THE SUPREME COURT OF THE
FEDERATED STATES OF MICRONESIA
Cite as FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (1),
7 FSM Intrm. 280 (Yap 1995)
FEDERATED STATES OF MICRONESIA
SOCIAL SECURITY ADMINISTRATION,
KINGTEX (FSM), INC.,
CIVIL ACTION NO. 1994-3020
ORDER AND MEMORANDUM OF DECISION
Hearing: May 25, 1995
Decided: September 15, 1995
For the Plaintiff: R. Barrie Michelsen, Esq.
Law Offices of R. Barrie Michelsen
P.O. Box 1450
Kolonia, Pohnpei FM 96941
For the Defendant: Clement Mulalap, Esq.
Mulalap & Mulalap
P.O. Box 461
Colonia, Yap FM 96943
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The FSM Social Security Administration has the power to sue and be sued, and since its power to hold hearings is discretionary it may file suit without having held a hearing. FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (I), 7 FSM Intrm. 280, 282-83 (Yap 1995).
Civil Procedure ) Summary Judgment
Summary judgment may be granted only if it is clear that there is no genuine issue of material fact and that the moving party must prevail as a matter of law. A court must view the facts presented and inferences made in the light most favorable to the nonmoving party. If summary judgment is not rendered for all the relief requested, a court may enter partial summary judgment on such material facts that exist without substantial controversy. FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (I), 7 FSM Intrm. 280, 283 (Yap 1995).
Statutes ) Construction
Provisions of a law must be read so as to be internally consistent and sensible, and where a term in a statute is unambiguous and dispositive, a court should not examine other materials that might indicate legislative intent. FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (I), 7 FSM Intrm. 280, 284 (Yap 1995).
For Social Security purposes, wages means payment, salary, or compensation for employment, whether received in cash or a medium other than cash, such as meals. FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (I), 7 FSM Intrm. 280, 284 (Yap 1995).
Social Security contributions are taxed from both employer and employee, and the employer is responsible for assessing the employee's contribution and withholding it from wages as and when paid. FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (I), 7 FSM Intrm. 280, 285 (Yap 1995).
Statutes ) Construction
When the statute is not ambiguous there is no need to examine legislative intent, but when the language of the Code is ambiguous, other sources, such as Congressional journals or the original version of the statute may be consulted to give an indication of Congressional intent. FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (I), 7 FSM Intrm. 280, 286 (Yap 1995).
Statutes ) Construction
Where FSM Code provisions are based on U.S. law FSM courts may, in order to shed light on legislative intent, consider statutory interpretations by U.S. courts without being bound by those cases, but cases interpreting sections of the U.S. Code that were not enacted into the FSM Code are not relevant as an indication of the intent of the FSM Congress. FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (I), 7 FSM Intrm. 280, 286 (Yap 1995).
The cash value of meals provided by the employer, even if provided for the convenience of the employer, constitute wages subject to the social security tax. FSM Social Sec. Admin. v. Kingtex (FSM), Inc. (I), 7 FSM Intrm. 280, 288 (Yap 1995).
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MARTIN YINUG, Associate Justice:
The plaintiff, FSM Social Security Administration ("FSM SSA"), has moved for summary judgment. At issue is social security contributions allegedly due from Kingtex for approximately 300 Chinese workers, for a period from July of 1991 to March of 1993. The Court grants partial summary judgment on the issue of liability alone. There are, however, disputed issues of material fact as to the amount of contributions due. This Memorandum explains the Court's decision.
A. Undisputed Material Facts
The Court has gleaned the following undisputed material facts from the record:
1. Authorized representatives of the FSM SSA conducted an audit of Kingtex's payroll records. Aff. Marilyn Johnson para. 5.
2. The payroll audit involved review of records of the social security contributions paid by Kingtex for Chinese workers for a period from July 1991 to March 1993. Id.
3. The written employment contract for the Chinese workers stated that their payment would be $240 per month. Dep. Oliver Cheng at 9, lines 3-9.
4. The actual cash payment the Chinese workers received was about $160 per month, plus bonuses and overtime. Id. at 10, line 24, to 11, line 3.
5. Kingtex calculated the social security contribution on behalf of the Chinese workers based on the $160 cash payment the workers received. Aff. Oliver Cheng para. 7.
6. In addition to the approximately $160 cash payment, Kingtex provided the Chinese workers with meals, housing on the site of their employment, and round-trip transportation from their home country. Dep. Oliver Cheng at 14, lines 1-5, at 12, line 11 to 13, line 3.
