Thursday, June 21, 2018

Wisconsin Central Ltd. v. United States

Wisconsin Central Ltd. v. United States (US 17-530 6/21/18) Employee stock options not taxable “compensation” under Railroad Retirement Tax Act

As the Great Depression took its toll, struggling railroad pension funds reached the brink of insolvency. During that time before the rise of the modern interstate highway system, privately owned railroads employed large numbers of Americans and provided services vital to the nation’s commerce. To address the emergency, Congress adopted the Railroad Retirement Tax Act of 1937. That legislation federalized private railroad pension plans and it remains in force even today. Under the law’s terms, private railroads and their employees pay a tax based on employees’ incomes. In return, the federal government provides employees a pension often more generous than the social security system supplies employees in other industries.

This case arises from a peculiar feature of the statute and its history. At the time of the Act’s adoption, railroads compensated employees not just with money but also with food, lodging, railroad tickets, and the like. Because railroads typically didn’t count these in-kind benefits when calculating an employee’s pension on retirement, neither did Congress in its new statutory pension scheme. Nor did Congress seek to tax these in-kind benefits. Instead, it limited its levies to employee “compensation,” and defined that term to capture only “any form of money remuneration.”

It’s this limitation that poses today’s question. To encourage employee performance and to align employee and corporate goals, some railroads have (like employers in many fields) adopted employee stock option plans. The government argues that these stock options qualify as a form of “compensation” subject to taxation under the Act. In its view, stock options can easily be converted into money and so qualify as “money remuneration.” The railroads and their employees reply that stock options aren’t “money remuneration” and remind the Court that when Congress passed the Act it sought to mimic existing industry pension practices that generally took no notice of in-kind benefits. Who has the better of it?

Held: Employee stock options are not taxable “compensation” under the Railroad Retirement Tax Act because they are not “money remuneration.”

When Congress adopted the Act in 1937, “money” was understood as currency “issued by [a] recognized authority as a medium of exchange.” Pretty obviously, stock options do not fall within that definition. While stock can be bought or sold for money, it isn’t usually considered a medium of exchange. Few people value goods and services in terms of stock, or buy groceries and pay rent with stock. Adding the word “remuneration” also does not alter the meaning of the phrase. When the statute speaks of taxing “any form of money remuneration,” it indicates Congress wanted to tax monetary compensation in any of the many forms an employer might choose. It does not prove that Congress wanted to tax things, like stock, that are not money at all.

The broader statutory context points to this conclusion. For example, the 1939 Internal Revenue Code, adopted just two years later, also treated “money” and “stock” as different things. See, e.g., §27(d). And a companion statute enacted by the same Congress, the Federal Insurance Contributions Act, taxes “all remuneration,” including benefits “paid in any medium other than cash.” §3121(a). The Congress that enacted both of these pension schemes knew well the difference between “money” and “all” forms of remuneration and its choice to use the narrower term in the context of railroad pensions alone requires respect, not disregard.

Even the IRS (then the Bureau of Internal Revenue) seems to have understood all this back in 1938. Shortly after the Railroad Retirement Tax Act’s enactment, the IRS issued a regulation explaining that the Act taxes “all remuneration in money, or in something which may be used in lieu of money (scrip and merchandise orders, for example).” The regulation said the Act covered things like “[s]alaries, wages, commissions, fees, [and] bonuses.” But the regulation nowhere suggested that stock was taxable.

In light of these textual and structural clues and others, the Court thinks it’s clear enough that the term “money” unambiguously excludes “stock.”

Pp. 2–8. 856 F. 3d 490, reversed and remanded.

GORSUCH, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, THOMAS, and ALITO, JJ., joined. BREYER, J., filed a dissenting opinion, in which GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined.

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Wednesday, June 20, 2018

Hipsher v. Los Angeles County Employees etc.

Hipsher v. Los Angeles County Employees etc. (CA2/4 B276486 6/19/18) Public Pension forfeiture/Due Process

The Public Employees’ Pension Reform Act of 2013 (Gov. Code, § 7522 et seq. [PEPRA] was enacted, in part, to curb abuses in public pensions systems throughout the state.  (Alameda County Deputy Sheriff’s Assn. v. Alameda County Employees’ Retirement Assn. (2018) 19 Cal.App.5th 61, 75 (Alameda), review granted Mar. 28, 2018, S247095.)  Section 7522.72 provides a mechanism whereby a public pensioner forfeits a portion of his or her retirement benefits following a conviction of a felony offense that occurred in the performance of his or her official duties.

