Defense Base Act Compensation Blog

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Class Action Tax Misclassification filed against Xe, Formerly Blackwater

Posted by defensebaseactcomp on June 7, 2011

Scott Bloch blasts Blackwater on behalf of thousands of former employees who were mistreated and denied employee benefits, unemployment and other withholding based on a fraudulent misclassification as independent contractors.

Mercadante et al vs Xe Services, LLC et al

    Statement Concerning Filing of Class Action Tax  Misclassification Against Xe Services (formerly Blackwater) on
 Behalf of Personal Security Specialists for Loss of Benefits and Withholding

WASHINGTON, DC (June 7, 2011) –

Since 2007, Blackwater Industries, which has changed its name to Xe Services, has employed over 10,000 personal security specialists to perform operations in Iraq and Afghanistan under lucrative contracts with departments of the United States Government including the State Department and CIA.

While employing these individuals, many of whom are decorated veterans of the armed services including Special Forces, Army Rangers, Navy Seals, Blackwater sought to avoid millions of dollars in taxes, withholding, and payments of benefits to these employees by classifying them improperly as independent contractors.

Yesterday, Scott Bloch filed a class action lawsuit on behalf of four former security specialists, who were injured while working for Blackwater, in order to recover their payment of social security, unemployment insurance, and unpaid benefits and state and local withholding and unemployment insurance, and other unspecified damages.  The action is brought on their own behalf and thousands of others who have worked for Blackwater and its newly named Xe Services.

The action seeks $60,000,000 in damages and punitive damages, as well as additional amounts as proved for the class of specialists.

“These brave individuals who worked in support of Operation Iraqi Freedom and Afghani Enduring Freedom, deserve better than to be turned away without health insurance, pension benefits, unemployment benefits, and other withholding afforded to Blackwater’s other
employees,” said Scott Bloch.

According to the lawsuit, the United States treasury loses billions of dollars annually to misclassified employees.     Under the commonlaw and the IRS 20 questions put out in 1987 pursuant to a regulation, Blackwater was obliged to classify these individuals as employees if Blackwater had the right to control the employees’ actions, manner of performing duties,  hours, training, equipment, whether the duties of the employees go to a core function of the employer or are duties that are consider ancillary to the main purpose of the company, and other factors.

The lawsuit states that Blackwater provided their equipment, including weapons issued by the government, training, and control over employees’ duties, manner of performing their security  duties, operations they went on, protection details and other duties.

“These veterans were actually given diplomatic passports and classified as employees of Blackwater to the United States government in the contracts as they procured insurance required for employees, and also represented to the State Department that they were
employees,” said Bloch in a statement upon filing, “yet when it came to paying taxes, paying  their employer portion of social security and Medicare taxes that all Americans expect their employers to pay, they simply claimed they were independent contractors.”

The suit also states that one of the representative plaintiffs already had a determination from the IRS that Blackwater misclassified him as an independent contractor.  “The IRS already  determined in the case of one of my clients that he should have been classified as an
employee,“ said Bloch.  “Now thousands of people will have to file amended returns.   Thousands of people will likely be entitled to benefits they were denied due to the misclassification, including payment of their employer share of pension, health and disability
insurance premiums, and other plans that Blackwater filed with the government for its employees, promising it would not discriminate against those employees as they did here.”

In addition, claims the suit, the United States Congress previously held hearings under the Oversight and Government Reform committee, Rep. Henry Waxman, Chair, which determined that Blackwater and its related companies misclassified employees in order to avoid millions of dollars in taxes. In addition, the IRS prior to making the determination on the plaintiff in this suit, had ruled on behalf of other Blackwater security specialists, and related job titles, that Blackwater had misclassified these employees who performed services under contracts in Iraq and Afghanistan.

“Blackwater made hundreds of millions of dollars from taxpayers and hired thousands of former veterans of military service and police officers.  They also had in their ranks Federal Agents, such as current employees of the FBI on leave of absence. They were hired as security specialists in Iraq and Afghanistan,” said Bloch. “It is a grave injustice to them who were  mistreated and left without any health insurance or other benefits for their families, and left to fend for themselves in paying into Social Security and Medicare.  They laid down their lives to protect dignitaries and carry out duties in support of wars for America, and they deserve better than this. Many of these same men risked their lives to protect everyone from the President of the United States to U.S. Senators, Congressman, U.S. Diplomats, to Foreign Presidential & Diplomatic Figures in one of the most dangerous places on the planet.”

