Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Baouch v. Werner Enterprises, Inc.

United States District Court, D. Nebraska

March 23, 2017

YASSINE BAOUCH, on behalf of himself and all those similarly situated, et al; Plaintiffs,
v.
WERNER ENTERPRISES, INC., and DRIVERS MANAGEMENT, LLC, Defendants.

          MEMORANDUM AND ORDER

          Laurie Smith Camp Chief United States District Judge.

         This matter is before the Court on several motions. Defendants Werner Enterprises, Inc., and Drivers Management, LLC (collectively “Werner”) filed the following motions: Motion to Exclude Expert Testimony, ECF No. 303; Motion to Decertify the Class and Collective Action, ECF No. 314; Motion for Summary Judgment, ECF No. 316; and the Motions to Strike, ECF Nos. 347 and 363. Also before the Court are the following motions filed by Plaintiffs: Motion to Partially Exclude Expert Testimony, ECF No. 311; and the Motion for Summary Judgment, ECF No. 321. For the reasons stated below, Werner's Motion for Summary Judgment, ECF No. 316, will be granted and Plaintiffs' Motion for Summary Judgment, ECF No. 321, will be denied. The remaining motions will be denied as moot.

         BACKGROUND

         The following facts are those stated in the Parties' briefs, supported by pinpoint citations to evidence in the record, in compliance with NECivR 56.1[1] and Federal Rule of Civil Procedure 56.

         Werner is a logistics company engaged in hauling and delivering freight throughout the United States. Werner employs thousands of drivers to perform its freight transportation services. This case involves an optional payment plan for its drivers that Werner created pursuant to certain Internal Revenue Service (“IRS”) regulations (the “Payment Plan”). The Payment Plan provided payments to drivers, ostensibly for meals and other incidental expenses drivers were expected to incur while traveling (the “Payments”). The primary issue in this case is whether the Payments were reimbursements for expenses, or compensation for work performed.

         I. Operation of the Payment Plan

         A. Eligible Experienced Drivers

         Werner's drivers were compensated as either experienced or student drivers. IRS Ltr., ECF No. 317-32, Page ID 21154. Werner implemented its Payment Plan for non-student, experienced drivers in 2004. Participation was limited to eligible drivers employed in positions[2] that required them to travel and spend nights away from home on a regular basis. IRS App. Comm., ECF No. 320-3, Page ID 21674, 21677. The Payment Plan offered non-taxable, mileage-based payments, ostensibly representing reimbursement for meals and other expenses incidental to travel. Werner Educ. Materials, ECF 317-37, Page ID 21442. Eligible experienced drivers elected whether to participate in the Payment Plan during their new-hire orientation, but were permitted to change their participation status by opting into, or out of, the Payment Plan on a yearly basis. IRS App. Comm., ECF No. 320-3, Page ID 21674. Experienced drivers already employed in 2004 were given the opportunity to opt in to the Payment Plan at the time it was implemented and were permitted to change their participation status annually.

         Eligible drivers that elected to participate in the Payment Plan qualified for Payments when driving and away from home overnight. IRS Ltr., ECF No. 317-32, Page ID 21155-156. Werner used a Home Time Counter program on its AS400 Computer System to track drivers' daily statuses. Id. If a driver returned home before 6:00 p.m. or left home after noon on a particular day, the driver would be considered “at home” that day. Id. “Drivers returning home after 6:00 p.m. from a trip that started on a day prior to the day in which they return home, and those leaving home before noon on a given day and returning on a subsequent day are considered away from home overnight.” Id. If a driver was away from home overnight but unavailable for work, he or she was given “at home” status. Id.

         Werner's experienced drivers were paid at various per-mile rates. Those enrolled in the Payment Plan received one portion of their pay based on the applicable mileage rate, subject to taxes, and the other portion as Payments-a non-taxable sum based on the applicable Payment Plan mileage rate for days spent driving away from home overnight. Werner Educ. Materials, ECF No. 317-37, Page ID 21440-442; see infra Table 1. The IRS imposed a special transportation meal and incidental expenses rate (“M&IE rate”) that limited the daily amount of non-taxable Payments a driver could receive.[3] In the event a driver's Payments exceeded the M&IE rate, the excess amount was subject to employment and income taxes. Werner Educ. Materials, ECF No. 317-37, Page ID 21441. Thus, no driver could receive a Payment amount that exceeded the IRS-imposed daily limit, but could receive less than the limit based on the Payment Plan mileage rate and the number of miles driven during a particular day. Id.

