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Tax Component Award Allowed In Wrongful Termination Lawsuit

The Seventh Circuit recently held that a court may award a tax component award as part of damages recoverable in an employment discrimination case under Title VII’s remedial scheme. EEOC v. Northern Star involved a wrongful termination case where an employee asserted racial harassment and termination for opposing the harassment. A jury awarded $15,000 in compensatory damages. The EEOC sought additional remedies from the district court. It requested front pay and back pay, along with a tax-component award to offset the employee’s impending income-tax liability on the lump-sum back-pay award. The district court denied the front-pay request but granted the back-pay and tax-component awards. It awarded $43,300.50 in back pay (and interest) and an additional $6,495.00 to offset the impending taxes estimated at fifteen percent of the back-pay award.

The Seventh Circuit affirmed the award of a tax component award in a wrongful termination case.   The Seventh Circuit explained that the plaintiff will “be bumped into a higher tax bracket. The resulting tax increase, which would not have occurred had he received the pay on a regular, scheduled basis, will then decrease the sum total he should have received had he not been unlawfully terminated by Hospitality. Put simply, without the tax-component award, he will not be made whole, a result that offends Title VII’s remedial scheme.” In doing so, the 7th Circuit joined the 3rd and Tenth Circuits in allowing such an element of damages for wrongful termination employment lawsuits.

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