LOS ANGELES - College students involved in Daewoo Motor America's on-campus sales program have filed two class-action lawsuits accusing Daewoo of breach of contract and violating labor laws.
The first suit, filed Feb. 3 in Los Angeles County Superior Court, alleges Daewoo dumped a $32 million tax burden onto its student sales force by shifting federal, state, Social Security, employment and sales tax liabilities. The suit alleges Daewoo also broke several promises made while recruiting salespeople.
The second suit, filed Thursday, Feb. 11, in U.S. District Court in Fort Lauderdale, Fla., alleges Daewoo's system of limiting compensation to a $300 commission per car sold 'is a sham intended to avoid the minimum wage ... and to shift a tax burden' to the students.
$4.2 MILLION AT ISSUE
That suit argues that the students are treated as employees, not as independent contractors, so they are entitled to $4.2 million in wages and overtime compensation.
Daewoo is aiming its U.S. marketing at college students. The company also is using as many as 5,000 'campus advisers' as most of its sales force.
The company has sold about 3,100 cars since starting sales last September, including sales to the student salespeople.
NO MERIT, DAEWOO SAYS
Daewoo officials said the cases were without merit. 'We've been communicating with the students, and most feel happy with the program,' said Bill Tucker, Daewoo Motor America vice president of marketing and customer relations. 'We believe in the program and will continue to support it.'
Added Bruce Friedman, Daewoo's outside counsel: 'We will show that Daewoo met all of its obligations to the students.'
The specific complaints in the California suit:
Daewoo promised students they could purchase any new Daewoo vehicle for a 50 percent discount off the manufacturer's suggested retail price. But Daewoo later cut the discount on a new vehicle to as low as 20 percent and restricted purchases to cars in inventory.
When complaints first surfaced in mid-September, Daewoo set a Sept. 30 date for the purchase program to end.
Daewoo made the student pay the sales tax on the entire sticker price, not the discounted price. On an $18,000 Leganza, that could amount to an additional $1,000.
The discount itself was classified as compensation for the students by Daewoo under the Internal Revenue Service's Form 1099 miscellaneous income tax code, triggering yet more tax liability.
If a student drove one of Daewoo's demonstrator cars for 90 days - even if he or she didn't buy it - Daewoo made the student liable for the amount of income and sales tax 'damage' Daewoo suffered by loaning the car to the student.
At issue is that, in an agreement signed by the students, Daewoo said the only tax consequences the students would face would be on the $300 commission they would receive for every sold vehicle, the suit alleges.
Also, the signed agreement made no reference to a time limit to purchase a vehicle, or of limiting the selection to in-store merchandise, or of other sales and employment tax consequences connected to the car purchase, the suit alleges.
'There was no documentation signed off by the students that Daewoo disclosed any of these other tax consequences,' said Kenneth Catanzarite, the Anaheim, Calif., attorney representing the class action. 'Daewoo didn't bother to say there would be any taxes for buying the car or even just using the car.'