November 30, 2012
The Negative Tax Consequences in Employment Dispute Recoveries
Michael K. Hulley, Jr. (J.D. 2012, Michigan State), Comment, Taking Your Lump Sum or Just Taking Your Lumps? The Negative Tax Consequences in Employment Dispute Recoveries and Congress's Role in Fashioning a Remedy, 2012 Mich. St. L. Rev. 171:
This Note considers whether a prevailing plaintiff in an employment discrimination or wrongful termination suit should receive an augmented award to balance out the extra taxes a lump sum creates. It also proposes a solution and urges Congress to respond accordingly. Part I defines pertinent terms, lays the groundwork for understanding how tax issues intersect with employment law, and describes the negative tax consequences that may impact plaintiffs. Part II presents a thorough analysis of the Eshelman decision and compares the Third Circuit's findings to the handful of other rulings on point. Part III argues that, in the spirit of anti-discrimination statutes, plaintiffs should be able to request payments that will offset increased tax liabilities. Moreover, Part III asserts that courts do have the authority to provide gross ups. Part IV details the uncertainty that pervades employment suits with regard to how taxes should be treated, as well as the great reluctance of many courts to resolve the matter adequately. Finally, this Note recommends that Congress breathe life back into the Civil Rights Tax Relief Act and, ultimately, pass Part IV's version of it. As courts struggle to reach a satisfactory approach to an employee's right to tax relief, Congress should guarantee that America's “national policy of encouraging the pursuit of meritorious civil rights claims” does not become diluted.
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