case presents an important question of whether employers who outsource their payroll processing functions in order to reduce the administrative burden associated with those tasks by doing so lose their status as the employer for tax purposes the district court's ruling that devotee became the employer because it provided payroll processing services for its clients was wrong and should be reversed the court mis interpreted the statute section thirty four dollars a one d in two basic ways st the court and adopted an erroneous co employer theory under which it construed the statute to allow there to be more than one employer at any given point your position is that statutorily they're going to only be one employer that is correct let me ask you a question about the only two cases and those are the two cases that we've cited i that that conclusion is supported by the language of the statute which states that in order well in defining the term employer to be the person for whom an individual performs or performed any service as the employer of such person except that if the person for whom the individual performs or perform the services does not have control of the payment of wages for such services then the employer is a person having such control and so the employer the common law ploy or in order for the exception to him to apply the common law employee it must be established that the common law employer quote does not have control of the payment of the wages and so the th circuit in those two cases interpreted that to mean that the employer the common employer had to have no control over the payment of wages and the legislative history that we've referred to supports lats and that interpretation there are only two examples given in the legislative history and  we submit to the court that the court is well within its rights to resort to the legislative history in this case the statutory language is not so plain as to preclude looking to the legislative history for guidance and in the legislative history the example given of where the exception applies is the example of a pension fund where pension payments are being made out of a fund to retired employees in that situation the former employer has absolutely no control over the payments that are being made out of the pension trust so again that that example supports the th circuit conclusion that the exception which is intended to be construed narrowly as the court concluded and th circuit court as concluded the exception applies only when the common the employer has no control as in the pension fund example is that example also in the regulation yes it's also stated in the regulation now contrast that example with the other example that's given in the legislative history with the branch office example in that case there's a corporate employer with branch offices and where for administrative purposes the corporate employer has assigned the task to a branch office can duck the ministerial tasks of processing payroll and preparing the returns congress in the legislative history stated that in that case the corporate employer is still the employer has the ultimate responsibility in legal duty for payroll taxes for payroll taxes that example encapsulates the basic principle here that an employer cannot delegate its responsibilities for employment taxes but that's what my friend here is contending that because the client companies in this case voluntarily signed and entered into a contract for another party to prepare their payroll that by doing so the payroll processing company becomes the employer and that interpretation is seriously undermined by the yes it's in this it's in the senate report and also the house report and there excuse me there was an earlier house report and it's i'm pretty sure it's contained in that st report and we've cited all three it's in the senate report and then it's in the later house conference report that we've cited in our brief so it's in several reports and they all refer to the same example the other thing that the other thing that that example illustrates is that simple the mere performance of the administrative tasks of processing payroll does not make a person the employer is in this case you have the branch office that's actually doing the payroll processing and preparing that returns but the legislative history is clear that it's still the corporate employer that is responsible for payroll taxes and that is the employer under the statu and i would clarify that in that example of the corporate employer and the branch office just just to clarify are not the same entity if they had been the exact same entity or the same t ax payer then congress wouldn't have had any need to include this example in the legislative history so we're not talking about you know a corporate employer that's just delegating to an employee the tasks of performing these functions instead we have a corporate employee and a separate entity is a branch office perhaps a subsidiary that's actually performing the payroll function so we have the two entities in congress clarifies that it's the corporate employer that still the the court you know we don't believe that the inner workings of the the check processing in the account deboning controls who is the employer because the overall economic arrangement between the parties was that the clients would supply the funds and that you have a he would forward those funds to the part of the bargain as i understand it is that they're go regardless of whether the money was there that's exactly what i'm saying for two reasons firstly they've got to factor issue i you go for summary judgment both sides were telling the court the rd no disputed fact basically that that is a fact question but that we have a back up argument that even if they were even if the agreement was that they would rely as that is that time is money way depending on the type of the payment we're talking about a day or two if a better there's different kinds of payments right right and that's let me point out that even though again you're what you were trying to say the record is sort of mixed as i as i understand regard to digital flats some of the agreements indicated that the company bore the risk of paying payroll in taxes even if the client didn't language were inconsistent because they also gave every the right to terminate any client company or remove from their payroll any any employee for whom