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Supreme Court Will Hear Quality Stores Case

On October 1, 2013, the Supreme Court of the United States agreed to hear United States v. Quality Stores, Inc. The case has been previously discussed on our blog. In 2001, Quality Stores entered bankruptcy and closed all of it doors to nearly three-hundred stores. The store challenged a requirement to pay FICA (Federal Insurance Contribution Act) taxes on the severance that it had paid its workers. FICA taxes help finance federal retirement and health care benefits.

The Sixth Circuit held that severance paid to employees on account of an involuntary reduction in force (i.e., bankruptcy) is not subject to FICA taxes because such payments are categorized as supplemental unemployment benefits, which are not taxable. Thus, under the Court of Appeals decision, both Quality Stores and former employees who took part in the suit could claim a refund.

Court papers filed in the case reveal that there are more than 2,400 pending administrative refund claims raising the same issue. The Supreme Court’s decision will obviously affect many employers; if it upholds the Appeals Court’s decision, employers who were previously taxed will be eligible for a refund.

The Court’s term starts on October 7 and ends in June 2014, so it may be a while before the decision is made. We will keep you updated.

Ben Riddle

Benjamin L. Riddle  is an associate in the Louisville, Kentucky office. Mr. Riddle is a member of the firm’s Litigation team, where he focuses his practice on employment law, commercial disputes and personal injury matters. Mr. Riddle can be reached at (502) 327-5400, ext. 305 or briddle@mmlk.com

This article is intended as a summary of newly enacted federal and state law and does not constitute legal advice.

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