DAN J SULLIVAN, Complainant
STATE OF WISCONSIN, Respondent
An administrative law judge (ALJ) for the Equal Rights Division of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.
The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review of this matter and for the reasons stated in the Memorandum Opinion attached to this decision, the Labor and Industry Review Commission therefore issues the following:
The decision of the administrative law judge (copy attached) is affirmed.
Dated and mailed September 27, 2007
sullida . rsd : 125 : 9
/s/ James T. Flynn, Chairman
/s/ Robert Glaser, Commissioner
/s/ Ann L. Crump, Commissioner
During the latter part of 2005 and the month of January 2006, Dan Sullivan filed three complaints of discrimination with the ERD (which were cross-filed with the EEOC) alleging that the respondent had unlawfully discriminated against him. The ERD complaints were assigned case numbers CR200504170, CR200504345 and CR200600277. In ERD Case No. CR200504170 (filed October 26, 2005), Sullivan alleged that he had been discriminated against in his terms and conditions of employment because of his disability (legally blind), Creed (Christian) and because he opposed discrimination in the workplace. In ERD Case No. CR200504345 (filed November 3, 2005), Sullivan alleged that he had been discriminated against in his terms and conditions of employment because he filed a complaint of discrimination against the respondent. In ERD Case No. CR200600277 (filed January 17, 2006), Sullivan alleged that he had been notified on December 7, 2005, that his contract at UW-Marathon County would not be renewed after June 30, 2006, because he filed complaints of discrimination against the respondent.
On March 22, 2006, after nearly three months of negotiations between Sullivan and the respondent, Sullivan signed a settlement agreement and release to settle and resolve all claims and allegations arising out of his employment with the respondent. The settlement agreement included the following as having been agreed upon by Sullivan and the respondent:
1. Settlement Amount. The University will pay Mr. Sullivan the sum of $32,271.99, less applicable withholding as described below (hereinafter, the "Settlement Amount"), as follows:
a. Wage Damages. A check in the amount of $32,271.99, less applicable withholding, made payable to Daniel Sullivan, will be issued within 10 (ten) working days after UW Colleges' receipt of both Mr. Sullivan's fully executed copy of this Agreement and Mr. Sullivan's letter of resignation with a resignation date effective March 31, 2006...
b. Tax Consequences. Mr. Sullivan will be issued the appropriate Internal Revenue Service Form W-2 for 2006.
The University makes no representations concerning the taxability or nontaxability of the Settlement Amount. Mr. Sullivan accepts full responsibility for the payment of any federal or state taxes due on the Settlement Amount and any penalties and/or interest due for failing to make proper estimated state and/or federal tax payments, and will indemnify and hold the University harmless from any liability arising from the same.
2. Disability Retirement. The University agrees that if it is informed by the Wisconsin Department of Employee Trust Funds ("ETF") that Mr. Sullivan has made application for disability retirement, the University will not seek to contest such application. The University's providing information at the request of ETF, however, will not be considered contesting the application under this Agreement. Mr. Sullivan acknowledges that during settlement negotiations, the University had repeatedly advised him to direct any questions he might have about disability retirement to the UW Colleges' disability retirement resource staff member or to ETF directly.
3. Letter of Resignation. Mr. Sullivan agrees that upon his execution of this Agreement, he will provide the University with a signed, written letter of resignation with the effective date of March 31, 2006. This letter of resignation shall be addressed to Dean James Veninga, with a copy to Assistant Campus Dean Nolan "Whiz" Beck and Director of Human Resources, Lyn Reigstad. Mr. Sullivan may not disseminate this letter or its contents to any other individual or agency, in accordance with Section 9 below.
4. Termination Proceedings. Upon receipt of a fully executed copy of Mr. Sullivan's Settlement Agreement and Release and his letter of resignation, submitted in accordance with the terms described in Section 3 above, the University will cease the employment termination process against Mr. Sullivan as provided in ASPP #706.06(f).
6. Release of University. In consideration of the action to be taken by the University in accordance with this Agreement, Mr. Sullivan hereby fully and forever releases, acquits, and discharges the State of Wisconsin, the University and its current and former board members, administrators, officers, directors, employees, servants, representatives and agents from any and all liability...arising out of his employment relationship with the University...The release in this Section includes, but is not necessarily limited to:
Any and all liability of the University based on rights and claims arising under the...Americans with Disabilities Act, the Rehabilitation Act of 1973...the Wisconsin Fair Employment Act...
7. Withdrawal of Claims; Covenant Not to Sue on Released Claims. In further consideration of the actions to be taken by the University in accordance with the covenants of this Agreement, Mr. Sullivan agrees to withdraw and request dismissal with prejudice, within three (3) days of the effective date of this Agreement, with a copy to the University, any and all complaints filed with the U.S. Equal Employment Opportunity Commission (including those with Case Nos. 26GA600177, 26GA600223, and 26GA600578), the Wisconsin Department of Workforce Development (including those with Case Nos. CR200504170, CR20054345, and CR200600277)...
9. Confidentiality. Mr. Sullivan agrees not to discuss the terms and fact of this Settlement Agreement and Release, nor shall he discuss any of the matters of his employment which this Agreement resolves, with anyone except members of his immediate family, his tax advisor, or legal representative. The University agrees to maintain the confidentiality of this Agreement except that the University may disclose the Agreement or the contents thereof to its employees or representatives to the extent necessary to fulfill its obligations under this Agreement; to any state or federal governmental agency performing a legally authorized function; or under such circumstances as may be required by law, including under Wisconsin's Public Records and Property law.
