Filed 6/ 26 /15 CERTIFIED FOR PARTIAL PUBLICATION *

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

CARLOS CIFUENTES, Plaintiff and Respondent ,

v.
COSTCO WHOLESALE CORPORATION,

Defendant and Appell ant

. 2d Civil No. B247930 (Super. Ct. No. 1338554 ) (Santa Barbara County)

Cifuentes won a judgment for lost wages against his former employer, Costco Wholesale Corporation (Costco). Costco withheld federal and state payroll taxes from the award. C ifuentes claimed the judgment was not satisfied , citing the decision in Lisec v. United Airlines, Inc. (1992) 10 Cal.App.4th 1500, 1507 ( Lisec ), that an employer is not required to withhold payroll taxes from an award of lost wages to a former employee. B elieving it was bound by Lisec , the trial court ruled the withholding was improper and denied Costco ' s motion for acknowledgment of satisfaction of the judgment. We conclude this was error.

In the 23 years since Lisec , the Internal Revenue Service (IRS) and the vast majority of federal appellate courts have broadly interpreted the applicable Internal Revenue Code (IRC) provisions as requiring an employer to withhold payroll taxes for all

* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110 , this opinion is certified for partial publication. The portions of this opinion to be deleted from publication are identified as those portions between double bracke ts, e.g., [[/]].2

" wages " arising from the employe r

- employe e relationship, even after that relationship has terminated. Persuaded by these authorities, we adopt this prevailing view and conclude Costco properly withheld the payroll taxes . T he judgment having been satisfied, we reverse the trial court ' s order and remand with instructions

.

FACT UAL AND PROCEDURAL BACKGROUND While employed by Costco, Cifuentes observed a front

- end manager hugging a fe ma le employee outside the store. He reported the incident to a supervisor. Six months later, the front

- end manager reported seeing Cifuent es surreptitiously sip three ounces of a beverage sold by Costco

. Costco terminated Cifuente s ' employment for violating its policy against " grazing, " i.e., consuming food merchandise without payment.

Cifuentes filed a wrongful termination complaint al leging contract claims against Costco and tort claims against Cos tco and three of its managers. The trial court summarily adjudicated the tort claims in the defendants ' favor.

Cifuentes prevailed at trial on his breach of contract claim

. The jury

awa rded him $28,125 in " past wage loss " and $273,253 in " future wage loss. " With costs and interest, the judgment totaled $325,692.07

. Cifuentes appealed the portion of the judgment summarily adjudicating the tort claims in favor of Costco and its managers. We affirmed

. ( Cifuentes v. Costco Wholesale Corp. (July 10, 2012, B231684) [nonpub. opn.].) When Costco paid the judgment , it withheld $116,150.84 in payroll taxes from the $30 1 ,378 attributed to lost wages. The taxes included Federal Income Contri bution Act (FICA) contributions, federal and state income tax es and state disability insurance. Maintaining it was required by law to withhold the taxes, Costco informed Cifuentes it had fully satisfied the judgment

.

Initially, Cifuentes claimed that post

- judgment interest of $274.53 was still owed. Costco disputed this , but paid the $274.53 and demanded that Cifuentes acknowledge full satisfaction of the judgment. Cifuentes again declined , pointing to the Sixth Appellate District ' s decision in Lisec , supra, 10 Cal.App.4th at p age 1507, that an award of lost wages to a former employee is not subject to withholding. He asserted3

Costco should have paid him the full judgment amount, issued a 1 099 tax form for the lost wages and allowed him to pay any ta xes due directly to the taxing authorities

. Cifuentes filed an acknowledgment of partial satisfaction in the amount of $209,898.15.

In a series of letters , the parties disputed whether Lisec was controlling. Costco cited a number of contrary IRS and federal case authorities and highlighted th e admonishment in a respected California practice guide that " [e] mployers should not rely

on Lisec, supra

. The opinion does not cite or mention contrary federal cases on what is basically an issue of federal tax law. " ( Chin et al. , Cal . Prac tice Guide : Employment Litigation ( The Rutter Group 201 4 ) ¶ 17:897 , p. 17

- 169 (Cal

. Rutter Employment Guide); accord , Rosen et al., Cal

. Prac tice Guide : Federal Employment Litigation ( The Rutter Group 201 5 ) ¶ 11 :897 , p. 11

- 110 ( Fed

. Rutter Employment Guide ).) Costco further noted that Cifuentes' own financial expert , Pamela Allman, test ified that any compensation for " lost past or future wages " would be " subject to payroll taxes , " including " Social Security, Medicare , [ and s]t ate disability insurance

