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Home 9 Federal Legal Corner 9 Tax Consequences of ‘Make Whole’ Remedy

Tax Consequences of ‘Make Whole’ Remedy

In a recent decision from the EEOC Office of Federal Operations, the Commission reiterated its position on the remedies available to employees who prevail on discrimination claims involving back pay awards. In Drennon-Gala v. Department of Justice, EEOC Petition No. 0420060025 (Dec. 4, 2006), the employee filed a discrimination claim against the agency alleging it removed him from his case manager position in reprisal for prior EEO activity. At the hearing, the EEOC administrative judge agreed with the employee that his termination was motivated by the agency’s retaliatory animus.

When employees prevail in discrimination complaints, they are entitled to “make whole” relief. In other words, the agency must put the employee in the position he would be in absent the discrimination. In ruling that the agency unlawfully terminated the employee for discriminatory reasons, the administrative judge awarded the employee: (1) reinstatement to the case manager position, (2) a clean record, (3) back pay with interest and (4) commensurate salary increases from the date of termination to date of reinstatement. When reimbursing the employee for back pay, the agency granted him a “lump sum” monetary amount for all the years he did not receive a salary following his termination.

The agency issued the employee the full amount of back pay, but because the award was a lump sum, the one-time increase in his income resulted in negative tax consequences. In his petition for enforcement, the employee alleged that the agency had not granted him “make whole” relief because he incurred a greater tax liability. The employee alleged that if the agency had not discriminated against him, he would have paid taxes on his yearly salary, which would have been at a lower tax rate compared to the “lump sum” amount that required him to pay a higher tax rate.

In its decision, the Commission agreed with the employee that due to the tax liability incurred as result of the one-time, “lump sum” payment, the agency did not grant him “make whole” relief. In order to put the employee in the position he would have been in, absent the discrimination, the Commission ruled that the agency must be responsible for the increased income tax liability. However, the Commission stated that the employee bore the burden to prove that he experienced negative tax consequences as result of the “lump sum” award.

The Commission’s decision in Drennon-Gala highlighted the myriad issues concerning remedies that an employee must consider even after winning an EEOC hearing. The Commission takes seriously the “make whole” provision of federal anti-discrimination laws. Even though tax law would appear to be unrelated to a discrimination complaint, employees must be mindful of the negative tax consequences of a legal award and be prepared to assert their right to “make whole” relief by gathering evidence to prove additional liabilities that resulted from an agency’s discriminatory conduct.

This article also appears in FEDweek (, a weekly newsletter for federal employees.