Unpaid Overtime Problem Becomes Much Worse with Fraudulent 1099 disgruntled-workers-sm.png07 / 25 / 2019
VANDERBILT v. BOAT BOTTOM EXPRESS, 2019 U.S. Dist. LEXIS 123284 (S.D.Fla. July 24, 2019)
IRS Form: IRS Form 1099-MISC
Tax Form Troubles: Filing of Form 1099-MISC deemed to be fraudulent, trial court awards statutory $5,000 damages, plus attorneys' fees
For labor law attorneys, looking to resolve unpaid overtime issues, this case may be of significant interest, as there are additional statutory damages potentially in play in any case where an employee receives a Form 1099-MISC issued under facts similar to this case. However, some caution is in order, as some courts have required that the allegations of a fraudulent 1099 must be specific to the amount paid, and not as to the characertization. Sims v. Unation, 292 So.3d 1286 (M.D.Fla. 2018)(an employer's filing of the wrong information form cannot establish liability under Section 7434, unless the form willfully misstates the amount of payment).
For further guidance, see also, Baker v. Batmasian, 730 Fed. Appx. 776 (11th Cir. 2018)(rejecting argument that Section 7434 claim can be brought by misclassified worker when Form 1099-MISC is provided to corporation that worker was required to form, on the basis that it should have been a W-2; court rules that the only party that can bring any such claim is the person identified on the form itself as the payee); Pitcher v. Waldman, 2012 U.S. Dist. LEXIS 152087 (S.D. Ohio 2012)(evidentiary issues created when 1099-MISC issued, with recipient claiming it was fraudulent because it was as to payment made to redeem stock under settlement agreement, while issuer claimed it was at best an honest mistake).
It remains to be seen how the courts will reconcile this aspect of the law.
In this case, Valeri Vanderbilt filed a Fair Labor Standards Act (FLSA) claim for unpaid overtime violations, fraudulent filing of a tax return (Form 1099-MISC) under Section 7434, and breach of contract, against defendants Boat Bottom Express, LLC, out of Ramrod Key, Florida and its alleged owner, Jeffrey Peer. Both defendants are reported to have defaulted. Plaintiffs moved for entry of final default judgment as to liability and set an evidentiary hearing to allow her to prove her unliquidated damages. Defendants did not appear th the June 22, 2019 hearing, but Plaintiffs presented 2 witnesses.
Ms. Vanderbilt testified that there was a verbal contract between her and Mr. Peer under which the company, BBE agreed to pay her $16 per hour to perform various tasks, and how for a total of 4 weeks, she opened and closed the business Monday through Saturday (working 8:30 am to 5:00 pm). She also testified that she had to work nights, taking calls from customers and handling other tasks for Mr. Peer and the business. As she testified, she ran everything.
The court calculated that she worked 63 hours per week, rather than the 40 hours with respect to which she was paid, with 23 hours totaling $2,208.00 (23 x $24/hour)(4 weeks). The court also awarded her liquidated damages in that defendants actions were viewed as intentional, rendering both defendants jointly and severally liable, for $4,416.00.
As for a breach of contract, the court found that a second contract was formed on an evening in mid-November 2017 in which after the initial 4 weeks noted above, she was then offered $1,000 per month plus 7% of BBE's yearly gross revenue (less costs of labor and materials) and she accepted the same. The 7% of gross revenue was put in a writing signed by both, as they then proceeded to whiteboard how they could grow the company after Hurricane Irma had hit the area. The court found that Ms. Vanderbilt continued to perform under the second contract until she was terminated in mid-October 2018, when a woman appeared and demanded her files, laptop and keys to a company car. The written contract was confiscated at the time as well. Ms. Vanderbilt attempted to testify that BBE gross revenue was around $650,000 per year, based on the QuickBooks she did every day, but she did not proffer any evidence in support of the cost of labor and materials beyond her salary of $1,000 per month. This was viewed as insufficiently precise to support a damages award for breach of contract.
Ms. Vanderbilt supported her claim under Section 7434 by testifying that she told Mr. Peer twice in the same week that she should be classified as an employee, only to receive in 2019, a Form 1099-MISC. It identifies her as receiving nonemployee compensation of $48,684.63 for 2018. As she argued, this evidences Defendants unlawfully giving false information to the IRS indicating that she was an independent contractor, when in fact, she was known to be an employee pursuant to the $1,000 per month verbal contract. She was not involved in the preparation of the Form 1099-MISC, nor in it being sent to the IRS, as she was no longer working for the company by that time. The court concluded that the company, listed as the Payer, furnished the document to the IRS and as such, is liable for a statutory damages penalty of $5,000, under IRC Section 7434. Attorneys fees were also awarded by the court.
If you have questions about IRS Forms SS-8, Form 1099-MISC, or Section 7434 and a fraudulent information return filing, please contact Mr. Tufts at 407-647-7887.