10. Advice to Consult Legal Counsel. Since this Agreement includes a waiver of Mr. Sullivan's right to pursue all claims against the University under Title VII of the Civil Rights Act of 1964, the Wisconsin Fair Employment Act, the Federal Family and Medical Leave Act, Chapter 230 of the Wisconsin Statutes, the Wisconsin Family and Medical Leave Act, and the other statutes referred to in this Agreement, and is a release of any and all liability of the University to Mr. Sullivan based on all the statutes and claims referred to in this Agreement, Mr. Sullivan is hereby advised to consult an attorney before signing this Agreement, and, by signing this Agreement, acknowledges that he has had full opportunity to do so.
16. Acknowledgment. In signing this Agreement, Mr. Sullivan acknowledges and agrees:
That he has read this Agreement and fully understands the terms and conditions hereof, which are contractual and not a mere recital;
That he has not relied on any statement or representation made by or on behalf of the University other than as set forth herein, but wholly upon his own judgment, belief, and knowledge and the advice of his own attorney and any other advisers of his choice; and
That he is voluntarily signing this Agreement with full knowledge as to its meaning and consequences for the purpose of making a full and final compromise, adjustment, and settlement of all the matters mentioned above.
As previously noted, Sullivan signed the settlement agreement on March 22, 2006. By letter of that same date he stated the following in his letter of resignation to the respondent:
Due to serious health concerns that are both disability and work related, and contingent upon fulfillment of all terms of the recently negotiated UW Colleges settlement agreement involving ADA issues, I am resigning from my position, effective March 31, 2006. As a result, I am withdrawing my ADA complaints with the Equal Rights Division and EEOC. I understand that this information will be held in strict confidence by UWMC. Should UWMC fail to honor any term of the settlement agreement, it could result in reinstatement of my ADA complaints.
On April 10, 2006, which was apparently within ten working days after the respondent's receipt of Sullivan's executed agreement and his letter of resignation, the respondent mailed a check to Sullivan for the net amount of $19,595.68. The gross amount was $32,271.99, before withholdings for federal and state taxes and social security. Sullivan contacted the respondent via email on April 12, 2006, objecting that the Settlement Amount had been issued as "payroll earnings" with taxes withheld. Also, in a letter of the same date that Sullivan sent to the respondent, Sullivan, quoting a portion of section 1b of the agreement, emphasized that the agreement clearly stated:
"The university (sic) makes no representations concerning the taxability or non-taxability (sic) of the Settlement Amount. Mr. Sullivan accepts full responsibility for the payment of any federal and state taxes due on the Settlement."
Sullivan's letter dated April 12 also noted that he had had contact with the ERD, stated that the ERD "will be re-opening all case complaints if this is not resolved" and requested that a check "in the full amount for compensatory damages, be issued immediately."
Apparently, on April 13, 2006, the ERD's Bureau of Civil Rights Director called the respondent's counsel and informed counsel that Sullivan would not execute the withdrawal forms.
By correspondence dated April 17, the respondent replied to Sullivan, stating among other things, that the check amount of $19,595.68 was correct and in accordance with the terms of the executed settlement agreement. The respondent pointed out that Section 1 of the agreement clearly states that the University agrees to pay Sullivan "the sum of $32,271.99, less applicable withholding" and indicates he would be "issued the appropriate Internal Revenue Service Form W-2 for 2006." The respondent further stated that as a matter of federal tax law, payments of settlements in employment-related cases are taxable as income to the employee, and withholding is required where a settlement is for wage-related claims. The respondent advised Sullivan that it expected him to fulfill his obligations.
In a letter to the Bureau of Civil Rights Director dated April 26, Sullivan stated:
The recent settlement agreement between myself and UW Colleges has not been satisfactorily completed. Both Social Security and the Disability Retirement System have cautioned me not to accept the manner in which UW Colleges has attempted to pay this settlement as payroll earnings. According to Social Security, any settlement labeled as payroll earnings would need to specify the pay rate, pay period, and work performed. Thus far, UW Colleges has been reluctant to do so.
There was no mutual agreement by the parties that the settlement amount would be issued as payroll earnings. By making this representation, UW Colleges has failed to comply with the settlement agreement. Therefore, please begin the process of the complaints review.
As a follow-up to the Bureau of Civil Rights Director's April 13 call, on April 27 the respondent wrote to her regarding Sullivan's refusal to execute the withdrawal forms, enclosing a copy of the executed settlement agreement. In the April 27 letter (on which Sullivan was copied) the respondent noted that the source of Sullivan's dispute appeared to be dissatisfaction with the University's withholding from the settlement payment. The respondent noted that not only does the settlement agreement make clear that the University will pay him the settlement amount, less applicable withholding, but previous correspondence between the University and Sullivan prior to settlement had likewise indicated that the University would withhold on the settlement amount. The respondent stated that this was in keeping with the University's obligation under federal tax law, which required the University to withhold taxes on employment-related disputes and notify the Internal Revenue Service of the payment.
By letter dated May 1, Sullivan responded to the respondent's April 27 letter. Sullivan stated, in part, "Having read your recent letter to ERD, I am concerned about this attempt to distort the facts to coerce both myself and the ERD into believing that there was a mutual agreement to represent the Settlement Amount as payroll earnings." Further, Sullivan stated:
I will not accept any further attempts to coerce me into accepting the Settlement Amount as payroll earnings. Any taxability related to the settlement is my responsibility and will be addressed by my accountant. If this cannot be resolved immediately, I will not only seek reinstatement of all complaints, yet will also seek assistance from the Attorney General's office, Bar association, and local legislators to address what appears to be a fraudulent practice by UW Colleges.
