Outten & Golden: Empowering Employees in the Workplace

Archive for November, 2004

Giving Thanks: It's Hard Work

Tuesday, November 23rd, 2004

It’s that time of year again–the time that we’re supposed to give thanks for what we have (and depending on your personal traditions, eat a lot of turkey and/or watch a lot of football.) So I thought I’d take a look at what the American worker has to be thankful about. I wish the list had been a little longer, but there’s always next year (or 2008.)

Do you have a job? Especially if it’s an honest-to-goodness full-time permanent job, you can certainly give thanks. Over 2.79 million workers don’t have a job, and that’s just counting the ones now collecting unemployment benefits. (See CNN News article.) And if you went without a job during the year, but found a new one right away? Give thanks for that: the average worker now takes about 20 months to find a new job, and that doesn’t even take into account whether the new job is comparable to the old.

Does your job pay more than the minimum wage? If so, you can thank your lucky stars, since you haven’t been able to thank your members of Congress nor your President for raising the minimum wage since way back in 1996. (If you’re in Florida, you can thank your fellow voters for passing a constitutional amendment raising the minimum wage by $1.00. See Orlando Sentinel article, registration required.)

Still getting overtime? This may be the last year that some of you can give thanks, due to recent changes in overtime regulations likely to affect six million workers. You can thank the members of Congress that collectively voted on six different occasions to protect your interests, but may not feel the same way about Congressional leaders who kept stripping provisions undoing the damage from bills on their way to the President. (See Washington Post article.)

If your job provides you with income adequate to support your family, be thankful, as one in four working families is officially low-income and, of those, more than a quarter are officially in poverty. While no working families should have to get their Thanksgiving meal from an organization serving food to the needy, unfortunately that will not be the case. (See Bob Herbert’s New York Times article.)

Do you have health care provided by your employer? If you have any coverage at all, you’re already better off than 40% of the American workforce. You may not be feeling very grateful if your premiums and copay went up and your coverage went down this year, but the average worker has seen health premiums increase three times more than income over the last four years. You probably didn’t know you should also be thankful just to survive each day of work, but 6,000 workers were killed on the job last year, while 50,000 died from a work-related illness, and 6 million got sick or injured at work.

Are you spending time with your family on Thanksgiving? Are you getting paid for that holiday time? More than two out of ten workers aren’t. Getting to spend enough time with your family is increasingly becoming a luxury for workers–working couples with children worked 10 hours more each week in 2002 than they did 25 years ago–so treasure that day off.

If you’re disabled, but still working and not having to challenge discrimination on the job, that’s something to be thankful for: employers win all but 2% of disability discrimination cases against them in federal court. And if you’re anybody but a white male with a management job, thanks are due as well: White men are twice as likely to get management jobs as equally qualified black men; three times as likely as equally qualified black women.

Chances are good that if you’re reading this, you’re not a CEO, but just in case, there’s something you have to be thankful for: a generation ago, CEOs made 40 times more than workers; today they make 400 times more. And if you were able to outsource some of your company’s jobs overseas, you probably have a raise to be grateful for: CEOs at the fifty companies that outsourced the most jobs in 2003 got an average raise of $4 million this past year.

If you have successfully challenged workplace discrimination recently, you can now anticipate just how very grateful you will be come April 15, when you no longer have to pay taxes on your attorney’s portion of your award or settlement. (We’ll see if the Supreme Court gives everyone else who has already paid taxes on their attorneys share in cases won or settled before October 22, 2004 something to be grateful for.)

If your case has survived long enough to win before a jury, you probably don’t know just how lucky you are, considering that those with employment discrimination cases have fewer cases settled before trial, win fewer cases, and face more appeals and reversals, compared to other people who file lawsuits. If your case is on appeal, however, don’t count too many blessings just yet: 44% of discrimination cases won by workers are reversed on appeal, but only 6% of cases won by employers are reversed.

You can be thankful you live in America (unless you live in a European country where you work 500 hours a year less than the average American and have legal protections against unfair terminations.) In America, you can write your member of Congress, the President, or even the news media. (See the Workplace Fairness Action Center to write letters quickly and easily, and sign up to receive future alerts from our Action E-Network while you’re at it.)

