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The Relevance of Tax Returns in Employment Disputes

February 12, 2019 By Larry Schaefer

The Relevance of Tax Returns in Employment Disputes | Schaefer Halleen

We are about to enter into a national debate about the relevance of President Donald Trump’s past tax returns.  These are sought in large part to determine the extent to which the President may have been financially entangled, in the past and through the current time, with foreign interests which could compromise his ability to lead our country objectively.  These financial ties, if established through these returns, may have been used to coerce collusion with Russia in its’ proven past, and likely future, efforts to undermine our electoral process.

While these returns therefore have unquestionable relevance to current investigations, the issue is very different when complete tax returns are sought by defendants in employment litigation.  This blog describes the very limited basis for seeking evidence of earnings post-termination in an employment dispute, and explains why complete tax returns are rarely appropriately requested, much less produced, in this kind of litigation.

The Obligation to Mitigate Damages

Defendants generally predicate requests for production of tax returns on a plaintiff’s obligation to “mitigate” damages following an allegedly illegal termination.  In addition to this duty, any earnings post-termination can often serve to reduce, dollar-for-dollar, the economic loss a plaintiff has suffered and can recover in this litigation.  

The economic loss a successful plaintiff can recover in an employment claim generally includes projecting through trial (called “back pay” loss), and beyond (called “front pay” loss, which can generally extend for 2-6 year beyond trial) the amount he or she could have expected to earn (salary/hourly pay plus bonus plus the value of all benefits) from the employer if the illegal termination had not occurred.  This can and should even include promotions into positions of greater responsibility, when the evidence supports this kind of projection. Expert forensic economist testimony is often very helpful in establishing the full value of this loss, and effectively reducing future loss to “present value.” The difference between this total amount over time and the actual amount received by plaintiff in other earnings (with the limited exception described below), represents the recoverable “economic loss” from an illegal termination.      

The duty to mitigate damages generally applies in any “wrongful termination” case, whether premised on discrimination, harassment, retaliation, or other common law or contractual obligation(s).  This duty is limited, however, to making good faith efforts to seek “comparable” employment, and to disclose, with limited exception, earnings through work since termination, whether paid to the plaintiff as an employee or independent contractor, by check or cash.  If a plaintiff cannot establish in litigation that he or she has satisfied this obligation, this can actually serve as a basis for a court to to deny and back-pay or front-pay loss.

Tax Returns Contain Irrelevant Information

Complete tax returns, however, contain far more information that simply wages earned in any given year.  The sometimes very detailed process of determining gross and taxable income, and final tax amount owing, includes many steps which reveal charitable contributions, number of dependents, earnings outside of the employment or work context, and a potential myriad of claimed itemized deductions which the former employer has no right to discover in litigation.  Therefore, resist any attempt to produce complete tax returns, and instead tailor any production to solely w-2 income earned (and the accompanying tax forms which issues when this income is paid), 1099 income earned (and accompanying forms), or, in rare instances, cash payments made for services rendered.

Not all Post-Termination Earnings are Relevant

Even in this circumstance, there are many occasions where post-termination earning cannot serve to reduce plaintiff’s economic loss from an illegal termination.  When this is the case, counsel should resist any effort to produce evidence of these earnings in litigation.  For instance, when a plaintiff earns money from “moonlighting” in a less than full-time role, or from a part-time position he or she may have been able to serve in even if the challenged termination had not occurred, these earnings should have no impact on an appropriate calculation of back- or front-pay loss.  Resist any efforts to “discover” these earnings in litigation.

Maximizing Economic Loss is Crucial in Employment Litigation

Experienced legal counsel understand how to maximize economic loss when prevailing on employment claims.  They also know how to ensure a plaintiff fully documents mitigation efforts to ensure that the record on this obligation is beyond reproach in litigation.  Schaefer Halleen lawyers have this experience, and are well versed in every aspect of maximizing the recovery of economic loss, including retaining and working forensic economics experts when necessary.

We are available for a free consultation to assist you in determining whether you have been a claim where economic loss can be recovered, and will develop an effective strategy for maximizing this recovery.  

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Filed Under: All Blog Posts, Lawrence P. Schaefer, Severance/Employment Contracts, Wrongful Termination

Larry Schaefer

About Larry Schaefer

Lawrence P. Schaefer has earned the respect of judges and other lawyers for his thorough and aggressive client advocacy in negotiation and litigation. He focuses exclusively on representing people who have been subject to employment discrimination at work. Larry serves as the firm’s President and head of litigation. Read more >

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Schaefer Halleen, LLC is located at:
412 S 4th St Suite 1050Minneapolis,MN55415
Phone:612-294-2600Fax:612-294-2640Website:www.schaeferhalleen.com

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  • Being paid less than your male coworker? Here’s what to do. February 12, 2019
  • The Relevance of Tax Returns in Employment Disputes February 12, 2019
  • Prosecuting Sexual Harassment Cases in Minnesota February 7, 2019

