Byrne v. Comm'r of Internal Revenue, Dkt. No. 38959-84

• Court: United States Tax Court
• Writing for the Court: RAUM
• Citation: 90 T.C. 1000,46 Fair Empl.Prac.Cas. (BNA) 1372,90 T.C. No. 66
• Parties: CHRISTINE A. BYRNE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Docket Number: Dkt. No. 38959-84
• Decision Date: 16 May 1988

46 Fair Empl.Prac.Cas. (BNA) 1372
90 T.C. 1000
90 T.C. No. 66

CHRISTINE A. BYRNE, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Dkt. No. 38959-84

United States Tax Court

Filed May 16, 1988

T was discharged from her employment with company G in the midst of an investigation by the Equal Employment Opportunity Commission (EEOC) into sex-based wage disparity in one of the departments of the company. T was not employed in that department, but was perceived by G as having played a significant role in instigating the investigation and participating therein. The EEOC brought suit to enjoin G from interfering with its investigation, and inter alia to require G to reinstate T, who was not a party to that suit. The suit was settled upon G's payment of $20,000 to T in consideration of her release of a broad range of potential claims against it, including a claim for reinstatement. HELD, that a substantial portion of the payment was allocable to a claim for a tort-like injury and a substantial portion of the payment was allocable to other claims, predominantly of a contractual nature. In the absence of more precise evidence in the record, it is found that half of the $20,000 was allocable to the tort-like claim. Cf. Eisler v. Commissioner, 59 T.C. 634, 640-641 (1973). It is therefore HELD FURTHER, that half of the $20,000 payment is excludable from T's gross income under section 104(a)(2), I.R.C. 1954, as ‘damages received * * * on account of personal injuries‘.

[90 T.C. 1001]

Mary F. Thurber, for the petitioner.

Frank Agostino, for the respondent.

OPINION RAUM, JUDGE:

The Commissioner determined a deficiency in petitioner's 1981 income tax in the amount of $5,561. The issue before us is the excludability from petitioner's income under section 104(a)(2), I.R.C. 1954, of amounts she received from her former employer. ¹ The case was submitted on the basis of a stipulation of facts and attached exhibits. At the time the petition herein was filed, petitioner resided in New Jersey.

In 1980 petitioner was an employee of Grammer, Dempsey and Hudson, Inc. (Grammer or the company), a company engaged in the sale of steel. Petitioner worked as a clerk in Grammer's billing department. By 1980 she had been with Grammer for 12 years.

On or about September 12, 1980, while petitioner was employed by Grammer, the Equal Employment Opportunity Commission (the EEOC or the Commission) initiated an investigation into the payroll structure of Grammer's sales department. The investigation concerned itself with the disparity in wages between males and females in the sales department. Petitioner was not a member of the sales department which was the target of the Commission's investigation and therefore had no interest in any potential back pay award that might have resulted from the investigation.

During the course of the investigation, officials from Grammer singled out petitioner as a person who may have informed the Commission of the wage disparity in the sales

[90 T.C. 1002]

department. Shortly thereafter, petitioner was terminated from the employment of the company. In her 12 years with the company she had no record of disciplinary or work performance reprimands and had received a number of raises and promotions.

The EEOC concluded that Grammer's termination of petitioner had the effect of discouraging Grammer's employees from participating in the Commission's investigation of wage disparity in the sales department. As a consequence, in March 1981, it filed a ‘Complaint For Preliminary Relief‘ in the Federal District Court of New Jersey alleging that the company ‘impeded the administrative proceedings of the Commission to administer, interpret and enforce the FLSA »Fair Labor Standards Act†‘ and ‘violated Section 215(a)(3), by discriminating against employees who participate in the Commission's administrative proceedings at its Newark facility‘. The discrimination alleged in the Complaint included both ‘Encouraging employees not to participate in the Commission's administrative process‘ and ‘Intimidation of employees‘ who so participated. The company's discharge of petitioner was listed as a specific instance of such discrimination against employees. The complaint requested as relief that the court compel the company as follows:

A. Immediately to cease and desist from any and all acts of impediment to the Commission's administrative process.

B. Immediately to cease and desist from all forms of intimidation and discouragement of employees to participate in the Commission's administrative process.

