Age discrimination cases are on the rise, and are quickly becoming one of the most frequently litigated discrimination claims in Pennsylvania. Now, employers must pay even more attention to potential age discrimination claims as the damages for age discrimination are also on the rise. This month, a new category of damages was added to these claims—damages for “negative tax consequences”. In Jordan v. CCH, Inc., a case coming out of the U.S. District Court for the Eastern District of Pennsylvania, a plaintiff who won a jury verdict in an ADEA age discrimination case was determined to be entitled to an additional sum of money in order to compensate him for the “negative tax consequences” of receiving his lost pay in a single year instead of spreading the income over several years.

Jordan was hired by CCH, Inc. at age 48. He was one of the company’s top salespersons in years 1990 and 1991. In the Summer of 1995, however, Jordan's manager resigned and was replaced by a new manager who was 40 years of age. The new manager began hiring younger sales employees, and Jordan became one of the oldest employees working in his department. Jordan was eventually fired and replaced by a 30-year old employee who had recently joined the company. In its verdict, the jury awarded Jordan $260,000 in lost earnings and benefits up to the time of trial and $90,000 in compensatory damages. In addition, Jordan was awarded $33,124 in “negative tax consequences” damages (to make matters worse for the employer in that case, the Judge also awarded more than $219,000 in attorney fees to the winning plaintiff's attorneys).

In creating this new category of damages, the Judge noted that the U.S. Court of Appeals for the Third Circuit (the federal appellate court in this Commonwealth) “has never specifically addressed the issue of whether damages should be awarded to compensate for the negative tax consequences from an ADEA backpay award.” The Judge was persuaded to do so based on a opinion from one of his colleagues that offered “compelling” reasons for granting such enhancements. In that case, O’Neill v. Sears Roebuck & Co., the Judge added more than $38,000 to the jury’s verdict of $519,068 after finding that it was the only way to ensure that the winning plaintiff in an ADEA case is truly “made whole” by the verdict. There, the Judge found support for his decision in the Third Circuit’s 1995 decision Starceski v. Westinghouse Electric Corp., which held that prejudgment interest “reimburse[s] the claimant for the loss of the use of its investment or its funds from the time of the loss until judgment is entered.” The Judge in O’Neill believed that the same principal applied to the negative tax consequences of receiving a lost pay award in a lump sum that is taxed as if earned in a single year.

The Judge in Jordan adopted this logic completely and definitively held that such tax enhancements should apply to the plaintiff's backpay and front pay awards (but not to any compensatory or liquidated damages). In doing so, the Judge rejected the argument that the tax enhancements are too speculative. “The speculative task of determining a plaintiff's tax liability does not preclude the award when an economic expert that testified at trial presents the change in applicable tax rates,” the Judge wrote.

This decision is just one more reason why Pennsylvania employers need to be aware of potential age-related discrimination claims and to take prompt remedial action to rid any unlawful conduct from the workplace.

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