they learned payment would not be forthcoming in a timely manner were required to inform gavidi if they were going to be under the contract if they were not going to be able to make payroll they they had to inform devotee of that fact and at that point given he had the ability to terminate the employees were whom payment would not be made again even though even i thought the client retained ultimate decision about hiring and that that's correct i mean given he wouldn't have to make the payroll and pay wages to that client once they learned that payment would not be forthcoming and the client was contractually obligated to let go of it you know before there was a default that it didn't have sufficient funds if  regards to those agreement which you get that he retained ultimate responsibility even if the client didn't supply the funds that may be the statutory employer there but not the others so the reason so in the vast majority of cases the clients paid the mere possibility looking forwards that a client may default does not establish control in the very few cases where a client actually did the fault you know most of the court did find that devotee may have controlled the payment in those few cases and i'll just give stats for example in the year two thousand we think that's significant i see my time's up so if your time for rebuttal thank you very much killian this morning honors me please the court before i address some of the points mr christianson made today i'd like to do a little bit of table setting just a put this case on the supreme court and every court of appeals that has applied thirty four a one d agree that if you short but i greet your honor you're this dutch a tory employer i think the question in those cases though and maybe this will be a disagreement in our terminology what is a conduit is who is bank account is being used so for instance bank of america would absolutely be a conduit because it's not bank of america's own personal bank account that's passed by higher i hire somebody as an independent contractor for my company sure ok and i'm having trouble with my banks so at that point i don't have a bank account  say and i say i am going to give you cash please pay this person as my independent contractor you're the employer the cash would be a very different situation are you the employer would that scenario you have no control over anything else you're telling me that all but i do have to troll over the payment of the wages and that's the material type of control the only control in fact that congress made mandatory under thirty for in one day i think the  closest example to your honor's hypothetical is in one circuit southwest restaurant case where there were four restaurants one restaurant just took checks from the other ones and then paid the employees of all four restaurants and that one restaurant even though it did not control any of the other employees and in fact was just another restaurant was deemed by the th circuit to be the statutory employer for all four right the employees of all four restaurant so what matters is not timing not risk but just whether it comes from your bank account that's all that matters we believe that's the most important factor of the other the other ones cut our way in this situation but the clear rule the administer bill rule is the bank account rule itself and i direct the court back to that that's really all inclusive it doesn't nothing else matters if you're right correct it was if a very it's a very you had if you had the clients in this case advents ing money a month ahead of time more than they needed to pay racked to just have given the qur'an with the new records payout sure had no risk of default no risk of payment out of your own funds your argument would still be that gathered he is a statutory employer absolutely and the reason for that your honor is that we have to look at this definition of employer in connection with the withholding obligation these these two are inextricably linked as the supreme court said in the case you have to look at the definition in connection with the obligation to withhold what withholding is taking a slice out of an employee's wages so if i could give her on a hypothetical right if an employee earns one hundred dollars one cent week and the government share of that as taxes is going to be fifteen dollars let's say if the employee is paid all one hundred dollars then someone violated the withholding obligation and so who is the person who made that mistake who paid the employee one hundred dollars when the employee was only supposed to get eighty five and the government was supposed to get fifteen the answer is the person who has control of that payment not the person who set the wages maybe three months ago not the person who tells employee to show up to work how many hours to work in a particular week it's the person who makes the payment now to your point about cash to jordan i do think a cash only business would be subject to different rules because if the question of control of a payment in a cash only enterprise is different but in the modern economy where the vast majority of payments are done through a bank account when the payment is actually made out of a bank account we look at who was the owner of that bank account and so as the th circuit said in the winsted case you look at whether the bank account who owns the bank account when a bank i mean start over as aforesaid in the winds that case when a bank account is used for paying wages you look at the owner of that account and then that's the person who is the employer so judge we're going to answer one of the questions you asked my my colleague and at the very outset here the winsted case from the th circuit speaks about exclusivity as well it's not just the th circuit cases in southwestern century judge wilkinson wrote the four circuit has a different take right on the th circuit cases the force or guy thought it concurred entirely and has a large block quote out of the th circuit the southwest restaurant case that says that endorses the view about bank accounts and here's what here's what judge wilkinson said this is one sentence of analysis since winstead who was the landowner paid the day laborers directly from his checking account and the sharecroppers had no authority over this account he would appear to fit squarely within the thirty a one do you want to exception and he said earlier in