                       This opinion will be unpublished and
                       may not be cited except as provided by
                       Minn. Stat. § 480A.08, subd. 3 (2014).

                            STATE OF MINNESOTA
                            IN COURT OF APPEALS
                                  A16-0493

                                  Dawn Campbell,
                                     Relator,

                                        vs.

                            MVP Realty Advisors, LLC,
                                 Respondent,

                          Department of Employment and
                             Economic Development,
                                  Respondent.

                              Filed December 5, 2016
                                     Affirmed
                                  Johnson, Judge

                          Department of Employment and
                              Economic Development
                      File No. 34024527-2 and/or 34024527-3

Stephen W. Cooper, Stacey R. Everson, The Cooper Law Firm, Chtd., Minneapolis,
Minnesota (for relator)

MVP Realty Advisors LLC, c/o Amcheck Tax Service, Phoenix, Arizona (respondent
employer)

Lee B. Nelson, Keri A. Phillips, Department of Employment and Economic Development,
St. Paul, Minnesota (for respondent department)

      Considered and decided by Johnson, Presiding Judge; Hooten, Judge; and Tracy M.

Smith, Judge.
                         UNPUBLISHED OPINION

JOHNSON, Judge

       Dawn Campbell entered into a confidential settlement agreement with her former

employer while she was receiving unemployment benefits. The department of employment

and economic development determined that she was temporarily ineligible for benefits

because she received a payment in connection with the settlement agreement.          An

unemployment law judge (ULJ) upheld the determination of ineligibility on the ground that

the payment is subject to the Federal Insurance Contributions Act (FICA) tax. We

conclude that the ULJ did not err and, therefore, affirm.

                                         FACTS

       Campbell worked for MVP Realty Advisors, LLC, from August 2014 until

March 31, 2015. Her salary at the end of her employment was $138,000 per year. After

her employment ended, Campbell applied for and began receiving unemployment benefits

in the amount of $640 per week.

       On April 29, 2015, Campbell and MVP entered into a confidential written

settlement agreement, which required MVP to make a payment to Campbell.

       In December 2015, the department issued a determination of ineligibility for

unemployment benefits, which states that Campbell received a separation payment that

made her ineligible for benefits for a period of several weeks.       Campbell filed an

administrative appeal. A ULJ conducted an evidentiary hearing. Neither Campbell nor

MVP revealed the nature of the confidential settlement agreement or its non-financial

terms. Campbell and MVP stipulated that the settlement agreement “resolve[d] issues


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other than wages, salary, or commissions, or compensation for work done or to be done.”

MVP’s office manager testified that MVP withheld income taxes and FICA taxes from the

settlement payment because that is its standard practice for all payments to employees and

former employees. Campbell’s attorney argued to the ULJ that MVP’s standard practice

of withholding taxes from all such payments is not dispositive of the question whether the

settlement payment is subject to FICA tax.

      The ULJ issued a written decision in which he stated, “The evidence adduced at the

hearing shows that Campbell did receive a payment in the gross amount of $20,000 after

her separation from employment and this payment was subject to FICA tax.” The ULJ

further determined that the payment applies to the period beginning April 1, 2015, and

should have been deducted from Campbell’s weekly benefits, resulting in an overpayment

of $4,480. Campbell requested reconsideration, and the ULJ affirmed his earlier decision.

Campbell appeals.

                                    DECISION

      Campbell argues that the ULJ erred by determining that she was temporarily

ineligible for unemployment benefits during the period immediately following her receipt

of the payment MVP made pursuant to the confidential settlement agreement.

      This court reviews a ULJ’s benefits decision to determine whether the findings,

inferences, conclusions of law, or decision are affected by an error of law or are

“unsupported by substantial evidence in view of the entire record.” Minn. Stat. § 268.105,

subd. 7(d) (Supp. 2015). “If the relevant facts are not in dispute, we apply a de novo

standard of review to the ULJ’s interpretation of the unemployment statutes and to the


                                             3
ultimate question whether an applicant is eligible to receive unemployment benefits.”