7. The contract amount of $80 per month designated for food is an estimate, not the actual amount spent for food on each worker per month. Id. at 16, line 13, to 17, line 2.
8. The cost of food under the wages provision of the contract is documented, and the amount is less than $80 for each employee for each month. Aff. Oliver Cheng para. 6.
B. Disputed Facts Are Immaterial to Issue of Liability
The FSM SSA pleaded and argued that it sent several written notices to Kingtex regarding the underpayment of contributions for these Chinese workers. Kingtex denied receiving any notices, and claimed that FSM SSA failed to exhaust administrative remedies before filing suit.
Although these facts are disputed they are not material to the issue of liability. The FSM SSA need not exhaust administrative remedies before filing suit. To the contrary, the Code explicitly gives
the FSM SSA the power to sue and be sued. 53 F.S.M.C. 702. The Code provides for a limited review of final orders issued by the Board after hearings. 53 F.S.M.C. 708. But the grant of power to hold hearings is discretionary. "[The Board] may hold hearings . . . ." 53 F.S.M.C. 703 (emphasis added). There is no indication in the record that a discretionary hearing was held before the Social Security Board on the question of contributions for meals provided by Kingtex to these Chinese workers.1
Exhaustion of administrative remedies is not material to the issue of an employer's liability for social security contributions. It may be material to an issue on which the Court reserves decision, the amount an employer may owe.
A. Plaintiff's Motion for Summary Judgment
The plaintiff argued that the $80 difference between the $240 salary stated in the Chinese workers' contract, and the $160 cash payment they actually received, was the cost of meals provided by Kingtex as designated in the contract. Plaintiff claimed that this $80 meal cost is properly included as wages for the purpose of determining social security contributions. Plaintiff concluded that Kingtex, as the employer, is required to provide the entire contribution, because it failed to withhold the employees' contributions when they were paid.
Kingtex countered that the meals should not be included in the definition of wages. The meals were provided to Chinese workers in lieu of full payment to assure the government of the People's Republic of China that its nationals were treated properly. Citing United States law, Kingtex argued that meals were provided for the "convenience of the employer" and are therefore exempt from the definition of wages. At the hearing, Kingtex argued that the term "wages" is vague if read in conjunction with 53 F.S.M.C. 901(2) which requires the employer to deduct the employee contributions from "wages received by" the employees themselves.
Both arguments have merit, yet neither is dispositive of this motion. A motion for summary judgment may be granted only if it is clear that there is no genuine issue of material fact and that the moving party must prevail as a matter of law. Bank of Guam v. Island Hardware, Inc., 2 FSM Intrm. 281, 284 (Pon. 1986). The Court must view the facts presented and inferences made in the light most favorable to the nonmoving party. Adams v. Etscheit, 6 FSM Intrm. 580, 582 (App. 1994). If summary judgment is not rendered for all the relief requested, the Court may enter partial summary judgment on such material facts that exist without substantial controversy. FSM Civ. R. 56(d).
Citing FSM Rule of Civil Procedure 56(f), Kingtex requested additional time to complete discovery to examine the amount actually received by the employees. Since the Court enters partial summary judgment on the issue of liability, discovery by both parties on the issue of the amount of contributions owed may continue following the Court's ruling.
B. The Statute
The definition of "wages" in the Social Security Act is found in 53 F.S.M.C. 603(12), which
provides in pertinent part:
"Wages" means remuneration paid subject to the provisions of this subtitle, including the cash value of all remuneration paid in any medium other than cash and remuneration accruing to a self-employed person. . . . Wages shall not include:
. . . .
(d) remuneration paid in any medium other than cash to an employee for service not in the course of the employer's trade or business or for domestic service in a private home of an employer;
Although both parties urge separate constructions of the term "wages," neither cited that portion of the statute that defines what "wages" does not include. The question before the Court is, for the purpose of calculating social security contributions, whether the definition of "wages" includes meals provided by the employer.
1. Rules of Statutory Construction
A norm of statutory construction is that provisions of a law must be read so as to be internally consistent and sensible. McCaffrey v. FSM, 6 FSM Intrm. 279, 281 (App. 1993). Where a term in a statute is unambiguous and dispositive, the Court should not examine other materials that might indicate legislative intent. FSM v. George, 2 FSM Intrm. 88, 92 (Kos. 1985). Thus, if the Court determines that the term "wages" is not ambiguous, there is no need to examine the other sources that may reveal the intent of Congress in enacting the section. Such a review, however, may serve the purpose of explaining the Court's reasoning in this case of first impression. The defendant's cited authorities support by negative inference the conclusion that "wages" includes meals provided by the employer.
