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When we work, we receive a paycheck. When we retire, we receive retirement pay such as Social Security benefits-and a pension if we are fortunate. Similarly, when we are injured or unemployed, we receive workers’ compensation or unemployment compensation. We do not receive, simultaneously, a paycheck and retirement pay, or a paycheck and unemployment pay. Under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. 621-634 (1999 & Supp. 2002), courts often ignore these realities when they calculate back- pay awards. Courts routinely allow an employee to collect a paycheck and retirement pay or unemployment pay at the same time, based upon the same job. For example, in Craig v. Y&Y Snacks Inc., 721 F.2d 77, 82 (3d Cir. 1983), the 3d U.S. Circuit Court of Appeals held that unemployment compensation should not be deducted from a back-pay award under Title VII of the Civil Rights Act of 1964. Similarly, in McDowell v. Avtex Fibers Inc., 740 F.2d 214, 215-18 (3d Cir. 1984), vacated and remanded on other grounds, 469 U.S. 1202 (1985), the 3d Circuit determined that unemployment benefits and pension plan benefits should not be deducted from a back-pay award under the ADEA. The 3d Circuit even found that Social Security benefits could not be set off against damages under the ADEA. See Maxfield v. Sinclair Int’l, 766 F.2d 788, 793-95 (3d Cir. 1985). The reasons underlying these back-pay calculations could be viewed as inconsistent with the ADEA’s “make whole” (not more than whole) objective and reality as identified in Anderson v. Consolidated Rail Corp., No. Civ. A. 98-6043, 2000 WL 1622863, at 1 (E.D. Pa. Oct. 25, 2000). Courts in other jurisdictions have reached similar holdings. In Marshall v. Goodyear Tire & Rubber Co., 554 F.2d 730, 736 (5th Cir. 1977), the 5th Circuit affirmed a district court’s decision not to deduct unemployment compensation from a back-pay award under the ADEA. Further, the 10th Circuit found that unemployment compensation benefits should not be deducted from back-pay awards in ADEA actions. Equal Employment Opportunity Comm’n v. Sandia Corp., 639 F.2d 600, 624-25 (10th Cir. 1980). Additionally, the U.S. District Court for the Middle District of Florida held that unemployment compensation benefits, Social Security benefits and pension benefits should not be deducted from back-pay awards in ADEA actions. Hipp v. Liberty Nat’l Life Ins. Co., 65 F. Supp. 2d 1314, 1342-43 (M.D. Fla. 1999), aff’d in part, rev’d in part on other grounds, 252 F.3d 1208 (11th Cir. 2001). The ADEA prohibits workplace discrimination based upon an employee’s age. If an employer discriminates against an employee because of his age, the employer is liable to the employee for back pay, among other things. Back pay defined The ADEA defines back pay in the same manner as the Fair Labor Standards Act. The ADEA definition provides: “Amounts owing to a person as a result of a violation of [the ADEA] shall be deemed to be unpaid minimum wages or unpaid overtime compensation.” 29 U.S.C. 626(b) (1999). Essentially, back pay is the amount of wages an employee would have earned, absent the discrimination, from the date of termination to the date of judgment. Mason v. Assoc. for Independent Growth, 817 F. Supp. 550, 553-54 (E.D. Pa. 1993). Some courts, including, for example, the 3d Circuit in McDowell and Maxfield, will not reduce an employee’s back-pay award by amounts the employee received from so-called collateral sources, such as retirement or unemployment pay. For example, say an employer unlawfully discharges an employee due to his age. After his discharge and through trial, the employee collects unemployment compensation. The total of the employee’s back pay is the amount he would have earned, but for the age discrimination, with no reduction for the unemployment compensation he collected. Thus, the employee receives his paycheck, in the form of back pay, as well as unemployment compensation that he would not have received had he worked. Consequently, by excluding collateral sources from back-pay calculations, employees receive more compensation than they would if no age discrimination had occurred. Some may see this windfall as inconsistent with the make-whole goal of the ADEA. Other benefits sources Other courts, however, have reduced back-pay awards by amounts received from other sources, which prevents an employee from receiving a windfall. For example, in Hagelthorn v. Kennecott Corp., 710 F.2d 76, 86-87 (2d Cir. 1983), the 2d Circuit found that a trial court properly credited an employer, as a setoff, for pension benefits paid during the time frame for which the back pay was awarded. Similarly, in Fariss v. Lynchburg Foundry, 769 F.2d 958, 966-67 (4th Cir. 1985), the 4th Circuit held that pension benefits may be offset from an award for back pay to prevent a plaintiff from “enjoy[ing] the rewards from the employer both of working and not working.” Additionally, the 5th Circuit found that back-pay awards should be reduced by payments received from retirement funds. Guthrie v. J.C. Penney Co. Inc., 803 F.2d 202, 210 (5th Cir. 1986). Even the 3d Circuit provides an exception to its view that unemployment and retirement benefits are collateral and should not be used to reduce an employer’s legal obligation. In Dillon v. Coles, 746 F.2d 998 (3d Cir. 1984), the court held that if the commonwealth of Pennsylvania was the defendant-employer entitled to bring a separate action to recoup unemployment benefits under state law, it could deduct unemployment compensation benefits from back-pay awards. Pennsylvania Unemployment Compensation Law provides: “Notwithstanding any other provisions of this subsection, any person who has received or employer who has made a back wage payment pursuant to an award of a labor relations board arbitrator or the like without deduction for unemployment compensation benefits received during the period to which such wages are allocated shall notify the department immediately of the receipt or payment of such back wage award. The recipient of such back wage award, made without deduction for unemployment compensation benefits received during the period, shall be liable to pay into the Unemployment Compensation Fund an amount equal to the amount of such unemployment compensation benefits received.” 