. "

The impasse remained until C ifuentes received $69,078 in tax refunds from the IRS and California Franchise Tax Board . Costco again demanded he acknowledge satisfaction of the judgment. Cifuentes refused, claiming he was sti ll owed $23,764 .95 plus interest

. Costco moved for an acknowledgement of satisfaction of judgment pursuant to Code of Civil Procedure section 724.050 1 and requested $20,060 in attorney fees

. Citing a number of federal appellate decisions, IRS authorit ies and treatises, Costco argued Lisec was wrongly decided and that prevailing law support e d the withholding. The trial court acknowledged that " [m]uch of what Co stco a rgues is compelling, " and stated that " [i]f the court were to rule on this issue in the first instance, it might be inclined to rule in Costco ' s favor. " Suggesting " t he issue may need to be decided by a higher court, " the court determined it had no choice but to follow Lisec as the only California appellate decision on point and consequentl y denied the motion. It

1 All statutory references are to the Code of Civil Procedure unless otherwise stated.4

found Costco still owes Cifuentes the $9,975.37 withheld for FICA and state disability insurance, plus interest on that sum and " possibly " on the income tax withholdings that eventually were refunded. The court questioned whether interest is due on the amounts withheld for income tax es actually owed, but concluded " [i]n any event, the judgment has not been fully satisfied. " It denied Cifuentes' request for $2,880 in attorney fees based on his failure to submit a declaration provid ing evidence of those fees. Costco appeals. DISCUSSION The principal issue on appeal is whether an employer is required to withhold payroll taxes when paying a judgment to a former employee for " lost past
wages " (back pay) and " lost future wage s " (front pay). Back p ay i s the amount of wages the employee would have earned from the date of termination up to the time of the court award or settlement but for the employer ' s misconduct. ( Noel v. New York State Office of Mental Health Central New York Psychiat ric Center (2d Cir. 2012) 697 F.3d 209, 213 ( Noel ).) Front pay is " money awarded for lost compensation during the period between judgment and reinstatement or in lieu of reinstatement. " ( Pollard v. E.I. du Pont de Nemours & Co. (2001) 532 U.S. 843, 846.)

Costco contends the award of back and front pay to Cifuentes constituted

" wages " under the applicable federal and state tax laws and, as such, was subject to mandatory withholding. It claims that if it had paid the judgment without deducting the

taxe s, it could have been held personally liable for the m. Cif u entes responds that under Lisec, supra, 10 Cal.App.4th at p age 1507, the judgment must be satisfied in the amount as written. He concedes the award was taxable to him as income, but maintains the withholding was unlawful because the award was not rem uneration for services performed by him on Costco ' s behalf.

The trial court determined it was bound by Lisec under principles of stare decisis . (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.) Although we review the decision of a sister court with respect, if we disagree with its conclusion, we are not so bound. ( Greyhound Lines, Inc. v. County of Santa Clara (1986) 187 Cal.App.3d 480, 485; see In re Jaime P. (2006) 40 Ca l.4th 128, 1335

[ " [R]eexamination of precedent may become necessary when subsequent developments indicate an earlier decision was unsound, or has become ripe for reconsideration " ].) Our review of current IRS and federal decisional authorities persuades us that an employer who fails to withhold payroll taxes from an award of back or front pay to a former employee exposes itself to penalties and personal liability for those taxes. We therefore decline to follow Lisec and adopt instead the prevailing federal view. Standard of Review We review de no v o the trial court ' s interpretation of the meaning and scope of federal statutory law. ( Kanter v. Warner

- Lambert Co. (2002) 99 Cal.App.4th 780, 789.) If the U nited States Supreme Court has not provided guidance on an issue of federal law and there is a division of opinion or conflict among the federal courts, state courts may make an independent determination of federal law. ( Alicia T. v. County of Los Angeles (1990) 222 Cal.App.3d 869, 879.) The decisions of the federal appellate and district courts are accorded great weight, though they are not binding. ( Ibid. )

Pre

- 1993 Interpretation of Applicable Tax Laws The IRC requires employers to collect income and FICA taxes by withholding the m f

rom wages paid to emplo yees. (26 U.S.C. §§ 3102(a), 3402 (a)(1); Maxfield v. United States Postal Service (9th Cir. 1984) 752 F.2d 433, 434.) California law similarly requires employers to withhold state income and disability insurance taxes

