Ruling Roundup

There have been recent rulings on garnishments, tax deposits, and overtime.

Garnishments. The U.S. Court of Appeals for the Third Circuit has ruled that an employer is not liable to an employee after garnishing his wages [Bullock v. Bimbo Bakeries USA, Inc., CA3, 107 AFTR 2d 2011-939, 2/22/11].

The garnishment was instituted pursuant to an IRS Notice of Levy which ordered the company to garnish a percentage of the employee's wages to satisfy unpaid taxes. The employee believed that the IRS did not have the authority to apply a tax levy against him. He requested that the company discontinue or reduce the garnishment, which the company refused to do, absent a written directive from the IRS. In September 2009, the employee brought suit against the employer, asserting claims under Pennsylvania's criminal theft statutes, and violation of his rights under the Fourth and Fifth Amendments of the U.S. Constitution.

Under Code Sec. 6332(e), an employer that garnishes an employee's wages is immune from liability if the garnishment is in compliance with an IRS tax levy, regardless of whether the levy was validly imposed. The Third Circuit cited this statute and held that the employer was exempt from liability.

Tax deposits. A recent IRS Chief Counsel Advice (CCA) noted that taxpayers making federal tax deposits to satisfy employment tax withholding requirements have no right to apply the deposits between trust fund (i.e., employment taxes) and non-trust fund taxes (e.g., income tax, excise tax). Taxpayers are required by law to make deposits throughout the quarter; however, these remittances are not payments. In order to be a payment, the IRS must first make an assessment. The IRS cannot make an assessment until an amount is due and payable. Employment taxes required to be reported are not due and payable until the due date of the return. Any remittance made prior to the due date of the return is a deposit and not a payment. The IRS policy to apply a voluntarily tendered partial payment of tax in accordance with the taxpayer's instructions is not applicable to deposits [Chief Counsel Advice 201105034].

Overtime. The U.S. Court of Appeals for the Fourth Circuit has ruled that a school golf coach was not entitled to overtime under the Fair Labor Standards Act (FLSA), because he was a “volunteer” rather than an “employee” [Purdham v. Fairfax County School Board, CA4, Dkt. No. 10-1048, 3/10/11].

For approximately 20 years, James Purdham has worked as a safety and security assistant for the Fairfax County Public Schools. In addition to this regular full-time position, Purdham has served for 15 years as Hayfield Secondary School's golf coach. Purdham's position as a security assistant is not conditioned on his coaching activities, and he is free to relinquish his coaching duties at any time without an adverse impact on his full-time security position.

Under 29 USC 203(e)(4)(A) of the FLSA, any individual who volunteers to perform services for a public agency is exempt from coverage under the FLSA if: (i) the individual receives no compensation, or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and (ii) such services are not the same type of services which the individual is employed to perform for such public agency. 29 CFR 553.101(c) states that individuals will only be considered volunteers if their services are offered freely and without pressure or coercion, direct or implied, from their employer.

The school board briefly paid Purdham overtime until the Department of Labor (DOL) issued guidance (DOL Opinion Letter FLSA 2006-28, Aug. 7, 2006) which said that full-time non-exempt employees were properly deemed “volunteers” in connection with their coaching activities, and thus not eligible for overtime compensation.

In issuing its ruling, the court noted that Purdham was not pressured into the coaching position and was free to terminate that role without affecting his position as a security assistant. The court also concluded that the stipend Purdham received qualified as a “nominal fee.” The court said that Purdham likely received less than the federally-mandated minimum wage for his coaching activities. The payments were significantly less than the compensation he received from his position as a security assistant. The court also pointed out that the school board paid a fixed stipend amount regardless of an individual's time and effort. Coaches were free to spend as much, or as little, time as they chose on coaching activities.