Shortly after appellant Tod Hipsher retired from the Los Angeles County Fire Department, he was convicted of a federal felony for directing an offshore gambling operation (18 U.S.C. § 1955). Respondent, the Los Angeles County Employees Retirement Association (LACERA), subsequently reduced Hipsher’s vested retirement benefits based on the determination by the County of Los Angeles (County) that his gambling conduct was committed in the scope of his official duties (§ 7522.72).  Hipsher challenged LACERA’s forfeiture determination by a petition for writ of mandate and a complaint seeking declaratory relief.  The trial court entered a mixed judgment.  It issued a peremptory writ of mandate directing the County to afford adequate due process protections before reducing Hipsher’s retirement benefits, while finding in favor of the defendants with respect to Hipsher’s cause of action for declaratory relief.

Hipsher contends section 7522.72 is unconstitutional as applied to him because it impaired his contractual right to his vested pension, and is an unlawful ex post facto law.  The County disagrees and contends it owes Hipsher no additional due process and is not bound by the trial court judgment because it was not named as a respondent in the peremptory writ. 
          
We conclude section 7522.72 is constitutionally sound, but that LACERA, not the County, bears the burden to afford Hipsher the requisite due process protections in determining whether his conviction falls within the scope of the statute.  Accordingly, we modify the judgment to require the County to provide the requisite due process, while affirming the remainder of the judgment.

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Tuesday, June 19, 2018

ASARCO v. United Steel

ASARCO v. United Steel (9th Cir. 16-16363 6/19/18) Arbitration/Reform of Collective Bargaining Agreement

The panel affirmed the district court’s order affirming an arbitration award in favor of a union, which sought relief concerning a pension provision in the parties’ collective bargaining agreement.

The employer asserted that the arbitrator reformed the collective bargaining agreement in contravention of a no-add provision in the agreement. The district court held that the arbitrator was authorized to reform the agreement, despite the no-add provision, based on a finding of mutual mistake.

The panel held that the employer did not properly preserve its objection to the arbitrator’s jurisdiction because the employer conceded that the union’s grievance was arbitrable and failed to expressly preserve the right to contest jurisdiction in a judicial proceeding. The panel further held that the arbitration award drew its essence from the collective bargaining agreement, and the arbitrator did not exceed his authority in reforming the agreement. In addition, the arbitrator’s award did not violate public policy.

Dissenting, Judge Ikuta wrote that, in light of the no-add provision, the arbitrator exceeded his authority under the collective bargaining agreement.

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Monday, June 18, 2018

Newland v. County of Los Angeles

Newland v. County of Los Angeles (CA2/5 B277638 6/18/18) Respondeat Superior/vehicle Use Exception

An employee driving home from work on a day that he did not have any job duties outside of the office injured a third party.  After a jury trial, the trial court imposed liability on the employer based on evidence that the employee regularly used his personal vehicle for work on other days.  The employer contends there was no substantial evidence to support finding that the employee was driving in the course and scope of his employment at the time of the accident, because he was not required to use a personal vehicle that day.
          
We agree that an employee must be driving a personal vehicle in the course and scope of his employment at the time of the accident to extend vicarious liability to an employer.  Liability may be imposed on an employer for an employee’s tortious conduct while driving to or from work, if at the time of the accident, the employee’s use of a personal vehicle was required by the employer or otherwise provided a benefit to the employer.  The evidence showed that the employee in this case was driving a routine commute to and from work on the day of the accident.  He was not required to use his personal vehicle for work purposes that day, and his employer did not otherwise benefit from his use of a personal vehicle that day.  The employer is entitled to judgment as a matter of law.  We reverse the judgment with directions.

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Thursday, May 24, 2018

Huff v. Securitas Security Services USA, Inc.

Huff v. Securitas Security Services USA, Inc. (CA6  H042852 5/23/18) PAGA/Pursuit of Representative and Individual Penalties

This case presents the question of whether a plaintiff who brings a representative action under the Private Attorneys General Act of 2004 (PAGA; Lab. Code, § 2698, et seq.) may seek penalties not only for the Labor Code violation that affected him or her, but also for different violations that affected other employees.  The trial court granted plaintiff Forrest Huff a new trial, reasoning that Huff’s failure to prove he was personally affected by one of the multiple Labor Code violations alleged in his complaint did not preclude his action under PAGA.  As we will explain, we conclude that PAGA allows an “aggrieved employee” ––a person affected by at least one Labor Code violation committed by an employer––to pursue penalties for all the Labor Code violations committed by that employer.  We will therefore affirm the order granting a new trial.