2. The Term "Wages" Is Not Ambiguous
In 53 F.S.M.C. 603(12) the term "wages" is not ambiguous. The statute defines explicitly what "wages" are, and what they are not. "Wages" means remuneration for employment, including remuneration paid in any medium other than cash. 53 F.S.M.C. 603(12). "Remuneration" means "Payment; reimbursement. Reward; recompense; salary; compensation." Black's Law Dictionary 1296 (6th ed. 1990). Thus, for social security purposes wages means payment, salary, or compensation for employment, whether received in cash or a medium other than cash.
For the Chinese workers in question, part of their payment or compensation for employment by Kingtex consisted of their payment of $160, plus bonuses and overtime, received in cash. (Fact No. 4.) In addition, the Chinese workers' payment or compensation for employment by Kingtex included meals, lodging and round-trip transportation from China. (Fact No. 6.) Since the statute contemplates that employees may be paid for employment either in cash or in any medium other than cash, the meals provided by Kingtex to the Chinese workers are included in the definition of "wages." The Court therefore holds that contributions to the social security trust fund should have been made by Kingtex for the cash value of meals provided by Kingtex and received by the Chinese workers.
The FSM SSA claimed that only meals or food provided by Kingtex to the Chinese workers were included in the definition of "wages" for social security purposes. See Pl.'s Answer to Def.'s First Set of Interrogatories, No. 4. Accordingly, the Court does not consider whether housing and round trip transportation provided by Kingtex are social security wages.
Social Security contributions are taxed from both the employer and the employee. However, the employer is responsible for assessing the employee's contribution and withholding it from wages as and when paid. 53 F.S.M.C. 901(2). The employer is liable for the employee's contribution as well as its own. Id. Since Kingtex should have included the cash value of the meals it provided to the Chinese employees in calculating their social security contributions, it is liable to the Social Security Board for those amounts.
3. The Cash Value of Wages Received as Meals Was Less than $80 Per Employee Per Month
Contrary to FSM SSA's calculations, it is not established by undisputed facts that Kingtex owes contributions on $80 per month per Chinese employee, that being the difference between the contracted amount and the cash payment actually received. The amount Kingtex spent for meals may be less than $80. Kingtex President Oliver Cheng testified at deposition that the amount designated for food in the contracts was an estimate and did not reflect the amount that Kingtex spent per worker. (Fact No. 7.)
This conclusion is bolstered by Kingtex's citation to 53 F.S.M.C. 901(1), which governs calculation of the social security contribution to be withheld by employers on behalf of employees. The employee must contribute a percentage of the "wages received by him with respect to employment." The fact that the Chinese workers were employed on a contract that designated their salary as $240 per month may be persuasive, but is not conclusive evidence of "wages received" by those workers. It appears rather that the amount Kingtex spent on food for the employees was less than $80 per employee per month. (Fact No. 8.)
Kingtex's citation to § 901(1) does not support its argument that the definition of wages found in § 603(12) is ambiguous. Meals provided by Kingtex were received by the Chinese workers as surely as they received payment by cash or check. The fact that wages may be received in a medium other than cash does not make the definition of that term ambiguous. It would be inconsistent to read "wages" in § 901(1) to mean cash payments only, while the definition in § 603(12) includes payments in cash and any medium other than cash. Statutes must be read to be internally consistent. McCaffrey, 6 FSM Intrm. at 281.
C. Trust Territory and American Law Supports the Ruling That "Wages" Includes Meals Provided by the Employer
Kingtex urged the Court to examine American law to support its argument that the term "wages" is ambiguous. Kingtex claimed that a tax rule, the convenience-of-the-employer, determines whether meals provided by the employer are included in wages. The Court's own review of the rule of convenience-of-the-employer supports its conclusion that the definition of "wages" for social security purposes includes meals provided by the employer.
