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FedEx Tax Withholdings Wage Case Gets Hearing at First Circuit

Oct. 6, 2022, 9:04 AM

An attorney for FedEx delivery drivers will try to convince a federal appeals court in Boston to revive their wage-and-hour lawsuit alleging tax withholdings taken from their paychecks were stolen rather than paid to tax authorities.

The US Court of Appeals for the First Circuit will hear from Shannon Liss-Riordan, a prominent lawyer who’s running for Massachusetts attorney general, during oral argument Thursday. The court is reviewing a federal district judge’s order dismissing the drivers’ claims against FedEx Ground Package System Inc.

The case could clarify whether the federal tax code shields companies from liability related to the theft of a portion of workers’ pay that was purportedly earmarked for taxes. It also involves one company’s exposure over the alleged wage law violations of an intermediary business.

The drivers in the litigation were employed by one of the firms that provides labor to FedEx. They sued FedEx as their joint employer, claiming that the company is liable for the labor provider keeping their tax withholdings. FedEx has denied responsibility.

“It is extremely important that large employers be held accountable under the law and not be allowed to avoid responsibility to their employees this way,” Liss-Riordan told Bloomberg Law. “The lower court unfortunately made a huge error in concluding that only the government could go after these stolen wages because they were misrepresented as tax deductions.”

FedEx Ground spokeswoman Meredith Miller declined to comment on the case. Brian Ruocco of Wheeler Trigg O’Donnell LLP will represent the company at oral argument.

First Circuit Judges David Barron, an Obama appointee, Sandra Lynch, a Clinton appointee, and Gustavo Gelpí, a Biden appointee, will hear the case.

Tax Code, Standing Issues

Current and former FedEx drivers Matheus Plazzi, Joshua Prescott, and Tulio Brito Costa filed their lawsuit in Massachusetts state court last year. The suit, which alleged violations of state wage law, was removed to federal court two months later.

US District Judge Denise Casper, an Obama appointee, granted FedEx’s motion to dismiss the drivers’ lawsuit in April. The tax code bars workers from trying to recover wages that should have been paid as taxes, Casper held.

The drivers also lacked standing to sue because they didn’t suffer an injury, she ruled.

They have no legal right to their withheld taxes, plus they received credit on their tax liabilities for the withheld amounts, Casper said.

‘It Is Illogical’

The drivers argued in a brief that the tax code insulates employers who withhold taxes and pay them to the government, but there’s nothing in the law that bars claims for withholdings that weren’t paid.

“Put simply, it is illogical to rely on the tax code to conclude that employers can steal wages under the guise of holding them for tax purposes without violating anti-wage theft laws,” they said.

The drivers asserted that their standing to sue was made clear by the Supreme Judicial Court of Massachusetts’ April decision in Reuter v. City of Methuen, which said workers are entitled to damages for wages that were paid late.

In the same vein, the drivers said they’re due damages on their withholdings, even if those funds are deemed to be in a trust earmarked for the government. State wage law gives them the right to sue for wages that were detained—which includes money stolen under the guise of a tax withholding, they said.

Sole Government Authority

FedEx argued in a brief that the government alone has the power to enforce tax laws and collect withholdings that should be paid as taxes.

“A dispute about tax money that was withheld is between the government and the employer that failed to remit,” the company said. “Although the government may collect from employers who fail to remit tax money, the government has no recourse against the employee and, in fact, credits the employee for all money that was withheld.”

Massachusetts wage law cannot be recast to allow workers to sue for damages to help the government collect withheld taxes, FedEx said.

In addition, the drivers didn’t suffer any injury to support standing, because they’re not entitled to money that was allegedly not paid to tax authorities, the company said.

The case is Plazzi v. Fedex Ground Package System, 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 editor responsible for this story: Rebekah Mintzer at rmintzer@bloombergindustry.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com