CSX CORPORATION, et al., Plaintiffs, v. The UNITED STATES, Defendant., United States Court of Federal Claims., 71 Fed.Cl. 630, No. 95-858T., June 27, 2006
CSX CORPORATION, et al., Plaintiffs, v. The UNITED STATES, Defendant.
United States Court of Federal Claims.
71 Fed.Cl. 630
June 27, 2006.
David W. Feeney, Cadwalader, Wickers╜ham & Taft LLP, New York, New York, attorney of record for plaintiffs. Burton Spi╜vak, Cadwalader, Wickersham & Taft LLP, and Stephen N. Shulman, Ivins, Phillips & Barker, Washington, DC, of counsel.
Benjamin C. King, Jr., with whom were Assistant Attorney General Eileen J. O'Con╜nor and Chief David Gustafson, Court of Federal Claims Section, Tax Division, De╜partment of Justice, Washington, DC, for defendant.
In an earlier opinion issued in this employ╜ment tax refund suit, this court concluded that supplemental unemployment compensa╜tion benefits as defined in I.R.C. ╖ 3402( o ) 1 do not constitute payments subject to federal employment taxes under the Railroad Retire╜ment Tax Act, I.R.C. ╖╖ 3201-3202 and 3231-3233 (railroad retirement taxes), or the Federal Insurance Contributions Act, I.R.C. ╖╖ 3121-3128 (social security taxes). CSX Corp. v. United States, 52 Fed.Cl. 208 (2002). In addition, we considered whether various payments made by plaintiffs to their employ╜ees pursuant to a reduction-in-force program qualified as such benefits.
1. ═ I.RC. ╖ 3402( o ) defines supplemental unem╜ployment compensation benefits as "amounts . . . paid to an employee, pursuant to a plan to which the employer is a party, because of an employee's involuntary separation from employment (whether or not such separation is temporary), resulting directly from a reduction in force, the discontin╜uance of a plant or operation, or other similar conditions."
Among the several categories of payments considered were so-called separation pay╜ments, i. e., lump-sum amounts given in ex╜change for an employee's agreement to ter╜minate his or her employment relationship with the company and to relinquish all rights and benefits associated with that relation╜ship. We concluded that such payments when elected by an employee then in a layoff status qualified as supplemental unemploy╜ment compensation benefits, whereas such payments when elected by an employee then in active status did not. We explained our reasoning as follows:
[T]he employee who elects a separation payment in lieu of layoff benefits cannot be said to have voluntarily separated from employment. In that particular situation, the employee is not electing to separate from employment-that change in status has already taken place-but is, instead, electing to resolve the uncertainty associ╜ated with a separation from employment of indefinite duration ( i. e., the layoff) in favor of a permanent separation. The employ╜ee's election to permanently relinquish his or her status as an employee after having been involuntarily separated from employ╜ment in the first instance does not alter the character of the initial separation: it remains involuntary. As a result, the deci╜sion to accept such separation payments does not make the payments ineligible for treatment as supplemental unemployment compensation benefits under ╖ 3402( o ).
Id. at 220. As to employees who elected separation while in active status, we further explained:
As to the other separation payments in issue here, however, a different outcome is required. Specifically, employees who elect separation in lieu of remaining in their existing positions (including those employees who elect separation in lieu of standby), cannot be described as having been involuntarily separated. For these employees, the decision to terminate the employment relationship is their own, not their employer's. And this remains true even if it was not the attractiveness of the separation payment that persuaded the employee to act but rather the possibility of a layoff or the dislocation of a forced transfer that prompted the termination de╜cision. Though avoidance of economic un╜certainty may indeed force such a decision, where the decision itself originates with the employee, the separation must be re╜garded as voluntary. In these situations, then, the separation payments do not qualify as supplemental unemployment com╜pensation benefits.
The parties now ask the court to address two additional issues. First, the parties dis╜agree as to which of the above-identified payment categories-voluntary or involun╜tary separation from employment-applies to a type of separation payments we have not previously considered. Specifically, the question is whether the separation payments made to laid off employees under Article III of the various employee protective agree╜ments executed over a period of years be╜tween plaintiffs and their unionized clerical employees qualify as supplemental unem╜ployment compensation benefits. Second, the parties are in dispute as to the sufficien╜cy of the proof plaintiffs have offered to establish that certain employees were on furlough at the time they elected to separate. The parties have asked the court to resolve these issues so that they may continue their efforts to develop a stipulation of facts to support an entry of judgment in accordance with the court's prior opinion.
The Article III provisions at issue established a mechanism, referred to as "forced transfers," that permitted plaintiffs to pursue their reduction-in-force efforts by encouraging the separation of furloughed em╜ployees. Specifically, employees subject to forced transfers were required to choose among (i) accepting a transfer to a position in another location that would entail a change of residence and could be subsequently elimi╜nated, (ii) remaining on furlough but losing the furlough benefits to which they otherwise were entitled while on furlough, or (iii) sepa╜rating from the company for a separation allowance.