. (Unemp. Ins. Code (UIC) , §§ 13020 , subd. (a)(1), 986.) An employer who fails to withhold such taxes may be held liable for those taxes plus penal ties and interest. (26 U.S.C. §§ 3102 (b), 3403, 6651; U IC, §§ 987, 1112, 1113, 1127, 13070.) The failure to withhold taxes also is punishable as a crime. (26 U.S.C. § 7202 [felony] ; UIC, § 2118 [misdemeanor] .) In addition, e ven if the tax is later paid, an em ployer who fails to withhold is subject to liability for penalties and other statutory additions. (26 U.S.C. § 3402 (d); see Cheetham v. CSX Transportation (M.D. Fla. 2012) 2012 WL 1424168, *8 ( Cheetham ).) The IRC and UIC define " wage s " for income tax withholding purposes as

" all remuneration

. . . for services performed by an employee for his [or her] employer. "6

(26 U.S.C. § 340 1 (a); UIC, § 13009.) The IRC describes " wages " for FICA (Social Security and Medicare) withholding as " all remuneration for employme nt, " and defines

" employment " as " any service, of whatever nature, performed . . . by an employee for the person employing him. " (26 U.S .C. § 3121 (a), (b).) Given the similarity in the statutory definitions of " wages, " they are interpreted in the same manner. ( Rowan Cos. v. United States (1981) 452 U.S. 247, 257 [tax statutes favor consistent definition of wages for both FICA a nd income tax withholding purposes] ; see J.H. McKnight Ranch, Inc. v. Franchise Tax Bd. (2003) 110 Cal.App.4th 978, 98 4 , fn. 1 .) When federal and state tax statutes are identical, as they a re here, federal decisions are particularly compelling in interpre ting state tax law

. ( Douglas v. State of California (1942) 48 Cal.App.2d 835, 838; Estate of Darby (1949) 93 Cal.App.2d 96, 100.)

Social Sec. Bd. v. Nierotko (1946) 327 U.S. 358 ( Nierotko ) , considered whether an award of back pay to a wrongfully termin ated employee constitutes wages for Social Security purposes. The employee was reinstated and awarded pay for the period he was not employed. ( Id. at pp. 359

- 360.) The United States Supreme Court held the award constituted " wages under the Social Securi ty Act definitions which define wages as ' remuneration for employment ' and employment as ' any service . . . performed . . . by an employee for his employer. '" ( Id. at p. 364; see 26 U. S.C. § 3121 (a), (b).) The c ourt rejected the argum ent the award did no t qualify as wages because no services had been performed . It explained that " wages " and " employment " should be interpreted broadly:

" The very words ' any service . . . performed . . . for his employer, ' with the purpose of the Social Security Act in mind import breadth of coverage . They admonish us against holding that ' service ' can be only produc tive activity. We think that ' service ' as used by Congress in this definitive phrase means not only work actually done but the entire employer

- employee relatio nship for which compensation is paid to the employee by the employer. " ( Nierotko , at pp. 365

- 366 , ital ics added , fn. omitted .)

Emphasizing Nierotko ' s broad construction o f " wages, " the federal court of claims similarly approved the deduction of FICA ta xes from an award of back pay to an employee who was wrongfully te rminated and then reinstated to his position. ( Ainsworth7

v. United States ( Ct. Cl. 1968) 399 F.2d 176, 185

- 186 , superseded by statute on other grounds as stated in Markey v. United States ( 1993) 27 Fed. Cl. 615, 627.) Because the employee had been reinstated, the court found i t unnecessary to address the " problems which may arise if an employee is not reinstated at any time. " ( Id. at p. 183.)

In 1972, t he IRS ruled that a payment of thr ee weeks ' pay to a discharged employee in settlement of a di scrimination claim constituted wages for purposes of FICA and income tax withholding. (Rev. Rul. 72

- 572 , 1972

- 2 C.B. 535

. ) It noted that under the applicable e mployment t ax r egulations, remune ration for employment constitutes wages even though the individual is no longer an employee at the time paid, and " for purposes of income tax withholding, that all payments made by an employee on account of dismissal, that is , involuntary separation from t he servi ce of the employer, constitute

' wages ' regardless of whether the employer is legally bound by contract, statute, or otherwise to make the payments. " ( Ibid. , citing 26 C.F.R. §§ 31.3121(a)

- 1(b) , (i), 31.3306(b)

- 1(i), and 31.3401(a)

- 1(a)(5).)