Your elected leaders are supposed to be thankful that their constituents vote for them, and to show their gratitude by being responsive to the needs of voters. Whether you believe that’s true or not, it won’t be true if they do not hear from you. Express your gratitude for living in a free country: make your voice heard!

Maybe if enough working people do so, there will be more to be thankful for next Thanksgiving.

Republicans Face Discrimination Too

Friday, November 19th, 2004

In an otherwise run-of-the-mill story about a jury verdict this week, something caught my eye about the employee who fought back. A Wichita, Kansas jury awarded Mario Goico $2.5 million (soon to be reduced by damages caps) in his lawsuit against Boeing for age and national origin discrimination and retaliation. But Goico isn’t just a Boeing engineer whose hopes of becoming a test pilot for his employer were dashed by discrimination. He’s State Representative Mario Goico, a Republican who represents the western side of Wichita (District 100) in the Kansas Legislature. Goico’s suit demonstrates that challenging discrimination isn’t, and shouldn’t be, a partisan activity–an important principle to remember in the aftermath of such a divisive election.

Goico, 59, has worked at Boeing in Wichita as an engineer for more than 20 years. He was raised in Cuba, and came as a refugee at age 15 to the United States in 1961, after the Bay of Pigs invasion made it likely that he would be drafted into the Cuban army (See Altus AFB article.) He was placed with a foster family in Wichita, Kansas, and studied aeronautical engineering at Wichita State University. While in school, he received his private and commercial pilots licenses, then became an Air National Guard member, ultimately advancing to colonel. He flew 36 missions during Desert Storm and volunteers for the Air Force Academy. He served his first term in the part-time Kansas Legislature in 2003, representing a west Wichita district that is 94% white.

In 2001, Boeing received approval to begin a new program in Wichita which would allow locals to be hired as test pilots, rather than using pilots from Seattle. (See Wichita Eagle article.) Goico applied for the program, thinking that as a long-time Boeing employee with decades of experience as a pilot, he was highly qualified for the position. However, he wasn’t selected. Why not? The chief pilot in the new program said that the company wanted to hire younger pilots. (At least he was honest! Often discrimination is much more subtle and difficult to prove.) The chief pilot was reprimanded for his remarks, but also got a raise and excellent evaluation the same year, causing Goico’s attorney, Jeff Spahn, to comment “We feel Boeing was saying one thing and doing another.”

As can be the case unfortunately too often, after Goico complained about the discrimination against him, he started receiving negative performance reviews. He ultimately made the difficult decision to sue the employer for which he was still working. As his lawyer said, “He has a high amount of respect for Boeing, but he thought they did the wrong thing in this instance….” This week, a jury of seven women and one man agreed. (See Wichita Eagle article.) The jury awarded Goico $31,000 in back pay, $625,000 for pain and suffering and $370,000 in what he would have received in pay as a test pilot. In addition, Goico’s award included $1.5 million in punitive damages against Boeing, who is Wichita’s largest employer.

Of course, Goico can’t take that award to the bank just yet. The jury’s verdict for pain and suffering and punitive damages, instead of being over $2 million, will be reduced by the court to $300,000, the maximum allowable under federal law. Then, Boeing could (and likely will) appeal, subjecting Goico’s fate to the 10th Circuit Court of Appeals. That decision hasn’t yet been made by Boeing, but the company’s Wichita spokesman Dick Ziegler said it was “very disappointed” with the outcome. Even if Goico is ultimately not one of the 44% of employees whose verdicts are reversed on appeal (see Eisenberg/Schwab article), it could be several more years before he receives any real justice from Boeing.

While Goico was lucky enough to keep his job after complaining about discrimination, many others are not. (Of course, even if Boeing had fired the representative of a considerable number of their employees in the state legislature, the company still wouldn’t owe any more in punitive and non-economic damages than it does already, due to damage caps.) Another interesting fact to know about Goico: he was only one of three Republicans to receive an endorsement from the Wichita/Hutchinson Labor Federation Committee and appear on the Committee’s slate of “pro-working families” candidates. (It appears that either his own personal experience has shaped his legislative votes, or that he was already more pro-worker than many of his Republican colleagues in the Kansas House are perceived by local labor interests.)

While it has been the traditional perception that the Democratic Party cares more about discrimination issues, this last election demonstrated one of two things to be true nationally: 1) Those who voted Republican don’t think that discrimination will happen to them and thus it’s not an important enough issue to determine one’s voting choices; or 2) those who voted Republican believe that their leaders care enough about discrimination to make policy and appoint judges that will protect their interests in court. Let’s hope they’re right about the latter, as this case shows that even a Republican legislator from a white legislative district can encounter discrimination (and not “reverse” discrimination either) that limits career advancement and job opportunities.

Goico, and others like him, will hopefully contribute to dispelling some of the myths and rhetoric out there about “frivolous lawsuits” and “out-of-control jury verdicts.” Like legislative debate about same-sex marriage and other gay rights issues that has become more moderate and less shrill once lesbian and gay legislators inject their personal experiences and relationships with colleagues into the debate, one hopes that Goico’s Republican colleagues will now be hard-pressed to claim that lawsuits like his are frivolous or to press for further damages caps. If not, his mere presence and participation in the debate is likely to help moderate the outcome.

Now, if we could just clone him for 49 other states! But there’s some pretty partisan political opposition to that too right now….

Can Discrimination Victims Hope for More Tax Relief?

Thursday, November 11th, 2004

Years of guarded optimism finally paid off this year, when a provision in the most recent tax legislation to otherwise plague our country contained a provision eliminating the double taxation of attorneys’ fees awards. Now there’s more room for guarded optimism, after the recent oral argument before the U.S. Supreme Court in the combined cases of Commissioner of Internal Revenue v. Banks and C.I.R. v. Banaitis. When Justice Sandra Day O’Connor refers to something as an “appalling situation,” there’s hope that the Supreme Court will take a good hard look at the situation that has been plaguing for most of the last decade those who have successfully challenged discrimination.

On October 22, some workers could breathe a small sigh of relief. On that day, the President, with little fanfare, signed the American Jobs Creation Act of 2004 while on Air Force One. (See WebCPA article.) (Perhaps that was because the Rose Garden would most likely not be large enough to host all those who had a hand in this bill’s passage…) (See Henderson Gleaner editorial, registration required.) Workers who settled cases based upon a designated set of employment discrimination and civil rights laws can now fully deduct the amount of fees they pay their lawyer, rather than in many cases having to pay taxes on that amount. (See Tax Relief Excerpt of the ARCA.) However, by its own terms, the measure applies only to fee payments made after October 22, when the law became effective due to the President’s signature.

This means that for all of the individuals who have already been forced to pay taxes on the attorneys’ fee portion of their awards, there would be no immediate relief coming from Congress. Congress and the IRS have traditionally been hostile towards the concept of making tax bills retroactive, claiming that retroactive changes are burdensome to administer. It is also very difficult to accurately project what a retroactive tax change will cost the government in lost revenue, since it is unknown how many people will learn about the change soon enough to file amended returns seeking refunds. (It is much easier to project who will newly escape paying a particular tax in the first place.)

However, there was some confusion created by Congress’ actions, and whether the new law would make the case moot. Banks’ and Banaitis’ attorneys filed a joint brief with the Supreme Court, asking for the cases before the Court to be dismissed. They told the Court that its decision would “have little or no impact on future tax disputes involving substantially the same facts.” [See Joint Supplemental Brief at p. 2] The brief also pointed out that some members of Congress believed that the impact of the law passing was simply to clarify existing law, rather than changing it. [See Joint Supplemental Brief at p. 3-4] However, the Court did not bite on this argument, at least not in advance of the scheduled oral arguments on November 1.

The oral arguments proceeded as scheduled, except as feared, the Chief Justice, William H. Rehnquist, was absent from the bench. Chief Justice Rehnquist had announced the previous week that he was undergoing treatment for thyroid cancer, and although he had also announced his intention to return to the bench on November 1, he was later forced to acknowledge that his plan to resume his active duties was “too optimistic.” [See Washington Post article.] Justice John Paul Stevens, the next most senior justice, assumed the Chief’s public duties that day (and subsequently) by swearing in the attorneys present to the Supreme Court bar and initiating oral argument.

