Trinet Group, Inc. v. United States
| Decision Date | 17 September 2018 |
| Docket Number | Case No: 8:16-cv-1873-T-35AEP |
| Citation | 359 F.Supp.3d 1144 |
| Parties | TRINET GROUP, INC., as Successor in Interest to Gevity HR Inc. Gevity HR LP. Gevity HR II LP. Gevity HR III LP. Gevity HR IV LP. Gevity HR V LP. Gevity HR VI LP. Gevity HR VII LP. Gevity HR IX LP. Gevity HR X LP. Gevity HR XI LLC and Gevity HR XII Inc., Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Middle District of Florida |
Clay Matthew Carlton, Robert Ryan Martinelli, Morgan, Lewis & Bockius, LLP, Miami, FL, for Plaintiff.
Thomas K. Vanaskie, Mary Elizabeth Smith, US Department of Justice, Tax Division, Washington, DC, for Defendant.
THIS CAUSE comes before the Court for consideration of the cross motions for summary judgment: United States' Motion for Summary Judgment, (Dkt. 29), the response in opposition thereto, (Dkt. 31), Plaintiffs' Motion for Summary Judgment, (Dkt. 30), and the response in opposition thereto. (Dkt. 32) Therein the Parties seek to resolve the question of whether Gevity HR, Inc., along with its subsidiaries Gevity HR, LP, Gevity HR II, LP, Gevity HR III, LP, Gevity HR IV, LP, Gevity HR V, LP, Gevity HR VI, LP, Gevity HR VII, LP, Gevity HR XI LP, Gevity HR X, LP, Gevity HR XI, LLC, and Gevity HR XII, Inc. (collectively, "Gevity") was the statutory employer, as defined in 26 U.S.C. § 3401(d)(1), of its clients' employees.1 Upon consideration of all relevant filings, case law, and being otherwise fully advised, the Court GRANTS Plaintiffs' Motion for Summary Judgment and DENIES the United States' Motion for Summary Judgment.
TriNet Group, Inc. ("TriNet" or "Plaintiff") is a professional employer organization ("PEO"). (Dkt. 28 at ¶ 1) In 2009, TriNet acquired Gevity. (Id. at ¶ 2) TriNet brings this action as a successor-in-interest to Gevity, regarding Gevity's federal income tax returns from 2004 through 2009. (Id. at ¶¶ 3–4) During these years, Gevity was a publicly traded company operating as a PEO. (Id. at ¶ 5) Gevity was headquartered in and licensed by the state of Florida as an employee leasing company under Florida Statutes §§ 468.520 –.535. (Dkt. 31 at ¶ 2) As a PEO, Gevity provided services to small and medium sized businesses, including payroll processing, employment tax services, access to health and welfare benefits, workers' compensation coverage, and human resource services. (Id. at ¶¶ 1, 3) With each client company, Gevity entered into a standardized professional services agreement ("PSA"), in which it agreed to perform those human resource and payroll services in exchange for a professional services fee. (Id. at ¶¶ 4, 6) Pursuant to the PSAs, the client companies remained responsible for:
(Id. at 8) Gevity was required under the PSAs to provide its clients with invoices for the amounts due each pay period. (Id. at ¶ 11) Gevity's invoices were payable immediately upon receipt. (Id. at ¶ 12) The amounts due included the gross wages of the clients' employees ("worksite employees"), including employment taxes, Gevity's service fee, employer contributions to any benefit plans, and fees for any other services not covered by Gevity's service fee. (Id. at ¶ 9) The PSAs specified that payment to Gevity must be made through "wire transfer, Automated Clearing House ("ACH") transfer, or other method acceptable to Gevity." (Id. at ¶ 10) Gevity's obligation to process and issue paychecks in accordance with its clients' instructions was typically provided in a separate schedule attached to the PSA. (Id. at ¶ 13) Some of the PSAs included form language in which Gevity agreed to pay the wages of the worksite employees without regard to payment from the client. (Id. ) With respect to employment taxes, Gevity agreed to comply with all laws and regulations and be responsible for and pay all costs related to "the reporting, collection and payment of federal and state [employment] taxes on wages paid" to worksite employees. (Id. at ¶ 14)
A. Gevity's Payroll Process
The worksite employees earned wages at least one week prior to the date that Gevity paid the wages (the "pay date"). (Id. at ¶ 18) Gevity required a representative of the client company to report to Gevity the number of hours each worksite employee worked, whether any new hires or terminations occurred, any changes in the rate of pay for each worksite employee, and any tips received by any worksite employee. (Id. at ¶ 19) Generally the representative reported this information the next business day following the closure of a pay period, which was two or three days before the pay date. (Id. ) The client company either entered this information into Gevity's electronic payroll system or Gevity entered it with the client's approval, if the client provided the information via fax or telephone. (Id. at ¶ 20) Once the payroll information was entered into Gevity's payroll system, Gevity calculated the payroll, including employment taxes, and generated an invoice and payroll register. (Id. at ¶ 21)
