DISCRIMINATION AWARDS ONLY BENEFIT THE IRS

By Arthuretta Martin and J. Blair Hayes

WASHINGTON, DC - One of the most devastating things any individual can experience is discrimination and retaliation in the work environment. Discrimination affects the individuals mental health, physical health, financial health, quality of life and every member of his or her immediate family. Discriminatory and retaliatory acts are declared reprehensible by so many employers, yet many of these employers do not practice what they preach. Equal Employment Opportunity Commission (EEOC) statistics have documented a significant increase in claims alleging employment discrimination and retaliation both in the Federal and private sector. The cause for this increase is debatable; however, what is not debatable is the fact that being successful in proving discrimination is rare--very rare.

Those few individuals who are successful in proving that their employer uses discriminatory practices have presented powerfully compelling evidence that cannot be denied. Justice in those rare instances should be swift and certain. In 1964, Congress defined justice in these cases as "make whole," compensating the individual as if the discrimination had not occurred. In 1996 however, Congress practically repealed the "make whole" provisions of the Civil Rights Act of 1964 by passing a little known rider to what was called the Small Business Protection Act. That rider changed the way compensatory damages relating specifically to claims of discrimination and retaliation would be taxed. For the first time since the passage of the 1964 Civil Rights Act, emotional distress damages would be taxed, as well as back pay and front pay in the year that the damages were suffered. To add insult to injury, as a result of several Supreme Court decisions, attorneys fees are also taxed, and payments awarded as a result of the claims cannot be income-averaged.

The result has been that, in many cases, not only is the individual not made whole, but also he or she may actually owe the IRS thousands of dollars. If you are compensated for the humiliation you experience from a bar room brawl, you dont have to pay the Federal tax. You are only required to pay it when you have prevailed in an employment discrimination case. Why would Congress do such a thing? Why would any President sign it into law?

Justice and restitution have truly suffered terrible blows. And for those of us who are the victims of employment discrimination, our Federal Government is less than honest... there is no justice for all!

For example, consider the case of Monica McFadden. After 20 years of being subjected to humiliating sexual harassment by the Chicago police force, Ms. McFadden won her claim of discrimination. She was awarded $300,000 in damages and almost $1 million for lawyers fees and costs. However, not only did she lose every penny of the award, she owed the IRS $99,000 in taxes!

Lets take the 2001 case of Cynthia Spina. Ms. Spina won a case where she was awarded the maximum $300,000 against the Forest Preserve District of Cook County. Her employer had berated, belittled and isolated her because of her sex. Unfortunately, Ms. Spina was awarded $850,000 in attorney fees and $100,000 in court costs. Ms. Spina will be taxed at the highest tax rate and, like Ms. McFadden, will wind up owing the IRS thousands of dollars. Magistrate Judge Arlander Keys, who had reduced the original jury award of $3 million to the $300,000, said he was "not unsympathetic to plaintiff's plight. Plaintiff waged a courageous fight for what she believed was just, even though other female officers who felt similarly victimized lacked the fortitude to do so." But as we have heard so many times before... the law is the law.

The Federal Government has also been found to be a discriminatory employer at times. Dr. Marsha Coleman Adebayo, Chair of the No-Fear Coalition, knows all too well what happens to an individual and his or her family when after being subjected to discrimination. Dr. Adebayo was successful in winning a $600,000 judgment against the Environmental Protection Agency (EPA). The managers and executives of the EPA had subjected Dr. Adebayo to years of discrimination and retaliation because Dr. Adebayo, the only African-American woman in a predominately white male organization, challenged the Agency's environmental justice practices in Africa. Dr. Adebayo effectively obtained congressional support to get the No-Fear Act passed. This Act requires Federal agencies to pay restitution to employees out of their own budgets as opposed to a "slush fund" housed in the Department of Justice. The Act also has several provisions that require agencies to inform employees of their rights.

Federal agencies have historically refused to comply with regulatory requirements to inform their employees about their employment rights. Dr. Adebayo has also fallen victim to the IRS hammer. She stated, "I dont know who was asleep at the wheel, but all the hard-won battles that Blacks fought for in the 1950s and 60s to get the Civil Rights Act passed have been all but eradicated by this tax. How could they let this happen?"

Surprisingly, the small businesses that the law was intended to "protect" are also lobbying to get the tax law changed. Companies and businesses have found that it costs more to settle claims of discrimination, because as plaintiffs and plaintiffs lawyers learn more about the tax consequences, the amount of judgments and settlements increase. According to the National Employment Lawyers Association, an individual who settles a civil rights case for $50,000 under current law, with a court awarded $75,000 attorney fee, now receives as little as 13.2 percent of the total award or $16,707.

The Civil Rights Tax Relief Act (HR 840), co-sponsored by House representative John Lewis of Georgia, and S 917, sponsored by Senator Charles Grassley of Iowa, seek to rectify this miscarriage of justice. The Act would:

* Restore real remedies for discrimination cases by eliminating taxes on emotional distress awards.

* Prevent workers subjected to illegal discrimination from paying higher taxes on lump-sum wage awards.

* End the double taxation of attorneys fee awards so individuals bringing civil rights cases will no longer pay taxes on money they do not even receive.

If the Civil Rights Tax Relief Act is passed, the $50,000 scenario described above would result in the plaintiff receiving $44,624; that is $28,000 more! For an individual to receive that much today, it would cost the defendant business $107,000! This is why chambers of commerce across the Nation want the law changed. It just makes good sense and good cents.

Nobody wants to find himself or herself a victim of discrimination in the work place. It can devastate a career. But if it happens and we as Americans protected under the law are successful at either proving the discrimination or settling our claim of discrimination, the last thing we would expect is a tax code that summarily retaliates against us economically for that success.

If you are employed or are an employer, you are affected by the current tax code. There is something you can do. Let your Congressional representatives know that you believe this law is one that should be changed. You can help by first learning more about the Civil Rights Tax Relief Act. Visit www.nela.org/news/civilrgithstaxrelief.htm, www.gap.org, or www.whistleblowers.org for more information.

You can learn more about discrimination and what constitutes discrimination in the work place by visiting www.eeoc.gov. If you are seeking general information about other practices and policies by the Federal Government that have adverse impact on Federal employees, visit www.feds4justice.org.

Arthuretta Martin, M.S. is Vice President of Federal Employees Against Discrimination (FED). FED is a not-for-profit organization dedicated to the elimination of discrimination and discriminatory practices within the Federal Government. FED is currently studying the Federal administrative process managed by the EEOC that was established to adjudicate employee allegations of discrimination.

J. Blair Hayes is Director, U.S. Civil Rights Tax Relief Project/No Fear Coalition, monitors the implementation and enforcement of the No Fear Act passed into law in April of 2002 ( http://groups.msn.com/NoFearCoalition ). The No Fear Coalition is an ad hoc group of organizations that worked to pass the No Fear Act and is currently working to pass the Civil Rights Tax Relief Act.

The No Fear Bill requires Federal agencies to pay for judgments and settlements involving discrimination from their own budgets as opposed to a Department of Treasury or Department of Justice Fund. In addition, the Act requires Federal agencies to inform their employees of their rights under Civil Rights and Labor laws. Finally, the Act requires Federal agencies to report to Congress on an annual basis the steps they are taking to hold accountable Federal officials who discriminate.

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