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FedEx Tax Wage Theft Argument Centers on Alleged Harm to Drivers

Oct. 6, 2022, 8:14 PM

A federal appeals court in Boston signaled that FedEx Corp. drivers’ bid to revive their lawsuit alleging the company engaged in wage theft by not paying their tax withholdings to the government will turn on whether they suffered an actual injury.

The drivers want the US Court of Appeals for the First Circuit to overturn a federal district judge’s ruling dismissing the case in part because she said the drivers weren’t harmed and thus didn’t have standing to sue. They received a tax credit for the withholdings, which were held in a trust for the government, said US District Judge Denise Casper, an Obama appointee.

The drivers’ attorney, Shannon Liss-Riordan of Lichten & Liss-Riordan PC, asserted during oral argument Thursday that the drivers weren’t credited for the withholdings. And under Massachusetts law, they’re still at risk of authorities going after them for unpaid taxes even if the withholdings were held in a trust, she said.

But FedEx’s lawyer, Brian Ruocco of Wheeler Trigg O’Donnell LLP, said if anyone was hurt by the alleged failure to pay the withheld wages as taxes, it would be the government.

When Ruocco moved to an assertion about Massachusetts wage law not providing a right to sue, Judge Sandra Lynch cut him off.

“Counsel, normally in a case like this, if we have no Article III jurisdiction, that ends the matter,” said Lynch, a Clinton appointee.

The case could clarify whether tax laws protect companies from suits over alleged theft of wages purportedly earmarked for taxes, and whether affected workers experience harm from such activity.

Current and former FedEx drivers Matheus Plazzi, Joshua Prescott, and Tulio Brito Costa, who were employed by one of the firms that provides labor to FedEx, sued FedEx as a joint employer last year.

Delayed Injury

One of the drivers was contacted by the Internal Revenue Service about owing taxes, but that’s not in the case record because it happened after briefing at the district court, Liss-Riordan said during oral argument.

As far as what they alleged in their complaint, the drivers said they were told money was deducted from their paychecks for tax withholdings, Liss-Riordan said. But they didn’t claim those funds were actually taken for that purpose, she said.

“You’re saying you would have needed some discovery to figure out what exactly was withheld and what happened to it, and that didn’t occur?” asked Judge Gustavo Gelpí, a Biden appointee.

“Yes, as well as the question of whether the plaintiffs actually ended up sustaining injury, which in fact they later did but we didn’t know at the time this was at the district court,” Liss-Riordan responded. “Remember, there’s a three-year statute of limitations for wage claims. It can take years to sort things out with the IRS. Plaintiffs shouldn’t have to wait to know whether they’ve suffered final injury.”

Judge David Barron, an Obama appointee, asked if the threat of Massachusetts tax authorities going after the drivers for unpaid taxes—even if the state government has yet to act—was the injury that gave them standing.

Liss-Riordan responded that it was, adding that the First Circuit can ask the Supreme Judicial Court of Massachusetts to weigh in on that state law question if the judges aren’t sure.

Gelpí focused his questions on determining whether the drivers received credits for the withheld taxes as Casper stated in her dismissal order. He asked FedEx’s lawyer if that happened.

“That is the procedure of the IRS, and it’s been confirmed by the Supreme Court in multiple cases,” Ruocco replied.

“I understand that, but in Judge Casper’s opinion she says, ‘Moreover, plaintiffs received credits,’” Gelpí said. “Are you aware that that happened, or was it in the complaint, or where does that come from?”

“That is because that is what always happens,” Ruocco said.

The case is Plazzi v. Fedex Ground Package Sys., Inc., 1st Cir., No. 22-01365, oral argument 10/6/22.

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com