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Tuesday, May 22, 2018

Epic Systems Corp. v. Lewis

Epic Systems Corp. v. Lewis (US 16-285 5/21/18) Arbitration

In each of these cases, an employer and employee entered into a contract providing for individualized arbitration proceedings to resolve employment disputes between the parties. Each employee nonetheless sought to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court. Although the Federal Arbitration Act generally requires courts to enforce arbitration agreements as written, the employees argued that its “saving clause” removes this obligation if an arbitration agreement violates some other federal law and that, by requiring individualized proceedings, the agreements here violated the National Labor Relations Act. The employers countered that the Arbitration Act protects agreements requiring arbitration from judicial interference and that neither the saving clause nor the NLRA demands a different conclusion. Until recently, courts as well as the National Labor Relations Board’s general counsel agreed that such arbitration agreements are enforceable. In 2012, however, the Board ruled that the NLRA effectively nullifies the Arbitration Act in cases like these, and since then other courts have either agreed with or deferred to the Board’s position.

Held: Congress has instructed in the Arbitration Act that arbitration agreements providing for individualized proceedings must be enforced, and neither the Arbitration Act’s saving clause nor the NLRA suggests otherwise. Pp. 5–25.

(a) The Arbitration Act requires courts to enforce agreements to arbitrate, including the terms of arbitration the parties select. See 9 U. S. C. §§2, 3, 4. These emphatic directions would seem to resolve any argument here. The Act’s saving clause—which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” §2—recognizes only “ ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’ ” AT&T Mobility LLC v. Concepcion, 563 U. S. 333, 339, not defenses targeting arbitration either by name or by more subtle methods, such as by “interfer[ing] with fundamental attributes of arbitration,” id., at 344. By challenging the agreements precisely because they require individualized arbitration instead of class or collective proceedings, the employees seek to interfere with one of these fundamental attributes. Pp. 5–9. (b)

(b) The employees also mistakenly claim that, even if the Arbitration Act normally requires enforcement of arbitration agreements like theirs, the NLRA overrides that guidance and renders their agreements unlawful yet. When confronted with two Acts allegedly touching on the same topic, this Court must strive “to give effect to both.” Morton v. Mancari, 417 U. S. 535, 551. To prevail, the employees must show a “ ‘clear and manifest’ ” congressional intention to displace one Act with another. Ibid. There is a “stron[g] presum[ption]” that disfavors repeals by implication and that “Congress will specifically address” preexisting law before suspending the law’s normal operations in a later statute. United States v. Fausto, 484 U. S. 439, 452, 453.

The employees ask the Court to infer that class and collective actions are “concerted activities” protected by §7 of the NLRA, which guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . . , and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” 29 U. S. C. §157. But §7 focuses on the right to organize unions and bargain collectively. It does not mention class or collective action procedures or even hint at a clear and manifest wish to displace the Arbitration Act. It is unlikely that Congress wished to confer a right to class or collective actions in §7, since those procedures were hardly known when the NLRA was adopted in 1935. Because the catchall term “other concerted activities for the purpose of . . . other mutual aid or protection” appears at the end of a detailed list of activities, it should be understood to protect the same kind of things, i.e., things employees do for themselves in the course of exercising their right to free association in the workplace.

The NLRA’s structure points to the same conclusion. After speaking of various “concerted activities” in §7, the statute establishes a detailed regulatory regime applicable to each item on the list, but gives no hint about what rules should govern the adjudication of class or collective actions in court or arbitration. Nor is it at all obvious what rules should govern on such essential issues as opt-out and opt-in procedures, notice to class members, and class certification standards. Telling too is the fact that Congress has shown that it knows exactly how to specify certain dispute resolution procedures, cf., e.g., 29 U. S. C. §§216(b), 626, or to override the Arbitration Act, see, e.g., 15 U. S. C. §1226(a)(2), but Congress has done nothing like that in the NLRA.