43 Pa. Stat. § 874 (b)(3). The laws of Pennsylvania prevent employees of the commonwealth of Pennsylvania from receiving a windfall but fail to provide similar protection for the private employer. Thus, unlike the commonwealth of Pennsylvania, the private employer is penalized twice under the ADEA. In applying the collateral source rule to a back-pay calculation under the ADEA, courts tacitly acknowledge a windfall to employees. These courts reason that an employer who practices age discrimination is in no position to complain. Collateral considerations The courts further reason that any windfall is justified because back-pay awards under the ADEA, unlike Title VII, are mandatory; liquidated damages that are calculated by doubling the back-pay award would be reduced if collateral sources reduced the back-pay award; and collateral sources, such as unemployment compensation or pensions, serve independent and broader social goals that would be diluted if they reduced ADEA back-pay awards. See McDowell, 740 F.2d at 215-18; Maxfield, 766 F.2d at 794-95. Clearly, these reasons are appealing and offer some justification for the exclusion of collateral sources from back-pay awards. These reasons, however, with equal justification, contradict the ADEA’s make-whole goal and ignore reality. The mandatory nature of back-pay awards under the ADEA does not mean that courts allow no reductions. In fact, courts do reduce back-pay awards for mitigation purposes to account for amounts an employee earns from another employer (i.e., a collateral source) after his termination. See, e.g., Anderson, 2000 WL 1622863, at 2. Thus, since courts reduce back-pay awards for mitigation, although not expressly required by the ADEA, the mandatory nature of such awards does not mean that other collateral sources cannot reduce the same awards. Similarly, the impact on liquidated damages does not necessarily justify applying the collateral source rule to back- pay awards. The ADEA adopts the liquidated damages calculation contained in the Fair Labor Standards Act. Under the act, a liquidated damage is an additional amount equal to back pay. 29 U.S.C. 216(b) (1999). Under the ADEA, unlike the labor standards act, liquidated damages are awarded only if the violation is willful. 29 U.S.C. 626(b) (1999). Thus, in ADEA cases, courts reason that reducing back pay by collateral sources also reduces an employee’s liquidated damages award. See McDowell, 740 F.2d at 218. Windfall possibilities Nevertheless, courts routinely reduce back-pay awards for mitigation. This reduction, like the collateral-source reduction, has the same negative impact on liquidated damages. Accordingly, one can argue that excluding other collateral sources from back-pay calculations to preserve a liquidated damages award offers inconsistent support for ignoring the ADEA’s make-whole goal as well as reality in determining back pay. Further, doubling a back-pay award-even one reduced by collateral sources-still yields a windfall to employees and penalizes the employer for a willful violation. (In addition, an ADEA plaintiff may also receive front pay. Front pay is the difference between what the plaintiff could have earned, absent the discrimination, and what he actually earned, for the period after judgment until a date in the future. Conway v. Hercules Inc., 831 F. Supp. 354, 357 (D.Del. 1993)). Finally, courts reason that collateral sources should not reduce back-pay awards because those sources serve independent, broader social goals that are diluted if used to reduce ADEA back-pay awards. See McDowell, 740 F.2d at 217; Maxfield, 766 F.2d at 794. These courts, however, do not recognize other broad and important social goals. One such goal is to encourage individuals to return to work rather than to allow them to get paid through back pay and, simultaneously, to collect retirement or unemployment pay. The individual who is encouraged to return to work pays taxes and may rely less, if at all, on some of the same social programs that these courts did not consider in calculating back-pay awards. Thus, equally important social goals may be served by reducing back- pay awards by collateral sources. Reality check The stated goal of the ADEA is to make whole victims of age discrimination. Anderson, 2000 WL 1622863, at 1. Yet in fashioning back-pay awards under the ADEA, courts routinely make employees more than whole by not reducing those awards by collateral sources. Accordingly, courts should reconsider applying the collateral source rule to back-pay calculations so that those awards are consistent with the ADEA and reality. Gino J. Benedetti is a shareholder at Philadelphia’s Miller, Alfano & Raspanti. His areas of practice include employment litigation and complex commercial litigation. Maria L.H. Lewis is an associate in the litigation department of the firm.

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