Damages Can Be Increased To Account For Adverse Tax Consequences

TaxProf Blog reported on  Eshelman v. Agere Systems, Inc., No. 05-4895 (3d Cir. Jan. 30, 2009). In a lengthly and well written opinion, the 3rd Circuit held that in employment discrimination cases courts can increase the amount of damages to account for the adverse tax consequences that a lump sum payment would cause. This can occur, for example, if the lump sum places the employee in a higher tax bracket.
As the Third Circuit notes, there is actually a conflict in the circuits on this issue. This court views an increase in damages due to taxes as necessary to make the plaintiff whole. The court sees this no different from cases that have awarded prejudgement interest.

Hat Tip: Workplace Prof Blog