Opinion analysis: The doctrine that dare not speak its name
on Mar 4, 2019 at 6:25 pm
A laid-off railroad worker goes head to head with the world’s fourth-largest publicly traded corporation over a $3,765 payment that — the worker says — is owed to him because the corporation’s negligence caused him to fall through a snow-covered drainage grate and suffer a severe knee injury. The Trump administration backs the corporation, while a trial lawyers’ group with close ties to the Democratic Party comes in to support the worker. The Supreme Court sides with the corporation, but only over a stinging dissent from two justices who warn that the court’s decision will allow railroads to stiff-arm their injured employees.
That storyline might not seem surprising to commentators who charge that the court under Chief Justice John Roberts is unusually friendly to business and hostile to workers. What’s rather more unusual is the alignment of justices. The majority opinion — siding with BNSF Railway, a subsidiary of Warren Buffett’s Berkshire Hathaway — is authored by the court’s “liberal lion,” Justice Ruth Bader Ginsburg, and joined by the three other Democratic appointees as well as Roberts and Justices Samuel Alito and Brett Kavanaugh. And the pro-worker dissent — joined by Justice Clarence Thomas — is authored by none other than Justice Neil Gorsuch, who was criticized during his confirmation for being insufficiently sensitive to the needs of transportation industry workers in wintry conditions.
It’s far from the only unusual aspect of BNSF Railway v. Loos, a case that involves a relatively obscure tax statute but that nonetheless tells us a lot about the court’s administrative-law jurisprudence going forward. The narrow question in the case is whether a railroad’s payment to an employee for lost wages due to an on-the-job injury is taxable “compensation” under the Railroad Retirement Tax Act. The answer for federal income tax purposes is clear: Compensatory damages for physical injuries are excluded from gross income under Section 104 of the Internal Revenue Code. But the RRTA is a separate tax scheme that imposes an additional tax on “compensation,” which it defines as “any form of money remuneration paid to an individual for services rendered as an employee” of a railroad. And BNSF argued that for RRTA purposes, lost wages paid to injured workers should be taxable.
The very fact that BNSF made that argument is surprising, because BNSF’s victory will raise the railroad’s federal tax bill. The RRTA’s “Tier 1” tax — like the parallel Federal Insurance Contributions Act tax that funds Social Security benefits for non-railroad retirees — imposes a 6.2 percent levy on employers and another 6.2 percent on employees on compensation of up to $132,900, with the revenues used to fund a special retirement benefit program for railroad employees. A “Tier 2” surtax on employers and employees with a lower wage cap funds additional benefits for railroad retirees that in most cases are more generous than Social Security benefits. (Railroads and their employees don’t pay FICA taxes to fund Social Security, and lifelong railroad workers don’t receive Social Security benefits in old age.) BNSF told the court that it wants for itself and its injured employees to pay higher taxes on lost-wage awards so as to bolster the solvency of the federal railroad retirement system.
Ginsburg’s majority opinion credits BNSF’s account of its own motives and grants the railroad’s wish for a tax hike. Along the way, it relies heavily on two of the court’s precedents: the 1946 decision in Social Security Board v. Nierotko and the 2014 ruling in United States v. Quality Stores, Inc. Both involve the meaning of the word “wages” in the Social Security context. Nierotko held that back pay awarded by the National Labor Relations Board to a wrongfully discharged employee counted toward the employee’s wage credits for purposes of calculating his Social Security retirement benefits. Quality Stores held that severance payments to involuntarily terminated employees are taxable wages for FICA purposes.
Ginsburg says that “[g]iven the textual similarity between the definitions of ‘compensation’ for railroad retirement purposes and ‘wages’ for Social Security purposes, our decisions on the meaning of ‘wages’” in Nierotko and Quality Stores “inform our comprehension of the RRTA.” The irony of the court’s reliance on its Social Security cases won’t be lost on close followers of its RRTA jurisprudence. Less than nine months ago, in Wisconsin Central Ltd. v. United States, the court held that compensatory stock options are not taxable under the RRTA — even though they would be taxable under FICA — precisely because the RRTA and FICA use different language to describe what they tax. Yet here, the fact that the RRTA’s definition of taxable “compensation” applies to remuneration for “services rendered” while FICA’s definition of taxable “wages” sweeps in “all remuneration for employment” is apparently of no import.
