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Third Circuit Rules That Court Can Award Extra Compensation For Taxes

Third Circuit Rules That Court Can Award Extra Compensation For Taxes

The Third Circuit Court of Appeals has held that trial judges can increase a plaintiff's award to account for the increased taxes she would have to pay on a lump-sum back pay award.  With the decision, the Third Circuit has joined the Tenth Circuit and rejecting the reasoning of the D.C. Circuit which ruled in 1994 that winning plaintiffs are never entitled to such an award.  The Third Circuit in the case of Eshelman v. Agere Sys. Inc., 2009 WL 223858 (3d. Cir. Jan. 30, 2009) found that one of the main purposes of the employment discrimination statutes is to make whole those who have been injured as a result of illegal bias on the job.  Back pay awards are taxable.  Consequently, employees receiving back pay awards may be subject to higher taxes if they receive a lump sum back pay award in a given year.  In other words, the lump sum back pay award can place the employee in a higher tax bracket for that year.  In order to make the employee while, the defendant should be required to pay the increased tax burden.  In addition, the defendant is responsible for prejudgment interest which compensates the plaintiff for the loss of the use of the money the employee would have earned.

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