         Because the Payments were not subject to employment and income tax withholding, the Payment Plan's primary effect was to cause participating drivers to receive more money in the form of “take-home pay” in their weekly paychecks. IRS App. Comm., ECF No. 320-3, Page ID 21675-676. To demonstrate how the Payments could increase take-home pay, Werner provided an example of how the Payment Plan would apply to experienced drivers in its educational materials, reproduced in the following Table 1:

         Table 1[4]

         Example of Driver's Net Pay Per Week under Non-Per Diem and Per Diem Plans

Assumptions

Current Plan (non-participants)

Per Diem Plan (Plan participants)

Taxable compensation rate per mile

28 cents

17 cents

Per diem rate per mile

- cents

10 cents

Total rate per mile

28 cents

27 cents

Days away from home during week (on duty)

6

6

Miles driven during the week

2, 300

2, 300

Calculation of Net Pay

Taxable compensation

$644.00

$391.00

Health Insurance (single) deduction

($17.88)

($17.88)

401(k) retirement savings plan deduction

($26.00)

($26.00)

Taxable Income

$600.12

$347.12

Federal income tax withheld (based on 1 withholding allowance)

66.63

28.68

State Income tax withheld (assume 4%)

24.00

13.88

FICA/Medicare withheld

47.90

28.54

Total tax withheld

$138.53

$71.11

Net pay before non-taxable per diem

$461.59

$276.01

Non-taxable per diem

-

$230.00

Total net pay (excluding bonuses)

$461.59

$506.01

Increase in net pay per week under per diem plan

$44.42

Increase in annual net pay under per diem plan

$2, 310.07

Benefit per mile of per diem

1.9 cents

Percent increase in net pay

10%

         Drivers electing not to participate in the Payment Plan received all their pay, based on various per-mile rates, subject to employment and income tax. To the extent non-participating drivers incurred meal and other incidental expenses while traveling, those expenses could be validated with receipts and deducted on their annual income tax returns. Steele Depo., ECF No. 317-3, Page ID 20072.

         Drivers participating in the Payment Plan could only deduct such expenses on their annual tax returns when the expenses exceeded their Payments, which were subject to the daily limit imposed by the federal M&IE rate. Werner Educ. Materials, ECF No. 317-37, Page ID 21441. If an experienced driver was providing services away from home, but not actually driving due to a break down, waiting for a load or pick up, etc., he or she would not receive Payments for that time because the driver was not accumulating miles.[5] IRS App. Comm., ECF No. 320-3, Page ID 21676.

         Werner asserts that it sought to establish its Payment Plan as a recruitment tool for attracting drivers to the company. Steele Affd., ECF No. 324-2, Page ID 23040. Werner claims it had knowledge of other trucking companies that operated similar plans providing untaxed payments for meals and incidental expenses, and that this encouraged Werner to offer a similar program for its drivers. Wingert Depo., ECF No. 317-2, Page ID 20016. An IRS tax examiner concluded that Werner developed and implemented its Payment Plan to recruit new drivers and retain current drivers. IRS Notice of Proposed Tax Adjustment, ECF No. 320-3, Page ID 21666.

         B. Eligible Student Drivers

         Werner implemented its optional Payment Plan for student drivers in 2003, prior to making it available to eligible experienced drivers. Werner's student drivers apprenticed with trainers and drove under supervision throughout an eight-week program during which they generally were away from home. IRS App. Comm., ECF No. 320-3, Page ID 21674. At the conclusion of their initial two-day orientation, student drivers elected whether to participate in the Payment Plan for the duration of the student program. Because student drivers were regularly away from home throughout the student program, all student drivers were eligible to participate in the Payment Plan. Steele Affd., ECF No. 324-2, Page ID 23037. Upon completion and graduation from the student program, drivers were required to indicate whether they would participate in the Payment Plan as an experienced driver.

         Student drivers abided by the same Home Time Tracker program as experienced drivers for purposes of determining whether they were at home or away from home overnight. In contrast to experienced drivers, students were not paid based on miles driven. Rather, they were paid a taxable, flat daily rate that varied throughout the eight-week student program, progressively increasing as phases of the program were successfully completed. Werner Handbook, ECF No. 317-36, Page ID 21426. Student drivers participating in the Payment Plan received a low taxable daily rate and static untaxed Payments for every day they were considered away from home overnight. Id. The IRS-imposed M&IE rate on untaxed Payments was also applicable to students.[6]Werner Handbook, ECF No. 317-36, Page ID 21425. Because student drivers' taxable pay and Payments were based on a daily rate rather than on miles driven, they were paid as long as they were available for work; it was not necessary that they actually performed work to receive their daily pay.[7] Werner summarized the student driver Payment Plan in its educational materials with the following table:

         Table 2[8]:

Phase I: Students (Active Days 1-30)
- $1.86 taxable plus $41 non-taxable, daily;
- $13 taxable plus $287 non-taxable, weekly
Phase II: Students (Active Days 31-58)
- $5.43 taxable plus $41 non-taxable, daily;
- $38 taxable plus $287 non-taxable, weekly
Phase III: Students (Active Days 59)
- $12.57 taxable plus $41 non-taxable, daily;
- $88 taxable plus $287 non-taxable, weekly