When Lisec came before the court in 1992, there was little additional decisional guidance on the scope of " wages " a s defined in the tax statutes. The plaintiffs, who had prevailed on their wrongful termination claim , obtained an award of contract damages that included back and front pay

. ( Lisec, supra, 10 Cal.App.4th at p p . 1501

- 1502 , 1504 .) T he ir former employer withheld payroll taxes , claiming the award constituted wages under federal and state law. ( I d. at p p

. 1501

- 1502.) When the plaintiffs maintained t he judgment was not satisfied, the employer moved for an acknowledgment of satisfaction of judgment, as permitted by section 724

. 050. 2 Th e trial

2 Section 724.050, subdivision (d), provides in relevant part: " If the judgment creditor does not comply with the demand [to file an acknowledgment of satisfaction of judgment] within the time allowed, the person making the demand may apply to the court on noticed motion for an order requiring the judgment creditor to comply with the demand. . . . If the court determines that the judgment has been s atisfied and that the judgment creditor has not complied with the demand, the court shall either (1) order the judgment creditor to comply with the demand or (2) order the court clerk to enter satisfaction of the judgment. "8

court denied the motion , finding the employer lacked statutory authority to unilaterally reduce the judgment by withholding taxes. ( Lisec, at pp. 1503, 1507

- 1508 .)

In affirming the decision, the Court of Appeal distinguished Nierotko and Ainsworth on the basis that the employee s in those cases were reinstated. ( Lisec, supra, 10 Cal.App.4th at p. 1507.) It observed the damages awarded to the plaintiffs did not redress deprivation of compensation earned or due for services already performed within the context of an ongoing employment relationship . ( Ibid. ) In the absence of such a relationship, the court hel d the award did not constitute remuneration for services performed, and thus was not wages for purposes of withholding

. ( Ibid. )

Post

- Lisec Interpretation of Applicable Tax Laws In the years since Lisec , numerous federal courts have considered whether

a n award of back or front pay to a non

- reinstated employee is subject to income /FICA taxation and withholding. With the exception of the Fifth Circuit (see Dotson v. United States ( 5th Cir. 1996) 87 F.3d 682, 690) , federal appellate courts have adopted Nie rotko ' s broad interpretation of " wages " for taxation and withholding purposes. In Gerbec v. United States (6th Cir. 1999) 164 F.3d 1015, 1026 ( Gerbe c ) , the Sixth Circuit concluded

t hat a portion of a settlement award of back and front pay in a class actio n brought by former employees of Continental Can Company (Co ntinental) was subject to both income and FICA tax es. It explained: " The phrase ' remuneration for employment ' as it appears in [IRC] § 3121 should be interpreted broadly. [Citations.] We hold that the phrase

' remuneration for employment ' includes certain compensation in the employer

- employee relationship for which no actual services were performed. . . . The holding in Nierotko clearly supports the conclusion that awards representing a loss in wages, both back wages and future wages, that otherwise would have been paid, reflect compensation paid to the employee because of the employe r

- employee relationship, regardless of whether the employee actually worked during the time period in question. " ( Ibid

. , fn. omitted. ) The Fourth and Eighth Circuits reached th e same conclusion in two other Continental settlement cases. ( Hemelt v. United States (4th Cir. 1997) 122 F.3d 204, 209 ( Hemelt ) ; Mayberry v. United States (8th Cir. 1998) 151 F.3d 855, 86 0 ( Mayberry ) .)9

T hey, along with Gerbec, rejected D otson v. United States , supra, 87 F.3d at p age 690,

an earlier Continental settlement case which held that front pay was not subject to wage taxation because it was not for " services already performed

. " ( Gerbec, supra, 164 F.3d at p. 1026, fn. 15; Hemelt, at pp. 207, 210; Mayberry, at p. 858; see Noel, supra, 697 F.3d at p. 213, fn. 4.)

In Rivera v. Baker West, Inc. (9th Cir. 2005) 430 F .3d 1253, 1259 ( Rivera ) , the Ninth Circuit concluded that payroll taxes had to be withheld from an award of lost wages arising from settlement of a wrongful termination claim

. Citing Gerbec , Hemelt and Mayberry, the court determined that even though the plaintiff was no longer employed, his claim arose from the employer

- employee relationship , and that it would be improper to exempt him from tax withholding merely because the payment was not in return for actual services performed. ( Rivera, at p p. 1259

- 1260; see Gerbec, supra, 164 F.3d at p. 1026; 26 C.F.R. § 31.3121(a)

- (1)(i) .) It emphasized that the employer could have been held liable to the taxing authorities for failing to withhold the requisite taxes and that the plaintiff could seek a refund for any excess withholding. ( Rivera, at pp. 1259