The next day, a Division equal rights officer (ERO) wrote to the parties. After a brief summary of what the case file showed had occurred to this point, the ERO first noted that it appeared the complainant was alleging the employer had breached the private settlement agreement and that he should be aware that the ERD has no jurisdiction to enforce breach of contract questions, but he did have the right to go to court to enforce the terms of the agreement if he feels the respondent has not complied with the terms of the agreement. However, the ERO then noted that a second issue presented was whether or not the complainant signed a valid waiver and release of his claims that would preclude the ERD from further processing Sullivan's complaints. The ERO therefore advised the parties that this matter would be examined first, that he was enclosing a questionnaire for each party to complete and that the parties were to submit their written arguments and positions to him on or before May 22, 2006.
In his correspondence to the ERO, Sullivan repeated his assertions that he agreed to withdraw his complaints in exchange for $32,271.99, that the agreement states the University makes no representation concerning the taxability or non-taxability of the settlement amount and that it then goes on to state that the tax considerations would be his responsibility.
Sullivan informed the ERO that he held a Bachelor of Business Administration degree. Sullivan further stated the following:
I've received SSDI since January 1997. The University was aware of my SSDI status when hired. I must complete routine work activity reports and declare monthly earnings and expense offsets to Social Security. After receiving the April paycheck from the University, I contacted the national and local offices of Social Security, due to concerns on how this payment would impact on my SSDI. Because the paycheck exceeded my monthly earnings threshold I [am in] jeopardy of losing not only my SSDI, yet also that of my spouse and daughter. According to Social Security, in order for the Settlement Amount to represent payroll earnings, the University has the responsibility of specifying the pay period, pay rate and work performed. To date, the University has refrained from doing so.
Shortly after consulting with Social Security, I also contacted the agency representing the Employee Trust Funds and Disability Retirement. My concern was how the Settlement Amount would factor into calculating my retirement benefits. According to this agency, any payroll earnings received during the past three years is factored into the formula for determining monthly disability retirement income. It now appears this processing is being delayed because of the University's attempt to represent the Settlement Amount as payroll earnings. It was also noted to me that if the Settlement Amount represents a payroll increase, that same rate must be applied to all benefits accrued during that time such as vacation pay.
The respondent asserted in its correspondence to the ERO that Sullivan executed a valid waiver and release of his claims in signing the settlement agreement, and therefore requested that his claims be dismissed with prejudice. In support of its position that there was a valid waiver and release, the respondent included a copy of the correspondence reflecting the negotiations that had occurred between the parties in arriving at a settlement. This correspondence begins with Sullivan's January 12, 2006 letter proposal for resolving matters related to his employment and ends with the respondent's March 7, 2006 letter acceptance of the additional terms proposed by Sullivan. There were over 20 pieces of correspondence exchanged between the parties during the nearly three-month period of negotiations.
On May 31, 2006, in three separate Preliminary Determination and Orders, the ERO dismissed each of Sullivan's complaints (ERD Case Nos. CR200504170, CR200504345 and CR200600277) on the ground that the Division did not have jurisdiction to proceed on his complaints. After citing Wis. Admin. Code § DWD 218.06(3) (the department may dismiss a complaint prior to completion of an investigation where the complainant signed a valid waiver and release of claims arising out of the complainant's employment with the respondent that would preclude the department from finding that the respondent has violated the Act), the ERO determined that the totality of the circumstances presented showed that the agreement was valid and entered into willingly. Further, the ERO determined that Sullivan was asserting that the terms of a private contractual agreement was breached by the respondent and that the ERD did not have jurisdiction to decide breach of contract issues regarding private agreements.
On June 9, 2006, Sullivan filed an appeal from each of the Preliminary Determination and Orders. Included in his written appeal were the assertions, "All terms of an agreement to resolve these complaints has NOT been met to the satisfaction of BOTH parties" and that "It was my understanding that I would receive the full settlement amo0unt (sic) and then be responsible for any applicable taxes."
On August 3, 2006, the ERD received a letter from Sullivan which stated he was withdrawing his complaint about the respondent's payment process for the settlement. However, because Sullivan's letter had not included any case numbers in his correspondence, the ALJ sent a withdrawal form (with the EEOC and ERD Case numbers) to Sullivan with a request that he sign and return the form. The ERD received the withdrawal form back from Sullivan on September 8. Under the section of the withdrawal form provided for Sullivan to state why he was requesting to withdraw his complaints Sullivan wrote:
"I agreed to a settlement under intimidation and threat of termination due to my ADA complaints. Therefore, I am withdrawing my complaints, but not voluntarily, nor freely, nor willingly."
By letter dated October 3, the ALJ informed the parties that if Sullivan was alleging that his complaints were not being withdrawn voluntarily, freely and willingly, he did not believe it was appropriate to accept Sullivan's withdrawal and would need to proceed with a ruling on the appeal of the Preliminary determinations. In order for Sullivan to clarify what it was he would like to do, the ALJ enclosed an "APPEAL STATUS AND WITHDRAWAL" form for Sullivan to indicate that he has, upon further consideration, freely chosen not to pursue his appeals.
Sullivan responded by letter dated October 10, stating:
During the process of filing ERD complaints, I suffered from two disabling conditions including Stargardts Disease (vision loss leading to blindness) and clinical depression. At this time, I made it known to UW officials that I was under psychiatric care for mental health concerns. Instead of demonstrating compassion and empathy, the UW exerted extreme pressure and [took] punitive actions toward me such as harassment, radical changes to my work schedule & duties, and dismissal of my e-mail & office access. Eventually, I was threatened and intimidated with termination if I did not withdraw my complaints. Because of these coercive actions by UW officials, I must state for the record that my request to withdraw ERD complaints was not done freely, willingly, or voluntarily....