C. Immediately to reinstate Christine Byrne to her former position with full benefits.

The Complaint was supported by two affidavits, one prepared by the EEOC District Director for the Philadelphia District and the other prepared by the EEOC specialist who investigated petitioner's discharge. The latter affidavit describes the circumstances surrounding petitioner's discharge and the effect of the discharge on the participation of the company's other employees in the EEOC administrative proceedings. This affidavit of the EEOC specialist states that after petitioner participated in the EEOC's administrative proceedings, petitioner told the investigator that her

[90 T.C. 1003]

job duties had been changed so that she was expected to perform work usually assigned to part-time employees. Petitioner perceived this change in her duties as an attempt on the part of the company to make it look as though she was refusing to do work and thereby to build a case for firing her.

The affidavit further states that during the affiant's investigation of petitioner's discharge, several employees of the company expressed fear of participating in the EEOC proceedings. They described to the EEOC investigator an atmosphere of fear and intimidation at the company after petitioner's discharge. The employees who were questioned also indicated that Grammer made it clear to them that petitioner was to blame for the EEOC investigation (i.e., she was identified as the employee who notified the EEOC of wage disparity) and that the company disapproved of the investigation. According to the affidavit, one employee who was considered to be key to the EEOC investigation refused to participate, even after he was assured that his statements were confidential and privileged, because he feared retaliation and even loss of his job with the company.

The reason the Commission filed its complaint requesting, among other things, that petitioner be reinstated was to restore the status quo during the investigation and thereby to eliminate harm to the Commission and its investigation. The EEOC District Director's affidavit states that ‘the Commission did not have an opportunity to complete its investigation before » Grammer† disrupted the status quo in regard to Christine Byrne's employment and the stability of other employees‘. No back pay was requested for petitioner because such an award was not the goal of the EEOC complaint. Instead, her reinstatement was sought solely to eliminate interference with the EEOC's investigation.

The EEOC's action against Grammer was settled. On March 27, 1981, the United States District Court for New Jersey ordered the action dismissed because ‘it has been reported to the Court that the above-entitled action has been settled ‘. On June 10, 1981, a ‘Stipulation of Settlement‘ was filed with the District Court. In the Stipulation of Settlement, Grammer agreed not to ‘impede the Commission's administrative processing of its * * * investigation

[90 T.C. 1004]

* * * initiated on September 12, 1980‘. In addition, Grammer agreed to divulge no information about its employees' opposition to unlawful employment practices to future employers and to expunge from employee records any unfavorable comments that stemmed from the EEOC investigation. Specifically as to Christine Byrne, Grammer agreed to ‘provide no information to anyone including but not limited to potential employers, concerning Christine Byrne's employment with »Grammer†, except verification of employment, dates of employment, positions, titles or classifications held, the reason for termination as resignation, and if any employment rating is requested, » Grammer† shall respond that its policy is not to rate its employees‘.

The EEOC had initially requested, in its complaint, that the company be required to reinstate petitioner. The company would not settle on that basis, however, because it believed that petitioner's presence would create further friction within the company, especially between management and employees. During the settlement negotiations, the company suggested that the Commission ask petitioner to propose a lump-sum payment that she would accept in lieu of reinstatement. The Commission communicated the company's inquiry to petitioner and petitioner said she would accept $20,000 not to return to her former position. The $20,000 figure represented the value to petitioner of giving up both her job, including the contact with co-workers that she enjoyed for 12 years, and any claim she might have against the company. The company agreed to pay petitioner the $20,000 requested.

The stipulation of settlement incorporated this agreement between the company and petitioner. It required that Grammer ‘deliver within seven (7) days of the execution of this Stipulation to the Equal Employment Opportunity Commission * * * a check made payable to Christine Byrne, in the amount set forth in the Release executed by Christine Byrne‘. The release referred to required payment in the amount of $20,000 by the company. In consideration of the $20,000, petitioner agreed to ‘waive, release and forever covenant » sic†>>>>> not to sue Grammer, Dempsey and Hudson, Inc., its directors, officers, agents, representatives, successors and assigns, with respect to any matter relating to or

[90 T.C. 1005]

arising out of the charges or matters on which the said Stipulation of Settlement is based‘. She further...