March 10, 2012
Increasing Employment Discrimination Awards to Take Account of Adverse Tax Consequences
Eirik J. Cheverud (J.D. 2011, New York Law School), Note, Increased Tax Liability Awards After Eshelman: A Call for Expanded Acceptance Beyond the Realm of Anti-Discrimination Statutes, 56 N.Y.L. Sch. L. Rev. 711 (2012):
When an employee suffers an unlawful adverse employment decision, her remedy generally lies in a backpay award. These awards are normally provided in one lump sum, which in turn is taxed as income in the year received. Often, the result is this: the employee would have paid less in taxes if no illegal action had occurred. This law review note details the historical background of this problem (an interesting romp of U.S. tax-policy history), and discusses how courts have begun to address it using increased tax liability awards (ITLAs) -- an additional monetary award increasing a plaintiff's backpay award, intended to offset the negative tax consequences of the backpay award's lump-sum distribution. It next weighs arguments made by courts that have rejected ITLAs, and demonstrates how the reasoning in Eshelman v. Agere Systems, a recent Third Circuit case announcing the availability of ITLAs under anti-discrimination statutes, effectively counters those courts' concerns. The note goes further to suggest that courts could, and should, provide ITLAs under most employment statutes (as opposed to being limited to the anti-discrimination context, which thus far has been the only area where courts, and even most scholars, have addressed ITLA applicability), including the Employee Retirement Income Security Act (ERISA), the Fair Labor Standards Act (FLSA), and the National Labor Relations Act (NLRA).
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