Schaefer Halleen, LLC

Schaefer Halleen, LLC is located at:
412 S 4th St
Suite 1050
Minneapolis, MN 55415
Phone:612-294-2600
Fax:612-294-2640
www.schaeferhalleen.com

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Schaefer Halleen, LLC
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Joyce Jenkins
Joyce Jenkins
19:03 02 Jun 18
Larry has been a great resource for several years. His response time, quality of response and follow up are excellent. He has been flexible enough to answer an impromptu calI and get a response back within an hour. I recall talking to Larry early one morning when there was 8" of snow and most businesses were closed. He was the only one in the office to keep my appointment. I have recommended Larry to more than a dozen of my friends and colleagues and I feel very comfortable recommending him to anyone. Derek Jenkins
Bea Abdallah
Bea Abdallah
18:01 01 Jun 18
I strongly recommend this firm — so much so I once referred a colleague who they also helped. The firm is focused on their client’s specific issues, and unlike other attorneys I’ve worked with, they keep ongoing communication with you as the case advances. I am impressed with the professionalism and strong leadership from the staff, and deeply grateful for their good work.
Joanna Ramirez Barrett
Joanna Ramirez Barrett
16:54 01 Jun 18
I am grateful to Larry and his team. They did an excellent job of educating me about the legal process and keeping me updated on the status of my case. They had first hand knowledge about employment law in that they worked to get some of the legislation established.
Anne Dament
Anne Dament
18:52 01 Jun 18
Larry Schaefer is an incredible leader with an outstanding team of experts. They listen and care about their clients and work very hard on your behalf, educating you on your rights and guiding you through the process along the way. Everyone on the team is helpful and kind. 5 stars.
John Wichmann
John Wichmann
20:19 01 Jun 18
Larry and his team did an amazing job! They completed a task very smoothly and successfully that others said couldn't be done. I would hire him again in a heart beat.
Doc MoSho
Doc MoSho
19:40 02 Jul 18
They were attentive and responsive and dod a great job of diffusing the tension in a situation that could have been quite adversarial. They also did an excellent job of level setting before the process proceeded to far in an unrealistic direction. Great work.
Belle Godwin
Belle Godwin
05:33 23 Oct 18
If I could give 1.5 stars, I would. Whereas I'm confident that Larry is indeed a friend of those who have so praised him here, in so far as they are mostly (if not entirely) corporate-side clients, he is by no means a friend of the victim. He did little to no actual work for me other than to engage in some egocentric dance with the opposing counsel, whose approval and even admiration he seems to have endlessly sought over a number of years, and to parade a gigantic binder of paper in front of the other side and the mediator during discussions. I still have no idea what was in it, given that he could not seem to locate one single piece of relevant documentation within it and seemed far from familiar with any details of the relevant items, dates, or facts which had been provided to him. He twice during mediation snapped at me - his client, the victim - in a condescending and derisory manner and had to be stopped from semi-berating me at one point by his colleague, Jean Boler. So far up his own considerable backside is he that he actually thought I felt I had won that day; that I actually was pleased with his (entire lack of) performance. Jean knew better and sensed that he needed to walk quickly away. I didn't settle for that day's result because it was okay with me; I settled because I knew I could not leave my destiny in his hands and needed to take care of myself, as I always have. As a person, I like Jean a great deal more, but she likewise was not familiar with the case file and even seemed surprised when I said that everything had been provided for them chronologically AS THEY HAD REQUESTED, yet she had never accessed or looked at the file. I could go on and on and on, but hopefully anyone who has been a victim and who needs sincere, engaged, and meaningful help will get the point: this is not the firm for you. This is the McDonald's drive thru - the veritable ambulance chaser equivalent - of employee/victim legal representation. You can do better, so please do yourself a favor and look elsewhere.
Local Physician
Local Physician
14:18 31 Oct 18
I am a physician who recently hired Schaefer and Halleen to represent me in an employment discrimination case, my Atty was Jean Boler ESQ. They provided top-tier legal services to me for my case 2017 through my settlement in 1st qtr of 2018. This was excellent legal representation, specifically - very responsive, very prompt, extremely detailed and never off-putting. Absolutely would recommend without reservation!
annette miller
annette miller
00:40 07 Nov 18
I found the team to be professional, respectful and very well versed in employment law. I would recommend them to anyone looking for advice or expertise in this area.
Ricardo Vidal Gonzalez
Ricardo Vidal Gonzalez
18:49 12 Dec 18
I highly recommend the Schaefer Halleen law firm. Larry Schaefer was always available to answer any questions and his team was very professional. They work hard to get results and take the time to listen to the client’s goals.
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Recent Blog Posts

  • Being paid less than your male coworker? Here’s what to do. February 12, 2019
  • The Relevance of Tax Returns in Employment Disputes February 12, 2019
  • Prosecuting Sexual Harassment Cases in Minnesota February 7, 2019
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