U.S. High Court Upholds Ruling Treating Medical Residents As Employees

U.S. High Court Upholds Ruling Treating Medical Residents As Employees

WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on Jan. 11 upheld a U.S. Treasury Department determination that medical residents should be treated as full-time employees when it comes to payroll taxes (Mayo Foundation for Medical Education and Research, et al. v. United States, No. 09-837, U.S. Sup.; 2011 U.S. LEXIS 609).

The Mayo Foundation for Medical Education and Research, the Mayo Clinic and the Regents of the University of Minnesota sued the United States, challenging the Treasury Department's determination in 2004 that full-time employees, including medical residents, are not students for the purpose of payroll taxes.  The U.S. District Court for the District of Minnesota agreed with the plaintiffs that the rule was invalid, but an Eighth Circuit U.S. Court of Appeals panel reversed.  The Mayo Foundation and other plaintiffs petitioned the U.S. high court.

Siding with the Eighth Circuit, all of the high court justices, except Justice Elena Kagan, who took no part in the consideration or decision of the case, opined that Mayo's argument that the Treasury Department should engage in a case-by-case inquiry to determine the role of schooling and employment for each resident is not plausible. 

"[R]egulation, like legislation, often requires drawing lines.  The Department reasonably sought to distinguish between workers who study and students who work.  Focusing on the hours spent working and those spent in studies is a sensible way to accomplish that goal.  The Department thus has drawn a distinction between education and service, not between classroom instruction and hands-on training.  The Treasury Department also reasonably concluded that its full-time employee rule would 'improve administrability,' 69 Fed. Reg. 76405, and thereby 'has avoided the wasteful litigation and continuing uncertainty that would inevitably accompany [a] case-by-case approach' like the one Mayo advocates, United States v. Correll, 389 U.S. 299, 302.  Moreover, the rule reasonably takes into account the Social Security Administration's concern that exempting residents from FICA [Federal Insurance Contributions Act] would deprive them and their families of vital social security disability and survivorship benefits," Chief Justice John G. Roberts Jr. wrote for the court.

[Editor's Note:  Full coverage will be in the January issue.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #73-110114-011Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor Bajeerah LaCava at 215-988-7731, or e-mail her at bajeerah.lacava@lexisnexis.com.