the opinion that flows from quote the plain language of thirty for a one to one for as i mentioned before congress adopted a very simple rule because it wanted to be sure that the treasury is going to get that fifteen dollars share and that employee does not take home one hundred percent of the wages he earns the person who has control of that i'm sorry judge will please who is the person who has that the authority over the bank account when a bank account is used now what over or not over the amount to be paid correct not over the source of the funds absolutely that that is that's that's exactly right so that the types of control that cases said that most clearly in your opinion southwest restaurants decision from the knights are good quote calls those quote irrelevant factors the other the other nine circuit cases say that control is not a mutually exclusive concept and that two x two have the control required in the statute you need to be the only one with control of the bank account and if in the stores and ones that you're not the statutory employer well we need i need to be precise when i talk about more than one because in the century indemnity case which is the one i believe  honor is talking about the common law employer and the purported statutory employer were jointly in control of the account the common lump lawyer was the contractor who did the construction work and as a matter of contract his surety was a joint sign to operate the common law employer has to have no control over the payment of wages and because this account was jointly owned by the common lawn ploy or and the  lawn player had some control over the payment of wages so that the government's arguments are all i think deflections to look at different types of control but that are not the control of the payment of wages  one of the the biggest i think that the government focuses on is this idea that clients had the decision at the outset of the relationship to a higher jeopardy could terminate jeopardy and theoretically although we strongly dispute this could refuse to page of a day in any given week and somehow disrupt the payment of wages but this that's a that's a different type of control the control over the economic relationship this decision between two corporations to enter into an economic relationship is not the same thing as controlling the payment itself it's a little bit of sleight of hand for as the supreme court said in ott at page fifty five dollars quote liability for the taxes accrues only when the wage paid and so if there were many ways that an employer a common lawn ploy or a client in our parlance could disrupt the payment of wages well there's still there would not be any tax withholding obligation until the wages paid and so at the end of the week in jeopardy is the one who writes the checks out of its own bank account jetties the employer if the client says stop we're not doing this anymore and the client writes the checks out of it's own bank account or than the client's employer and if did any of the agreements have any language as to which of the parties together the you or the client would be able to see these five go refunds to months i believe that the the p agreements themselves did not speak to this that the parties worked it out themselves a well over fifty percent of the tip tax credits that are at issue in this case were given from jeopardy to the clients they negotiated for them but that was just a sort of side agreement not not something that was dictated by the terms of the initial agreement between the client and i'm reluctant to say that it wasn't decided at the outset i'm only confident saying that it is not in the agre this there was a broader negotiation but i do think is an important point judge gordon if the parties decided at the outset somewhat which of the two was going to get the credit with the very clear and easy to anticipate rule over the bank account rule then there may be other aspects of the relationship that change as well and these are very complicated relationships mr christians and repeatedly called my client a payroll processor but that is not what jeopardy did a payroll processor would be something like eighty p or a company who  writes checks on someone else's bank accounts jetty is a p e o a professional employer organization it provides a wide range of human resources services and is judged show footnoted takes on the risk of paying wages when  a client doesn't come forward with the money the contract state that florida law which he was licensed under required it and more importantly actually did it every week when it should its invoice to the client whether or not the client paid the invoice jevon he went ahead and paid the accrued wages there was some discussion earlier part of the bargain exactly exactly that it is exactly the service that my client sells  input gets paid for the risk exe actually yes we do it as that is how it works jeopardy provides this as a service it provides security for the employees florida has gone further and required  companies and position not only to pay the wages but also to pay the taxes florida wants to make sure that the tax man gets its share as well and that that's exactly what happened now there is some dispute mr christians contends about what can happen can an employer client terminate these relationships proceed and how does that operate because of florida law any terminations would be purely prospect of jevon he paid a crude  wages so if a client didn't pay one dollar week we tried to work we paid the wages and we tried to work it out with the client we tried to get paid afterwards there are provisions in the agreement that provide for late fees because some clients don't pay their invoices on time and yet jenny still pays as it's required to i would point the court to paragraph a document the district court's order doesn't relate any of those underlying specific facts except to note that with some agreements jeopardy retains the ultimate liability to pay even if the client doesn't forward on with mr christensen correct in telling us where you could find some of that in the record or are there other please there are some other things i'd like to point the court to but then i would like to address this point about the contracts as well so i'd say the in these are all contractual provisions so i'm not really that far but look at document twenty nine national nine which is the