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A Recent Federal Ruling from New Jersey Tackles the Impact of Income Taxes on Discrimination Damages Awards

If you’ve ever been around someone fairly knowledgeable about taxes, you might have overheard them say, when hearing of a lottery winner’s take or a very successful game-show contestant’s haul, “Well, that amount isn’t really what they will take home. The tax hit on that is quite significant.” That’s true. What’s also true is that this also happens to people who succeed in civil litigation matters. The taxing authorities are entitled to their “cut” of your civil judgment. That’s what makes a recent decision by a federal judge in North Jersey so significant. The judge took taxes into account in fashioning the damages award in a discrimination case. If you’ve been a victim of workplace discrimination, it is important to make sure you are doing everything possible to get everything you deserve, so protect yourself by retaining knowledgeable New Jersey employment discrimination counsel to handle your case.The recent case, reported by, involved several police sergeants working for the Jersey City Police. One of the sergeants alleged that her political affiliation and her “expression about a matter of public concern” played a major role in denying her a promotion. Based on those alleged denials, the sergeants sued the City of Jersey City for violating the Law Against Discrimination. The sergeant’s politics and her speaking out about matters of public concern were protected activities under the statute, so any adverse employment action that was a result of those activities was illegal discrimination under the law, according to the lawsuit.

The jury decided that the city had engaged in illegal discrimination based upon political affiliation. For each of the sergeants, the jury calculated their economic damages as the present value calculation of the pension differential created by the lower rank. For the lead plaintiff, that meant an award of $276,000 in economic damages. As the judge noted, though, there was a problem. The employees had received lump-sum awards and would be required to pay taxes on those lump sums in one year, as opposed to “paying taxes on smaller amounts spread across past and future years.” This obligation to pay taxes on the lump sum in one year created “adverse tax consequences” for the employees.

These adverse consequences weren’t fair to the employees. The judge decided that the employees were entitled to something called a “molded verdict.” This molded verdict meant the amount of damages each employee would receive would be adjusted upward to offset the tax “hit” that each sergeant would receive when it came time for her or him to pay state and federal income taxes.

This addition to the damages award was quite substantial. The damages award handed down in May awarded the nine employees nearly $2.17 million. An expert witness in the case, testifying on behalf of the employees, stated that the total amount of negative tax consequences for the nine sergeants exceeded $650,000.

If you have suffered from discrimination at work, you may be entitled to certain compensation for the harm you suffered. The extent of that compensation depends on your ability to provide proper evidence and make persuasive arguments in court. The skilled New Jersey employment discrimination attorneys at Phillips & Associates have spent countless hours working to help our clients seek the fair outcomes they deserve. Reach us online or at (609) 436-9087 today to set up a free and confidential consultation and to find out how we can help you.

More blog posts:

New New Jersey Bill Would End Practice of Double-Taxing a Portion of Awards in Discrimination and Retaliation Cases, New Jersey Employment Lawyer Blog, May 21, 2018

The New Jersey Law Against Discrimination: What It Means for You as a Worker in the Garden State, New Jersey Employment Lawyer Blog, March 23, 2018

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