Another railroad payroll tax case hits the US Supreme Court

Here's a case that's unimportant unless you are a railroad company or railroad employee. And then it is very important.

A railroad worker got a jury verdict against the railroad on his Federal Employers Liability Act claim that the railroad was liable for negligently causing a knee injury. The verdict included an amount of $30,000 for lost wages. The railroad moved the court to offset the lost wages award by the amount of the employee’s share of taxes ($3,765 ) owed under the Railroad Retirement Tax Act (RRTA). The trail court refused. The 8th Circuit affirmed. Loos v. BNSF Railway (8th Cir 08/03/2017) [PDF].  

The US Supreme Court granted certiorari on May 14 to review the 8th Circuit's judgment. BNSF Railway v. Loos (US Supreme Ct cert granted 05/14/2018) [Briefs]

The Railroad Retirement Tax Act together with the Railroad Retirement Act establishes a retirement and disability system that is separate from Social Security. The lower courts held that the damages that plaintiff received for time lost from work do not constitute taxable "compensation" under the RRTA. Altogether, various courts – both state and federal – seem to be hopelessly divided as to whether taxable “compensation” under the RRTA includes pay for time lost. This obviously makes life complicated for an interstate railway company and its employees, and makes them subject to differing tax treatment depending on where lawsuits are filed. In other words, there's a forum-shopping nightmare.

There is an IRS regulation that interprets taxable “compensation” under the RRTA as including pay for time lost. Courts differ as to whether to follow that regulation.

Expect an oral argument to be scheduled for the Fall of 2018.

Class action arbitration case hits US Supreme Court

Once again the US Supreme Court will wade into the contentious arena of class action arbitrations. In Stolt-Nielsen S.A. v. AnimalFeeds, 559 U.S. 662 (2010) [Decision] the Court held (5-3) that "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." [Emphasis in original.] The Court overturned an arbitration award that had allowed arbitration to proceed on a class basis. But Stolt-Nielsen was a pretty easy case because the parties stipulated that there was no agreement on the question of class arbitration.

On April 30 the US Supreme Court granted certiorari in Lamps Plus Inc. v. Varela (US S Ct cert granted 04/30/2018) [Briefs]. The official issue is: "Whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements."

Varela was an employee who brought a class action suit claiming his employer Lamps Plus released his personal information in response to a phishing scam. Lamps Plus moved to compel bilateral arbitration pursuant to an arbitration agreement the parties had signed. The district court found that the agreement was a contract of adhesion and ambiguous as to class arbitration, construed the ambiguity against the drafter Lamps Plus, and compelled class-wide arbitration. The 9th Circuit affirmed (2-1) in an unpublished opinion. Varela v. Lamps Plus (08/03/2017) [PDF].

The 9th Circuit distinguished Stolt-Nielsen by saying that the lack of any express reference to class arbitration is "not the 'silence' contemplated in Stolt-Nielsen." The court then applied state law to interpret the agreement, found an ambiguity, and resolved the ambiguity against Lamps Plus. The court actually used a lot of the language in the arbitration agreement (which Lamps Plus characterizes as "general language commonly used in arbitration agreements"). For example, the 9th Circuit pointed out that "The Agreement then specifies that arbitrable claims are those that 'would have been available to the parties by law,' which obviously include claims as part of a class proceeding."

Judge Fernandez dissented in two sentences: "I respectfully dissent because, as I see it, the Agreement was not ambiguous. We should not allow Varela to enlist us in this palpable evasion of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684–85, 130 S. Ct. 1758, 1775, 176 L. Ed. 2d 605 (2010)."

Expect this case to be set for oral argument in the Fall of 2018.

SCOTUS: FLSA exemption for auto service advisors

Splitting 5-4, the US Supreme Court held that automobile service advisors are exempt from the Fair Labor Standards Act, and thus are not entitled to overtime payments. Encino Motorcars v. Navarro (US Supreme Court 04/02/2018) [PDF].

Perhaps the most important takeaway from this decision is the point that the Court rejects the principle that that FLSA exemptions should be construed narrowly. Instead, the exemptions should be given their "fair meaning."

The FLSA exempts from the overtime pay requirement "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles" at a covered dealership.

