San Antonio Employment Discrimination Lawyer & Attorney : McKinney Law Firm : Sexual Harassment, Wrongful Termination : Texas

Now there is a headline sure to grab the attention of any HR officer. BostonWorks HRBlog has a post analyzing an article from Workforce Management Magazine that says it can be done. The article from WMMAg can be found here (free registration required). One great point from the article is to focus on non-monetary aspects of the negotiations first:

"[This makes hiring efforts more likely] successful because by the time the company and the candidate reach the compensation issue, there is already an emotional component to the relationship," Johnston says. "The employer wants the candidate, and the candidate wants the job. Once you have this commitment, you can almost always close the deal. We suggest offering a leveraged compensation plan with a very high upside."

Technology keeps workers connected 24/7. If that sounds like an employer's dream come true, think again. According to this Insurance Journal article discussing a forthcoming Rutgers University study, employers who encourage non-stop work connections via technology may wind up with liability for encouraging addiction among their staff.

According to the researchers cited in the article, the fast and relentless pace of technology-enhanced work environments creates a source of stimulation that may become addictive. While workaholism has always been around this study suggests that employers may face legal liability for these addictions.

"Absurd!" I declared, as I wrote this blog entry from my home computer after 9 p.m. on a Sunday. Hmmmm.

I have been a little surprised at the lack of coverage in the mainstream media of what appears to me to be an important decision in the employment law arena. Virtually none of the major newspapers' legal writers have picked up the story. I am sure they will come around once they read all the blog activity on the subject.

Tax Professor Blog has a great summary of articles from various blogs regarding the D.C. Circuit's recent decision holding that mental anguish damages in employment-related cases are not taxable. (See our previous coverage here.) Of the blog entries cited by Tax Professor, I was interested to see the reaction in the Roth CPA blog:

With a night to sleep on it, I am more convinced that yesterday's D.C. Circuit decision in Murphy is unlikely to stand. I think there are two major flaws in the decision....

The first flaw is the decisions conclusion that the "framers" of the 16th amendment authorizing the modern income tax would have not considered damages for emotional distress "income." Joseph M. Dodge, in his essay in Tax Stories, notes that there were at least two competing conceptions of income at the time. One concept was based on the "principal and income" concepts of trust law. One was the "Haig-Simons" concept, which is more or less covers most of what we think of as income now. Murphy ignores this debate entirely and concludes on the thin evidence of an Attorney General opinion and a House committee report that "income" was a settled concept....

Once the Murphy court decided that damages for personal injuries weren't "income," they concluded that the tax on them was unconstitutional without further analysis. This appears to be the weakest part of their analysis. The federal government has broad taxing powers. The courts struck down the pre-1913 income tax as a violation of the constitutional requirement that "direct" taxes be apportioned among the states based on population. Many non-income taxes are recognized as constitutional, including gift, estate and excise taxes....

My point? Even if it's not income, compensatory damages are still subject to Congress's power to tax unless they are a "direct" tax, which they probably aren't.

Obviously, we will be keeping an eye on this bombshell case as it makes its way up the appeal track.

The Conference Board, a private research group, found that at the start of the summer, 60 percent of consumers had no plans to take a vacation over the next six months. A Gallup Survey recently found that 43 percent of respondents had no summer vacation plans.

About 25 percent of American workers in the private sector do not get any paid vacation time and another 33 percent will take only a seven-day vacation, including a weekend.

This New York Times article touches on the issue of how shrinking vacation syndrome is probably not a good thing. Certainly not good for people and, in the long run, not good for companies either. They site one international firm that has started a practice of simply shutting the company down for a period each year to force vacation on its own workers. Accordning to the company, the increase in productivity is more than worth the lost time.

MURPHY, MARRITA v. IRS, Docket No. 055139A (D.C. Cir. 08/22/2006)The DC Circuit has issued an extremely important opinion today on the issue of taxation of mental anguish damges in employment litigation. Taxation of employment litigation judgments and settlements has been a troublesome issue for many years. Predictably, the IRS has always taken the position that all such monies received were taxable, even those that are paid to a plaintiff's counsel as fees. This created a difficult situation in which plaintiffs were double taxed on any amounts they pay by way of a contingency fee to their attorneys. In October 2004, Congress passed and the President signed into law a long awaited portion of the Civil Rights Tax Relief Act that eliminates the double tax on attorney's fees by permitting plaintiffs the right to deduct "above the line" for attorney's fees and costs by or on behalf of the plaintiff in employment discrimination cases.

The problem remained, however, of how to deal with taxation of mental anguish damages in such cases. The IRS (and for the most part, the courts) have taken the position that, while these funds are not wages and therefore not subject to payroll taxes, such monies are taxable income. Employee rights advocates have been lobying Congress to pass another portion of the Civil Rights Tax Relief Act that would exclude these damages from taxable income and make their tax treatment more akin to that given to personal injury damages. (Section 104(a)(2) of the Internal Revenue Code excludes from gross income compensation received for mental anguish alleged "on account of personal physical injuries or physical sickness.")Now the DC Circuit has done one better and ruled that the IRS code provision declaring mental anguish damages in employment cases to be taxable income is violative of the Sixteenth Amendment and therefore unconstitutional. From the Court's summary:

"Marrita Murphy brought this suit to recover income taxes she paid on the compensatory damages for emotional distress and loss of reputation she was awarded in an adminstrative [sic] action she brought against her former employer. Murphy contends that under § 104(a)(2) of the Internal Revenue Code (IRC), 26 U.S.C. § 104(a)(2), her award should have been excluded from her gross income because it was compensation received "on account of personal physical injuries or physical sickness." In the alternative, she maintains § 104(a)(2) is unconstitutional insofar as it fails to exclude from gross income revenue that is not "income" within the meaning of the Sixteenth Amendment to the Constitution of the United States.

We hold, first, that Murphy's compensation was not "received ... on account of personal physical injuries" excludable from gross income under § 104(a)(2). We agree with the taxpayer, however, that § 104(a)(2) is unconstitutional as applied to her award because compensation for a non-physical personal injury is not income under the Sixteenth Amendment if, as here, it is unrelated to lost wages or earnings."

The Court concluded this way:

Albert Einstein may have been correct that "[t]he hardest thing in the world to understand is the income tax," The Macmillan Book of Business and Economic Quotations 195 (Michael Jackman ed., 1984), but it is not hard to understand that not all receipts of money are income. Murphy's compensatory award in particular was not received "in lieu of" something normally taxed as income; nor is it within the meaning of the term "incomes" as used in the Sixteenth Amendment. Therefore, insofar as § 104(a)(2) permits the taxation of compensation for a personal injury, which compensation is unrelated to lost wages or earnings, that provision is unconstitutional.

The D.C. Circuit is the most important circuit court when dealing with federal agency and IRS issues so this opinion will be given a great deal of deference by the other circuits. As important an issue as this is, I would expect the IRS to appeal it to the Supreme Court. In the meantime, employment attorneys need to rethink the way they are structuring settlements for tax purposes and inform clients (and past clients) about this decision so that they can consult with their tax advisors and determine if the filing of an amended tax return is in order.

Toyota has settled a $190 million sexual-harassment lawsuit that resulted in the car-maker's top U.S. officer leaving his position. The settlement also resulted in a new policy for reporting harassment allegations against the top executive at the company, as well as changes in Toyota's training and employment procedures.

HR Experts are saying that the new procedure will likely be adopted by company's across the country. At the very least, HR departments should take this as an opportunity to reexamine how their systems address allegations against company officials at the highest levels.

In Toyota's case, the plaintiff alleged she complained to Toyota Motor North America's then-senior vice president in charge of human resources, but nothing was done. This was despite the seriousness of her allegations. She charged that Toyota North America CEO Hideaki Otaka was not just making off-color comments but trying to force her to have sex. Otaka denied any wrongdoing, but he left his U.S. post and returned to Japan earlier than planned. He now is retired.

Toyota has created a task force headed by former Labor secretary Alexis Herman to review its sexual-harassment policies. Additionally, Company policy has changed so that allegations of misconduct against an executive must be investigated immediately and reported to the executive's superior. If the executive being accused happens to be the chairman, CEO or president, a report has to be made directly to the company's board of directors.

Coverage from the Chicago Tribune.

A federal judge has denied a motion by Blue Cross of Northeastern Pennsylvania, which sought to dismiss a lawsuit filed by two former employees who allege they were misled into believing their health-care benefits would not change after they retired. The plaintiffs claim the health-insurance giant misled them and other employees into believing their health insurance coverage would continue, unaltered, after they retired. In reality, stipulations within the plan allowed the company to alter benefits at any time.

Under federal retirement laws, an employer can be held responsible if it is shown the company either actively misled employees regarding their benefits, or if it failed to correct what it knew was a misunderstanding held by employees.

Blue Cross altered its plan in 2001 to require certain retirees, including Leuthner and Reasner, to pay more toward their coverage. And while the plaintiff's acknowledge that Blue Cross advised employees of its ability to alter benefits in legal disclosures included in their plan descriptions, they argue the company also provided other documents that misled employees to mistakenly believe the benefits that were in place when they retired were locked in for life.

Here's a link to the story and here is a related story. Moral of the story: Check your plan documents carefully to make sure they are clear as to the company's rights to modify them in the future. The issues of company's modifications of health and retirement plans is a hot button with jurors, who do not appreciate company's efforts, legal or not, to retroactively reduce benefits that employees believed they would be entitled to for life when they decided to retire.

A Montana man who used his work computer to access child pornography does not have a reasonable expectation of privacy that would bar a search of the machine. This result out of the Ninth Circuit conforms with the law in most jurisdictions and is hardly surprising.The employee/criminal defendant had argued that his Fourth Amendment rights against unreasonable searches and seizures should prevent the government from using evidence that he had viewed many images of child pornography at work.Here's the story.