By Barbara Haga, April 17, 2023

I’m wrapping up this series on settlement agreements with a couple of cases where the agency agreed to a condition regarding a pay matter that could not be legally done.

You can find my settlement agreement article from last month’s FELTG Newsletter here.

[Editor’s note: Did you miss the recent Drafting Enforceable and Legally Sufficient Settlement Agreements earlier this month? Then mark down this date – August 23 when it will be held again. You can register now.]

Overtime pay. In Farrell v. Interior, 86 MSPR 384 (MSPB 2000), the Board found that a mutual mistake regarding the rate of overtime pay rendered the settlement agreement unenforceable. Farrell, an employee of the Park Police, was downgraded from the position of lieutenant to a sergeant under 752 procedures.

The underlying issue in the case was Farrell’s authorship of a “parody” entitled “The Quest: The Final Passage Home.” This document insinuated that certain female officers were lesbians, identified some employees as “Moorish,” and contained sexually explicit passages. A copy of the document was placed in the inbox of one of the senior officers. An investigation by the Internal Affairs Office ensued. Farrell admitted he had written it at home, typed it on the computer at work, and distributed copies within the Police Department over several months.

To settle the case, the parties agreed that Farrell would receive back pay and benefits, the agency would pay $7,500 in attorney’s fees, and Farrell would retire at the end of his 27th year of service. Also, he would be retained in the sergeant position, but paid as a lieutenant for the remainder of his employment. The agency delivered on all provisions.

The sticking point was the settlement agreement also stated that he would be eligible for overtime pay. In the sergeant position, OT is be paid a rate of one and a half times his lieutenant pay, a difference of roughly $15 per hour.  While the number of hours, and thus the value of this difference, is not specifically identified in the decision, it must have been a considerable amount because this was the only issue raised in the enforcement proceedings.

Farrell argued before the Board that “he had entered into the settlement agreement only because he could replace the potential lost income from the demotion with overtime pay.”  Farrell also argued that the original representative who entered into the agreement understood the settlement to mean that overtime would be paid at one and a half times his lieutenant’s pay.

What went wrong? The agency was prohibited by law from paying the agreed-upon rate of overtime. The agency cited the section of the D.C. Code, which said that an individual paid at the rate of a lieutenant was only entitled to overtime at his basic hourly rate.

The agency argued they were in compliance because they had paid everything that they could, but the Board set aside the agreement. That led to an AJ decision in 2000, a Board decision in 2001, and finally a Federal Circuit decision in 2002 – all arising from what should have been a settled case.

While this was a Park Police case, the GS system has a similar limitation on rates of payment for overtime. An exempt employee who earns more than GS-10, step 1 may only be paid overtime at a rate the greater of:

  1. His or her hourly rate, or
  2. The hourly rate for a GS-10, step 1.

(This limitation does not apply to wage employees or non-exempt employees.)

Review OPM’s guidance on Title 5 overtime pay.

Pay retention. In Day v. Air Force, 78 MSPR 364 (MSPB 1998), the agency removed a GS-9 supervisory art specialist under 752 procedures. The settlement agreement cancelled the removal, provided back pay, and required withdrawal of the appeal. Then the agreement went off the rails. The agency agreed to assign the employee to a WG-7 position with GS-9 pay retention, step increases, and other adjustments at the GS-9 level.

There are so many problems here, it’s hard to know where to start.

First, the basics. Pay retention is paid under 5 CFR 536. 5 CFR 536.102(b) sets conditions when payment of grade or pay retention is prohibited. The first situation on the list is when the employee is reduced in grade or pay for personal cause or at the employee’s request. Given that Day was removed for cause and this alternative of a downgrade was reached to resolve the ensuing litigation, it would seem to me that pay retention was never appropriate to begin with. The Board didn’t dwell on this aspect of the case. There was another problem.

Under pay retention, an employee does not receive step increases. The individual’s pay is beyond the limit for the grade. It’s also important to note that an individual remains in pay retention basically until the pay scale catches up with them. They receive 50 percent of the annual cost of living increase each year. Again, contrary to the language in the agreement, Day could not receive “other adjustments at the GS-9 level.”

There was even discussion during the enforcement proceedings that, perhaps, the agency should give Day grade retention. Even if that were appropriate (it seems very clear it’s not appropriate, per OPM guidance), grade retention lasts only two years. Then the individual would go into pay retention, so the agency would be right back in the same conundrum then.

DoD has a useful plain language document on the ins and outs of grade and pay retention. 

Without understanding the fine points of how the wide variety of pay issues are handled, an advocate might be lured into agreeing to something that is contrary to the pay laws in Title 5 just as the representatives in Farrell and Day did. To avoid this problem, make sure HR practitioners are available to assist agency representatives with settlement details so the provisions agreed to can actually be implemented.

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