3d Circuit: Employment Discrimination Awards Can be Increased to Take Account of Adverse Tax Consequences

The Third Circuit last Friday heightened a split in the circuits by giving trial judges the power to increase employment discrimination awards to compensate for the adverse tax consequences of receiving a backpay award in a lump sum in a single year and thus being taxed in a higher bracket than if the pay had been spread out over a period of years.   Eshelman v. Agere Systems, Inc., No. 05-4895 (3d Cir. Jan. 30, 2009).  The Third Circuit thus sided with the Tenth Circuit (Sears v. Atchison, Topeka & Santa Fe Ry. Co., 749 F.2d 1451 (10th Cir. 1984)) and disagreed with the D.C. Circuit (Dashnaw v. Pena, 12 F.3d 1112 (D.C. Cir. 1994) (per curiam)):

We hold that a district court may, pursuant to its broad equitable powers granted by the ADA, award a prevailing employee an additional sum of money to compensate for the increased tax burden a back pay award may create. Our conclusion is driven by the “make whole” remedial purpose of the antidiscrimination statutes. Without this type of equitable relief in appropriate cases, it would not be possible “to restore the employee to the economic status quo that would exist but for the employer’s conduct.”

For further discussion of the case, see today's The Legal Intelligencer:  Tax Needs May Require Additional Award in Employment Cases, by Shannon P. Duffy.