Breaking NewsLaw.com and associated brands will be offline for scheduled maintenance Friday Feb. 26 9 PM US EST to Saturday Feb. 27 6 AM EST. We apologize for the inconvenience.

 
X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
WASHINGTON — The U.S. Supreme Court on Monday agreed to resolve two key employment law issues that have divided lower courts for years. One pair of cases will test the government’s policy that calls for both the client and the lawyer to pay taxes on the portion of employment discrimination damage awards paid to the lawyer. The other question taken up on Monday stems from the Age Discrimination in Employment Act: Can plaintiffs use the act to bring suits that claim disparate treatment in the workplace? Courts have previously ruled such suits are permissible under Title VII of the Civil Rights Act of 1964. The cases granted Monday will be argued in the fall. The tax cases, Commissioner of Internal Revenue v. Banks, 03-892, and Commissioner of Internal Revenue v. Banaitis, 03-907, ask whether the contingent-fee portion of an award should be treated as taxable income to the client. The fee is already taxed as income to the lawyer. The government argues the client should also be taxed. But in both cases now before the Supreme Court, the government lost, in rulings by the Sixth Circuit U.S. Court of Appeals and the Ninth Circuit. In asking for high court review, Solicitor General Theodore Olson noted that other court panels in the Fourth, Seventh, Ninth and Tenth Circuits have ruled for the government, creating “widespread and irreconcilable conflict.” In the Banks case, the Sixth Circuit said Joseph Banks did not have to pay taxes on the $150,000 lawyer fee portion of a $460,000 settlement in a discrimination suit against the state of California. In the Banaitis case, Sigitas Banaitis successfully challenged IRS efforts to tax the $3.8 million contingent fee that went to his lawyer from a $8.7 million damage award against Mitsubishi Bank. The court’s action is a “big development” in the ongoing controversy over the “double taxation” of contingent fee money, said Bruce Fredrickson, a partner at D.C.’s Webster, Fredrickson & Brackshaw who has been monitoring the issue for the National Employment Lawyers Association, which advocates for employees. The IRS policy is “wrong and unfair,” says Fredrickson. “Clients are taxed on money that never comes to them.” Typically in employment cases, when a settlement is reached, the portion that goes to the lawyer is sent directly from the employer to the law firm, never passing through the client’s account. The tax does not apply in cases of damages for personal injury, which the tax code specifically exempts from taxation. Angie Dalfen, a staff attorney at NELA, said the tax bill is “often a real blow at the end of a long litigation. You may win and end up owing money.” Fredrickson said both civil rights groups and business organizations advocate a change in the policy because it often makes it harder for both sides to settle employment cases. The Civil Rights Tax Relief Act (H.R.1155) now pending before Congress would eliminate the clients’ tax liability. In the age discrimination case, Smith v. City of Jackson, Miss., 03-1160, the high court is asked to decide whether disparate impact claims are cognizable under the ADEA. A group of Jackson police officers claims that a new city salary policy disadvantaged workers over 40 who are protected by the age discrimination law. But the district court and the Fifth Circuit dismissed the claims, ruling that the ADEA does not allow for disparate impact claims. The Fifth Circuit ruling is in line with rulings by the First, Seventh, Tenth and Eleventh Circuits, but in opposition to decisions from the Second, Eighth and Ninth Circuits. The high court was expected to resolve the conflict in the 2001 case Adams v. Florida Power Corp., but it was dismissed without explanation. Thomas Goldstein of D.C.’s Goldstein & Howe, who represents the police officers, stated that the ADEA uses “precisely the same language” as Title VII, so the same standard for disparate impact claims should prevail. He also said the circuit split is “untenable,” adding, “As long as the circuits disagree, police officers in Jackson, Missouri (within the Eighth Circuit) are protected against policies that disproportionately affect older employees, whereas officers in Jackson, Mississippi (within the Fifth Circuit) are not.” Goldstein’s brief was the product of a Supreme Court litigation clinic at Stanford Law School launched earlier this year by Goldstein and law professor Pamela Karlan. The seven students in the clinic have already collaborated on three high court petitions and several other opposition and amicus curiae briefs in pro bono cases. Tony Mauro is Supreme Court correspondent for American Lawyer Media and The Recorder’s Washington, D.C., affiliate Legal Times. His e-mail address is [email protected].

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.