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3rd Circuit Prohibits Private Suits for FICA Overpayments

Posted by Frank Steinberg | Oct 01, 2008 | 0 Comments

Our friends at the Adjunct Law Prof Blog bring to our attention an important employment tax decision from the US Court of Appeals for the 3rd Circuit.  The case deals with an employee's attempt to recover an alleged overpayment of FICA tax from her employer.  The case is Umland v. PLANCO Financial Services.

Here's the short version of the decision.  Umland worked for PLANCO under an "Independent Contractor Agreement."  As an IC, Umland was required to pay 15.3% of her self-employment income in SECA (self-employment) tax, the same amount as the combined employer and employee contributions to the familiar FICA tax.  PLANCO did not withhold taxes from Umland's paycheck, nor did it pay the employer's share of FICA.  This went on for about 3 years, when PLANCO made Umland a Regional Marketing Director and changed her status from IC to direct employee. 

Here's the rub.  Umland said that despite the change in title, nothing about her job changed except the way she was paid.  As a result, she was now paying the 7.65% employee share of FICA, while PLANCO paid the other 7.65%.

A year and a half later Umland's employment ended, and she filed a class action suit against PLANCO to recover one half of her SECA payments on the theory that she should have been classified as an employee throughout her relationship with PLANCO, and thus should not have been responsible for the full 15.3%. 

The court threw out Umland's complaint, holding that her state law breach of contract claims were preempted by federal law.  Where's the preempting  law?  The court found that our old friends at the IRS have a comprehensive regulatory scheme to address claims based upon misclassification of employment.  Thus, according to the court, Umland could have (and  should have) either filed a Form SS-8 to ask the IRS to determine whether she was an IC or employee, or filed an administrative claim for refund of SECA tax, or filed a tax refund suit against the federal government.  However, the law does not establish a private right of action against an employer and therefore Umland was found to have no claim against PLANCO.

For the lawyers in the crowd, there's some interesting dictum towards the end of the opinion on the sufficiency of Umland's pleading of her claim for unjust enrichment.

About the Author

Frank Steinberg

Frank is the founder and principal of Steinberg Law, LLC. A Jersey boy born and bred, he focuses on employment litigation and counseling, business litigation,  and aviation law. Following law school and a clerkship in the federal district court Frank spent his early career with large litigation ...


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