By letter dated November 5, 2006, the ALJ notified the parties that he would proceed to rule on Sullivan's appeal of the Preliminary Determinations.
On November 22 the respondent wrote to the ALJ to respond to Sullivan's assertions. With respect to the assertion that he was under psychiatric care and despite that the respondent exerted extreme pressure and took punitive actions against him, the respondent stated: "Contrary to his assertions, the University had no formal knowledge that Mr. Sullivan was under psychiatric care during the time of his filings. While Mr. Sullivan may have made some statements to this effect, the University was not provided with any medical documentation to support this claim." Further, the respondent stated:
The allegations made by Mr. Sullivan concerning his employment further misrepresent the situation. While it is true that the University had taken several employment actions against Mr. Sullivan which prompted his Complaints, these actions were taken because the University believed that Mr. Sullivan was not adequately performing the duties of his position. In addition, Mr. Sullivan's actions were having a deleterious effect on the environment of the institution. Contrary to Mr. Sullivan's assertions, the University's actions were not taken with the intent to intimidate or coerce him.
In a letter to the ALJ dated November 25, 2006, Sullivan contested the respondent's stated lack of knowledge about his psychiatric condition and its statement that the University had taken employment actions against him because it believed he was not adequately performing the duties of his position.
By decision dated March 9, 2007, the ALJ affirmed the ERO's Preliminary Determination and Order regarding each of Sullivan's ERD complaints on the ground that Sullivan had previously signed a settlement agreement and release that included an agreement that he withdraw his ERD complaints. The ALJ noted that it was the commission's policy to treat settlement agreements as final, absent an allegation of misrepresentation or intimidation by a representative of the department, or an allegation that the settlement agreement contained something to render it invalid on its face. (Citing, Fettig v. County of Fond du lac (LIRC, 07/14/06; Gribbons v. Chart Industries, Inc. LIRC, 03/26/02); Johannes v. County of Waushara Executive Committee Board of Supervisors (LIRC, 11/01/93); Pustina v. Fox & Fox, S.C. (LIRC, 04/27/93); Clussman v. Ellis Stone Constr. (LIRC, 03/25/86)). The ALJ concluded that in this case there was nothing on the face of the Settlement Agreement and Release that would invalidate it, that the Agreement clearly indicated that the settlement amount of $32,271.99 would be paid "less applicable withholding" and that Sullivan was making no allegation of misrepresentation or intimidation by someone from the Department.
Further, as for Sullivan's allegations that there was a breach of the settlement agreement, that the settlement agreement should be voided on the grounds that he was allegedly threatened or intimidated by the respondent into signing and that it should be voided because he was allegedly under psychiatric care, the ALJ stated that "these are challenges to the settlement agreement that the Complainant may possibly seek recourse for in another forum such as perhaps a (Wisconsin) Circuit Court."
After receiving the check tendered by the respondent as wage damages under the settlement agreement, Sullivan initially claimed, in essence, that there had been a breach of the agreement by the respondent. In correspondence to the respondent dated April 12, 2006, Sullivan asserted, "Instead of being the agreed upon $32,000 plus compensation for resolution of all ADA issues, the check was issued as $19,000 plus in payroll with a tax rate of over 30%." However, once a settlement agreement is entered into, a dispute about whether its terms have been complied with does not affect the validity and finality of an agreement made as part of that settlement that proceedings before the ERD will be dismissed. King v. K-Mart (LIRC, 08/28/03), citing, Gronowski v. Milwaukee Co. (LIRC, 01/13/98)(Neither the ERD nor LIRC has the authority to decide what are in effect breach of contract questions regarding whether settlement agreements have been breached).
In Crymes v. County of Milwaukee (LIRC, 02/24/04), the commission stated:
The commission has consistently held that once entered into by all parties, either in writing or on the record, a settlement is final. Pustina v. Fox & Fox, S.C. (LIRC, April 27, 1993). Thus, parties who have entered into settlement agreements providing for the dismissal of their complaints, or who have executed and filed requests to withdraw their complaints based on settlements, cannot have their cases reopened by alleging that they exercised poor judgment in agreeing to the settlement, Pustina, or agreed under "duress" of the financial difficulty presented by being out of work, Kaufer v. Miller Brewing Co. (LIRC, Nov. 19, 1993), or were poorly represented, misled by, or otherwise ill-served by their attorneys, Kellar v. Copps Gas Station (LIRC, Jan. 28, 2004); see also, Scott v. Oconomowoc Area Sch. Dist. (LIRC, Jan. 30, 2004).
For this principle to apply, it is necessary that a settlement have been knowing and voluntary. See, e.g., Summers v. Northwest Airlines Inc. (LIRC, May 26, 2000); Pustina.
Further, in Grahl v. Mercury Marine (LIRC, 12/04/92), the commission held that the "totality of the circumstances" test should be used to determine whether there has been a knowing and voluntary waiver of rights under the WFEA. See, also, Lynch v. Zalk Joseph's Fabricators, Inc. (LIRC, 07/17/96); Wesley v. TMP Worldwide, Inc. (LIRC, 02/07/03). Under the totality of the circumstances test the following factors are identified as criteria to be examined: 1) the complainant's education and business experience; 2) the amount of time the complainant had to examine the agreement before signing it; 3) the complainant's role in deciding the terms of the agreement; 4) the clarity of the agreement; 5) whether the complainant was represented by or consulted with an attorney; 6) whether the consideration given in exchange for the waiver exceeded employee benefits to which the employee was already entitled by contract or law; and 7) whether the complainant was encouraged to consult an attorney and whether the complainant knew or should have known his or her rights upon execution of the release.
