It's Settled
A new law makes it easier to reach settlements.
It isn't often that plaintiffs' lawyers and business
advocates work together to ensure the passage of a law, but
that's what happened in the months leading up to October 22,
when President Bush signed the American Jobs Creation Act of 2004.
Section 703, the Civil Rights Tax Relief Act, overturns a tax rule
that has divided circuit courts and bedeviled both sides in
employment discrimination cases.
Until now, when an employee has won or settled a lawsuit over
wrongful termination or workplace discrimination, the award has
been taxable--including the contingent fees paid to the attorneys.
The money awarded was supposed to make up for lost wages, but
between attorney's fees and the taxes on them, plaintiffs
typically took home less than 30 cents on the dollar. Knowing this,
plaintiffs and their lawyers would push for higher settlements.
That's why groups as diverse as the National Employment
Lawyers Association and the U.S. Chamber of Commerce pushed for the
new law. Successful plaintiffs will be able to deduct
attorney's fees--typically a third of the award--from their
taxable income. But employers will also benefit because plaintiffs
no longer have to make up for the tax liability by demanding
settlements that are higher than actual lost wages. So if an
employee alleges discrimination, it should now be easier to reach a
reasonable settlement.
Content Continues Below
Jane Easter Bahls is a writer in Rock Island, Illinois,
specializing in business and legal topics.