Although Wisconsin Central garners only passing mention from the majority, another omission is more glaring: Chevron U.S.A. v. National Resources Defense Council is the doctrine that dare not speak its name in the court’s opinion. This is not because Chevron has nothing to say on the matter. Chevron counsels courts to defer to an agency’s reasonable interpretation of an ambiguous statute within its bailiwick, and the Internal Revenue Service — which administers the RRTA — issued a regulation a quarter century ago that interprets the term “compensation” in the RRTA to include “pay for time lost.” But although Ginsburg quotes the 1994 regulation, she makes quite clear that Nierotko and Quality Stores, not Chevron, dictate the outcome. Indeed, her opinion studiously avoids any reference to Chevron whatsoever.
The dissent, by contrast, dances on Chevron’s grave. “In the past, the briefs and oral argument in this case likely would have centered on whether we should defer to the IRS’s administrative interpretation of the RRTA,” Gorsuch observes with apparent glee. “[T]he Chevron doctrine, if it retains any force, would seem to allow BNSF to parlay any statutory ambiguity into a colorable argument for deference to the IRS’s view,” he notes. “But nothing like that happened here.” Gorsuch — who along with Thomas has emerged as Chevron’s most scathing critic on the court — cheers that result. Though disagreeing with the majority on the merits, Gorsuch praises the majority for “buckl[ing] down to its job of saying what the law is” rather than yielding to the agency’s view. In Gorsuch’s view, “this is all to the good.”
Gorsuch is less pleased, however, with the rest of the court’s opinion. He suggests that BNSF’s “tireless campaign” to raise its own tax bill is motivated not by its “selfless desire” to protect the solvency of the federal railroad retirement system but instead by its belief that paying more in taxes here will ultimately allow it pay less to injured employees. As he notes, damages for pain and suffering and medical expenses remain exempt from tax under the RRTA, even as pay for lost wages is now taxable. This “asymmetric treatment,” he predicts, will allow railroads to “sweeten their settlement offers” to injured employees while actually paying out less. The railroads, he hypothesizes, will agree to “designate a small fraction (maybe even none) of the payments as taxable wages” if the injured employees “[f]orgo trial and accept a lower settlement.”
Gorsuch, who wrote the majority opinion in Wisconsin Central, goes on to blast the majority for focusing on cases construing the Social Security statutes rather than the RRTA itself. In his view, the RRTA’s words “remuneration for services rendered” cut strongly against BNSF’s and the majority’s interpretation. “No one would describe a dangerous fall or the wrenching of a knee as a ‘service rendered’ to the party who negligently caused the accident,” he writes. That view is bolstered, he says, by the fact that Congress amended the RRTA in 1975 and again in 1983 to remove earlier references to the taxability of pay “for time lost.” (Ginsburg, for her part, writes that she is “not so sure” that the 1975 and 1983 amendments reflect a legislative judgment on the question presented.)
The immediate implications of Monday’s decision are limited to a small number of railroads and railroad employees who are involved in workplace injury suits and settlements. The decision may also aid the IRS and the Justice Department in their efforts to collect FICA taxes on lost-wages awards for injured employees outside the railroad context. Even that result would have relatively limited practical effects, because most non-railroad employees are covered by workers’ compensation laws, and FICA explicitly excludes workers’ compensation payments from tax. (State workers’ compensation statutes do not apply to railroads and their employees.)
Looking to the bigger picture, Monday’s decision will likely go down as one more milestone on Chevron’s path toward irrelevance. It seems clear enough that Ginsburg, in order to cobble together a majority, had to steer clear of Chevron in her analysis. And if an opinion relying on Chevron can’t muster a majority, then the doctrine has been defanged, even if not overruled. Gorsuch and Thomas, the ardently anti-Chevron duo, may have lost the narrow battle over the RRTA. But Monday’s outcome leaves little doubt that they are winning the deference war.
Past cases linked to in this post: