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Damages for Lost Wages Qualify as Compensation under Railroad Retirement Tax Act

BNSF Railway Co. v. Loos

Earlier this term, the U.S. Supreme Court ruled in BNSF Railway Co. v. Loos that damages for lost wages qualified as “compensation” because they were payments for working time lost due to a work-related injury and thus were subject to employment taxes under the Railroad Retirement Tax Act (“RRTA”).

Facts of the Case

The respondent, Michael Loos, worked as an employee of petitioner BNSF Railway Company until his termination for a series of attendance policy violations. However, some of Loos’ violations arose from a work-related injury Loos suffered when he fell in the railyard. Following his termination, Loos filed suit against BNSF, asserting claims of retaliation under the Federal Railroad Safety Act and negligence under the Federal Employers Liability Act. The retaliation claim was dismissed on summary judgment but the negligence claim proceeded to trial. A jury returned a verdict for Loos for lost wages and medical expenses. 

BNSF moved to offset Loos’ lost wage award by the amount of the share of taxes Loos would owe under the RRTA. The district court denied the motion, ruling that there was no RRTA tax due on Loos’ lost wages award. BNSF appealed to the Eighth Circuit, which found that the RRTA unambiguously did not include lost wages damages in the definition of compensation. Instead, the Eighth Circuit noted that compensation was defined as money remuneration for services rendered. Thus, the Eighth Circuit affirmed the district court’s denial of BNSF’s motion on alternative ground. BNSF appealed the matter to the US Supreme Court.

The Court’s Ruling

The Court ruled 7-2 that damages for lost wages were compensation under the RRTA and therefore subject to employment taxes. In an opinion authored by Justice Ginsburg, the Court held that both the language of the RRTA and the Court’s precedent required Loos to pay taxes on the lost wages portion of his jury award. 

The Court noted that the RRTA defined wages as both pay for active service and pay for periods of absence from active service. The Court therefore ruled that back pay for time lost due to an employer’s wrong could count as wages. The Court noted that it had held in the prior case of Social Security Board v. Nierotko, 327 U.S. 358, that severance payments qualified as taxable wages under FICA. Thus, the Court concluded that compensation under the RRTA included any pay for periods of absence from service, as long as the pay arose from the employer-employee relationship.

Justice Gorsuch authored a dissenting opinion, joined by Justice Thomas. Justice Gorsuch argued that the compensation Loos received was compensation for a legal injury rather than compensation for services not rendered. Thus, Justice Gorsuch contended that Loos’ lost wages damages were not taxable compensation under the RRTA.

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