Clients paid Gevity's invoices in one of four ways: ACH debit, wire transfer, certified check, or company check. (Id. at ¶ 25) Approximately seventy-five percent of Gevity's client companies paid Gevity through ACH debit, which made it the most common method of payment. (Id. at ¶ 26) An inherent lag existed in Gevity's payroll process with respect to ACH debit payments. (Id. at ¶ 17) In ACH transactions, Gevity initiated a debit from the client company's account for the full payroll amount, including all wages, taxes, and fees two days prior to the pay date. (Id. at ¶ 27) Within one day of the ACH debit, Gevity received a "provisional credit" in its account that could be reversed at any time within a five business day period if the client company did not have sufficient funds to satisfy the debit or for certain other reasons, such as if the client company put a "stop payment" on the ACH debit or the client company's account was frozen. (Id. at ¶ 28) Gevity did not receive notice when the ACH debits cleared. (Id. at ¶ 29) If an ACH debit did not clear, however, Gevity would learn that the debit did not clear within three to five business days through a report that it requested from its bank that showed deposits that were returned for insufficient funds and for other reasons. (Id. ) In other words, Gevity would not know whether the ACH debit had cleared until at least one day after making the wage payments to the worksite employees. If the ACH debit did not clear, Gevity would then send the report to its client service team for collection. (Id. )
For payment by wire transfer, the client company initiated the wire transfer to Gevity's bank account upon receipt of the invoice. (Id. at ¶ 30) The wired funds were immediately available without a delay for the wire to clear. (Id. ) Clients that paid Gevity with certified checks or company checks provided those checks directly to a Gevity branch location. (Id. at ¶ 31) Funds paid by certified check were immediately available upon deposit without any delay for the check to clear. (Id. at ¶ 32) Funds paid by company check, however, were not immediately available and, similar to ACH debits, took three to five business days to clear. (Id. at ¶ 33)
Gevity paid wages to the worksite employees from its own bank accounts. (Id. at ¶ 15) The client companies did not have access to or authority over any of Gevity's bank accounts. (Id. at ¶ 16) Specifically, on the pay date, Gevity paid the net amount of each worksite employee's paycheck for each payroll period through either direct deposit via debit against Gevity's own bank accounts or a paper check drawn on Gevity's bank accounts. (Id. at ¶ 22) To complete its payroll process, Gevity deposited with the Internal Revenue Service ("IRS") federal employment taxes with respect to wages paid to the worksite employees in accordance with applicable federal laws and regulations. (Id. at ¶ 23) As required by the IRS's next-day deposit rules, Gevity remitted payroll taxes on an accelerated basis. (Id. at ¶ 24)
B. Gevity's Forms 941, Employer's Quarterly Federal Tax Returns
Gevity filed IRS Forms 941, Employer's Quarterly Federal Tax Returns for the tax quarters ending March 31, 2004 through June 30, 2009, ("Forms 941"), using its own name, address, and Employer Identification Number ("EIN"). (Dkt. 31 at ¶ 34) Therein, Gevity reported: (1) the number of employees, including worksite employees (Gevity's clients' employees) and non-worksite employees (Gevity's corporate employees), that received wages, tips, and other compensation for the tax period from Gevity; (2) the amount of wages, tips, and other compensation Gevity paid to the employees; (3) the federal income tax withheld from those wages, tips, and other compensation; (4) social security and Medicare taxes due on the reported wages, tips, and other compensation; and (5) the total tax due for the corresponding tax quarter. (Dkt. 28 at ¶ 10; Dkt. 31 at ¶ 35) Gevity was not required to and did not report that it operated as a PEO on the Forms 941. (Dkt. 28 at ¶ 12) During the years at issue, the IRS did not have any published procedures unique to PEOs for the processing of federal tax deposits or Forms 941. (Id. at ¶ 25) The IRS processed Gevity's Forms 941 without making a determination as to the accuracy of the information reported therein or making a determination of whether Gevity was a common law employer or statutory employer. (Dkt. 31 at ¶ 36; Dkt. 28 at ¶ 32)
Gevity made federal tax deposits...
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