- 1260.) Cifuentes con tends these cases are distin guishable because they involved a settlement of claims, rather than an ad judicated award of lost wages. It is well established , however, that " whether a claim is resolved through litigation or settlement, the nature of the unde rlying action determines the tax consequences of the resolution of the claim. " ( Tribune Pub

. Co. v. United States (9th Cir. 1988) 836 F.2d 1176, 1177; Sager Glove Corp. v. C .I.R (1961) 36 T.C. 1173, 1180 [ " The taxability of the proceeds of a lawsuit, or o f a sum received in settlement thereof, depends upon the nature of the claim and the actual basis of recovery " ] , affd. (7th Cir. 1962) 311 F.2d 210.) Cifuentes cites no

case law suggesting an a ward of back or front pay for breach of an employment contract should be treated differently for tax purposes because it arose from a judgment rather than a settlement

.10 Noel i llustrates this point. A jury awarded the plaintiff back and front pay as damages for wrongful termination. ( Noel, supra, 697 F.3d at pp. 211

- 212.) The former employer withheld federal and state payroll taxes on both sums. As in this case, the trial court determined the judgment was not satisfied. ( I d. at p. 212

. ) The IRS maintained in amicus briefing that the decision unfairly " ' penali ze[d] the [employer] for fulfilling its legal duty. ' " ( I bi d. ) The Second Circuit agreed, having " little difficulty in concluding that b oth back pay and front pay are ' wages ' as defined by the [IRC]. " ( Id. at p. 213 , fn. omitted .) Noting that both are " remuneration paid to an employee to compensate for what he would have earned had he not been the victim of [his employer ' s unlawful conduct], " the court joined the First, Fourth, Sixth, Eighth, Ninth and Tenth Circuits in concluding " that awards of back an d front pay constitute ' wages ' subject to statutory withholding. " ( Id. at p. 214 & fn. 4; Ge r stenbluth v. Credit Suisse Securities (USA) LLC (2d Cir. 2013) 728 F.3d 139, 144, 147 [reiterating Noel ' s holding that front and back pay awards are wages subject to FICA taxes]; see Ramos v. Davis & Geck, Inc. (1st Cir. 2000) 224 F. 3d 30, 32 [back pay award subject to FICA and income tax withholding]; Hemelt, supra, 122 F.3d at p. 209; Gerbec, supra, 164 F.3d at p. 1026; Appoloni v. United States (6th Cir. 2006) 4 50 F.3d 185, 190

- 192 [severance payments constitute FICA wages]; Mayberry , supra, 151 F.3d at p. 860; Rivera , supra, 430 F.3d at pp. 1258

- 1259; Blim v. Western Elec. Co. , Inc. (10th Cir. 1984) 731 F.2d 1473, 14 8 0 , fn.
2 [ " Back pay is taxable to the plainti ffs and subject to income tax and social s ecurity withholding " ] , superseded by statute on another ground as stated in E.E.O.C. v. Beverage Distributors Co., LLC ( 10th Cir. 2015) 780 F.3d 1018, 1024 ; see also Dingle v. Bimbo Bakeries USA/Entenman ' s (E.D.N.Y . 2014) 2014 WL 949967, *5 [income and FICA taxes properly withheld from back pay]; Cheetham , supra, 2012 WL 1424168 at p. * 9 [ " vast weight of authority suggests damages awards equal to lost wages and benefits . . . constitute ' wages ' subject to income and employment tax withholding obligations under applicable law " ].)

Cifuentes' reliance on the 2012 version of the Federal Rutter Employment Guide is misplaced. Although the 2012 version did cite Lisec for the proposition that an11

employer may not withhold sums for income and FICA taxes from back pay awarded as part of a judgment, the treatise subsequently was revised to clarify that " employers may be required to withhold and report the taxable amount

. " ( Fed. Rutter Emp loyment Guide , supra , at ¶ 11 : 20 0 , p. 1 1

- 26.) P aragraph 11:898 now states that " [a]ny part of a settlement or judgment that is considered compensation for lost income (i.e., backpay, severance, front pay, unpaid overtime compensation) c onstitutes 'w ages ' and is subject to tax withholding. " ( Id

. at ¶ 11:898, p. 11

- 110, citing Gerbec, supra, 164 F.3d at p. 1026.) The treatise further warns employers not to rely on Lisec because it " does not cite or mention contrary federal cases on what is basically an issue of federal tax law. " ( Id. at ¶ 1 1:897 , p. 11

- 110 ; accord , Cal. Rutter Emp loyment Guide, supra, at ¶ 17:897 , p. 17

- 169 .) Nor are we persuaded by Newhouse v. McCormick & Co., Inc. (8th Cir. 1998) 157 F.3d 582 , in which the defendant declined to employ the plaintiff after discriminating against him during the hiring process. ( Id. at pp. 583

- 584.) The court held the jury ' s award of damages was not subject to withholding because no " current or previous employer

- employee relationship existed between [the parties] that would justify [the de fendant] in withholding payroll taxes. " ( Id. at p. 585.) Here, the parties ' previous employe r

- employee relationship is undisputed.

