any incorrect retirement information, and it was Ms. Pitts rather than the OIG that was aware at the time of her retirement about her overdrawn leave.

Damages analysis

The Postal Service has shown that the 96 hours of overdrawn leave was worth $4,912.19 before payroll deductions (Finding 13). The Postal Service seeks to collect $3,244.49, the net overpaid salary Ms. Pitts received, which I find is due (Finding 14). The Postal Service also seeks an additional $1,608.90 to recover taxes (Finding 15), which requires additional analysis.

The precedent of this office authorizes collection of taxes in appropriate salary overpayment situations. See Glenda A. Higgins. However, my analysis in this case has been made more difficult because the Postal Service has not introduced evidence explaining its tax assessment calculation (Finding 15). In such a situation, the Postal Service’s entitlement for taxes may be determined by calculating the amount it withheld from the employee’s salary, and which it paid to the taxing authorities on the employee’s behalf. See Aaron Thorne, P.S. Docket No. DCA 12-319 (April 16, 2013) (decision on reconsideration). Such a recovery allows the Postal Service to collect the gross amount of the salary overpayment (the net salary paid to the employee and the deductions from the employee’s salary payment, forwarded to the tax authorities). Id.

The salary overpayments to Ms. Pitts included payments on her behalf by the Postal Service to various taxing authorities: $1,007 for federal taxes, $245.61 for state taxes, $304.56 for social security taxes, and $71.23 for Medicare taxes (Finding 13). These deductions total $1,628.40. As this amount exceeds the $1,608.90 in taxes sought by the Postal Service, I find that the Postal Service may recover the assessment. However, Ms. Pitts presents two rebuttal arguments. First, she argues that it would be unfair for the Postal Service to collect this tax obligation because had it not delayed in seeking recovery, the taxes would not have been due. I reject that argument. I am unaware of a statutory or regulatory deadline in which to assess this type of debt. The Postal Service assessed the debt on December 31, 2013, making it impossible for it to have been adjudicated before the end of 2013. Further, the tax deductions were made on Ms. Pitts’ behalf and she has avenues available not to suffer a net monetary loss due to the timing of their collection. The Postal Service is entitled to recapture the payments it made to the taxing authorities and Ms. Pitts will be entitled to appropriate tax deductions or credits with the various taxing authorities. See Aaron Thorne.3

Second, Ms. Pitts argues that the overdrawn leave debt should be offset in part by six hours of unused sick leave in her account at the time of her retirement (see Finding 13). In Glenda A. Higgins, a former employee similarly argued that she would have used sick leave had she known that her annual leave balance was exhausted, and she sought a credit for the value of her accrued sick leave. I ruled that “[i]n the absence of a specific regulation or legal authority in support of such a credit, which she has not presented, Ms. Higgins has not offered a viable defense.” I reject the defense in this case for the same reason.

Accordingly, I allow administrative offset of the combined $4,853.39 debt assessment.

Offset schedule

Ms. Pitts argues that repayment by administrative offset over $50 per month would result in a financial hardship (Petitioner’s post-hearing brief at 2). The Postal Service’s assessments did not identify an offset schedule as required (Findings 14-15). As a result, there is no offset schedule for me to analyze on financial hardship grounds. Because the Postal Service failed to satisfy that requirement of its regulations implementing section 10 of the Debt Collection Act, see 39 C.F.R. § 966.4(a)(2), I grant Ms. Pitts’ proposed offset schedule, the only schedule presented to me. Ms. Pitts may wish to consult with a tax specialist for advice regarding her tax situation in this regard.

CONCLUSION

The Petition is denied. The Postal Service may collect $4,853.39 by administrative offset, on a schedule that may not exceed $50 per month until the debts have been repaid.

Gary E. Shapiro
Administrative Judge

1 As argued in the Postal Service’s July 25, 2014 post-hearing brief, Exhibit O indicates that the gross-to-net calculation includes $3,926.63 as gross salary plus compensation of $985.56 for locality pay. No testimony was received regarding this calculation. However, when this locality pay amount is added to Ms. Pitts’ gross salary and the payroll deductions are subtracted, the net debt amount sought by the Postal Service results.

2 As Ms. Pitts’ overdrawn leave did not ripen into a debt until she retired, I do not find it surprising that the OIG’s representatives did not know about it (see Tr. 30).

3 As explained in Aaron Thorne:

       While it initially may seem that the employee pays the taxes twice (once to the taxing authorities and once when returning money to
       Respondent), such is not the case. The wages paid in error in the prior year remain taxable to the employee for that year. This is
       because the employee received and had use of those funds during that year. . . . [T]he employee is entitled to a deduction (or credit
       in some cases) for the repaid wages on his or her income tax return for the year of repayment. See IRS Publication 15 for 2013 at
       34. The IRS further explains . . . If you had to repay an amount that you included in your income in an earlier year, you may be able
       to deduct the amount repaid from your income for the year in which you repaid it. . . . In other words, the Postal Service is seeking
       the gross amount of the wages it has paid: the taxes it forwarded to the tax authorities . . . and the net salary paid to Petitioner.
       Petitioner ultimately is not paying the taxes twice because he can claim a deduction for the full amount he repays Respondent.

Ms. Pitts may wish to consult with a tax specialist for advice regarding her tax situation in this regard.