In a case decided yesterday, a jury verdict awarding $750,000 in compensatory damages and $300,00 in punitive damages, as well as an approx. $130,000 in back pay and front pay, was upheld by the 6th Circuit Court of Appeals. Click here to read the decision: West v. Tyson

One interesting issue involved the defendant’s request that the compensatory damage award of $750,000 be remitted. (Opinion at 29-31).

At trial, the plaintiff requested that the jury award up to $500,000 in compensatory damages. Notwithstanding the plaintiff’s request, the jury proceeded to award the plaintiff $750,000 ($500,000 for past emotional distress and $250,000 for ongoing emotional distress). Now, this is my kind of jury.

On appeal, the defendant argued that an award of compensatory damages beyond that requested by the plaintiff must be remitted. This argument was rejected by the 6th Circuit.

While it acknowledged that an award in excess of that requested was a factor to be considered when entertaining a motion for remittitur, the Court disagreed that it was bound as a matter of law to reduce the award to an amount that had been requested. Instead, the Court held that the proper legal standard simply required it to determine whether the award “is beyond the maximum damages that the jury reasonably could find to be compensatory for a party’s loss.” (Op. at 30). And based on the Court’s review of the evidence, an award of $750,000 was not beyond the max a jury could have awarded.

April 15, 2010 is not far away and as most folks know that is the deadline for filing your federal income tax return. I have been busy lately dealing with a number of tax issues affecting my employment clients. One issue in particular is worth mentioning.

First, as an initial matter, monies received in the settlement of an employment case are almost always taxable. The exception is monies that can be said to have been paid on account of personal injuries. These monies are not taxable. See 26 U.S.C. 104(a)(2). Click here. Accordingly, unless monies are paid to the client on account of personal injuries, the monies received will be subject to income tax.

When one of my employment clients settles a case and receives money in exchange for dismissing the case, a portion of the money is generally allocated as payment of back wages and a portion of the money is generally allocated as compensatory damages or liquidated damages. When money paid to the client represents back wages, a Form W-2 is issued by the company to my client. When money paid to the client represents compensatory or liquidated damages, a Form 1099 is issued by the company to my client.

Often, the Form 1099 issued to my clients is incorrectly completed by the company. Form 1099-misc. By this I mean that Box 7 “nonemployee compensation” on the Form 1099 is checked, rather than Box 3 “other income”, which is the correct box that should be checked on Form 1099 for payments of compensatory damages or liquidated damages. Box 7 is for payments made to independent contractors.

The impact of Box 7 being checked is that the client is erroneously subjected to the self-employment tax. Click here. Accordingly, to avoid this negative consequence I try to include language in all settlements agreements that Box 3 “other income” should be checked when monies are being paid as compensatory damages or liquidated damages.

On December 21, 2009, Senior Judge John Nixon (from the Middle District of Tennessee) issued the attached opinion in EEOC and Freeman v. Whirlpool, Case No. 3:06-cv-0593, which involved racial and sexual harassment claims brought under Title VII and 42 U.S.C. 1981. EEOC – Freeman v Whirlpool Mem Order 12-21-09

After determining that the defendant was liable for the racial/sexual hostile work environment experienced by the intervening plaintiff, Judge Nixon awarded the intervening plaintiff total damages in the amount of $1,073,261. Judge Nixon awarded $773,261 in back pay and front pay. He also awarded $300,000 for compensatory damages. Judge Nixon declined to award punitive damages.

Interestingly, with respect to the award of front pay, Judge Nixon found the intervening plaintiff, as a result of the harassment she experienced, suffered from chronic post-traumatic stress disorder rendering the intervening plaintiff unable able to work. Thus, Judge Nixon awarded the intervening plaintiff front pay to her normal retirement age.

I was recently explaining to a potential client that the law that potentially provided her protection (the FMLA (Family and Medical Leave Act)) did not permit the recovery of compensatory damages or punitive damages. (She had inquired whether she could recover compensation for the emotional harm she contended she had sustained).