Menyweather v. Fedtech, Inc., 872 N.W.2d 543, 545 (Minn. App. 2015).

      In general, the department pays unemployment benefits to applicants who meet the

statutory eligibility requirements. Minn. Stat. § 268.069, subd. 1 (2014). But an eligible

applicant’s benefits may be reduced or postponed if the applicant has received severance

pay. See Minn. Stat. § 268.085, subd. 3(b) (2014). The statute governing severance

payments provides as follows:

                    An applicant is not eligible to receive unemployment
             benefits for any week the applicant is receiving, has received,
             or will receive severance pay, bonus pay, or any other
             payments paid by an employer because of, upon, or after
             separation from employment.

                    This paragraph only applies if the payment is:

                   (1)    considered wages under section 268.035,
             subdivision 29; or

                    (2)   subject to the Federal Insurance Contributions
             Act (FICA) tax imposed to fund Social Security and Medicare.

                    Payments under this paragraph are applied to the period
             immediately following the later of the date of separation from
             employment or the date the applicant first becomes aware that
             the employer will be making a payment. The date the payment
             is actually made or received, or that an applicant must agree to
             a release of claims, does not affect the application of this
             paragraph.

Id. The same statute contains additional provisions to guide a ULJ in determining the

consequences of a severance payment:

             If an applicant receives severance pay in a lump sum, the
             severance pay is applied to a number of weekly periods that is
             determined by dividing the amount of the lump-sum severance


                                            4
              payment “by the applicant’s last level of regular weekly pay
              from the employer.” [Minn. Stat. § 268.085], subd. 3(d)(1).
              An applicant’s benefits must be reduced by the per-week
              amount of severance pay allocated to that period. Id., subd.
              3(e). “[I]f the [severance] payment with respect to a week is
              equal to or more than the applicant’s weekly unemployment
              benefit amount, the applicant is ineligible for benefits for that
              week.” Id.

Menyweather, 872 N.W.2d at 546 (second and third alterations in original).

       In this case, the ULJ determined that Campbell received a severance payment

equivalent to approximately seven and one-half weeks of salary and, consequently, that the

severance payment should be applied to Campbell’s unemployment benefits for eight

weeks, beginning on April 1, 2015. Campbell contends that the ULJ erred on the ground

that the ineligibility provision of section 268.085, subdivision 3(b), does not apply because

of its second sentence, which states that the subdivision applies only if a severance payment

(1) is “considered wages,” as defined elsewhere in chapter 268, or (2) is “subject to” FICA.

See Minn. Stat. § 268.085, subd. 3(b). The ULJ did not make a determination concerning

the first part of that sentence, i.e., whether the payment from MVP to Campbell is

considered wages. But the ULJ did make a determination concerning the second part of

that sentence by determining that the payment from MVP to Campbell is subject to FICA

tax.   If that determination is correct, it would be a sufficient basis for the ULJ’s

determination that Campbell is temporarily ineligible for benefits for an eight-week period

beginning on April 1, 2015.

       Whether a payment from an employer to a former employee is subject to FICA tax

is determined with reference to federal law. By federal statute, FICA tax applies to “wages



                                             5
(as defined in section 3121(a)) received by [an individual] with respect to employment (as

defined in section 3121(b)).” 26 U.S.C. § 3101(a) (2012). The term “wages” is defined

by federal statute to mean, subject to certain exceptions, “all remuneration for employment,

including the cash value of all remuneration (including benefits) paid in any medium other

than cash.” 26 U.S.C. § 3121(a) (2012). The term “employment” is defined by federal

statute to mean, in relevant part and subject to certain exceptions, “any service, of whatever

nature, performed . . . by an employee for the person employing him” or any service “which

is designated as employment or recognized as equivalent to employment under an

agreement entered into under section 233 of the Social Security Act.”             26 U.S.C.