In Banks and Banaitis’ case, the U.S. Government as the petitioner got to go first. David B. Salmons, a lawyer for the U.S. Solicitor General’s Office, was immediately peppered with questions about the Internal Revenue Service’s stance in the case. Justice O’Connor immediately questioned why the Service takes the position that attorneys’ fees income is not taxable to the plaintiffs in class action cases, but is in cases with individual plaintiffs. While Salmons responded that there is a difference in the plaintiff’s ability to control the outcome of the action (such as to make settlement decisions) between class action and individual plaintiff cases, Justice O’Connor appeared to remain skeptical.

The justices next turned to a theory posed by Professor Charles Davenport in an amicus (friend of the court) brief submitted in the case: that the attorneys fees should be considered non-taxable transaction costs, not expenses. (See Tax Analysts article (however, this article is incorrect in that the issue was raised by Justice O’Connor, not Justice Ginsburg. This mistake is unfortunately a common one, and even embarrassingly made by some oral advocates before the Court.)) Salmons, like his counterparts on the other side when their turn came later, struggled to explain why Davenport’s theory did not hold water. It appeared that at least some of the justices found Davenport’s theory persuasive, so perhaps we will see some signs of it in the Court’s opinion, since even Justice Scalia appeared through his questioning to be interested in the theory’s application.

Justice Kennedy appeared to favor considering the attorneys’ fee portion of the award an “ordinary and necessary expense” of litigation, which would make it fully deductible (an “above-the-line” deduction like that found in the new law) rather than subject to the alternative minimum tax and other limitations on deductions (a “below-the-line” deduction). While previous cases have held that since the plaintiff isn’t in the business of regularly suing his or her employer, this deduction doesn’t apply, Kennedy nonetheless appeared to believe this might be an appropriate way to address the problem.

Justice Souter appeared to be persuaded by the argument that the plaintiff’s success ultimately depends on the “skill and gumption” of the lawyer, and derives its value from the lawyer’s additional work. Later, Justice Scalia would attack this line of argument, when it was presented by Banaitis’ lawyer Philip N. Jones, calling it “like goldmining,” and claiming that a lawsuit was “not a search for buried treasure.” While this was essentially the theory adopted by the 6th Circuit in Banks (not Banaitis) below and strongly advanced by Banks and Banaitis in their briefs, it is unclear whether the Court will rule for the plaintiff on this basis. While it logically makes sense, in that it is the rare plaintiff who would be as successful without his or her lawyer’s effort than with it, Justice Scalia seemed disinclined to go that route (displaying more than a touch of animosity towards plaintiffs’ lawyers.)

The Court seemed to have the most trouble digesting the idea that a plaintiff could win at trial and still owe money to the IRS, questioning whether a taxation scheme that led to this result could even be constitutional. Justice Kennedy said this showed the IRS’ “theory was flawed,” while Justice Breyer asked whether the 16th Amendment to the Constitution permitted taxation in an amount that exceeded a plaintiff’s income. The government could only respond “go to Congress,” (as numerous plaintiffs did, ultimately with success.) Justice O’Connor wondered if the current situation violated the 5th Amendment “takings clause,” and said that this was an “appalling situation.”

The government’s lawyer was asked what became of Cindy Spina’s tax case (where a plaintiff who won $3 million at trial, but later had that award reduced, and as a result faced a tax bill of $99,000); he was forced to admit that he did not know. Unfortunately neither of the attorneys representing plaintiffs took this point up again to make clear that it was not a problem that exists just in rare, isolated cases. With the understandable reluctance of plaintiffs to come forward and voluntarily pay such an unjust tax, more than anecdotal evidence has been hard to come by, even though those who practice in this area are well aware of the types of cases that can trigger this kind of tax.

Justice Scalia asked Salmons whether the Service considered the change retroactive or not, and pointed out Congressional testimony that indicated at least some legislators believed the change merely would clarify the law. Salmons unsurprisingly responded that the Service’s position was the new law was a change rather than a clarification.