A review of the case files in this matter reveals that Sullivan knowingly and voluntarily waived his rights under the WFEA. Sullivan has a Bachelor of Business Administration degree and had been employed as an Activities Coordinator for the respondent (apparently since July 2001) at UW Colleges-Marathon County.
Sullivan states that he had about six days to review and execute the settlement agreement. However, he executed the settlement agreement one day after having received it. (Citing its cover letter attached to the two original settlement agreements sent for Sullivan to sign, the respondent asserted that it had not imposed any time limit on Sullivan's review and consideration of the settlement agreement.)
Sullivan had an active role in deciding the terms of the agreement. In fact, terms for settlement of the matter were first presented by Sullivan on January 12, 2006, when he presented the respondent with a proposal for two options for resolving the matters relating to his employment. The respondent responded with a counterproposal, which Sullivan rejected as unacceptable. Subsequently, after a further settlement offer by the respondent, by letter to the respondent dated February 15, 2006, Sullivan specified what the respondent's settlement offer had to include. The respondent responded with a settlement offer by letter dated February 21. Sullivan rejected this offer as "unacceptable and unreasonable." On March 3 the respondent presented Sullivan with a new settlement offer. Sullivan replied by email on March 7 requesting "one and a quarter years (sic) severance pay in addition to the other elements of the proposal" and stating that he would agree to a resignation date of March 31, 2006. (The respondent's proposal had indicated a resignation date of April 15, 2006, unless an earlier resignation date was agreed to.) On March 7 the respondent informed Sullivan that it was willing to accept the terms proposed in his March 3 letter.
The settlement agreement is written in clear and unambiguous language. Section 1 of the agreement states that "The University will pay Mr. Sullivan the sum of $32,271.99, less applicable withholding..." Under subsection 1(a), titled "Wage Damages", the agreement repeats that the amount to be paid is "$32,271.99, less applicable withholding..." (Underlining in original.) Under section 1b, titled "Tax Consequences", the agreement states that "Sullivan will be issued the appropriate Internal Revenue Service Form W-2 for 2006." (Underlining in original.) Section 6 of the agreement states that Sullivan releases the respondent from any and all liability arising out of his employment relationship with the University, including any and all liability of the University based on rights and claims arising under the Americans with Disabilities Act, the Rehabilitation Act of 1973 and the Wisconsin Fair Employment Act. Section 7 of the agreement states that Sullivan agrees to withdraw and request dismissal with prejudice, within three (3) days of the agreement, any and all complaints filed with the EEOC and the Wisconsin Department of Workforce Development, in which the University is named as a defendant or respondent.
Sullivan has asserted it was his understanding that he would receive the full amount of the settlement and then be responsible for the payment of taxes based on the language of the second paragraph of section 1b of the agreement. This paragraph reads:
"The University makes no representations concerning the taxability or nontaxability of the Settlement Amount. Mr. Sullivan accepts full responsibility for the payment of any federal or state taxes due on the Settlement Amount and any penalties and/or interest due for failing to make proper estimated state and/or federal tax payments, and will indemnify and hold the University harmless from any liability arising from the same."
First of all, the respondent has explained that this paragraph of the agreement simply served to protect the University from any later claim in the event, for example, that the University failed to withhold the proper amount from the Settlement Amount. Furthermore, there was no reason for Sullivan to have believed that the respondent was going to pay him the full amount of $32,271.99, after which he would then be responsible for the payment of the taxes on that amount. Each and every one of the respondent's proposed settlement offers to Sullivan, as well as the final settlement agreement that was reached between the parties, referenced a withholding deduction from the amount offered/agreed upon. In the counterproposal the respondent made to the settlement proposal first made by Sullivan, the respondent listed a settlement amount followed by the statement, "(less withholding, if applicable)." In a subsequent settlement offer made by the respondent on January 23, 2006, the respondent again listed a settlement amount, followed by the statement, "(less withholding, if applicable)". In the respondent's next 2 proposed settlement offers of February 21 and March 3, 2006, the respondent listed a settlement amount followed by the statement, "(less withholding, as applicable)". In each of these two settlement offers the respondent advised Sullivan as follows:
Although the University may be required to withhold on some or all of the amounts covered on the Settlement Agreement, you will ultimately be responsible for the payment of any applicable taxes.
Also, as noted above, the settlement agreement itself makes clear that the University would pay Sullivan "$32,271.99, less applicable withholding". In addition, Sullivan knew or should have known that withholdings for taxes would be deducted from the $32,271.99 amount based on the fact that the agreement stated that an IRS Form W-2 for 2006 would be issued to him.
Furthermore, as provided in section 16 of the agreement, by signing the agreement Sullivan was acknowledging and agreeing that he has read the agreement and fully understood its terms and conditions.
Sullivan has asserted that he did not consult an attorney during the settlement negotiations.
Sullivan was given consideration in exchange for his waiver of rights against the respondent that exceeded employee benefits to which he was already entitled to by contract or law. Specifically, the Settlement Amount of $32,271.99 included a severance payment equal to one and one-quarter times his annual compensation. (1)
Finally, section 10 of the settlement agreement expressly advised Sullivan to consult legal counsel. This section of the agreement states that since Sullivan was waiving his rights to pursue all claims against the respondent, "Mr. Sullivan is hereby advised to consult an attorney before signing this Agreement, and, by signing this Agreement, acknowledges that he has had full opportunity to do so."