The case was at the US Supreme Court in 2016 - Encino Motorcars, LLC v. Navarro (US Supreme Court 06/20/2016) [PDF]. Then the big question was whether to defer to the Department of Labor's most recent flip-flop on the issue. The Court (all eight Justices) agreed that no deference was warranted as to the Department of Labor's most recent iteration of an interpretation of the Fair Labor Standards Act. But rather than giving us its interpretation of the statute, the Court (6-2) sent the case back to the 9th Circuit to do that work. The 9th Circuit again found the service advisors are non-exempt, and the case once again went to the Supreme Court.

Justice Thomas, speaking for the Court, put it simply:

"Under the best reading of the text, service advisors are 'salesm[e]n,' and they are 'primarily engaged in . . . servicing automobiles.'"

"A service advisor is obviously a 'salesman.' * * * The ordinary meaning of 'salesman' is someone who sells goods or services."

"Service advisors are also 'primarily engaged in . . . servicing automobiles.' * * * The word 'servicing' in this context can mean either 'the action of maintaining or repairing a motor vehicle' or '[t]he action of providing a service.' * * * Service advisors satisfy both definitions."

Four Justices disagreed. Justice Ginsburg put it this way:

"Service advisors, such as respondents, neither sell automobiles nor service (i.e., repair or maintain) vehicles. Rather, they 'meet and greet [car] owners'; 'solicit and sugges[t]' repair services 'to remedy the [owner’s] complaints'; 'solicit and suggest . . . supplemental [vehicle] service[s]'; and provide owners with cost estimates."

Can EEOC enforce subpoena after underlying charge is resolved?

SCOTUSblog’s petition of the day raises interesting issues. Two men filed discrimination charges with the EEOC, the EEOC issued a right-to-sue letter, the men sued, and they lost. Meanwhile, the EEOC had issued a subpoena to the employer (before the men lost their suit) and continued its enforcement efforts after they lost their suit. The district court enforced the subpoena, and the 7th Circuit affirmed. EEOC v. Union Pacific Railroad (7th Cir 08/15/2017) [PDF]. The employer has now filed a petition for a writ of certiorari asking the US Supreme Court to review the case. Union Pacific Railroad v. EEOC (US Supreme Court cert petition filed 02/16/2018) [Briefs].

One issue is whether the EEOC is authorized by statute to continue investigating an employer by seeking enforcement of its subpoena after issuing a notice of right‐to‐sue to the charging individuals and the dismissal of the individuals’ subsequent civil lawsuit on the merits. There’s a split of authority between the 5th and the 7th Circuits.

Another issue is whether the EEOC is entitled to subpoena information that goes beyond the original allegations.

Will the Supreme Court review this case? There's no way to know.

Does ADEA 20-employee minimum apply to local governments? US Supreme Court will decide

The US Supreme Court has granted certiorari in Mount Lemmon Fire District v. Guido (US S Ct cert granted 02/26/2018) [Briefs].

For a private employers, the Age Discrimination in Employment Act applies only if the employer has 20 or more employees. Smaller private employers are exempt. But what about local governments? Are they all covered? Or only those with 20 or more employees? That is the question raised in Mount Lemmon Fire District v. Guido.

Four federal Circuit courts have said that the 20-employee minimum applies to the political subdivisions of a state – the 6th, 7th, 8th, and 10th Circuits. But there is one Circuit – the 9th – which recently held that the ADEA applies to all political subdivisions of a state, regardless of size. Guido v. Mount Lemmon Fire District (9th Cir 06/19/2017) [PDF].

John Guido and Dennis Rankin were firefighter Captains at the Mount Lemmon Fire District, a political subdivision of the State of Arizona. After they were terminated, they sued claiming a violation of the Age Discrimination in Employment Act (ADEA). The district court granted summary judgment for the Fire District on the ground that it was not an "employer" under the ADEA; the 9th Circuit reversed.

The statute

29 U.S.C. § 630(b):

"The term 'employer' means a person engaged in an industry affecting commerce who has twenty or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year … . The term also means (1) any agent of such a person, and (2) a State or political subdivision of a State … ."

Statutory history

As enacted in 1973, the ADEA applied only to private employers. A 1974 amendment extended the ADEA to local governments by adding a second sentence to § 630(b). You can't help but notice that the first sentence contains an express 20-employee minimum, and the second sentence is just plain silent on that point.

