B-236991, Jun 25, 1990, 69 Comp.Gen. 541
B-236991: Jun 25, 1990
The agency may not deduct from the backpay award the monetary value of the food and lodging he received in kind since the food and lodging were furnished for the convenience of the employer and are excludable from gross income for federal income tax purposes. 26 U.S.C. Hetrick - Backpay Award - Deductions for Outside Employment - Value of Food and Lodging: A joint request for a decision was submitted by the Bureau of Reclamation. The issue is whether the value of food and lodging provided to Mr. Thus is required to be offset against his backpay award. Hetrick was employed by the Bureau of Reclamation. He was unable to resume working and he received workmen's compensation benefits from June 1982 to January 1983.
B-236991, Jun 25, 1990, 69 Comp.Gen. 541
CIVILIAN PERSONNEL - Compensation - Retroactive compensation - Deductions - Outside employment The employee worked on his mother's farm during the period of an unjustified or unwarranted personnel action and received no wages, salary, or monetary payments for his services. The agency may not deduct from the backpay award the monetary value of the food and lodging he received in kind since the food and lodging were furnished for the convenience of the employer and are excludable from gross income for federal income tax purposes. 26 U.S.C. Sec. 119 (1988). Therefore, the meals and lodging do not constitute "amounts earned ... through other employment" within the meaning of 5 U.S.C. Sec. 5596(b)(1)(A)(i) (1988).
Ronald E. Hetrick - Backpay Award - Deductions for Outside Employment - Value of Food and Lodging:
A joint request for a decision was submitted by the Bureau of Reclamation, Department of the Interior (DOI or agency), and a former employee, Mr. Ronald E. Hetrick. /1/ The Denver Regional Office of the Merit Systems Protection Board (MSPB) agreed to the submission to this Office.
The issue is whether the value of food and lodging provided to Mr. Hetrick by his mother for the period he resided and worked on the family farm constitutes "amounts earned by an employee from other employment" under 5 U.S.C. Sec. 5596(b)(1)(A)(i) (1988), and thus is required to be offset against his backpay award. For the reasons stated below, the value of the meals and lodging does not constitute a proper offset from Mr. Hetrick's backpay.
Mr. Hetrick was employed by the Bureau of Reclamation, DOI, as a Laborer, Wage Grade (WG)-3, in Utah until March 1982 when he injured his knee while working. He was unable to resume working and he received workmen's compensation benefits from June 1982 to January 1983. Mr. Hetrick moved to Pennsylvania due to the illness of his mother and was employed on her farm from January 3, 1983 until June 27, 1986, except for two brief periods of temporary employment on ranches in Montana. For about 1 year during 1986, he received public assistance benefits from the Department of Public Welfare of the Commonwealth of Pennsylvania. During this period, Mr. Hetrick also withdrew and expended his civil service retirement funds for his care, support, and maintenance.
In June 1986, Mr. Hetrick requested restoration to his former position with DOI but the agency would not rehire him. He appealed the decision to MSPB, which, on January 9, 1989, issued an Opinion and Order, /2/ which ordered DOI to restore him to the WG-3 Laborer position in Utah, effective January 3, 1983, and to issue a check to the appellant for the appropriate amount of backpay, interest, and other benefits under Office of Personnel Management regulations.
Affidavits submitted by Mr. Hetrick and his mother disclose that Mr. Hetrick never received any cash, checks, or other form of monetary payment for his services on his mother's farm. The affidavits state that the claimant was employed on the Hetrick farm on a part-time basis and that the only benefits he received for his services were food and lodging. Mr. Hetrick stated in his application for employment (Standard Form 171), submitted in June 1986, that he had salary or earnings of $6 per hour while working on the farm. /3/
Based on the affidavits and the employment application, DOI deducted $32,220, representing the alleged value of the food and lodging received by Mr. Hetrick, from his total backpay award of $115,321.12.
At the outset, it is unclear to us whether there was a bona fide employment relationship between Mr. Hetrick and his mother. However, assuming there was such a relationship, we believe that a deduction from backpay is not justified for the following reasons.
We have found nothing in the Back Pay Act or its legislative history that addresses the issue before us. The applicable regulatory provision issued by the Office of Personnel Management (OPM) /4/ states that an agency shall deduct from backpay "any amounts earned by an employee from other employment during the period covered by the corrective action." The relevant OPM guideline states that:
"The amount of entitlement is the difference between the amount of compensation the employee would have earned, including all premium pay, and the amount actually earned in employment obtained as a substitute for Government employment during the period covered by the corrected personnel action." /5/
This Office has stated that any deduction from backpay must be based on the nature of the outside benefits in each situation. We have required the offset of "total amounts earned," "earnings attributable to outside employment," and "monetary amounts" received by the employee. /6/ However, we have not addressed the issue as to whether food and lodging constitute earnings under the Back Pay Act.
In the absence of specific provisions in the Back Pay Act, the regulations, or prior decisions, however, we note that the OPM guideline quoted above refers to government income and to amounts actually earned in other employment. This suggests an income test, and for that reason we focus our attention on the Internal Revenue Code and the implementing regulations for guidance as to whether meals and lodging constitute income.
