Ask The California Employment Tax And Payroll Tax Attorney – EDD Settlement Agreements – What You Need To Know – Part 1

 

By Robert S. Schriebman

2023

Introduction

This is Part 1 of a 2-Part series.

An EDD Settlement Agreement is exactly what it says it is – an agreement and a contract between the employer and the EDD. The EDD takes a passive role in the process once it gets its money from the employer. The employer, on the other hand, has obligations and duties to the EDD that lasts long into the future. For example, if the employer breaches the agreement this could result in termination of the settlement amount and restoring the original assessment obligation together with large amounts of compounding interest. This can occur if the employer fails to pay any installment under the agreement. This can also occur if the EDD elects a rare reexamination of the employer and finds that the employer is continuing to treat questionable workers as independent contractors. If this happens, the EDD Settlement Office will refuse to entertain a second settlement of the second examination. This leaves the employer with only two options – fully paying the second assessment or taking his case before an administrative law judge. If you don’t think this can happen – guess again.

As I write this article, I have a case in front of me, where the employer entered into a Settlement Agreement with the EDD several years ago. A reexamination by the EDD of a settled matter is a very rare event, but it does happen. In my client’s case, it happened. The EDD, after the second audit, made a new assessment for the years 2020, 2021 and 2022. The new assessment was a whopper! My client did not inform me that she had a prior EDD settlement. I approached the Settlement Office with a request for settlement and offered a specific dollar amount in full payment. What I received was a shock. I was told that the Settlement Office will refuse to entertain the settlement due to a breach of contract for treating the same type of questionable workers as independent contractors. No matter what I said in rebuttal, would not change their decision to refuse to take jurisdiction of the matter. My only recourse, if I wanted to reduce the assessment, was to go to the auditor with my hat in my hand and talk him into a reexamination. If the reexamination process does not yield a substantial reduction in the new assessment, I will have to “go to court.” This is what the comedian, William Bendix referred to as a “revolting development.”

In this series of articles, I will walk you through a typical EDD Settlement Agreement and point out to you both the benefits and the potential traps for the unwary.

The Elements of an EDD Settlement Agreement

The typical EDD Settlement Agreement contains four sections:

1. General Recitals,
2. Settlement Obligations,
3. Miscellaneous and
4. Signature Blocks

In this Part 1, we will review the General Recitals

General Recitals

Most contracts, if drafted by knowledgeable lawyers, will recite the purpose of the agreement and the general intentions of the parties. Let’s look at the EDD’s version.

1. The first recital states that the EDD issued an assessment to the employer and the specific payroll tax periods covered in the Notice of Assessment.
2. In order for the Settlement Office to have settlement jurisdiction, a timely petition must first be filed before the CUIAB. If a petition has not been filed or if that petition is filed late, the Settlement Office cannot entertain any settlement.
3. Next is a statement of the intention of both the EDD and the employer to resolve any administrative litigation in favor of a reduced assessment through a settlement.
4. The EDD Settlement Office, on its own, does not have the power to bind the EDD and the State of California. Only the Attorney General’s office and the Executive Director of the EDD have these powers. Therefore, the EDD informs the employer that there is no deal until approved by higher ups.
5. The final recital, and perhaps the most important provision of the entire agreement, is the mutual acknowledgement that neither the employer nor the EDD is making any admissions concerning the status and types of workers at issue. An EDD settlement does not constitute an admission by the employer of any past wrongdoing and no employee or group of employees are legally allowed to infer any wrongful conduct or wrongful admissions on the part of the employer.

Conclusion

In Part 2 we will review the terms and conditions of the Settlement Obligations and the Miscellaneous provisions.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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