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Editor: Mitchell H. Rubinstein
New York Law School

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Tuesday, January 11, 2011

Supremes Hold That Residents Must Pay FICA Taxes Even Though They Are Students-What Does This Mean For Labor Law?

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I bring Mayo Foundation v. U.S., 562 U.S.___(Jan. 11, 2011), to your attention because of its possible effect on labor law. The Court held that medical residents must pay FICA taxes. The IRS Code provides that taxes must be paid on "wages." Wages are defined to encompass all remuneration for employment. Employment, in turn is defined as "any service, of whatever nature, performed . . . by an employee for the person employing him. Slip Op. at 2. 

The IRS issued a regulation in 1951 which stated that students were exempt from taxation if their work was "incident" to pursuing a course of study. In 2005, the IRS issued another regulation which stated that if an individual is normally slated to work more than 40 hours per week, then the work is not incident to pursuing a course of study.

In a 15 page opinion, the Court (7-0), with Justic Kagan not participating, upheld the IRS rule, relying on Cheveron deference.

So, what does this mean to the pending NLRB case which will reexamine the 2004 Brown decision? That is of course, difficult to say. Like the IRS, the NLRA is silent. The NLRA does not specifically state whether students are within the definition of the term employee. Therefore, it should be up to the NLRB to determine what this silence means. Does it mean that students are exempt? or does it mean that they should be included?

Given the purposes of the NLRA and how the NLRB (with Supreme Court approval) in cases like Town and Country broadly defined the term, it seem to be that the NLRB should reverse the Brown case and conclude that students should be included within the definition of employee under the Act. Stated another way, given the statutory and remedial purposes of the Act, the Act's silence should not be interpreted to exclude any group from its protection. 

Mitchell H. Rubinstein 

 

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