Opinion ID: 3011732
Heading Depth: 2
Heading Rank: 1

Heading: Backpay Determination

Text: Atlantic presented the Board with the income tax returns of Jenkins and Purcell, and urged that itfind those records to be conclusive as to the amount of tips ear ned by each of them, because to not do so would be to ignor e federal tax policy. The Board rejected this reasoning, and on appeal, Atlantic argues that this decision is err oneous. To support its argument, Atlantic relies on two Supr eme Court cases, our precedent, and its view of the policy implications of the Board's ruling.2 _________________________________________________________________ 2. By asserting that the discriminatees' testimony should have been rejected because their testimony was inconsistent with their sworn tax returns, Atlantic may also be claiming, but has never explicitly urged, that the discriminatees should be estopped from asserting higher income, having earlier misreported their true income. While a policy of judicial estoppel has evolved that can apply in the event a litigant seeks to assert a position inconsistent with one made in connection with a previous judicial proceeding, e.g., In re Chambers Dev. Co., 148 F.3d 214, 229 (3d Cir. 1998), we know of no basis for crafting a theory of estoppel based upon sworn statements in a tax return and will not explore such a theory sua sponte. 7 First, Atlantic points to Southern Steamship Co. v. NLRB, 316 U.S. 31 (1942). There, employees engaged in a strike in response to the shipowner's unfair labor practices, and the shipowner terminated five of the strikers. Id. at 34-35. The Board ordered the shipowner to r einstate the five men with backpay. Id. at 36. The Supreme Court, however, determined that under maritime law, the type of striking conduct in which they engaged was illegal,3 and it reversed the order of reinstatement. Id. at 40, 48. The Supreme Court expressed the need to limit the Board's discretion in enforcing the policies of the Act when the Board's remedial action contravened important Congressional policy. Id. at 46. In r eaching its conclusion that the claimants' violation of the maritime laws precluded the relief they sought under the Act, the Court made the following observation, which Atlantic argues supports its position: It is sufficient for this case to observe that the Board has not been commissioned to effectuate the policies of the Labor Relations Act so single-mindedly that it may wholly ignore other and equally important Congressional objectives. Frequently the entire scope of Congressional purpose calls for careful accommodation of one statutory scheme to another, and it is not too much to demand of an administrative body that it undertake this accommodation without excessive emphasis upon its immediate task. Id. at 47. Essentially, the issue before the Supreme Court was whether the labor policy prohibiting an employer from firing an employee for striking in response to an unfair labor _________________________________________________________________ 3. The Court stated: It may hardly be disputed that each of the strikers resisted the captain and other officers in the free and lawful exercise of their authority and command, within the meaning of S 293, or that they combined and conspired to that end, within the meaning of S 292. Deliberately and persistently they defied dir ect commands to perform their duties in making r eady for the departure from port. Id. at 40. 8 practice can apply, let alone prevail, when the strike is illegal under a competing federal scheme. In the case before us, by contrast, the issue does not involve a competing policy that runs counter to an award of backpay. Unlike in Southern Steamship, the policies sought to be advanced here are not diametrically opposed to one another. In fact, the policies, to the extent they do compete, can be accommodated, and in fact have been accommodated her e. The Board's basing its finding on the evidence before it, consistent with its procedure for fixing and awarding backpay, while at the same time notifying the IRS of its decision, recognizes the existence and equal importance of both policies -- enforcing our nation's tax laws and making the discriminatees' whole. If the Board had chosen to award the amount stated on the tax returns for the sole reason that the discriminatees would have to reap what they had sown, it would have ignored the remedial underpinnings of the law, and rewarded Atlantic, the of fending party. Moreover, we submit that while federal tax policy discourages underreporting of income, and favors punishing those who do, federal tax policy would appear to have no interest in limiting a backpay awar d. In fact, it could be said that it has the opposite inter est because once Jenkins and Purcell receive an awar d (that is not limited by reference to reported income), they will have to pay tax on what they receive, paying the federal gover nment more than if the award had been limited to their r eported income.4 Here, despite Atlantic's contentions, we conclude that no federal policy is relegated to a lesser status. The IRS will have the information necessary to prosecute the discriminatees if it so chooses, and will reap tax revenue. And Atlantic will have to make whole two employees _________________________________________________________________ 4. Backpay awards for violations of the Act would appear to be the type of non-tort recovery that is taxable. See Commissioner of Internal Revenue v. Schleier, 515 U.S. 323, 337 (1995) (holding that settlement for backpay in age discrimination case was not excludable from taxpayer's reported gross income because[r]ecovery for back wages does not satisfy the critical requirement [of the IRS tax code] of being on account of any personal injury, nor is it based upon tort or tort type rights.) 