BNSF R. Co. v. Loos

Background

Michael Loos, a railroad employee, was injured at BNSF Railway’s railyard and sued the company under the Federal Employers’ Liability Act (FELA). A jury awarded him $126,212.78, attributing $30,000 to wages lost while he could not work. BNSF sought to withhold $3,765 of that $30,000 to cover the employee’s share of the Railroad Retirement Tax Act (RRTA) taxes. The District Court and the Eighth Circuit refused the requested withholding, and the Supreme Court agreed to resolve the dispute.

Reasoning

The central question was whether payments a railroad makes to an employee for working time lost because of an on-the-job injury count as RRTA “compensation.” The Court compared the RRTA’s definition to the Social Security tax definition of “wages” and relied on earlier cases that treated backpay and severance as taxable wages. The Court held that RRTA “compensation” covers pay for periods of absence when the payment arises from the employer-employee relationship. It therefore concluded that FELA damages for lost wages are taxable under the RRTA and rejected arguments based on the federal income tax exclusion for personal injury damages.

Real world impact

The ruling means railroads may treat the lost-wages portion of FELA awards as RRTA-taxable compensation and withhold the employee share of those taxes. The decision ties such awards to the railroad retirement system’s tax and benefit rules and could change the net amounts injured railroad workers receive and the tax treatment of settlements and judgments. The Court reversed the Eighth Circuit and remanded for further proceedings consistent with this holding.

Dissents or concurrances

Justice Gorsuch, joined by Justice Thomas, dissented. He argued that tort damages for personal injury compensate for the injury, not for services rendered, pointed to congressional deletions of “pay for time lost,” and warned the ruling could pressure employees to accept smaller, tax-favorable settlements.