I recently blogged about the defendants in a FLSA case being able to secure plaintiff tax returns in discovery.  Maybe that was the start of a trend.  In a New Jersey case, a federal judge has ordered all of the named plaintiffs to produce tax returns for the tax years for which they claim damages in this action.  The case is entitled Kim v. Dongbu Tour & Travel, Inc and was filed in federal court in the District of New Jersey.

17542382 - u s income tax return forms 1040,1065,1120
Copyright: lobzik / 123RF Stock Photo

Plaintiffs worked as tour guides and were classified as independent contractors, which the Court ruled they were not; the Court granted the conditional certification motion. Defendants then sought the Plaintiffs’ income tax returns, asserting that “the income earned by each Plaintiff is relevant to their retaliation claim[s] and “is evidence of Plaintiffs’ damages (or lack thereof) and their mitigation of such alleged damages.”  The employer also argued that the tax returns would provide further evidence of whether Plaintiffs were employees or independent contractors, which would impact the key issue of liability.

The Court noted that public policy “favors the nondisclosure of income tax returns,” but it looked at the relevance of the tax returns to the litigation.  If the returns were relevant, a court had to then determine whether there was a compelling need for the tax returns due to the sought after information being otherwise unavailable.”  The Court noted that it was the burden of the party objecting to producing the information to prove that that the information is otherwise available.

Applying this test, the Court here ruled that the plaintiffs’ tax returns were relevant, because if the workers received additional income by tips or commissions counts, that information bore directly on assessing whether the employees received proper wages.  The information was also relevant to the workers’ allegations relating to their claimed damages, including the existence of offsets or mitigation.

The Court also concluded that there was a compelling need for the tax returns and the information was otherwise unavailable.  The Court observed that although Plaintiffs submitted their log guide books, many were incomplete or were simply unavailable and the Court concluded that information pertaining to the amounts received at various stops was also unavailable.  The Court also refused to approximate damages because it opined that the tax returns could provide accurate information and eliminate the need for speculative, burdensome, or costly attempts to approximate.  In sum, the employees could not show that the information was otherwise available from a less invasive reliable source.

The Takeaway

This is a great tactic for defendant employers to use in these cases.  This decision provides an instructive roadmap for the arguments that must be made in order to secure plaintiff-employee tax returns.  Usually, people don’t want their tax returns to be seen by others, especially in a federal litigation, where it could conceivably become “public.”

Maybe it turns out to be a way of impelling quick, early, cheaper settlements.