In lieu of compensatory damages and punitive damages, I explained that the FMLA, as well as a number of other federal employment laws (e.g. ADEA (Age Discrimination in Employment Act) and FLSA (Fair Labor Standards Act)) permit the recovery of liquidated damages.

Under the ADEA, FMLA, and FLSA, an award of liquidated damages essentially means a certain sum of damages that will be awarded in addition to the economic damages recovered in the case. Importantly, the standard for awarding liquidated damages under the ADEA differs from the standard for awarding damages under the FMLA and FLSA.

The ADEA’s liquidated damages provision states “that liquidated damages shall be payable only in cases of willful violations of this chapter.” 29 U.S.C. 626(b). According to Trans World Airlines, Inc. v. Thurston, 469 U.S. 111 (1985), a violation is “willful” under the ADEA occurs if the employer knew its conduct was prohibited by the ADEA or showed a “reckless disregard” for whether it was prohibited, but not if the employer simply knew of the potential applicability of the ADEA or that ADEA was “in the picture.” Thus, an award of liquidated damages under the ADEA is not mandatory.

Under the FMLA, 29 U.S.C. 2617(a)(1)(A)(iii) provides that an employer shall be liable for an amount of liquidated damages equal to the amount of wages, salary, employment benefits, or other compensation denied or lost to an employee, plus interest, by reason of the employer’s violation. Importantly, the district court may reduce the liquidated damages award only if the employer “proves to the satisfaction of the court that the act or omission which violated section 2615 of this title was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of section 2615.” 29 U.S.C. § 2617(a)(1)(A)(iii). The employer must therefore show both good faith and reasonable grounds for the act or omission to avoid the imposition of an award of punitive damages. Chandler v. Specialty Tires of America (Tennessee), Inc., 283 F.3d 818, 827 (6th Cir. 2002).

Likewise, under the FLSA, 29 U.S.C. 216(b) provides that an employer who violates the overtime compensation provisions of the FLSA “shall be liable” for liquidated damages in an amount equal to unpaid back wages. A court may, in its discretion, refuse to award liquidated damages, but “only if, the employer shows that he acted in good faith and that he had reasonable grounds for believing that he was not violating the Act.” Dole v. Elliott Travel & Tours, Inc., 942 F.2d 962, 968 (6th Cir.1991).

Should a plaintiff prevail in a wrongful termination case against a defendant, the plaintiff may be entitled to reinstatement. “The clearest way to make the plaintiff whole is to supplement the back pay award with reinstatement to the job.” Coffey v. Fayette Tubular Prods., 929 S.W.2d 326, 331 (Tenn. 1996). Reinstatement, where feasible, is the preferred remedy rather than front pay. Sasser v. Averitt Express, Inc., 839 S.W.2d 422, 432 (Tenn. Ct. App.1992). But in situations where reinstatement is not feasible, a plaintiff may be entitled to an award of front pay.

If an employer extends an offer of reinstatement, the burden is on the plaintiff to establish that reinstatement is not feasible. Newcomb v. Kohler Co., 222 S.W.3d 368, 403 (Tenn. Ct. App. 2006). According to the Kohler court, there are a number of instances in which reinstatement may not be feasible, including (1) “where the employer has demonstrated such extreme hostility that, as a practical matter, a productive and amicable working relationship would be impossible,” (2) “where no comparable job is available,” (3) “when it disrupts the employment of others,” (4) “when the employment relationship has been irreparably damaged by animosity associated with the litigation,” (5) “when the plaintiff is relatively close to retirement,” and (6) “when the plaintiff is a high management employee.” Id.. The hostility expressed by the employer toward the employee is perhaps the most common circumstance where reinstatement will not be feasible, Coffey, 929 S.W.2d at 331-32, but “[t]he discord between the parties must rise above the friction normally associated with litigation,” Sasser, 839 S.W.2d at 433 n. 9.

