Breach in the Settlement Agreement

The Postal Service reached a settlement with an employee being demoted. The former postmaster was to apply for disability retirement and the agency was to cooperate and facilitate his application. A federal court says the agency did not live up to its end of the bargain and send the case back to the MSPB.

The Federal Circuit Court of Appeals has reversed a Merit Systems Protection Board decision that declined to enforce a settlement agreement between the U.S. Postal Service and a former Postmaster. (Lutz v. United States Postal Service, C.A.F.C. No. 06-3154, 5/15/07) The facts are as outlined in the court’s opinion.

Lutz was an EAS-15 Postmaster at the Pleasant, Michigan post office who, in lieu of removal for failure to perform his duties and misconduct, was demoted in to a PS-4 Mailhandler position in Ann Arbor. He appealed to the MSPB. Lutz and the agency negotiated a settlement and the MSPB accepted it into the record. The settlement called for Lutz to apply for disability retirement within 30 days, and for the agency to “cooperate and facilitate” his application, including an agreement “not to place negative statements in the supervisor statement.” (Opinion, p. 2)

Lutz lived up to his end of the bargain. However, the Office of Personnel Management denied his disability application. The OPM decision letter specifically mentioned the input of Lutz’s agency supervisor: “Your supervisor documents a deficiency in your performance and attendance…He noted that you refused to work in your position, and that you were sent to fitness for duty and found fit for full duty….” (p. 3)

Lutz petitioned the MSPB, claiming that the agency had breached the settlement agreement. The Administrative Judge sided with Lutz, finding the agency had breached its agreement not to submit negative comments. The agency took its case to the full Board, which concluded that the OPM denial of disability was because Lutz failed “to supply OPM with any relevant and credible medical records establishing his disability…” and therefore, even if there was a breach by the agency, it was immaterial in that OPM would have denied the application anyway. (pp. 4-5)

Lutz then took his case to the appeals court. The court agrees with Lutz that the agency had failed to live up to its end of the deal. The court further concludes that the agency’s breach was material, since OPM’s denial letter went into great detail on the negative information that Lutz’s supervisor had provided in response to his application. (pp. 8-9)

The court has bounced the case back to the MSPB so it could decide how best to remedy the breach of the settlement agreement

About the Author

Susan McGuire Smith spent most of her federal legal career with NASA, serving as Chief Counsel at Marshall Space Flight Center for 14 years. Her expertise is in government contracts, ethics, and personnel law.