We recognize that at least one federal district court and two state courts have relied on Lisec to hold t hat awards of l ost wages t o former employees are not subject to withholding. (See Churchill v. Star Enterprises (E.D. Pa. 1998) 3 F.Supp.2d 622, 624

- 625; Ark ansas Dept. of Health & Human Services v. Storey (2007) 372 Ark. 23, 31 [370 S.W.3d 803, 8 08] ; Sang

- Hoon Kim v. M onmouth College (1998) 320 N.J. Sup e r. 157, 161

- 162 [726 A.2d 1017, 1019 ] .) But these cases represent a dwindling minority view. As with Lisec , courts have called C hurchill and Kim into doubt based on the ir restrictive interpretation of Nierotko. (E.g., Cheetham , supra, 2012 WL 1424168 at pp. *6

- * 7 [ Nierotko " has expressly rejected the idea that the determination of whether taxes must be withheld from a damages award depends upon whether services were actually performed by the employee " ]; Amalgamated Tr ansit Union Local 880 v. NJ Transit Bus12

Operations, Inc. (2006) 385 N.J.Super. 298 [ 897 A.2d 357 , 361 ] [ " To the extent that Kim , in dicta, suggests that back pay covering a period when the employee performs no actual services is not considered wages and is thus not subject to employment taxes, Kim conflicts with

. . . Nierotko

. . . and is contrary to every Circuit that has considered the issue " ] ; Josifovich v. Secure Computing Corp. (D.N.J. 2009) 2009 WL 2390611, *4 [same].) Likewise, Storey has been crit icized for " conflict[ing] with an abun dance of federal case law " and for l eaving employers " to wonder when exactly it is appropriate to withhold taxes from an award of back pay or settlement of an employment

- related claim. " (Dobson et al., Not All Back Pa y is Created Equal: The Arkansas Supreme Court Holds Employers Cannot Withhold Taxes on Back Pay Awards (Fall 2010) 45 Ark. Lawyer 16, 18.) Costco ' s Withholding of Payroll Taxes When Costco paid the judgment, it had two alternatives. It could follow
Lisec and risk liability to the IRS and other taxing authorities for the amount of tax it failed to withhold plus penalties . Or it could follow the prevailing federal view a nd risk a judicial de claration that the judgment is not satisfied. We conclude it chose correctly. Costco ' s potential exposure for failing to withhold the payroll taxes outweighed the inconvenience to Cifuentes of seeking a refund for the excess withholding

.

Under prevailing federal decisional law, an award of back or front pay aris es from the employer

- employee relationship , and therefore qualifies as wages, even though the plaintiff is no longer employed and the award is not for actual services performed. (E.g., Gerbec, supra, 164 F.3d at p. 1026 ; Rivera, supra, 430 F.3d at p. 1260 ; Noel, supra, 697 F.3d at pp. 213

- 214 .) Consistent with this view, the IRS ' s position is that judgment and settlement payments for back and front pay (other than lost wages on account of personal injury or sickness) are subject to income and FICA tax wit hholding and are reportable as wages on a f orm W

- 2, rather than as non

- wage income on a f orm 1099

- MISC. (Office of Chief Counsel IRS Memorandum, dated October 22, 2008, UILC: 61.00

- 00, 3101.00

- 00, 3111.00

- 00, 3402.00

- 00, Income and Employment Tax13

Conseque nces and Proper Reporting of Employment

- Related Judgments and Settlements ;

see also 26 C.F.R., §§ 31.3121(a)

- 1(b), (i), 31.3306(b)

- 1(i), and 31.3401(a)

- 1(a)(5).)