Given the stated options, the question the parties pose is whether payments to a fur╜loughed employee who declines to transfer and instead elects to accept a separation allowance rather than remain in layoff status (without benefits) can be considered "amounts . . . paid to an employee . . . be╜cause of an employee's involuntary separa╜tion from employment." I.R.C. ╖ 3402( o )(2). Plaintiff maintains that such a characteriza╜tion is appropriate because the payments are directed to employees who already have been involuntarily separated from employment. Thus, in plaintiff's view, the payments simply acknowledge the transition in an employee's existing involuntary separation status from that of indefinite duration ( i.e ., the layoff) to that of a permanent separation. Consistent with the court's earlier decision, plaintiff maintains, such payments are correctly clas╜sified as supplemental unemployment com╜pensation benefits.
Defendant disagrees. The payments at issue here, defendant maintains, do not re╜flect an employee's decision to accept separa╜tion payments in lieu of remaining in layoff status. Rather, these payments reflect the employee's decision to accept separation pay╜ments in lieu of returning to active employ╜ment by transferring to a position at another location. Under these circumstances, defen╜dant argues that the separation payments cannot logically be identified as an extension of amounts paid because of an employee's involuntary separation from employment and therefore do not constitute supplemental un╜employment compensation benefits.
We agree with defendant's argument. A laid off employee who declines the opportuni╜ty to resume his or her employment (albeit at another location) and who instead elects to separate in lieu of relinquishing all layoff benefits cannot be said to have been involun╜tarily separated. Rather, in that circum╜stance, the laid off employee's decision to separate in lieu of accepting the forced trans╜fer is indistinguishable from that of an active employee who similarly elects to separate in lieu of facing the risk of a forced transfer. In either case, it is the reluctance to accept employment at a new location that prompts the decision to separate. The decision is the employee's alone; the separation, therefore, is voluntary. Accordingly, the payments made upon separation do not qualify as sup╜plemental unemployment compensation bene╜fits.
The second issue we have been asked to address concerns the sufficiency of the proof plaintiffs have offered to verify that some 84 former employees were on furlough at the time they elected to separate (and, therefore, for whom no employment taxes would be owing). That proof involves corpo╜rate interoffice documents (typified by a memorandum from the senior vice president of transportation to the accounting and taxa╜tion office) requesting the issuance of checks covering separation payments for the "em╜ployees listed below [who] have accepted of╜fer[s] of $50,000 for their resignation from the service of the Company." In addition to the employees' names and pertinent personal data, there also appears alongside each name a handwritten notation, the letter "F." It is this handwritten notation that provides the basis for plaintiffs' contention that the listed individuals were on furlough at the time of their separations.
Defendant does not challenge either the authenticity of the various documents upon which plaintiffs rely or plaintiffs' contention that the handwritten notation was a contem╜poraneous notation indicating that the em╜ployees were on furlough at the time their separations took place. Defendant does dis╜pute, however, that this documentation is sufficient to establish that the employees were on furlough at the time they elected to separate.
In this connection, defendant points out that during the period in question (1984-1990), layoffs or furloughs in the railroad industry often involved a status of limited duration with employees transitioning be╜tween layoff and active status with some frequency. Thus, defendant goes on to ex╜plain, under the memorandum agreements authorizing employee separations in a given seniority district, 2 an employee identified as furloughed at that time ( i.e. , as of the date of agreement) and whose subsequent elec╜tion to separate was executed on a form that retained that original designation may in fact have been in active status at the time the election to separate was actually made. Additionally, that same employee, defendant further notes, may have returned to a furlough status on the date the separation from employment took effect. Given this constan╜cy of change in work status, defendant maintains that the proof plaintiffs offer with regard to an employee's claimed furlough status on the date the election to separate was made is not sufficient. We are urged, then, to reject this proof.
2. ═ During the May 10, 2006, hearing in this mat╜ter, defendant explained that voluntary separa╜tions were carried out pursuant to a memoran╜dum agreement negotiated on the basis of a particular seniority district. Absent such a sepa╜ration agreement, added plaintiffs, laid off em╜ployees could be removed only through forced transfers.
We deem plaintiffs' proof sufficient. Al╜though defendant is correct that the docu╜mentation provided by plaintiffs does not establish with certainty that the listed em╜ployees were in fact in layoff status at the time they elected separation, we conclude that defendant's concern is conjectural only and, as such, does not diminish the reliabili╜ty of plaintiffs' proof. In particular, the proof demonstrates that the listed employ╜ees were identified as furloughed employees under the memorandum agreements recog╜nizing their eligibility to separate, their sep╜arations were processed under election forms identifying them as furloughed em╜ployees, and, finally, they were on furlough at the time their separations went into ef╜fect and the separation payments were made. From an administrative standpoint, then, these separations were regarded as separations of laid off employees, not active employees. We should regard them similar╜ly.
For the reasons set forth above, we con╜clude that the separation payments made pursuant to Article III of the employee pro╜tective agreements allowing an employee to separate, to transfer, or to remain on fur╜lough do not constitute supplemental unem╜ployment compensation benefits under I.R.C. ╖ 3402( o ) and are therefore subject to feder╜al employment taxes. In addition, we find that the proof plaintiffs have offered is suffi╜cient to demonstrate that certain employees were on furlough at the time they elected to separate. Accordingly, the parties shall con╜tinue their efforts to develop a stipulation of facts to support an entry of judgment consistent with the court's April 1, 2002, opinion and this supplementary decision.