The Illinois Supreme Court (“Court”) recently ruled on the interpretation of Section 1(b) of the Illinois Public Employee Disability Act (“PEDA”) (5 ILCS 345/1(b)). The Court ruled in favor of the City of Pekin when concluding the City is permitted to withhold employment taxes while making Section 1(b) PEDA payments to injured employees on leave. The Court supports this opinion with a strict statutory construction of PEDA and public policy focused on easing a potential administrative burden on public employers. 

Facts:

Two individuals, Christopher Bitner and John Brooks (“Plaintiffs”) were injured in the line of duty while working as police officers for the City of Pekin (“City”). Due to their injuries, they were unable to perform their duties. As such, when they had to take leave for their injuries, Plaintiffs applied for and received PEDA benefits from the City. Specifically, Plaintiffs received payments pursuant to Section 1(b) of PEDA, which provides:

“Whenever an eligible employee suffers any injury in the line of duty which causes him to be unable to perform his duties, he shall continue to be paid by the employing public entity on the same basis as he was paid before the injury, with no deduction from his sick leave credits, compensatory time for overtime accumulations or vacation, or service credits in a public employee pension fund during the time he is unable to perform his duties due to the result of the injury, but not longer than one year in relation to the same injury.” 5 ILCS 345/1(b).

Under its interpretation of Section 1(b) of PEDA, the City continued to pay the Plaintiffs’ salaries in the same manner it did before the injuries. To the City, “the same manner” meant continuing to withhold the Plaintiffs’ employment taxes, including federal and state income taxes, Social Security taxes, and Medicare taxes. The Plaintiffs took issue with the City’s withholding of their employment taxes when receiving payments under Section 1(b) of PEDA. Plaintiffs filed a lawsuit against the City challenging the withholding of their employment taxes.

Procedural History Leading up to the Illinois Supreme Court:

Before this case reached the Illinois Supreme Court, it went through various rulings from the lower courts. Plaintiffs’ second amended complaint (“Complaint”) is the subject of the Supreme Court’s ruling. In the Complaint, Plaintiffs sought declaratory judgment that the City violated Section 1(b) of PEDA when during City payments made under PEDA, it withheld employment taxes and when it deducted Plaintiff’s accrued sick, vacation, or compensatory time.

A few arguments within this case were either dealt with or left at the lower courts, not making their way to the Illinois Supreme Court. These arguments included whether the City deducted Plaintiffs accrued sick, vacation and compensatory time, a statute of limitations issue, and the City’s defense that Plaintiff Bitner violated his Collective Bargaining Agreement by failing to follow the grievance procedure before filing a lawsuit. As such, the Court’s decision does not give any guidance and ruling on those issues.

Supreme Court Analysis:

On appeal in front of the Illinois Supreme Court, Plaintiffs raise only the issue of the interpretation of Section 1(b) of PEDA.

First, Plaintiffs point to a case (Gibbs v. Madison County Sheriff’s Department, 326 Ill.App.3d 473, 477 (2001)) that stated Section 1(b) of PEDA requires the “continuation of full pay.” Plaintiffs assert that “full pay” in this context means “gross pay minus required deductions,” and as such, the City violated Section 1(b) but deducting employment taxes (i.e, “required deductions”).

The Illinois Supreme Court disagrees and supports its holding with a simple statutory construction analysis, following the primary rule that courts determining statutory construction should ascertain and give effect to the intent of the legislature. Here, the Court looks to the sentence from Section 1(b) for its conclusion, which states: “shall continue to be paid by the employing public entity on the same basis as he was paid before the injury, with no deduction from his sick leave credits, compensatory time for overtime accumulations or vacation…” (emphasis added).

The Court’s holding comes from its statutory construction of the particular phrase “on the same basis.” The Court finds that this phrase simply and clearly means injured employees receiving Section 1(b) PEDA payment are to be “paid from the regular payroll in the same manner as if the employee was on duty and in active service.” Therefore, if employment taxes are withheld from an employee while in active duty, then the employer can continue to withhold employment taxes after an injury requiring leave. This permits the public employers to adhere to Section 1(b) of PEDA by maintaining payment “on the same basis” as before an employee’s injury.

Further, the Court supports its holding pursuant to the maxim of expression unius est exlusio alterius,  (meaning “the expression of one thing is the exclusion of any other). Section 1(b) expressly prohibits public employers from deducting sick leave credits, compensatory time for overtime accumulations or vacation, or sick credits in a public employee pension fund. Therefore, because nothing in the actual language of Section 1(b) of PEDA prohibits public employers from withholding employment taxes, the Court finds it is implied that the withholding of employment taxes is permitted. Otherwise, the legislature would have inserted language that explicitly prohibits the withholding of employment taxes, like it did for sick leave, compensatory time, and vacation.

Plaintiffs further attempt to argue that the statute cannot be read in this way because courts are not bound to a statute’s literal language when it “yields absurd or unjust consequences not contemplated by the legislature.” In re D.F., 208 Ill.2d 223, 230 (2003). Plaintiffs argue that Section 1(b) payments are exempt from federal income tax. The Court finds that even if Plaintiffs are correct, withholding employment taxes does not wrongfully deny an employee amounts owed to them. Instead, it just requires an employee to seek a refund from the IRS or adjust their tax withholding by submitting a new W-4 withholding form to their employer.  

The Supreme Court’s opinion discusses the policy reasoning behind the decision. The Court explains that requiring public employers to determine when employment taxes should and should not be withheld from Section 1(b) creates an administrative burden on the public employers. The Court finds this administrative burden to be especially likely when an employee is on repeated short periods of injury leave. As such, the Court notes that Section 1(b) eases the potential administrative burden to continue to pay injured employees on leave in the same way as if they were on active duty. The burden to determine an employee’s tax liability should fall only on the employee and the IRS, not the public employer.

Conclusion:

Straightforwardly, this decision tells us that public employers are permitted to withhold employment taxes from Section 1(b) PEDA payments. However, it also indicates that the Illinois Supreme Court adheres to strict statutory construction interpretation. This means that Section 1(b) of PEDA only prohibits deductions of “sick leave credits, compensatory time for overtime accumulations or vacation, and service credits in a public employer pension fund” when an employee is injured and off duty.

If you are not withholding employment taxes when making Section 1(b) PEDA payments, there is now supportive case law that you can change your regular procedure. If you have any questions, please reach out to your KTJ attorney.

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