Banks’ and Banaitis’ lawyers split their argument time, with Banaitis’ lawyer Philip N. Jones of Portland, Oregon going first. Jones capably argued for the plaintiffs that when two people join together and combine their resources to generate income, that this income should not be taxed twice. The justices began submitting hypothetical examples, however, to test this theory. Justice Kennedy asked: what about the talent scout who receives a percentage of an athlete’s proceeds? Jones attempted to distinguish the other situations, by pointing out the situations where the principal party is engaged in a trade or business, but the justices were clearly searching for a narrowly-drawn principle that would not affect other types of taxation. Jones urged the Court to narrow the scope of the assignment of income doctrine to hold that this situation fell outside its boundaries, reminding the Court that they created the doctrine in the first place. It is unclear, however, whether the Court will rule in a way that invites reconsideration of large fields of taxation, especially when the new law limits the number of people ensnared in this difficulty in the future.

Banks’ attorney, James R. Carty of Los Angeles, also struggled to pin down a principle that the Court could satisfactorily adopt. Justice Breyer, in particular, wanted Carty to “fill in the blank” with an articulation of his position that would distinguish cases where the second party does no work to earn the income. Under the Court’s typical rapid-fire questioning, it can be difficult to articulate that type of position on the spot, especially after so many hypotheticals have been presented that it becomes hard to remember what the law really is any more. The Court did not appear satisfied with Carty’s responses, but given the tenor of the rest of the questioning, perhaps they will articulate a narrowly-drawn principle that is consistent with the rest of tax law.

Salmons got one last chance to rebut some of the other side’s arguments, saying that once there’s a fee agreement, the attorney’s right to be paid transforms the relationship between the parties into a creditor/debtor relationship, entitling the Service to tax the proceeds twice. On that point, the case was submitted.

It is unlikely that we will see a decision before the beginning of the year, and it may be well into the spring before the Court rules in that case. Hopefully a decision will be made by April 15, before those ensnared in 2004 by this unjust tax have to give the IRS its pound of flesh (and then some.) Until the ruling, those who care about this issue can remain cautiously optimistic that the Court will find a way to both resolve this impossible situation and preserve some level of philosophical continuity in the tax code (if that’s worth doing at this point!)

[All quotes above are from the notes I took at oral argument on November 1, before the release of the transcript, now available here. The transcript of that day's argument had not yet been released when preparing this entry, so I take responsibility for any errors or misquotes. In a prior version of this post, I reversed the names of the respondents' attorneys. This has now been corrected.]

For more information:

Pittsburgh Post-Gazette: Supreme Court hears case on taxability of some legal fees

law.com/National Law Journal: Supreme Court Reviews Taxes on Contingency Fees

ABANet: Supreme Court Briefs

Shortchanged for Four More Years? Not If We Can Help It!

Thursday, November 4th, 2004

Now that post-election reality is setting in, our consideration turns to what the next four years look like for the workers of America. While having a decent job and being able to support one’s family is still a matter of concern for so many Americans, its importance paled in comparison to the “moral values” which appear to have driven the results in several states, including Ohio, where a large number of jobs have been lost. (See New York Times article.) It is clear that workplace advocates must do more, both in defining the ability to make a decent living as a moral imperative, and in remaining vigilant against the continuing onslaught of efforts to erode workplace protections. The new area that Workplace Fairness has added to our website, Short-Changed: America’s Workers Are Giving More and Getting Less, will be a key contribution to that effort.

This area offers a comprehensive look at many of the most important workplace rights issues today, including the growing income gap, the crisis in healthcare and retirement benefits, the imbalance between work and family, and a justice system that is closing its doors on the American worker. Here are the topics we cover in more detail in Short-Changed:

Each issue area is designed to build awareness of the need for change, with resources for further information and action. Short-Changed already has a wealth of information and it’s going to get better and better as we add new features such as multimedia presentations of real life stories. We also hope that you will help us build Short-Changed. As you see good resources–books, articles, statistics, and even cartoons—that are relevant to the twelve topics contained in Short-Changed, please submit them to us at shortchanged@workplacefairness.org. (Or just tell us what you think about Short-Changed at the same address.) That way, we can keep Short-Changed chock full of the latest and greatest resources out there (which we intend to do anyway, but we need your help.)

After reading Short-Changed, you’ll see that the evidence that the vast majority of Americans are giving more and getting less from their jobs isn’t just clear, it’s overwhelming. See it for yourself, and tell everyone who cares about workplace fairness to check out Short-Changed at www.workplacefairness.org/sc. Together we can help turn the tide for the working people of America!

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