1. Reference to Similar U.S. Statutory Law May Be Made Only in the Absence of Other, More Reliable Indicia of Legislative Intent
In order to refer to American law to even consider the rule of convenience-of-the-employer, several procedural barriers must be crossed. First, as noted above, the statutory definition of "wages" is not ambiguous and disposes of the issue of liability. As such, there is no need to examine legislative intent. George, 2 FSM Intrm. at 92. Accordingly, any discussion of legislative history or cases in aid of interpretation is not necessary to the Court's decision. It is, again, helpful to explain the Court's reasoning in reaching its conclusion, particularly in a case of first impression.
When language of the Code is ambiguous, other sources, such as Congressional journals or the original version of the statute may be consulted to give an indication of Congressional intent. Bank of the FSM v. FSM, 6 FSM Intrm. 5, 7 (Pon. 1993). Unfortunately, the FSM Congressional journals on the various amendments to this law are not among the limited materials available to the Court on Yap.2
The text of 53 F.S.M.C. 603(12) appears to be taken almost verbatim from 73 TTC 3(5) (1970). The dollar amounts were raised and there is one additional exception to exclusions from wages. There are no reported decisions interpreting this section of the Trust Territory Code. Likewise, there is no available Trust Territory legislative history on this section.
Since the Court cannot examine the legislative history of either the FSM Congress or the Trust Territory, another avenue of interpretation then opens to the Court. When the legislative history is not available to explain the origin of ambiguous provisions in the FSM Code, the Court may look to similar statutes in the United States Code, if it is fair to assume that the FSM Code provisions are based on that U.S. law. Tolenoa v. Kosrae, 3 FSM Intrm. 167, 170 (App. 1987). In doing so, the Court may consider statutory interpretations by U.S. courts without being bound by those cases. Id.
2. The Definition of Wages in the U.S. Social Security Act is Similar To and Different From the FSM Definition
For purposes of the U.S. Federal Old-Age and Survivors Insurance Trust Fund Act, the term "Wages" is defined at 42 U.S.C. § 409. Based on the four-part criteria provided by the Appellate Division in Tolenoa, 3 FSM Intrm. at 170, it is fair to assume that portions of this section of the FSM Code are based on the version of the United States Code in force at the time the Trust Territory government enacted the predecessor to this section.3 The U.S. statute defines "wages" as "remuneration . . . for employment, including the cash value of all remuneration . . . paid in any medium other than cash . . . ." 42 U.S.C. § 409. Like 53 F.S.M.C. 603(12), the American definition provides a list of what is not included in the term "wages."
Even though it is fair to assume that 53 F.S.M.C. 603(12) is based on portions of 42 U.S.C. § 409, the U.S. definition of what the term "wages" does not include is longer. The FSM Code lists six subsections of kinds of remuneration that are not included in the term "wages." By contrast, the U.S. version lists twenty-three different categories of remuneration specifically excluded from the definition of "wages." Thus, while cases interpreting certain portions of the United States Code may shed light on legislative intent, cases interpreting sections of the United States Code that were not enacted into the FSM Code are not relevant as an indication of the intent of the FSM Congress.
3. The Convenience-of-the-Employer Rule
[7 FSM Intrm. 287]
The argument of Kingtex is based on a United States Supreme Court decision, Rowan Cos. v. United States, 452 U.S. 247, 101 S. Ct. 2288, 68 L. Ed. 2d 814 (1981). Rowan operated oil-drilling platforms located as far as 60 miles from land. It cost less and was more convenient for Rowan to feed and lodge the workers on the platforms than to transport them back and forth for each shift. Rowan did not calculate the cash value of meals and lodging provided to its workers for either social security or income tax withholding purposes. Id. at 248-49, 101 S. Ct. at 2290, 68 L. Ed. 2d at 818-19. Treasury regulations then in force required that the cash value of in-kind remuneration, like food and lodging, be included in calculating social security contributions, but be excluded from income tax withholding. Id. at 250, 101 S. Ct. at 2291, 68 L. Ed. 2d at 819.
The United States Supreme Court held invalid the Treasury Regulation requiring employers to include in-kind remuneration in calculating social security contributions. Id. at 263, 101 S. Ct. at 2297, 68 L. Ed. 2d at 827. The Court concluded that U.S. Congress intended to treat the definition of social security "wages" identically to the definition of "wages" for the purpose of income tax withholding. Since the meals and lodging provided to the oil workers was done to serve "the convenience of the employer," the cash value of such in-kind remuneration was properly excluded from income tax withholding calculations. Id. at 251, 101 S. Ct. at 2291, 68 L. Ed. 2d at 819-20. Likewise, since the U.S. Congress intended that the same definition apply to social security contributions, it was proper to exclude the in-kind remuneration from that calculation as well. Id. at 263, 101 S. Ct. at 2297, 68 L. Ed. 2d at 827.