The Internal Revenue Code, in section 119, title 26, United States Code (1988), excludes from the gross income of an employee the value of any meals or lodging furnished to the employee for the convenience of the employer. In the case of meals, they are excluded from gross income if they are furnished on the business premises of the employer. In the case of lodging, it is excludable if the employee is required to accept such lodging on the employer's business premises as a condition of employment.
Here, the meals were furnished to Mr. Hetrick by his mother on the business premises, the farm, and they were furnished for her convenience since the claimant was needed on the premises to perform the farm work. Further, they were furnished for a substantial noncompensatory business reason, i.e., there are insufficient eating facilities in the vicinity of the farm. See 26 C.F.R. Sec. 1.119 1(a)(2)(c) (1989); United States v. Morelan, 356 F.2d 199 (1966).
With respect to lodging, the requirement that lodging must be a condition of employment means that the employee is required to accept the lodging in order to enable him to properly perform his duties. Farm operations generally require this type of living arrangement, i.e., the furnishing of lodging and meals by the employer-farm owner-- in order that the employee will be available to perform his duties at all times. /7/
Farm workers have long been provided food and lodging in rural areas to induce them to stay and work on the farm. See Caratan v. C.I.R., 442 F.2d 606 (9th Cir. 1971); Wilhelm v. United States, 257 F.Supp. 16 (1966). Since his mother needed Mr. Hetrick to work on her farm, she had no choice but to provide him with food and lodging. This, obviously, was for her convenience as employer and, consequently, the meals and lodging furnished Mr. Hetrick would not constitute income under section 119, title 26, United States Code. See Diamond v. Sturr, 221 F.2d 264 (C.A. 2d Cir. 1955).
We are not persuaded by DOI's attempt to invoke the earned income credit provisions of the Internal Revenue Code where meals and lodging are included in income for purposes of the credit. See 26 U.S.C. Sec. 32 (1988); 26 C.F.R. Sec. 1.43-2(c)(2) (1989). The earned income credit is a benefit available to certain families with dependent children and with an earned family income of less than $10,000 per year. It was designed to provide relief to low income families who pay little or no income tax and it was intended to provide an incentive for low income individuals to work rather than to receive federal assistance. See Rucker v. Secretary of the Treasury, 751 F.2d 351 (10th Cir. 1984). We perceive no correlation between the payment of awards under the Back Pay Act and the earned income credit under the Internal Revenue Code in determining what constitutes amounts earned from other employment.
Finally, DOI maintains that it offset the amount it determined to represent the value of the meals and lodgings furnished to Mr. Hetrick by his mother in good faith, considering an employee's duty to mitigate damages under the Back Pay Act.
With respect to the mitigation of damages, in Schwartz v. United States, 149 Ct. Cl. 145, 181 F.Supp. 408 (1960), the Court of Claims held that the employee was under no obligation to seek other employment while appellate administrative proceedings were in progress, and he was endeavoring to obtain reinstatement. The court found that the employee should be afforded ample opportunity to prepare for the hearings dealing with the agency's action. Id. at 148; see also Power v. United States, 220 Ct. Cl. 157, 168, 597 F.2d 258 (1979). This Office has concurred in that interpretation. See Kenneth L. Clark, 62 Comp.Gen. 370, 372 (1983). Hence, Mr. Hetrick was under no obligation to seek other employment while his appeal to MSPB was in progress.
In conclusion, we find no authority to support the Department of the Interior's deduction of the monetary value of the lodging and meals received by Mr. Hetrick while performing work on his mother's farm since he received no wages or monetary payments for his services on the farm and the furnishing of food and lodging was for the convenience of the employer. Accordingly, the lodging and meals do not constitute "amounts earned ... through other employment" within the meaning of 5 U.S.C. Sec. 5596(b)(1)(A)(i), and the amount of $32,220 may not be deducted from Mr. Hetrick's backpay award.
/1/ Mr. B. Daren Reese, Regional Personnel and Management Officer, Bureau of Reclamation, represented the agency, and John Spencer Snow, Attorney at Law, represented Mr. Hetrick.
/2/ Hetrick v. Interior, 39 M.S.P.R. 426 (1989), MSPB Docket No. DEO3538610423-1.
/3/ The parties agree that the $6 per hour represented an attempt to place a monetary value on the services rendered, and that Mr. Hetrick did not receive any monetary amount for his services.
/4/ C.F.R. Sec. 550.805(e)(1) (1990).
/5/ FPM Supplement 990-2, Book 550, subchapter S8-7c (Inst. 84, Aug. 18, 1988).
/6/ Glen Gurwit, 63 Comp.Gen. 99, 101 (1983); Ernest E. Sargent, 57 Comp.Gen. 464 (1978); Theodore F. Moran, B-195213, July 7, 1980; B-148637, Jan. 29, 1968; B-131439, Oct. 8, 1957. Compare B. Riley McClelland, B-207148, Mar. 1, 1983.
/7/ Mr. Hetrick has advised this Office that, after performing the regular daily farm work, he had to be available to keep watch on the regulator on the natural gas well on the farm, repair plumbing fixtures damaged by freezing temperatures, and herding cattle, horses, and hogs who escaped from their pastures and pens, including repairing damaged fences. Reference DLA-CFF.