9 against whom it wrongly discriminated, fulfilling the purpose of the Act. Atlantic also relies on Sure-T an, Inc. v. NLRB, 467 U.S. 883, 886 (1984), but we do not find this decision particularly relevant to the instant situation. There, the Board had determined that the employer committed an unfair labor practice by requesting that the Immigration and Naturalization Service investigate certain employees who were involved in a union campaign. Id. at 888. Because some of these employees were undocumented aliens, they fled the country to avoid deportation. Id. at 887. The Board awarded backpay, subject to the employees' legal availability to work. Id. at 889. On appeal, the Court of Appeals for the Seventh Cir cuit modified the backpay award by ordering that the aggrieved employees be guaranteed a minimum of six months' backpay. Id. at 890. The court reasoned that because some of the employees may not have been lawfully available for employment, without the backpay minimum, they would not receive any backpay at all. Id. The Supreme Court reversed the backpay modification, stating:The probable unavailability of the Act's more effective remedies in light of the practical workings of the immigration laws, however, simply cannot justify the judicial arrogation of remedial authority not fairly encompassed within the Act. Id. at 904. The key to the Court's reversal of the modification was the Court of Appeals' imposition of a minimum awar d without regard to the employees' actual economic losses or legal availability for work . . . . plainly exceed[ing] its limited authority under the Act. Id. at 904-05. And, while the Board in the instant case surely shar ed the same concern as the court of appeals in Sure-T an, that is, providing a financial disincentive to the employer against r epetition of similar discrimination, id. at 904, her e, unlike in Sure-Tan, the award of backpay does reflect the discriminatees' actual loss, consistent with the remedial scheme. Atlantic also maintains that the Board's decision is contrary to our precedent. We do not agr ee. We have previously upheld an award of backpay when it was based on evidence of income in an amount differ ent from that declared by the claimant to the IRS. In NLRB v. Louton, Inc., 10 822 F.2d 412, 414 (3d Cir. 1987), we upheld the Board's backpay award where the recor d showed substantial evidence to support the tip income awarded. 5 In doing so, we rejected the employer's argument that the tip income evidence was of no value since it dif fered from the amount the discriminatees had declared to the IRS. Id. Moreover, while we note Atlantic's ar gument that awarding backpay based on unreported tips rewards the discriminatees for their dishonesty to the IRS, Atlantic fails to recognize that we would be rewar ding the employers' tax dishonesty if we were to disregard evidence of the employees' actual, more substantial reportable income. That is, if we rely on reported income that concededly did not accurately reflect the employee's ear nings, we would actually be rewarding employers who, as noted by the ALJ,6 have benefitted from paying a lesser amount of employment-related taxes as a result of the underreporting. This benefit is in addition to the benefit that Atlantic would reap, in contravention of backpay policy, by having to pay aggrieved employees less in backpay than they actually would have earned. Lastly, Atlantic contends that if we reject its proposed rule that we should disregard evidence that differs from an employee's tax returns, we would be guaranteeing that all discriminatees seeking backpay will lie about their earnings. However, Atlantic ignor es the fact that this deception will probably be quite costly in other ways. By testifying that they had underreported their income to the IRS, Purcell and Jenkins subjected themselves to prosecution for tax evasion. Therefor e, any incentive that they might have to lie to inflate their income is countered _________________________________________________________________ 5. We acknowledge that, as we discuss below, the discriminatees provided more documentary support in Louton than in the instant case, and we note that it is unclear whether the employer's argument in that case was based on policy considerations. However , the distinction is immaterial, where, as here, we have nonetheless determined that the discriminatees' credible testimony (and supporting document) are sufficient to meet the substantial evidence standard. 6. [T]he lower the reported earnings [of an employee are], the lower the employer's payroll tax liability [is]. ALJ Dec. at 4. 11 by the fear, and very real possibility, of criminal charges. We noted this in Louton, when we found that the employees' claims were actually strengthened by the fact that they had maintained the veracity of their tip claims in the face of potential prosecution for tax evasion or perjury. 822 F.2d at 414. Accordingly, we reject Atlantic's contention that the evidence regarding the discriminatees' unr eported tips in the Board's backpay award should be disr egarded because it undermines federal tax policy.