November, 2004 Issue of Legal Trends
Legal Trends Spotlights New Civil Rights and Employment Laws.
In this issue of Legal Trends, we discuss a recently enacted federal law which alleviates the tax burden of attorney's fees in discrimination cases, a recent Supreme Court decision clarifying the law on constructive discharge, and a change in overtime law regulations.
Civil Rights Law
President Signs Legislation Eliminating Double Taxation in Employment Cases.
On October 22, 2004, President Bush signed legislation which ends the "double taxation" of attorney's fees in employment discrimination cases. Under prior law, a successful employment discrimination Plaintiff could actually end up owing the Internal Revenue Service money if she received a nominal jury verdict but incurred substantial attorney's fees.
The anomaly often resulted in the following fashion. Most federal employment statutes allow an employee to recover compensatory damages in addition to backpay, future lost wages and punitive damages. These laws also allow the successful Plaintiff to recover attorney's fees as an incentive to bring these cases to court. Typically, these cases are hard fought, and can take years before they are resolved. (See Office News for an update on Swiech v. Gottlieb Memorial Hospital). Oftentimes, the attorney's fees can actually eclipse the amount that the jury awards the Plaintiff.
Before the new law was enacted, the Internal Revenue Service took the position that the Plaintiff should not only be taxed on the amount that the jury awarded, but also on the attorney's fees which were awarded by the court. In one local case in our federal jurisdiction, a successful employment discrimination Plaintiff actually ended up with a net loss when their tax obligation exceeded their net recovery.
President Bush enacted the law as part of the American Job Creation Act. The law will only affect cases settled after October 22. We expect that with the new legislation, we will see more settlements in these types of cases.
Supreme Court Rules That Employees Who Quit Over Sexual Harassment Can Sue Their Former Employers
In June, 2004, the Supreme Court decided Pennsylvania State Police v. Suders, which held that a discharged employee claiming that she was sexually harassed may pursue an employment claim against her former employer for constructive discharge. In so holding, however, the high court held that an employee has a greater burden than claiming that the work environment was sexually hostile.
In Suders, the Court analyzed the case in the context of a constructive discharge. The Court held that to establish constructive discharge, a Plaintiff alleging sexual harassment must show that the abusive working atmosphere becomes so intolerant that her resignation qualified as a proper response.
In March, 1998, the Pennsylvania State Police ("PSP") hired Suders as a police communications operator. Suders' supervisors were Sergeant Eric D. Easton, Patrol Corporal William D. Baker, and Corporal Eric B. Prendergast. All three subjected the Plaintiff to a barrage of sexual harassment. Easton brought up the subject of people having sex with animals, and Easton told Prendergast, in front of the Plaintiff, how young girls should be given instruction on how to gratify men with oral sex. Baker frequently grabbed his genitals in front of Suders. In June, 1998, Prendergast accused the Plaintiff of taking a missing accident file home with her.
Plaintiff then approached Virginia Smith-Elliott, PSP's EEO officer, and told her she "might need some help." Two months later, Plaintiff again contacted Smith-Elliott, stating that she was being harassed and was afraid. Smith-Elliott told her to file a complaint, but did not give her the necessary form. Two days later, Suders' supervisors arrested her for theft, claiming that the Plaintiff unlawfully removed a computer-skills exam. Suders came upon the exams she had taken in the women's locker room, and concluded that her exams had never been forwarded for grading. She removed them from the locker room, but was subsequently detected when she attempted to return the tests. She was detained and questioned, but never charged. Suders then resigned from the PSP.
Suders filed suit for sexual harassment and constructive discharge. In finding in favor of Suders, the Supreme Court reasoned that the case presented a "worst case" harassment scenario ratcheted up to the breaking point.
In the future, we expect that this decision will be expanded to other federal employment claims such as age discrimination, race claims and disability discrimination.
New Overtime Laws Go Into Law Effect
Effective August 23, 2004, new government laws went into effect which determine when employees must be paid overtime. Under the new regulations, most employees who earn less than $455 a week, or $23,660 annually, automatically qualify for the additional pay. Generally, those employees who earn more than $100,000 will not be eligible for overtime pay.
For those employees whose compensation falls between those two levels, they will be deemed exempt from the federal law if their work is classified as executive, administrative, or professional innature. Some employees who perform computer work or outside sales will also not be subject to the law.
The inquiry, however, does not end there. Owners and employees must look to see how the exemptions are defined. For executives, in addition to the salary requirement, the employee must manage the enterprise, direct the work of two or more employees, and have the authority to hire or fire employees, or generally change their employment status. For the administrative exemption to apply, the employee must be engaged in the performance of office or non-manual work directly related to business operations, and the individual must have the ability to exercise discretion over significant matters. Last, for an owner to claim a professional exemption over an employee, the individual must perform work requiring advanced knowledge and consistently use discretion in her work.
In the event that an employer properly fails to pay a non-exempt employee his overtime wages, the employee may commence a civil action under federal or state law. In addition to the overtime compensation, the employer may be held liable for punitive damages, attorney's fees, and costs of the litigation.
Oftentimes, an employer's failure to pay overtime will not be limited to a single individual, but may apply to a broad range of workers. In that situation, an employer may face a potential class action, or a multiplicity of lawsuits. We recommend that employers undergo an employment law audit to correct any potential deficiencies.
Office News
The Law Offices of Eugene K. Hollander recently settled a case which was originally reported in the April, 2001 issue of Legal Trends. In the case of Swiech v. Gottlieb Memorial Hospital, the jury returned a record verdict of $1.45 million in a disability discrimination case. More than three years after the verdict, the amount that the jury returned for compensatory damages is still the largest award for an Americans With Disabilities Act case in Chicago. Overall, the ADA verdict is the fourth largest statewide. Post-trial, the court reduced the verdict to $300,000 in accordance with federal law.
Recently, Eugene K. Hollander submitted a fee petition requesting that the Plaintiff be awarded just under $400,000 in attorney's fees. While that matter was pending, and prior to any appeal of the underlying jury verdict, the parties settled the case for a confidential sum.
About the author:
Eugene Hollander is a trial attorney and currently heads his own law office in Chicago. Mr. Hollander has tried numerous cases in the state and federal courts. The Law Offices of Eugene K. Hollander is a full service law firm, concentrating its practice in employment discrimination claims, personal injury and medical malpractice suits, and various types of commercial litigation. For more information, visit our web site at: http://ekhlaw.com, or contact us directly at:
The Law Offices of Eugene K. Hollander
33 N. Dearborn, Suite 2300
Chicago, IL 60602
(312)-425-9100
E-mail: EHollander@ekhlaw.com
Copyright © 2004 The Law Offices of Eugene K. Hollander. This publication may be considered advertising material under the Illinois Code of Professional Responsibility and is not intended to create any attorney-client relationship. The reader should not rely upon any statement or opinion as legal advice, but rather, should consider it as generally informative.