Two recent court decisions remind us that backpay, a remedy available under the FMLA, must be addressed with caution and careful consideration as to calculation and taxability.

Backpay and taxes

At least one court recently held that backpay received as damages under the FMLA is taxable under both income tax and FICA tax rules. In Cheetham v. CSX Transportation (No. 3:06-cv-704-J-PAM-TEM, D.C. Fla., 2012), the federal trial court relied on a “friend-of-the-court” brief filed by the IRS in holding that damages for lost wages were subject to withholding and that the employer would be liable if it didn’t withhold.

As a result of this decision, employers should work with counsel to treat backpay attributable to lost wages (as distinguished from compensatory damages, attorney’s fees, etc.) as potentially taxable. Withholding should be calculated for portions of backpay attributable to lost wages for which the employer is liable .

Backpay and overtime

According to a recent decision by the 1st Circuit Court of Appeals, an employee is entitled to recover overtime as part of a backpay award under FMLA (Pagn-Colon v. Walgreens of San Patricio, Inc., Nos. 11-108911 (1st Cir. 2012)). In affirming the lower district court's overtime award, the 1st Circuit relied on FMLA’s guarantee that a successful plaintiff may recover “any wages, salary, employment benefits or other compensation denied or lost” due to violation of the FMLA. Overtime, the court reasoned, clearly fell within the statutory definition of “other compensation.” 

As a result of this decision, employers considering judgment exposure and damages calculations should carefully consider whether the plaintiff employee has potential claims for overtime damages.

Susan Schoenfeld, JD, is a Senior Legal Editor for BLR’s human resources and employment law publications. Ms. Schoenfeld has practiced in the area of employment litigation and counseling, covering topics such as disability discrimination, wrongful discharge, and sexual harassment. She provided training and counseling to corporate clients and litigated cases before the U.S. Court of Appeals, state court, and at the U.S. Department of Labor. Prior to private practice, Ms. Schoenfeld was an attorney with the Civil Rights Division at the U.S. Department of Labor (DOL) in Washington, D.C., where she advised federal agencies, drafted regulations, conducted inspector training courses, and litigated cases for DOL. Ms. Schoenfeld received her undergraduate degree, cum laude, with honors, from Union College, and her law degree from the National Law Center at George Washington University.