         When student drivers participating in the Payment Plan were considered at home for a given day, they received the same taxable daily rate as non-participating student drivers. Non-participating drivers were paid $46.43/day during Phase I; $50.00/day during Phase II; and $53.57/day during Phase III, all of which was subject to employment and income taxes. Werner Educ. Materials, ECF No. 317-37, Page ID 21432. Like experienced drivers, non-participating student drivers could validate and deduct their meal and incidental expenses on their annual tax returns. Participating student drivers could do the same only to the extent their expenses exceeded their Payments. Id. Although drivers were separately and specifically reimbursed for work-related expenses such as tolls and pay scales, this procedure was unnecessary for student drivers because the accompanying training driver paid those expenses. Alicea Depo., ECF No. 317-4, Page ID 20153-154.

         Werner used a computer program that automatically calculated student drivers' effective hourly rates on a weekly basis, regardless of participation in the Payment Plan. Tisinger Depo., ECF No. 320-1, Page ID 21616-621. If the program calculated a particular student's hourly rate at less than the requisite minimum wage, supplemental pay was automatically added to match the minimum wage rate. Id. Werner's Chief Financial Officer explained that the Payment Plan was suspended for student drivers in or around January, 2013, pursuant to the advice of in-house legal counsel. Steele Depo., ECF No. 317-3, Page ID 20111. There was no indication in the record that the Payment Plan had been reinstated for student drivers.

         C. All Payment Plan Participants

         All Payment Plan participants received their untaxed Payments in the same weekly check as their taxable pay, but the two amounts were separated and listed under different headings. See, e.g., Pay Statements, ECF No. 317-35, Page ID 21400. The untaxed Payment amounts were labeled “Per Diem” under the heading “Reimbursement” and the regular taxable amounts were labeled “Regular Pay” under the heading “Gross Earnings.” Id. Werner placed no restrictions on how drivers spent their Payments and drivers were not required to validate their meal and incidental expenses with receipts. IRS App. Comm., ECF No. 320-3, Page ID 21677; Byrd Depo., ECF No. 317-8, Page ID 20277. Drivers were separately and independently reimbursed for work-related expenses such as tolls, scale tickets, and maintenance. Cortez Depo., ECF No. 317-11, Page ID 20418; Blanker Depo., ECF No. 317-7, Page ID 20259-260. These reimbursable expenses were labeled accordingly and listed individually under the heading “Reimbursements” along with, but independent of, the Payments labeled “Per Diem.” Pay Statements, ECF No. 317-35, Page ID 21413. Drivers were required to provide receipts for such work-related expenses before they were reimbursed, and they were reimbursed for the exact amount reflected on the receipts.

         Payment Plan participants had lower taxable incomes. Because certain benefits such as Social Security and 401(k) contributions were based on taxable income, those drivers who participated in the Payment Plan could be subject to reduced benefits that correlate with taxable income. Werner Educ. Materials, ECF No. 317-37, Page ID 21432; Steele Depo., ECF No. 317-3, Page ID 20108. Werner included this information in its orientation materials, see id.; however, Plaintiffs dispute whether Werner actually provided drivers with the information, and assert that drivers were not adequately advised about the potential reduction in benefits. While both parties acknowledge that benefits based on taxable income were affected by the Payment Plan, Plaintiffs assert the evidence does not establish whether Werner actually or adequately advised drivers of the potential effects.

         II. Accountable Plan

         In order to provide the Payments free of employment and income taxes, Werner's Payment Plan had to qualify as an “accountable plan, ” under IRS Treasury Regulations. See Treas. Reg. § 1.62-2(c)(2). The amounts paid by an employer under an accountable plan are excluded from employees' gross income and exempt from the withholding and payment of employment and income taxes. Treas. Reg. § 1.62-2(c)(2). In order to qualify as an accountable plan, Werner's Payment Plan needed to meet the IRS regulations' so-called business connection, [9] substantiation, and return of excess expenses requirements. Treas. Reg. § 1.62-2(c)-(f).

         Initially, Werner consulted an accounting firm, KPMG, to assist with compliance with accountable plan regulations and later consulted with another accounting firm, Deloitte & Touche. Wingert Depo., ECF No. 317-2, Page ID 20017. In 2003 and 2004, Werner and Deloitte collected data for the IRS regarding the Payment Plan, and eventually requested a private-letter ruling as to whether Werner's Payment Plan qualified as an accountable plan under the applicable regulations. Steele Aff., ECF No. 324-2, Page ID 23043.

