A Taxing Dilemma: Whether Gross Ups are Permitted for Title VII Back Pay Awards

When an employee sues his or her employer in a Title VII action, the employee may be awarded a lump sum as back pay. That lump sum can cause a tax problem for the employee, who may be pushed into a higher tax bracket and therefore owe more in taxes than he or she would have owed if the employer had made the payments over time. Some appellate courts have allowed federal district courts the discretion to award a tax consequence adjustment, or “gross up,” for receipt of a lump sum back pay award to offset this consequence and make the employee whole. The Ninth Circuit recently joined the Third, Seventh, Ninth, and Tenth Circuits by allowing gross ups, furthering the split with the D.C. Circuit.

The Split

 In a brief opinion, the D.C. Circuit rejected the possibility of gross ups in Danshaw v. Pena (1994), abrogated on other grounds by Rann v. Chao (2003):

We know of no authority for such relief…Given the complete lack of support in existing case law for tax gross ups, we decline so to extend the law in this case.

The Third, Seventh, Ninth, and Tenth Circuits disagree and allow district courts to award a gross up. The core of their viewpoint is that gross ups are necessary to make the plaintiff whole. Without any tax consequence adjustment, the plaintiff is still damaged by the employment discrimination. In its recent opinion joining these other Circuits, the Ninth Circuit described this position in Clemens v. CenturyLink Inc. (2017). It emphasized that Title VII exists “to make persons whole for injuries suffered on account of unlawful employment discrimination” and “provides courts with considerable equitable discretion to ensure adequate compensation.” The Ninth Circuit followed the Seventh Circuit’s opinion in EEOC v. N. Star Hosp., Inc. (2015) by citing Title VII as the source of courts’ authority to award back pay gross ups. There, the Seventh Circuit agreed with the Third and Tenth Circuits that “without the tax-component award, [the plaintiff] will not be made whole, a result that offends Title VII’s remedial scheme.”

In Eshelman v. Agere Sys. Inc. (2009), the Third Circuit noted that the decision of whether to award a gross up is within the discretion of the trial court:

[W]e do not suggest that a prevailing plaintiff in discrimination cases is presumptively entitled to an additional award to offset tax consequences above the amount to which she would otherwise be entitled. Employees will continue to bear the burden to show the extent of the injury they have suffered. The nature and amount of relief needed to make an aggrieved party whole necessarily varies from case to case.

While these four Circuits find that Title VII commands the possibility of gross ups to make a plaintiff whole, they do not find that plaintiffs are automatically entitled to the adjustment. While the D.C. Circuit categorically rejects gross ups, even in those courts that permit the possibility of gross ups, whether a plaintiff may receive a gross up, and how much of an adjustment is made, will depend on the particular case.

Looking Forward

Gross ups in awards for back pay in Title VII cases are ripe for Supreme Court review.  SCOTUS may want to settle (1) whether gross ups are permitted at all, and (2), if they are, what factors a district court should consider when exercising its discretion to make a determination in a particular case. In allowing the possibility of gross ups, the Third Circuit in Eshelman noted that a prevailing plaintiff is not automatically entitled to a gross up; the relief required to make an employee whole will inexorably vary depending on the case. The Ninth Circuit in Clemens suggested that difficulty in determining the proper gross up or negligibility of amount may be such factors that would make a gross up inappropriate, but it may be helpful to establish a set of criteria for district courts to use in their review.

Having Your Healthcare and Paying For It Too: The Use of Federal Funds at Planned Parenthood

Background

On December 14, 2017, as then-President Obama prepared to leave office, he issued a rule prohibiting states from withholding federal family-planning funds from health clinics that perform abortions, such as Planned Parenthood.  Four months later, on April 13, 2017, President Trump signed a bill reversing that rule.  These actions reflect an ongoing battle over funding for Planned Parenthood and similar clinics.

The Split

Following the release of controversial video footage in 2015, which purported to show Planned Parenthood officials trying to sell fetal tissue for profit, the Arkansas Department of Human Services terminated its Medicaid provider agreements with Planned Parenthood of Arkansas and Eastern Oklahoma.  Three Jane Does—Planned Parenthood patients—sued the Director of the Department under 42 U.S.C. § 1983, alleging that the Department violated their federal right to choose any “qualified” provider under the Medicaid Act.  The district court entered an injunction preventing DHS from suspending payments for services rendered to a class of Medicaid beneficiaries.  In Does v. Gillespie, the Eighth Circuit vacated the injunction on August 16, 2017.  It held that § 23(A) of the Medicaid Act does not create an enforceable right for patients to receive services from any “qualified” provider, and found three significant difficulties with such a contention.  First, it found that the Act is “two steps removed from the interests of the patients” seeking services from a provider through Medicaid:

“A statute that speaks to the government official who will regulate the recipient of federal funding ‘does not confer the sort of ‘individual entitlement’ that is enforceable under § 1983.’…Even where a subsidiary provision includes mandatory language that ultimately benefits individuals, a statute phrased as a directive to a federal agency typically does not confer enforceable federal rights on the individuals.”

Second, the Eighth Circuit found that it could reasonably conclude that Congress did not intend to create such an enforceable right under § 1983 because through the withholding of federal funds, Congress provided another means of enforcing a state’s compliance.  Third, the Eighth Circuit held that “statutes with an ‘aggregate’ focus do not give rise to individual rights.”

The Fifth, Sixth, Seventh, and Ninth Circuits disagree.  All have held that there is a right of action for enforcement of the Medicaid Act’s choice-of-provider provision.  The Seventh Circuit held in Planned Parenthood of Indiana, Inc. v. Commissioner of the Indiana State Department of Health (2012) that § 23(a) of the Medicaid Act “is individual-rights language, stated in mandatory terms.”  It continued:

“Although Indiana has broad authority to exclude unqualified providers from its Medicaid program, the State does not have plenary authority to exclude a class of providers for any reason—more particularly, for a reason unrelated to provider qualifications. In this context, ‘qualified’ means fit to provide the necessary medical services—that is, capable of performing the needed medical services in a professionally competent, safe, legal, and ethical manner. The defunding law excludes Planned Parenthood from Medicaid for a reason unrelated to its fitness to provide medical services, violating its patients’ statutory right to obtain medical care from the qualified provider of their choice.”

The Ninth Circuit agreed with the Seventh Circuit in Planned Parenthood Arizona Inc. v. Betlach (2013).  Notably, it found it “evident” that “Congress intended the free-choice-of-provider requirement to create an individual right.”

Looking Forward 

Whether there is an individual right to enforce the provision of the Medicaid Act allowing a patient’s choice of any “qualified” provider under 42 U.S.C. § 1983 is an issue ripe for review by the Supreme Court.  Given the Trump administration’s stance on women’s healthcare, including the rollback of President Obama’s last effort to safeguard federal family-planning funds for Planned Parenthood and similar clinics, this is a highly contentious and controversial issue.

Planned Parenthood is a politically, religiously, and emotionally charged subject in the U.S. culture war, and is often a partisan matter.  In 2012, the Obama administration filed an amicus brief in support of the organization in Planned Parenthood of Indiana.  The Trump administration’s differing position, combined with the addition of Justice Gorsuch on the Supreme Court, make this an even more prominent issue.  The dissent Justice Gorsuch wrote in Planned Parenthood Association v. Herbert (10th Cir. 2016) leave many “freedom of choice” supporters fearful of the accessibility of women’s healthcare options in the future.