The case was filed in the United States District Court for the District of Columbia and covers individuals from all over the United States and some Americans living abroad, including all former and current Blackwater and Xe employees and so-called independent contractors.

Contact Scott J. Bloch, PA:
Scott Bloch, 202-496-1290

Law Offices of Scott J Bloch Website

13 Responses to “Class Action Tax Misclassification filed against Xe, Formerly Blackwater”

  1. Superman said

    Well, its about time someone had the balls to go after these criminals. It’s Supermans understanding that Blackwater setteled with another guy in 2007 for this exact same issue. Then they continued to misclassify guys.. koodo’s to these guys for following through with this complaint. Unfortunately these companies threaten their workers by holding their jobs over their head and they get away with murder.

    I think these are the guys that were hired to secretly execute the war? What a shame they get screwed and treated so badly. Well Superman is going to put this on his top priority to get to the bottom of this. It appears Blackwater is screwed here.. Ok so now where is the DOJ? its time to put the hammer down.

  2. Superman said

    Well, after some calls….. Superman knows now why Blackwater continues to get away with their antics…. its because they work for the CIA and State Dept.

  3. David said

    What about KBR?? Or should I say SEII. I don’t know which employee they would claim that you were under this one. Haha.

  4. Superman said

    this would affect anyone who worked for Blackwater. if you worked for another company and recieved and IRS determination on the IRS form SS-8 then you could form your own class against them.

    • dante said

      Not just Blackwater.
      RONCO was a CIA front since the 1980’s at least, and my husband was classified as an “independent contractor” althoug he worked for them for five years prior in a top in-country management position with titles like “chief of party” and “team leader” but we had to pay the outstanding social security etc. taxes after his death.
      About time someone uncovered and took action against this fraud.
      Go Scott, Go!

      • superman said

        I agree.. these guys have some balls… maybe we should see if one of them would be interested in running for President !!

      • RONCO did the same thing to my husband and many others for many years.
        “Chief of Party” “Task Leader” but they avoided paying taxes and benefits by claiming they were consultants to the IRS, but Employees to the State Department and when purchasing Defense Base Act Insurance.
        They went to great lengths to conceal this when there were injuries.
        Not long after he was severely injured the IRS came and demanded we pay both Ronco’s and his SS and Medicare along with the huge fines and interest and put a lien on our home.
        We were supposed to do this after draining our savings while fighting with CNA and him trying to recover from some very critical injuries.

  5. anonymousonpurpose said

    Kudos to Scott!

    Let the TSUNAMI begin!

    Sooner or later the lawsuits against AIG, KBR, CNA, etc…will have an effect! Take care of the injured the way you were paid to do!

    Simple and easy, do what you were paid to do.

    Go Scott Go!

  6. superman said

    I am sure this guy Scott Bloch has much more up his sleeve. I hope not only does he financially drain these scum they are suing but puts some of them in prison.

    But remember these lawyers like Levy and Thomas who are clearly part of this conspiracy will also have their time in court to explain.. hopefully it lands them in prison as well.

  7. robert said

    what about the employees (IC) that they still have onpay roll? and that still are paying out rages taxes

  8. […] Fraudulent activity of this nature has garnered the full attention of the IRS to the Contract Employee much more so than it has the Contract Company.  Blackwater even continued to do this after the IRS busted them. […]

  9. […] Fraudulent activity of this nature has garnered the full attention of the IRS to the Contract Employee much more so than it has the Contract Company.  Blackwater even continued to do this after the IRS busted them. […]

  10. superman said


    Since this law suit was filed Blackwater Changed their name to XE and now Academi to attempt to avoid some bad press. But more interestingly Blackwater as we will call them has now made all their “Independent Contractors” Employee’s officially, clearly showing they knew they have always been wrong and are now caught.

    Also since this suit was filed the IRS released a amnesty period where Employers who were intentionally misclassifying their employees could come forward and take a 1% penalty rather than the higher penalty of more than 25% or even more. Interestingly enough it was clearly orchestrated to assist Blackwater as they have defrauded the American public in some estimations more than $500-$700 million dollars.

    Here is the deal Blackwater is essential in the Governments operations, and though they may publicly denounce Blackwater, XE, Academi or whatever you want to call them at the time they need this “Front Company” to exist so that many of these government functions continue.

    Blackwater is a front for the CIA and as a result they have received protections and been able to side step so much.

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