There are several reasons why it would be improper for this Court to rely on the reasoning of Rowan. First, the subsection of the United States Code the Treasury Department interpreted in the invalidated regulation was 42 U.S.C. § 409(r), which excludes from the definition of wages: "The value of any meals or lodging furnished by or on behalf of the employer if at the time of such furnishing it is reasonable to believe that the employee will be able to exclude such items from income under section 119 of the Internal Revenue Code of 1954;" The language of this subsection does not appear in 53 F.S.M.C. 603(12). Although the U.S. Supreme Court found the term "wages" to be ambiguous, it did so only in light of the regulations interpreting 42 U.S.C. § 409(r). Rowan, 452 U.S. at 257-58, 101 S. Ct. at 2295, 68 L. Ed. 2d at 824. Since that section does not appear in the FSM definition of wages, the reasoning demonstrated in Rowan is not relevant to determining the intent of the FSM Congress.
Second, the critical factor in the U.S. Supreme Court's decision in Rowan was its ruling that the U.S. Congress intended that the same definition of wages apply for both social security contributions and income tax withholding. No similar conclusion regarding the intent of the FSM Congress is possible. The definition of wages for income taxes in 54 F.S.M.C. 112(11) is different from the definition of wages for social security in 53 F.S.M.C. 603(12).
It is not at all clear that the convenience-of-the-employer rule is even valid. Rowan Cos. v. United States was superseded by statute two years later. 70A Am. Jur. 2d Social Security and Medicare § 126, at 169 (1987). Statutory changes that overrule previous judicial rulings may fundamentally alter the general law in the area governed by the statute. Federal Business Dev. Bank v. S.S. Thorfinn, 4 FSM Intrm. 367, 372 (App. 1990). To the extent, the United States Supreme Court relied on the convenience-of-the-employer rule, the U.S. Congress indicated that such reliance was not proper.
Further, adoption of the convenience-of-the-employer rule can lead to confusing and inconsistent factual determinations. In the words of Justice Brennan, "The-convenience-of-the-employer doctrine is not a tidy one." Commissioner v. Kowalski, 434 U.S. 77, 84, 98 S. Ct. 315, 320, 54 L. Ed. 2d 252, 260 (1977). Among the potential problems is whether the designation by the employer that certain remunerations are made for the employer's convenience is sufficient to invoke the rule, or if some further evidence must be adduced. Id. at 85, 98 S. Ct. at 320, 54 L. Ed. 2d at 260. Since it is likely in Micronesia that the vast majority of employment contracts are oral or even implied, administration
of such a rule would be very difficult. Likewise, given the multiplicity of employment contracts that may exist among federal, state and private employers, the different kinds of remunerations that could be characterized as for the convenience-of-the-employer would be endlessly diverting and confusing. Id. at 86-96, 98 S. Ct. at 321-26, 54 L. Ed. 2d at 261-67. Rather than adopting a rule that makes each decision about social security contributions a factual inquiry, the Court is obliged to follow the plain language of the statute.
The definition of "wages" in the Social Security Act is not ambiguous. It includes the cash value of meals that Kingtex provided the Chinese workers. Thus, Kingtex is liable for social security contributions for the cash value of the meals it provided the Chinese workers. It is not clear what the cash value of those meals is. Accordingly, the Court enters partial summary judgment pursuant to Rule 56(d) on the issue of liability alone. Discovery may continue on the issue of the amount of social security contributions for which Kingtex is liable for the Chinese workers during the period in question.
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1. There is no other indication in the social security act that the FSM Supreme Court should withhold action pending administrative review. Compare Title 53 F.S.M.C. with Title 52 F.S.M.C. In Public Service System disciplinary actions, 52 F.S.M.C. 157 limits judicial review until administrative remedies are exhausted. Suldan v. FSM (I), 1 FSM Intrm. 201, 206 (Pon. 1982).
2. The definitions section of the Social Security Act was amended three times by the FSM Congress. None of the amendments changed any portion of the statute that the Court interprets here. In each amendment, the only change to the definition of "wages" was to the dollar limit to be reported by self-employed persons. Were it necessary to examine the legislative history to reach its decision, the Court would be obligated to do so.