Employer liable for tax effect of damages
By Charles P.E. Leitch

Plaintiffs may recover additional sums for the income-tax consequences of damages they are awarded in discrimination cases, the Washington Court of Appeals recently held.

In Blaney v. Intl. Assn. of Machinists, no. 48444-3-I (Oct. 21, 2002), a plaintiff won a jury verdict under Washington's Law Against Discrimination WLAD). She then sought a supplemental judgment that would compensate her for federal income tax that she would owe on the judgment. The trial court denied that request. Plaintiff appealed.

The Court of Appeals held that the scope of "actual damages" under the WLAD includes federal tax consequences arising from discrimination. The defendant argued that tax consequences are not proper "damages" within the WLAD. But the court concluded that this expanded interpretation of "actual damages" under the WLAD is consistent its goal to deter discrimination. Taxes can eliminate or substantially reduce a compensatory-damage award to discrimination plaintiffs. The court held that "so long as the damages flow from the discrimination and are neither nominal, exemplary nor punitive, they are compensable" under the WLAD.

After Blaney, defendants in WLAD cases now should consider the tax implications of a WLAD judgment in assessing their exposure and selecting expert witnesses on damages issues.

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