The courts

Although four Circuits have held that the 20-employee minimum applies to local governments, all of those Circuits really rely on just one case – Kelly v. Wauconda Park Dist., 801 F.2d 269 (7th Cir. 1986) [PDF]. The Kelly court's reasoning was that (1) the statute is ambiguous, and (2) the legislative history leads to the conclusion that "Congress, in amending section 630(b), merely intended to make it clear that states and their political subdivisions are to be included in the definition of ‘employer,’ as opposed to being a separate definition of employer."

The 9th Circuit decision – which rejected the Kelly analysis – was based on the "plain meaning" of the statute. The 9th Circuit said that the meaning of § 630(b) is not ambiguous, because the 20-employee minimum does not appear in the second sentence.

The 9th Circuit was also highly critical of the manner in which the Kelly court had found ambiguity in the first place. Here is my favorite quote, penned by Circuit Judge Diarmuid F. O’Scannlain:

"The Seventh Circuit in Kelly concluded the statute was ambiguous. While acknowledging that the categorical reading was a reasonable one, it concluded the plaintiff 'weaken[ed] his argument that the statute is unambiguous by arguing that we should look at "common sense" and congressional intent in deciding that the statute is unambiguous.' 801 F.2d at 270. It is not clear to us why an appeal to 'common sense' undermines this argument. Further, any appeal to congressional intent is a non-sequitur; it is not a factor that should affect the determination of whether a statute’s plain meaning is ambiguous. See Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 391 (2012)."

One must take note of the citation to Scalia & Garner's Reading Law: The Interpretation of Legal Texts. Some critics seem to take the position that reliance on the "plain meaning" of a statute naturally results in decisions that favor employers, and disfavors employees and labor unions. Of course this is not true. Some critics also presuppose that only conservative judges apply the kind of statutory analysis that Judge O’Scannlain used. One need go no further than Digital Realty Trust, Inc. v. Somers (US Supreme Ct 02/21/2018) [PDF] to see that Supreme Court Justices prefer to read statutes the way they were written rather than some way the individual Justice might rather it be written.

Who decides arbitrability question? US Supreme Court will decide

The US Supreme Court has granted certiorari in  New Prime Inc. v. Oliveira (US S Ct cert granted 02/26/2018) [Briefs]. This case will resolve an important question that arises under many arbitration agreements – whether it is for the arbitrator or for the court to decide the threshold question of whether the case will go to arbitration. It's pretty clear that - when one is applying the Federal Arbitration Act, and the arbitration agreement delegates arbitrablility to an arbitrator - then it's all for the arbitrator to decide. But in this case there is an issue as to whether the FAA applies in the first place. So we have a bit of a cat chasing its tail.

Dominic Oliveira was a truck driver who sued claiming violations of federal and state minimum wage statutes. New Prime – citing an arbitration agreement that Oliveira had signed – moved to compel arbitration. Oliveira's response was that (1) his contract was not covered by the Federal Arbitration Act, and (2) the trial court (rather than an arbitrator) should resolve that threshold question. The district court sided with Oliveira, and so did the 1st Circuit. Oliveira v. New Prime, Inc. (1st Cir 05/12/2017) [PDF].


The contract between Oliveira and New Prime provided for arbitration of "any disputes arising out of or relating to the relationship created by the agreement, and any disputes as to the rights and obligations of the parties, including the arbitrability of disputes between the parties."

New Prime's position is that the arbitration agreement itself delegates the question of the FAA's application to the arbitrator, not to the court. However, the 1st Circuit decided that New Prime's argument "'puts the cart before the horse' and makes no sense." Instead, the issue is a "'distinct inquiry' of whether the district court has the authority to act under the FAA — specifically, the authority under § 4 to compel the parties to engage in arbitration." This, of course, would be a judicial question and not a question for the arbitrator.

FAA exemption

The Federal Arbitration Act does not apply to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." So, if the driver has a "contract of employment," then the FAA does not apply to that contract. And if that contract has an arbitration agreement, then the FAA does not require that it be enforced.

Using FAA-era dictionaries [circa 1925], the 1st Circuit said that "contracts of employment" contained in FAA § 1 means simply "agreements to do work." The court said:

"[W]e hold that a transportation-worker agreement that establishes or purports to establish an independent-contractor relationship is a contract of employment under § 1. We emphasize that our holding is limited: It applies only when arbitration is sought under the FAA, and it has no impact on other avenues (such as state law) by which a party may compel arbitration."

Here's a video I did that discusses the independent contractor question: