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Labor Logic


John D. Finerty, Jr.

The United States Supreme Court’s 2004-2005 term begins this week. The Court is scheduled to decide important civil and criminal issues. Some of the criminal law cases include whether portions of the U.S. Sentencing Guidelines are constitutional; whether imposing the death penalty on someone who was a juvenile at the time he committed a crime violates the Constitution’s ban on “cruel and unusual” punishment; and, whether the Fourth Amendment prohibits using drug-sniffing dogs during routine traffic stops. The Court will also decide cases involving the medical use of marijuana and the interstate sale of wine.

There are three employment law cases also on the Court’s calendar. This is a relatively light load of employment law cases. These cases, however, are still significant as they deal with a potential age discrimination theory, whether settlement proceeds paid to attorneys are taxable, and whether or not Title IX allows a retaliation claim.

Does disparate impact theory apply in age discrimination cases?

The Age Discrimination in Employment Act prohibits discrimination against any employee over the age of 40. Plaintiffs may base discrimination theories on either direct evidence or indirect proof that creates an inference of discrimination. There are two general types of inferential cases: an adverse treatment case (that generally compares a plaintiff to other similarly situated employees); and disparate impact claims (that, irrespective of an employer’s motive, alleges a neutral policy has greater impact on a protected class). To this point, lower courts have been split on whether the ADEA recognizes disparate impact claims.

In Smith v. City of Jackson, a case from the Fifth Circuit Court of Appeals, the plaintiffs sued for age discrimination claiming the Jackson, Mississippi police department’s performance pay plan granted larger pay increases to employees under age 40. Under the plan, police officers and dispatches with five or fewer years of seniority received proportionately greater raises as compared to employees with more than five years experience. The plaintiffs offered statistical proof that raises, on average, were greater for younger employees than those over 40.

The trial court, affirmed by the Fifth Circuit, held disparate impact theory could not be used in age cases. In so holding, the Fifth Circuit followed the First, Seventh, Tenth and Eleventh Circuits in denying disparate impact claims in age cases. On the other hand, the Second, Eighth and Ninth Circuits allow such claims.

Are settlement proceeds paid to an attorney taxable to a plaintiff?

Two separate cases, Commissioner v. Banks, (6th Cir. 2003), and Commissioner v. Banaitis, (9th Cir. 2003), were combined to decide the issue of whether or not a portion of settlement payments in an employment case that were paid to the plaintiffs’ attorneys could be excluded from ordinary income. In these cases, a number of former employees sued their employers on various state law claims. In both cases, the parties settled. The employees filed federal income tax returns, but excluded from ordinary income the portion of the settlements paid to their attorneys. The Internal Revenue Service took the position that the entire settlement amount should have been included as taxable income. The Tax Court upheld the IRS’s position, but the Sixth and Ninth Circuits both reversed and held amounts paid to the attorneys for legal services in each case were not taxable income.

Does Title IX create a private right to action for retaliation?

Title IX generally prohibits gender discrimination in education. Many of Title IX’s provisions mirror those of the employment discrimination statute, Title VII. The issue in Jackson v. Birmingham Bd. of Education is whether there exists a claim for retaliation under Title IX. In that case, Jackson was a girl’s basketball coach who claimed he was dismissed from his coaching position because he complained about, what he believed was, unfair treatment of the girl’s basketball team. The trial court, affirmed by the Eleventh Circuit, held that Title IX does not create a claim for relief for individuals claiming retaliation as a result of discrimination against others.

Oral arguments in Smith v. City of Jackson are scheduled for Nov. 3, 2004; oral arguments in Jackson v. Birmingham and the two tax cases are not yet scheduled. All three of these cases should be decided within the next three to six months.

For more information on these cases, contact John D. Finerty, Jr. at Michael Best & Friedrich at (414) 225-8269 or on in the Internet at JDFinerty@MBF-law.com.

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