rotten ralph contract that was submitted as an example here paragraph six a v is  paragraph that says a jedi will pay whether or not the client pays that's the provision that does not appear in every single contract and i'll speak to that a moment judge jordan but provision twelve a of the contract says that the client  can have all obligations that accrued up until that point and so if jenny had to pay the wages has to pay wages up until determination and the termination is purely prospect of an in one thousand dollars da makes very clear that the client still has to pay its invoices after a term an asian the only reason the client would still have to pay the invoices is if jevon he went ahead and actually paid the wages which is what florida law requires now some of the contracts and do not have the language whether or not the client pays the invoice but when you look at those contracts against the ones that do that's about the only difference and so our view i can't tell you why the contracts have a variation in the language but our position is that because florida law put an independent duty on jeopardy to pay whether or not it got money from the clients pursuant to the invoices the language distinction is ultimately immaterial and we paid we always paid yes there were about in fact there were about dollar to two million dollars a year worth of bad debts which represent clients who we invoiced and who did not come forward and pay their invoices and yet jeopardy went ahead and fulfilled its obligations not just to the employees but also to the tax  man mr christianson has compared jeopardy to a conduit or like a local branch manager the reason we think that there's a material difference is that the local branch manager of a bank does not pay employees wages out of his own personal bank account and if he did he would be a statutory employer similarly a conduit like bank of america is just passing money that is in other people's accounts the cash examples are different they're more difficult and thankfully they're of much smaller portion of the modern economy and the modern economy paying out of a bank account is the vast majority of ways that wages are paid when they are actually paid and that's the only type of control that matters your honour's jenny was a publicly traded p e o it actually paid the wages in the taxes it did so out of its own accounts it did so without regard to payment from clients and it complied with the next day deposit rules it was assessed penalties when it filed a day or two late because it was providing something to the united states for all of these reasons he was the statutory employer the government in this case is simply trying to have it both ways for years it has argued that the person who pays out of its bank account is responsible for collecting the taxes the government has done this to go after statutory employers in every one of these other cases and now when it's time to refund or give a credit to the company that dutifully paid out of its own bank accounts hundreds of millions of dollars for many years the government is coming up with a new just all totality of the circumstances controlled test and rejecting the very simple rule that has sort of the i r s well for decades as the th circuit said this bank account rule flows directly from the plain language of thirty four a one d it is simple  required them to forward the funds for the payment of taxes so that to give a piece of the given he could forward that to the i r s and so they are the ones entitle to any tip credit if they if like a payments were not made and find no cases in which the i r s has gone after organizationally you will find that the the government did argue in the total employment case that an organization like gavin he was still responsible but it was not because because that organization was the employer if you read the government's brief the basis for that argument was that florida law obligated the employer and that in that case it was an actual leasing company to pay the taxes but not because they were an employer the florida law in my view becomes part of the contract well in this case i disagree because in this case just like an insurance code become part of the the code become part of it in terms of policy but only if the  florida law become part of the bargain because these arrangements did not involve the leasing of employees that's clear and the for the law applies only to arrangements involving the leasing of employees that did not happen here so my friend's reliance on florida law as as the basis for requiring them to pay wages regardless is misplaced and that's that's an issue of law mr killion right that what you're trying to do or who who controlled the your brief in your brief you say look look past you know the bells and whistles that the underlying client still made hiring and firing decisions but we don't rely on that sure you do it all over your brief notes that you see the clients maintained control over hiring and firing the clients were the ones who supplied the fun's to the exactly those are all common law employer type factors and mr killian's argument he may be right in the wrong is that you're trying to win graft a common law and lawyer definition onto a very different definition and thirty for a one deal one you know what we're arguing is that what it what does it mean to have control of the payment of wages and we're asking the court to look beyond the simple fact that it came from someone's bank account that may be a relevant factor but there are other factors to consider in the professional services cases in the grammy case that we've cited from the middle district of florida the court look to who was the sorts of the funds and who own those funds and who supplied the payroll information each week and that those factors were relevant in deciding the meaning of control of the payment of wages my friend asked the court to adopt a very narrow construction that the court may only look at who controlled the bank account by the way bank account is not mentioned anywhere in the legislative history the branch office the legislative history doesn't say that paid out of its didn't did not pay out of its own bank account i think it probably did the fact that the legislative history doesn't even mention bank account i think to me suggests that it's not a significant factor in determining control right thank you very much thank you both