         Werner interviewed a sample of drivers and a fleet manager, and also relied on Deloitte's research, in an effort to estimate the expected daily meal and other incidental expenses drivers would incur while traveling away from home overnight. Tax Dept. Memo., ECF No. 317-32, Page ID 21187; Steele Depo., 317-3, Page ID 20091. Werner used this data and Deloitte's research to develop its Payment Plan and to represent to the IRS that Werner had established a legitimate estimate of the meal and incidental expenses drivers were “reasonably expected to incur . . . .” Tax Dept. Memo., ECF No 317-32, Page ID 21158-159 (“the drivers are reimbursed only for meal and incidental expenses which drivers are reasonably expected to incur”); see also Treas. Reg. § 1.62-2(d)(3)(i). The IRS declined to issue the requested private-letter ruling and, thereafter, Deloitte issued several opinion letters to Werner from 2004 through 2007, opining that the Payment Plan complied with the applicable IRS requirements for accountable plans. Id.

         In January 2013, Werner received a Notice of Proposed Tax Adjustment from the IRS for tax years 2009 and 2010, because a tax examiner concluded Werner's Payment Plan did not qualify as an accountable plan. The examiner concluded that the Payments made under the Payment Plan should be subject to employment and income taxes. IRS Notice of Proposed Tax Adjustment, ECF No. 320-3, Page ID 21670. It was specifically determined that Werner's Payment Plan did not satisfy the business connection requirement for establishing an accountable plan.[10] Id. The tax examiner found that experienced drivers participating in the Payment Plan “receive approximately the same cents per mile as those not on the Payment Plan but the cents per mile amount for those on the Payment Plan is merely broken down into two components; taxable and nontaxable.” IRS Notice of Proposed Tax Adjustment, ECF No. 320-3, Page ID 21666. From that finding, the tax examiner concluded the Payment Plan “pays essentially the same gross amount to drivers regardless of whether they incur (or are reasonably likely to incur) travel expenses related to [Werner's] business” and, thus, Werner simply “recharacterized” a portion of drivers' pay as non-taxable payments in an effort to attract drivers and avoid withholding employment taxes. IRS Notice of Proposed Tax Adjustment, ECF 320-3, Page ID 21669; see Treas. Reg. § 1.62-2(d)(3)(i).

         On appeal, the IRS Appeals Commission decided Werner's Payment Plan satisfied the business connection requirement and qualified as an accountable plan. IRS App. Comm., ECF No. 320-3, Page ID 21688. The IRS Appeals Commission found that Werner did not simply “recharacterize” a portion of drivers' pay, but rather based its Payment Plan on research and data collected to estimate the expenses drivers are reasonably likely to incur when traveling away from home overnight.

         The Appeals Commission limited its analysis to whether the Payment Plan met the regulations governing accountable plans and reached its decision independent of whether Werner treated the Payments as compensation for minimum wage purposes under state and federal law. See IRS App. Comm., ECF No. 320-3, Page ID 21678-688. The only mention of minimum wage in the Appeals Commission's analysis was in the context of the student driver program. IRS App. Comm., ECF No. 320-3, Page ID 21675 (“Appeals is not sure what the importance of the minimum wage is since it is not unusual for trainings in some occupations to not be paid wages at all and we are given no analysis of what a student driver should be paid in wages.”). Therefore, Werner satisfied the IRS Appeals Commission that the Payment Plan met all the requirements associated with establishing an accountable plan.

         STANDARD OF REVIEW

         “Summary judgment is appropriate when the evidence, viewed in the light most favorable to the nonmoving party, presents no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” Garrison v. ConAgra Foods Packaged Foods, LLC, 833 F.3d 881, 884 (8th Cir. 2016) (citing Fed.R.Civ.P. 56(c)). “Summary judgment is not disfavored and is designed for every action.” Briscoe v. Cty. of St. Louis, 690 F.3d 1004, 1011 n.2 (8th Cir. 2012) (quoting Torgerson v. City of Rochester, 643 F.3d 1031, 1043 (8th Cir. 2011) (en banc)). In reviewing a motion for summary judgment, the Court will view “the record in the light most favorable to the nonmoving party . . . drawing all reasonable inferences in that party's favor.” Whitney v. Guys, Inc., 826 F.3d 1074, 1076 (8th Cir. 2016) (citing Hitt v. Harsco Corp., 356 F.3d 920, 923-24 (8th Cir. 2004)). Where the nonmoving party will bear the burden of proof at trial on a dispositive issue, “Rule 56(e) permits a proper summary judgment motion to be opposed by any of the kinds of evidentiary materials listed in Rule 56(c), except the mere pleadings themselves.” Se. Mo. Hosp. v. C.R. Bard, Inc., 642 F.3d 608, 618 (8th Cir. 2011) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). The moving party need not produce evidence showing “the absence of a genuine issue of material fact.” Johnson v. Wheeling Mach. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.