In Cheetham , the defendant employer asserted that if it was required to pay an award of los t wages without withholding taxes, it could be held liable for those taxes and p otentially h ave to pay the same amount twice

-- once to the plaintiff and once to the IRS. ( Cheetham , supra, 2012 WL 1424168 at p. *7.) The IRS agreed with the defendant, exp laining in amicus briefing that an employer " will not be relieved of liability for withholding taxes unless it can show that the taxes have been paid [by the plaintiff], and even then it will still be liable for applicable penalties a nd other statutory add itions. " ( Id. at p. *8. )

Cifuentes has not cited any authority suggesting that Lisec would have insulated Costco from liability to the taxing authorities h ad it failed t o withhold income and FICA taxes . To the contrary, the California and Federal Rutt er Employment Guide s advise employers not to follow Lisec because it is inconsistent with federal law . ( Fed. Rutter Emp loyment Guide, supra, at ¶ 11:987 , p. 11

- 110 ; Cal. Rutter Emp loyment Guide,
supra, at ¶ 17:897 , p. 17

- 169 .) Moreover, the Ninth Circuit ' s decision in Rivera

-- the controlling federal appellate authority in California

-- contravenes Lisec , further underscoring the risk to California employers of f ailing to withhold taxes from lost
wages. (See Rivera, supra , 430 F.3d at p. 1259.)

Cos tco contends that if the courts do not consistently apply the definition of
wages for taxation and withholding purposes, employers and employees will have a difficult time understanding when payroll taxes must be withheld from judgments and settlements. W e agree. The IRS does not base its enforcement scheme on state court decision s. Consistent rulings among the state and federal courts will allow the parties in employment litigation to accurately discern whether a payment, in the form of either a settle ment or judgment, constitutes wages from which withholdings must be taken or income from which withholdings are not necessary. E mployers who face penalties for making the wrong decision should not have to guess as to whether withholding is required

.14 Th e IR C requires that taxes be withheld from wages because it is the most reliable means of assuring that they are paid. (See Baral v. United States (2000) 528 U.S. 43 1 , 436

- 437 .) By adopting the prevailing federal view, we ensure that California employers who withhold taxes from awards of lost wages are not penalized " for fulfilling [their] legal duty. " ( Noel, supra, 697 F.3d at p. 212.) Moreover, our decision does not leave plaintiff employees without a n adequate remedy. They may seek a refund from the taxing authorities for any amounts withheld in excess of their tax obligation

. ( Rivera,
supra , 430 F.3d at p. 1260.) As observed in Thomas v. County of Fairfax (E.D. Va. 1991) 758 F.Supp. 353, 367 , f ootnote 26 , " [c] ourts do not disagree . . . that tax a uthorities must receive their due, and that neither plaintiffs nor defendants should receive windfalls. " Cifuentes received almost $70,000 in income tax refunds . He does not claim he is entitled to an additional refund. The trial court determined he m ay be owed $9,975.37 , most of which is for FICA tax withholding. Beginning with Nierotko , federal

courts have taken a consistently broad view of " wages " and " employment " for FICA taxation purposes. ( Nierotko, supra, 327 U.S. at pp. 365

- 366; Gerbec, supra , 164 F.3d at p. 1026; Mayberry, supra, 151 F.3d at p. 860; Hemelt, supra, 122 F.3d at pp. 209

- 210.) This is because Congress, by enacting the FICA tax provisions, " intended to impose FICA taxes on a broad range of employer

- furnished remuneration in orde r to accomplish the remedial purpose of the Social Security Act. " ( Associate d Elec

. Co

- O

p ., Inc. v. United States ( Fed. Cir. 2000) 226 F.3d 1322, 1326; Nierotko , at p. 364.) Cifuentes has

not demonstrated that the award of lost wages was exempt from FICA taxation or that he is entitled to reimbursement of those taxes. Indeed, his own financial expert testified his award would be subject to FICA tax and state disability insurance withholding.

Additionally, we reject Cifuentes' assertion the withholding was improper because it did not take into account his obligation to pay his attorney a contingency

- based fee. As Costco points out, the entire award of lost wages was taxable as income regardless of whether a portion was used to pay contingent attorney f ees. ( C .I.R. v. Banks (2005) 543 U.S. 426, 430 [ " [T]he litigant ' s income includes the portion of the recovery15

paid to the attorney as a contingent fee " ].) Nor are we convinced by Cifuentes' reference to the section of the American Jobs Creation Act of 20 04 authorizing an " above

- the

- line " deductio n of attorney fees and costs incurred in connection with a claim of discriminati on or retaliation. (26 U.S.C. § 62(a)(2 0 ) , (21) .) The award in this case was for breach of contract, not unlawful discrimination or retaliation. (See Banks, at p. 439.)