Sullivan argued before the ALJ that he "agreed to a settlement under intimidation and threat of termination" due to his complaints. However, a review of the correspondence between the parties contained in the case files clearly refutes Sullivan's contention. Cited below, this correspondence shows that Sullivan not only freely participated in settlement negotiations with the respondent, but that he willingly, knowingly and freely agreed to the negotiated settlement. In fact, as the correspondence shows, it was Sullivan who had first presented a settlement proposal, who had engaged in threats to pursue his complaints or take various other forms of action against the respondent when he found the respondent's counter proposals unacceptable, and, who had repeatedly pressured the respondent for immediate responses to his correspondence and settlement offers.
In an email to Dean James Veninga dated January 12, 2006, which was prior to Sullivan's filing of his third ERD complaint, but evidently referring to the respondent's December 7, 2005 notice that his contract would not be renewed after June 30, 2006, Sullivan stated the following:
Having read your January 10 response to my appeal, it is evident that this issue and others will need to proceed through the channels. Unfortunately, it also appears as if this situation if (sic) progressing toward the courts and healdines (sic). However, it is encouraging that for the first time, you have offered to discuss resolutions. In good faith, I am proposing the following" (sic)
Re-new contract and assign new supervisor
Based on health concerns related to work environment, I woudl (sic) consider resigning my position in exchange for three years (sic) salary and support of state disability retirement.
In exchange for either option, I would agree to withdraw all current complaints. In addition, if Option two is met, I would agree to not re-aaply (sic) for the position, refrain from picketing, refrain from media and legislative contacts, and sign a confidentiality statement.
Because of upcoming meetings with UNited (sic) Council, American Council of the Blind, Stiudent (sic) Association, legislative offices, and legal council, I must ask that you reply in writing within the next five days. After that time, this proposal will become null and void.
On January 18 the respondent replied to Sullivan's proposal with a counterproposal. Sullivan responded to this proposal stating, "Based on the meager and disgenuous (sic) resolution you have proposed, I find it unacceptable and will proceed through the Civil Rights Division."
By correspondence dated January 23 the respondent presented Sullivan with a second settlement offer. In a January 29 email response Sullivan stated, "I need to again re-emphasize that until my supervisor agrees to refrain from further threats of termination, I am not interested in negotiating any settlement while under such duress or intimidating circumstances. During the next two weeks, I have multple (sic) medical appointments to assess the negative impacts of my work environment. This will assist me in deciding whether to seek work comp, disability retirement, or continuation of employment." Sullivan concluded the email message stating, "As always, I am open to resolutions, but not coercion or intimidation that threatens my current or future career."
Following Sullivan's January 29 response, there were a series of email messages exchanged between Sullivan and the respondent. Apparently in an email to the respondent on January 31, Sullivan stated, "Due to the fact that I have not heard back from you, I need to inform the Civil Rights Division on the status of settlement discussions. It is my understanding from my supervisor that UWMC wishes to proceed with termination rather than resolution. As such, please forward your responses to the CRD complaints so that a hearing can be scheduled...." Sullivan then concluded the email stating, "As always, I remain open to resolutions, yet cannot accept the ongoing delays by UWMC in review of these issues."
Counsel for the respondent replied by email on January 31 at 2:17 p.m. stating:
I remain willing to entertain any reasonable proposal you offer to resolve this matter.
Sullivan responded stating:
As noted before, I am uncomfortable negotiating any proposal while under the threat of termination. If UWMC is unwilling to honor its current contract with me, why shoudl (sic) I trust any other agreement. I need this responded to immediately.
Counsel for the respondent replied at 5:04 p.m. stating:
As I indicated previously, I remain willing to consider any reasonable proposal you have to offer to settle this matter. However, the processing of your supervisor's recommendation for your termination will continue.
Sullivan responded about two hours later stating:
Let me see if I have got this right. First I am stripped of my duties, then stripped of my hours, and now threatened with termination, yet you are open to a settlement? All you have accomplished is to create more reasons and time for me to fight this tooth and nail. Until you [are] willing to genuinely improve upon your last offer, there simply is no incentive for me to negotiate....I am ready to proceed with the hearing and media coverage. Please do not contact me again unless you have something better to offer. (Emphasis added.)
In an email to the respondent on February 1, Sullivan stated:
Having read the most recent memo from N. Beck, I believe it is now time to go pulbic (sic) and protect other employees with disabilities from experiencing the backlash I have encountered. If this situation cannot be settled this week, I am prepared to go forward with plans for a press conference and picket. (Emphasis added.)
In a letter to the ERD dated February 8, 2006 (with a copy to respondent's counsel), Sullivan stated:
On the basis of filing complaints with your agency, I have now received a notice of dismissal and (sic) put on paid leave until a final hearing decision. As a result, UW-Marathon County has discontinued communications and discussions of settlement. UW officials have refrained from forwarding to me the documents and materials from its investigations necessary for preparation of a hearing. Finally, UWMC has also cut-off (sic) my access to the e-mail network, which contains documentation needed for preparation of this case.
In good faith, I continue to be open to settlement discussions, and will also consider the mediation process available through the Civil Rights Division. (Emphasis added.)
Subsequently, in a letter to the respondent dated February 15, after referencing what he asserted he was owed as compensation for overtime hours and stating that he would like to give the respondent one more opportunity to reply to this issue before considering the option of taking this issue to small claims court, Sullivan stated:
In good faith, I would accept either a separate proposal to settle the overtime issue and would also accept a proposal to include the overtime payment in conjunction with a settlement of all issues. I do need to file a claim with the Small Claims court this month. Therefore, I need a response from you as soon as possible.
As previously noted, I continue to be open to resolution offers, yet because of disability retirement considerations, I can only consider offers which include the following:
1. Paid leave until June 30, 2006.
2. An agreement not to contest disability retirement.
3. A lump sum payment in consideration for resignation, accrued vacation and sick leave, due payment for overtime, and negotiable severance payment.