§ 3121(b)(A), (C). The United States Court of Appeals for the Eighth Circuit has stated

that “these definitions are worded so as to ‘import breadth of coverage.’” Mayberry v.

United States, 151 F.3d 855, 860 (8th Cir. 1998) (quoting Social Sec. Bd. v. Nierotko, 327

U.S. 358, 365, 66 S. Ct. 637, 641 (1946)). More specifically, the Eighth Circuit has stated

that the statutory definition of “employment” includes “‘not only work actually done but

the entire employer-employee relationship for which compensation is paid to the employee

by the employer.’”     Id. (quoting Nierotko, 327 U.S. at 365-66, 66 S. Ct. at 641).

Accordingly, the Eighth Circuit concluded in Mayberry that a settlement payment made by

a company to a former employee was subject to FICA tax. Id. at 857, 860.

       Campbell contends that the settlement payment she received from MVP is not

subject to FICA tax because, she asserts, the payment is not wages. Her contention is

flawed because federal law concerning the scope of the applicability of FICA tax is broader

than she assumes. FICA tax applies not only to wages but also to other forms of


                                              6
remuneration that relate to “‘the entire employer-employee relationship.’” Id. at 860

(quoting Nierotko, 327 U.S. at 365-66, 66 S. Ct. at 641). Because the settlement agreement

is confidential, the agency record is lacking details concerning the precise nature and

purpose of the settlement payment. But the agency record contains ample evidence to

support an inference that the settlement payment is related in some way to Campbell’s prior

employment at MVP. That fact is sufficient to establish that the settlement payment is

subject to FICA tax. See id.

       Furthermore, in Mayberry, the Eighth Circuit reasoned in part that the settlement

payment was subject to FICA tax because it was subject to federal income tax. Id. (citing

26 U.S.C. § 61(a)). In general, a settlement payment resolving a lawsuit or potential

lawsuit is subject to federal income tax unless the payment is excluded from gross income

by a particular provision of the tax code. See 26 U.S.C. § 61(a) (2012); Commissioner of

Internal Revenue v. Schleier, 515 U.S. 323, 327, 115 S. Ct. 2159, 2163 (1995). Campbell

has not identified any particular exclusion that applies to the settlement payment that she

received. One possible exclusion is for settlement payments resolving claims based on

“personal physical injuries or physical sickness.” See 26 U.S.C. § 104(a)(2) (2012); see

also Internal Revenue Serv., Audit Techniques Guide: Lawsuits, Awards, and Settlements

1, 8 (2011), https://www.irs.gov/pub/irs-utl/lawsuitesawardssettlements.pdf. In this case,

the agency record does not contain any evidence that Campbell sustained physical injuries

or physical sickness, and there is no indication that Campbell’s settlement payment is

excluded from gross income for any other reason.




                                            7
      Campbell also contends that the ULJ erred by relying on evidence that MVP

withheld FICA tax from the settlement payment it made to Campbell. Campbell contends

that MVP’s withholding of FICA taxes from Campbell’s settlement payment is not

determinative, especially because the withholding was done pursuant to a standard

company practice. The ULJ did not err by considering the evidence, which, though not

determinative, has some tendency to prove that the payment is subject to FICA tax. The

evidence does not tend to prove that the payment is not subject to FICA tax. In any event,

MVP’s standard practice is not a significant factor in our analysis of the issue, which is

based primarily on the principles of federal law discussed above and the simple fact that

the settlement payment related to Campbell’s former employment with MVP.

      In sum, the ULJ did not err by determining that Campbell was temporarily ineligible

for unemployment benefits because she received a settlement payment from MVP that is

subject to FICA tax. In light of that conclusion, we need not consider whether the

settlement payment is “considered wages under section 268.035, subdivision 29.” See

Minn. Stat. § 268.085, subd. 3(b)(2).

      Affirmed.




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