The employees suggest that the NLRA does not discuss class and collective action procedures because it means to confer a right to use existing procedures provided by statute or rule, but the NLRA does not say even that much. And if employees do take existing rules as they find them, they must take them subject to those rules’ inherent limitations, including the principle that parties may depart from them in favor of individualized arbitration.

In another contextual clue, the employees’ underlying causes of action arise not under the NLRA but under the Fair Labor Standards Act, which permits the sort of collective action the employees wish to pursue here. Yet they do not suggest that the FLSA displaces the Arbitration Act, presumably because the Court has held that an identical collective action scheme does not prohibit individualized arbitration proceedings, see Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 32. The employees’ theory also runs afoul of the rule that Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions,” Whitman v. American Trucking Assns., Inc., 531 U. S. 457, 468, as it would allow a catchall term in the NLRA to dictate the particulars of dispute resolution procedures in Article III courts or arbitration proceedings—matters that are usually left to, e.g., the Federal Rules of Civil Procedure, the Arbitration Act, and the FLSA. Nor does the employees’ invocation of the Norris-LaGuardia Act, a predecessor of the NLRA, help their argument. That statute declares unenforceable contracts in conflict with its policy of protecting workers’ “concerted activities for the purpose of collective bargaining or other mutual aid or protection,” 29 U. S. C. §102, and just as under the NLRA, that policy does not conflict with Congress’s directions favoring arbitration.

Precedent confirms the Court’s reading. The Court has rejected many efforts to manufacture conflicts between the Arbitration Act and other federal statutes, see, e.g. American Express Co. v. Italian Colors Restaurant, 570 U. S. 228; and its §7 cases have generally involved efforts related to organizing and collective bargaining in the workplace, not the treatment of class or collective action procedures in court or arbitration, see, e.g., NLRB v. Washington Aluminum Co., 370 U. S. 9.

Finally, the employees cannot expect deference under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, because Chevron’s essential premises are missing. The Board sought not to interpret just the NLRA, “which it administers,” id., at 842, but to interpret that statute in a way that limits the work of the Arbitration Act, which the agency does not administer. The Board and the Solicitor General also dispute the NLRA’s meaning, articulating no single position on which the Executive Branch might be held “accountable to the people.” Id., at 865. And after “employing traditional tools of statutory construction,” id., at 843, n. 9, including the canon against reading conflicts into statutes, there is no unresolved ambiguity for the Board to address. Pp. 9–21.

No. 16–285, 823 F. 3d 1147, and No. 16–300, 834 F. 3d 975, reversed and remanded; No. 16–307, 808 F. 3d 1013, affirmed.

GORSUCH, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, THOMAS, and ALITO, JJ., joined. THOMAS, J., filed a concurring opinion. GINSBURG, J., filed a dissenting opinion, in which BREYER, SOTOMAYOR, and KAGAN, JJ., joined.

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Friday, May 18, 2018

Benaroya v. Willis

Benaroya v. Willis (CA2/4 B281761 5/17/18) Arbitration Ruling/Nonsignatory to Agreement

Benaroya Pictures (Benaroya) contracted with Westside Corporation (Westside) to pay the well-known actor Bruce Willis, the president of Westside, to perform in a movie to be produced by Benaroya.  After a dispute arose regarding Willis’ payment, Willis and Westside (collectively respondents) commenced arbitration proceedings against Benaroya, pursuant to the arbitration clause in the agreement.  While in arbitration, respondents moved to amend their arbitration demand to name appellant Michael Benaroya individually, even though he was not a party to the agreement, on the ground that he was the alter ego of Benaroya.  The arbitrator granted the request, found appellant to be Benaroya’s alter ego, and awarded damages to respondents for which both Benaroya and appellant, as Benaroya’s alter ego, were liable.  The trial court denied appellant and Benaroya’s petition to vacate the award as to appellant, and granted respondents’ petition to confirm the award.  In this appeal from the confirmation of the award, appellant contends the trial court erred because he was a nonsignatory to the arbitration agreement, and only the court, not the arbitrator, had authority to determine whether he was compelled to arbitrate as the alter ego of Benaroya.  We agree and therefore reverse the judgment.  We remand the case to the trial court with directions to:  (1) set aside its rulings denying appellant and Benaroya’s petition to vacate the award and granting respondent’s petition to confirm; and (2) enter new orders granting appellant and Benaroya’s petition to vacate the award as to appellant, and granting respondents’ petition to confirm the award only as to Benaroya.

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