If you are not open to these considerations, please notify me immediately so that we can go forward with hearings.... (Emphasis added.)
Apparently the respondent did not receive Sullivan's letter until February 20, after the respondent had mailed a letter of that date to Sullivan. In any case, in response to Sullivan's February 15 letter, by letter to Sullivan dated February 21 the respondent offered to give Sullivan "a $20,890.86 (less withholding, as applicable) settlement amount." The offer stated that this represented a $5,691.00 cash settlement in lieu of paid leave from March 1, 2006, through June 20, 2006 (sic) (However, if a negotiated resignation date was later than March 1 this amount would be prorated to reflect the end of Sullivan's contract on June 30, 2006); a $3,335.00 cash payment representing the 204 "overtime" hours Sullivan worked during the fall, 2005, semester; a $3,328.86 cash payment for Sullivan's accrued vacation and personal holiday account; and a $8,536.00 severance payment equal to one-half of Sullivan's current annual compensation.
The respondent's offer then advised Sullivan that "Although the University may be required to withhold on some or all of the amounts covered on the Settlement Agreement, you will ultimately be responsible for the payment of any applicable taxes."
Second, the offer by the respondent stated that "The University will agree that if it is informed by ETF that you have made application for disability retirement, it will not seek to contest such application. Providing information at the request of ETF, however, will not be considered contesting the application under the agreement. If you have questions about disability retirement, I once again highly recommend that you contact either Brad Krause at UW Colleges or ETF directly." (Emphasis added.)
Sullivan responded to the respondent's offer by letter dated February 24 stating, in relevant part:
If UWMC is willing to increase severance equal to one and a half year's salary, accept an April 15, 2006 resignation date, sign a confidentiality clause, and include all other payments listed in your previous offer, I may be willing to settle for these terms.
What you have offered to me at this point is simply nothing more than $8,000 to forfeit my career and future opportunities, while withdrawing all charges. That is unacceptable and unreasonable.
The respondent replied by letter dated March 3, 2006, offering Sullivan "a $29,197.23 (less withholding as applicable) settlement amount." This represented a cash settlement in lieu of paid leave from March 6, 2006 through June 30, 2006 (Prorated accordingly if there was a negotiated resignation date later than March 6.) (The respondent also stated it would agree to an April 15 resignation date, unless an earlier resignation date was agreed to.) The offer of cash payments for Sullivan's overtime hours and accrued vacation and personal holiday account remained the same, but the offer of severance pay was increased to 17,072.00, his current annual compensation.
The respondent's revised offer again repeated the language that it may be required to withhold on some or all of the amounts covered by the Settlement but that Sullivan would ultimately be responsible for the payment of any applicable taxes. It also repeated the language about not contesting Sullivan's application for disability retirement but that providing information at the request of ETF would not be considered contesting such application.
The respondent's revised offer also agreed to maintain the confidentiality of the agreement, with exceptions, including, that it would disclose the contents to its employees or representatives to the extent necessary to fulfill its obligations under the agreement and to any state or federal governmental agency performing a legally authorized function.
By email to the respondent dated March 7, Sullivan stated, in relevant part:
Your recent offer of one year severance pay is still considerably lower then (sic) my reasonable request. However, in good faith, I will agree to a final compromise of one and a quarter years (sic) severance pay in addition to the other elements of the proposal. I also am willing to agree to a resignation effective March 31, 2006. This represents my final good faith effort for resolution of all issues. Please respond by no later than 4:00 p.m., March 8, 2006. (Emphasis added.)
By correspondence to Sullivan that same day, the respondent replied that it was willing to accept the terms requested by Sullivan.
Based upon the above, the commission concludes that Sullivan willingly, knowingly and freely agreed to the settlement agreement.
Sullivan, however, also apparently suggested in his arguments before the ALJ that a valid settlement did not exist because he was "under psychiatric care for mental health concerns." Specifically, Sullivan referenced having clinical depression. However, in addition to the absence of any medical documentation to substantiate this medical condition, Sullivan's correspondence to the respondent cited above makes it abundantly clear that his alleged condition had no adverse impact on his ability to willingly, knowingly and freely negotiate a settlement agreement with the respondent.
Finally, in correspondence from Sullivan on appeal to the commission, Sullivan argues that "Due to the misrepresentation and lack of disclosure by Ms. Bilder (respondent's counsel) and the UW, I feel they have invalidated the settlement agreement and thus my ERD complaint[s] should be reinstated." Sullivan argues:
Upon receiving the settlement check after signing the agreement, I discovered that it represented wage earnings rather than compensatory damages. This was evidenced by the check clearly indicating it was processed by UW payroll, taxed as wage earnings, and itemized by an accompanying employee earnings statement. This followed the exact same procedure as all previous wage earnings paid to me as a UW employee. Based on this information, I asked A. Bilder why this settlement amount was not being treated as compensatory damages and instead being heavily taxed as wages. Ms. Bilder then informed me that the check was issued in compliance with federal regulations requiring that it be taxed in the same manner as all previous employee earnings. At this time and throughout the negotiating process, she made no disclosure as to any state sanctions or loss of benefits related to this process. Instead, she made it appear that only federal IRS regulations impacted on the settlement amount.
Ms. Bilder and the UW had access to and knowledge during the negotiation and settlement process . (sic) of all regulations and sanctions related to the settlement amount. As such, I was provided information which clearly indicated that the calculation of my disability annuity would be based on my three highest annual earnings from UW. No disclosure was made at this time by Ms. Bilder and her client that my 2006 employee earnings would be disqualified in relation to this ADA settlement and thus result in an adverse impact on my monthly annuity....
