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Benefits

Pre-Tax Deductions for Qualified Parking Did Not Violate State Wage-Deduction Law

EBIA  

EBIA  

Otitigbe v. Rensselaer Polytechnic Inst., 2019 WL 4384114 (N.Y. 2019)

A state court has dismissed an employee’s claim that her former employer violated New York’s wage-deduction statute when it took deductions from her wages to pay for parking on the employer’s premises. New York law prohibits wage deductions except in specified circumstances. One exception permits deductions for specified benefits, including discounted parking, if the deductions are made pursuant to a voluntary written authorization and certain other conditions are met. Another exception allows deductions made “in accordance with the provisions of any law.” Deductions made in conjunction with an employer-sponsored pre-tax contribution plan approved by the IRS—including a plan that provides discounted parking—automatically qualify. The employer argued that both exceptions applied, and offered evidence regarding the operation of its parking program, a signed parking permit application from the employee, and a CPA’s affidavit that the plan was an IRS-compliant qualified transportation fringe. The employee questioned the authenticity of the permit application, argued that the authorization was not voluntary, claimed that parking on the employer’s premises is not qualified parking for this purpose, and raised various other objections.

Looking first at the exception for employer-sponsored pre-tax contribution plans, the court concluded that the employer had established that the wage deductions were taken pursuant to an IRS-approved plan. The court rejected the employee’s argument that a qualified parking benefit must either provide additional pre-tax compensation to reduce the employee’s commuting costs or facilitate payments to a third party. Declining to follow that “cramped construction of the statute,” the court held that the Code clearly contemplates an employer serving as the parking vendor for its employees. The court also rejected the notion that the employee never entered into a salary reduction agreement because she had signed a parking permit application authorizing payroll deductions and automatic annual renewals, and had failed to “squarely controvert” the application’s authenticity. Addressing a 2010 letter about wage deductions for garage fees in which the New York Department of Labor disclaimed any knowledge of laws authorizing wage deductions for parking, the court noted that the letter was not a statutory interpretation, prohibited future reliance, and, on this matter of statutory construction, was not entitled to deference. The court also found that the parking program satisfied the exception for discounted parking, rejecting (among other things) claims by the employee that the parking was not discounted; that the parking application was not voluntary (noting she had other parking and commuting options); and that she was entitled to, and never received, a paper copy of the program’s terms and conditions. Under the applicable regulations, the court noted, the required opportunity to review the program’s terms and conditions was sufficiently provided by disclosure on the employer’s website. Absent any public policy consideration requiring a different result, the case was dismissed.

EBIA Comment: For employers subject to New York’s wage deduction law, this case offers a few insights, including the court’s affirmation that the law’s 2012 amendment merely clarified the exception for IRS-approved programs. According to the court, the law “always allowed wage deductions made in accordance with the [Code] and Treasury Department regulations.” But the case also sends a broader message, namely, that failing to meet the minimal requirements for a qualified transportation fringe benefit plan could have repercussions other than a loss of federal tax advantages. For more information, see EBIA’s Fringe Benefits manual at Section XX.B (“Qualified Transportation Plans: Who Can Sponsor and Who Can Participate in a Qualified Transportation Plan?”), Section XX.D (“Qualified Transportation Plans: Qualified Parking”), and Section XX.O (“Qualified Transportation Plans: Compensation Reduction Elections”).

Contributing Editors: EBIA Staff.

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