United States District Court, D. Nebraska
YASSINE BAOUCH, on behalf of himself and all those similarly situated, et al; Plaintiffs,
WERNER ENTERPRISES, INC., and DRIVERS MANAGEMENT, LLC, Defendants.
MEMORANDUM AND ORDER
Smith Camp Chief United States District Judge.
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.
following facts are those stated in the Parties' briefs,
supported by pinpoint citations to evidence in the record, in
compliance with NECivR 56.1 and Federal Rule of Civil Procedure 56.
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.
Operation of the Payment Plan
Eligible Experienced Drivers
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 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.
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.
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. 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.
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:
of Driver's Net Pay Per Week under Non-Per Diem and Per
Current Plan (non-participants)
Per Diem Plan (Plan participants)
Taxable compensation rate per mile
Per diem rate per mile
Total rate per mile
Days away from home during week (on duty)
Miles driven during the week
Calculation of Net Pay
Health Insurance (single) deduction
401(k) retirement savings plan deduction
Federal income tax withheld (based on 1 withholding
State Income tax withheld (assume 4%)
Total tax withheld
Net pay before non-taxable per diem
Non-taxable per diem
Total net pay (excluding bonuses)
Increase in net pay per week under per diem plan
Increase in annual net pay under per diem plan
Benefit per mile of per diem
Percent increase in net pay
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.
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
App. Comm., ECF No. 320-3, Page ID 21676.
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.
Eligible Student Drivers
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.
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.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. Werner summarized the student driver
Payment Plan in its educational materials with the following
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
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
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.
All Payment Plan Participants
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.
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.
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,
substantiation, and return of excess expenses requirements.
Treas. Reg. § 1.62-2(c)-(f).
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.
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
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. 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).
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
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
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. ...