As further explanation as to what had allegedly occurred, in subsequent correspondence to the commission Sullivan argues:
...I first questioned the status and legitimacy of the settlement payment immediately after receiving both the check and official employee earnings statement from the UW. I was then assured by Ms. Bilder that the payment was being issued in compliance with all federal regulations and being reported as wages to IRS, Social Security, and the department of Revenue. Ms. Bilder also referred to the payment as representing W-2 status.
After cashing the payment under the premise noted above, I then completed application for disability retirement. In doing so, I learned from the Department of Employee Trust Funds that Ms. Bilder had now re-defined these same wagers (sic) as non-wages for the purpose of denying accrued benefits. In consultation with the IRS, EEOC, and my tax accountant, these parties assured me that Ms. Bilfder (sic) and the UW were acting inappropriately by defining the same settlement payment in two differing manners. (sic) - - one calling it wages for the purpose of taxation and the other calling it non-wages for denial of accrued benefits.
Sullivan's arguments fail to support a basis for voiding the settlement agreement. First of all, the respondent correctly informed Sullivan that the settlement amount was taxable as income. "[T]he United States can require persons who receive income within its jurisdiction to share part of that income with the national treasury through direct federal income taxes. To this end Congress has defined taxable income to include, generally, all income not specifically excluded by the code. See IRC § § 61-63....Thus, all accessions to wealth are taxable unless a taxpayer can fit his gain into a statutory exception." Downey v. Commissioner of Internal Revenue, 33 F.3d 836, 837 (7th Cir. 1994). See also, Commissioner v. Banks, 543 U.S. 426, 433 (2205)(The Internal Revenue Code broadly defines "gross income" for federal tax purposes as "all income from whatever source derived.").
While IRC § 104(a)(2) provides a statutory exception for taxation of gross income, Sullivan's income does not fit this exception. Section 104(a)(2) of the IRC provides that gross income does not include: "The amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness." In Commissioner v. Schleier, 515 U.S. 323, 336-337 (1995), the Supreme Court set forth two independent requirements that a taxpayer must meet before a recovery may be excluded under § 104(a)(2): First, the taxpayer must demonstrate that the underlying cause of action giving rise to the recovery is "based upon tort or tort type rights"; and second, the taxpayer must show that the damages were received "on account of personal injuries or sickness." (2)
Regardless of whether or not Sullivan's WFEA claim can be considered as based upon tort or tort type rights, the settlement amount he received as income clearly fails to meet the second requirement in that he did not receive this income on account of personal physical injuries or physical sickness. As indicated above, the sum of $32,271.99, less applicable withholding, which Sullivan received as the settlement amount, represented a cash payment in lieu of paid leave from his March 31, 2006 resignation date through June 30, 2006, a cash payment for his overtime hours and accrued vacation and personal holiday accounts, and severance pay equal to one and one-quarter times his annual salary. This does not constitute income received "on account of personal physical injury or physical sickness." See e.g., Gajda v. Commissioner, T.C. Memo 1997-345 (July 28, 1997)(Lump sum payment of $91,690 based on years of service and rate of pay received in exchange for release and covenant not to sue points in the direction of its having been severance pay rather than payment for personal injury); Broedel v. Commissioner, T.C. Memo 2001-135 (June 8, 2001)(Settlement amount equal to one and one-half times his salary paid to Broedel was to induce his retirement and effect the withdrawal of any complaints against employer; fact that settlement amount was based on the amount Broedel would have received had he continued working another year and a half points in the direction of payment for reasons other than personal injury or sickness).
Sullivan also argues that the respondent made no disclosure "that my 2006 employee earnings would be disqualified in relation to this ADA settlement and thus result in an adverse impact on my monthly annuity" and that after cashing the settlement check under the premise that it was being reported as wages to the IRS applying for disability retirement, he "learned from the Department of Employee Trust Funds that Ms. Bilder had now re-defined these same [wages] as non-wages for the purpose of denying accrued benefits." These arguments also fail. First of all, the settlement agreement signed by Sullivan clearly states: "Mr. Sullivan acknowledges that during settlement negotiations, the University had repeatedly advised him to direct any questions he might have about disability retirement to the UW Colleges' disability retirement resource staff or to ETF directly." (Emphasis added.) Further, Sullivan himself admits that it was not until after he had signed the settlement agreement that he first contacted EFT about how the settlement amount would factor into calculating his retirement benefits. Moreover, it is evident that the treatment accorded to income under federal law is not necessarily treated the same under a state's retirement plan. See e.g., Johnson v. United States of America, 2003 U.S. App. LEXIS 18733, unpublished decision, Ct. App. 10th Cir. (2003), cert. denied, 2004 U.S. LEXIS 4487 (2004). In Johnson, where the employer did not consider an award of front and back pay as income for purposes of its pension plan, the plaintiff argued that his front and back pay was excludable from gross income because the Public Employee's Retirement Association of Colorado did not treat them as salary. The court held, however, that "Federal tax consequences...are solely a matter of federal law" (citations omitted) and that "the State of Colorado's treatment has no relevance to Mr. Johnson's federal tax liability."
For all of the foregoing reasons, the commission has affirmed the administrative law judge's dismissal of Sullivan's complaints in this matter.
cc: Attorney Anne E. Bilder
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(1)( Back ) Sullivan was employed by the respondent on a half-time basis.
(2)( Back ) Subsequent to the Court's decision in Schleier § 104(a)(2) was amended to read as that section is quoted above: "on account of personal physical injuries or physical sickness." (Emphasis added.)