Baker & McKenzie
February 2009
This Alert reviews the decision of the Third Circuit Court (in Eshelman v. Agere Sys) that an employment discrimination plaintiff is entitled to be compensated for the negative tax consequences of receiving back wages awarded as a lump sum. The Third Circuit, in upholding a district court’s decision to augment a jury’s award of back pay (which is taxable) in this respect, stated that the chief remedial purpose for employment discrimination statutes is “to make persons whole for injuries suffered on account of unlawful employment discrimination.” The Alert makes the clear point that if courts take this “make-whole” approach to awards of back-pay in discrimination cases, the impact will logically flow through to all “settlement negotiations in which a lump sum award of back-pay might have some current year tax effect. Practitioners should expect more complete tax analysis in their settlement discussions on the part of plaintiffs, and an increasing number of demands for make-whole tax relief at both trial and in settlement and mediation discussions.”

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