T he trial court found Costco ' s position " compelling " and implied that , but for Lisec , it would have ruled in Costco ' s favor. We so rule. The law, as it has developed since Lisec , required Costco to withhold payroll taxes from the award of lost wages. Costco complied with this requirement and satisfied the judgment by paying Cifuentes the remaining balance due. His remedy was to seek refunds for any excess withholding ,
n ot further damages from Costco. (See Rivera, supra , 430 F.3d at p. 1260.) Accordingly, we r everse the order denying Costco ' s motion for acknowledgm ent of satisfaction of judgment and remand with instructions to grant the requested relief. (See § 724.050, subd. (d).) [[ Attorney Fees Costco' s mot ion for acknowledgement of satisfaction of the judgment under section 724.050 also requested attorney fees under section 724.080. In light of our determination that Lisec should no longer be followed, at this juncture Costco clearly is the prevailing part y. Costco asserts it is entitled to an award of mandatory attorney fees pursuant to section 724.080, which states: " In an action or proceeding maintained pursuant to this chapter, the court shall award reasonable attorney' s fees to the prevailing
pa rty." Costco contends the matter must be remanded to th e trial court to determine its

" entitlement to and amount of reasonable attorney[] fees." W e reject this argument and conclude that although Costco is now the prevailing party, under the rule of limited

r etroactivity, it cannot recover its attorney fees from Cifuentes.

The " general rule is that judicial decisions are given retroactive effect. ( Brennan v. Tremco Inc. (2001) 25 Cal.4th 310, 318.) This rests on the theory that the new deci sion does not real ly pronounce ' new ' law but rather states what the law always

was. But considerations of fairness and public policy may require that the decision is16

given prospective effect only. (Planning & Conservation League v. Department of Water
Resources (1998) 17 Cal.4th 264, 274.) As an example, when the new decision overrules clear past precedent or disrupts a practice long accepted and widely relied on, the decision may be made prospective only. ( People v. Hicks (1983) 147 Cal.App.3d 424, 427, citing United St ates v. Johnson (1982) 457 U.S. 537, 552 [73 L.Ed.2d 202, 102 S.Ct. 2579].)" ( Grobeson v. City of Los Angeles (2010) 190 Cal.App.4th 778, 796

- 797, fn s

. omitted, italics added; accord, Newman v. Emerson Radio Corp. (1989) 48 Cal.3d 973, 983 [ "A court may d ecli ne to follow the standard rule when retroactive application of a decision would raise substantial concerns about the effects of the new rule on the general administration of justice, or would unfairly undermine the reasonable reliance of parties on the previously existing state of the law " ]; Sierra Club v. San Joaquin Local Agency Formation Com. (1999) 21 Cal.4th 489 , 509 [same]; In re Retirement Cases (2003) 110 Cal.App.4th 426, 444 & fn. 10 [appellate court has discretion to give decision limited

retr oactive application]; see also 9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 554, pp. 630

- 631 [middle ground between complete prospectivity and complete retroactivity].)

Here, at the time this matter was litigated below, the Lisec decision was the sol e California authority on point and it had been on the books since 1992. Lisec not only legitimated the position taken by Cifuentes in this matter , but it also was binding on the trial court under principles of stare decisis. ( Auto Equity Sales, Inc. v. Superior Court,
supra , 57 Cal.2d at p. 455.) Cifuentes was entitled to rely on Lisec , as longstanding authority in California, and therefore properly refused to acknowledge the full satisfaction of the judgment.

Under these circumstances, this is an app ropriate case for this court to exercise its discretion to give its decision limited retroactive effect. Pursuant to the general rule of retroactivity of judicial decisions, we conclude Costco properly withheld payroll taxes when it paid Cifuentes the los t wages to which he was entitled under the judgment. However, insofar as Costco seeks attorney fees pursuant to section 724.080,

ou r decision is prospective only. Bearing in mind how the law in this area has evolved,17

we conclude Costco is not entitled to recover the attorney fees it has incurred in its successful effort to have Lisec repudiated. ]]
D ISPOSITION The order denying Costco ' s motion for acknowledgment of satisfaction of judgment is reversed and the matter is remanded to the trial court with instructions to

enter a new order granting relief under section 724.050

. Costco shall recover its costs on appeal. CERTIFIED FOR PARTIAL PUBLICATION

.

PERREN, J. *

We concur:

EDMON, P. J.

KITCHING, J.

* Associate Justice of the Cour t of Appeal, Second Appellate District, Division Six, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.18 Thomas P. Anderle , Judge Superior C ourt County of Santa Barbara

______________________________ Stradling Yocca Carlson & Rauth, P.C., Jeffrey A. Dinkin, Shahzad A. Malik, Gannon E. Johnson and Ryan C. Gaglio for Defendant and Appellant.

Edward Lowenschuss; Diane M. Matsinger for Plaint iff and Respondent.