In Kohler, the court of appeals upheld the trial court’s decision to award the plaintiff front pay since reinstatement was not feasible. Specifically, the court of appeals affirmed the trial court’s finding that the defendant had demonstrated hostility toward the plaintiff and “that he could potentially face future efforts by [the defendant] to terminate his employment if he were reinstated.” Id. at 403.

April 15 is around the corner. It’s a good time to remember that 26 U.S.C. 62(a)(20) permits employees to fully deduct attorney’s fees and court costs paid by, or on behalf of, the employee in connection with any action involving a claim of “unlawful discrimination”. Click here.

What constitutes “unlawful discrimination”? The term is defined at 26 U.S.C. 62(e) and includes virtually all of the laws that are used by employees when suing their employers such as Title VII; ADEA; ADA; Rehabilitation Act; FMLA; FLSA; NLRA; ERISA; WARN; Federal laws governing members of the uniformed services; Federal Whistleblower Protection laws; and any “Federal, State, or local law, or common law claims permitted under Federal, State, or local law (i) providing for the enforcement of civil rights, or (ii) regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits, or prohibiting the discharge of any employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.

Bottom line: under federal tax law an employee gets an “above the line” deduction for all attorney’s fees and costs paid by the employee to his/her attorney in cases involving unlawful discrimination.

When explaining the categories of damages available to a client in a Title VII or Tennessee Human Rights Act claim, I generally state that economic damages are available, as well as non-economic damages. With respect to economic damages, the starting point is back pay.

In the 6th Circuit, the seminal case discussing back pay is Rasimas v. Michigan Dept. of Mental Health, 714 F.3d 614, 626 (6th Cir. 1983). It’s a must read for any attorney practicing in employment law in Tennessee. Here are 17 – that’s right! – important back principles established by the Rasimas decision:

1. A back pay award should make the plaintiff whole, that is, to place him in the position he would have been in but for discrimination.

2. Back pay awards should completely redress the economic injury the plaintiff has suffered as a result of discrimination; therefore, a plaintiff should receive the salary, including any raises, which he would have received but for discrimination.

3. In the absence of exceptional circumstances, back pay should always be awarded when a Title VII violation is found.

4. The special factors which would constitute exceptional circumstances and prevent back pay awards are exceedingly rare.

5. Neither the arguable good faith of the defendant employer nor the difficulty in calculating the back pay award constitute exceptional circumstances

6. Sick leave, vacation pay, pension benefits and other fringe benefits the claimant would have received but for discrimination should also be awarded.

7. Back pay awards should not be reduced by the amount of income and social security taxes which would have been deducted from the wages the plaintiff would have received but for discrimination.

8. Unemployment benefits also should not be deducted from back pay awards.

9. Back pay should be awarded even where the precise amount of the award cannot be determined.

10. Any ambiguity in what the plaintiff would have received but for discrimination should be resolved against the discriminating employer.

11. A plaintiff has a duty to mitigate damages.

12. Once a plaintiff establishes a prima facie case and presents evidence on the issue of damages, the burden of producing sufficient evidence to establish the amount of interim earnings or lack of diligence shifts to the defendant.

13. A defendant may satisfy its burden only if it establishes that: 1) there were substantially equivalent positions which were available; and 2) the plaintiff failed to use reasonable care and diligence in seeking such positions.

14. The substantial equivalent of the position from which a plaintiff was discriminatorily terminated must afford the claimant virtually identical promotional opportunities, compensation, job responsibilities, working conditions, and status.

15. A plaintiff is only required to make reasonable efforts to mitigate damages, and is not held to the highest standards of diligence, thus, a plaintiff’s burden is not onerous, and does not require him to be successful in mitigation.

16. The reasonableness of the effort to find substantially equivalent employment should be evaluated in light of the individual characteristics of the plaintiff and the job market.

17. A plaintiff cannot be said to have failed to make a reasonable effort to mitigate damages when he refuses to accept employment that is an unreasonable distance from his residence.