Tag Archives: taxes

Settling a workers’ compensation and wrongful termination case at the same time

Posted on by

Many employers want to settle all employment-related claims when they settle a workers’ compensation case

Clients often ask me, “If I settle my workers’ compensation case, can I still sue my employer for wrongful termination?” My answer is almost always yes. But for one unfortunate employee in Louisiana, it appears settling their workers’ compensation case may have doomed their wrongful termination case.

A federal district court in Louisiana held that a worker who settled their workers’ compensation case with a release that released all claims arising from their work injury was deemed to have settled their wrongful termination case under various civil rights laws.

The Louisiana decision raised the ire of some employee-side attorneys. Workers’ compensation laws and civil rights laws provide different remedies for different harms. A Minnesota court recently used this fundamental tenet of law to hold that a disability discrimination claim under their state’s civil rights laws was not barred by the exclusive remedy provision of their state’s workers’ compensation act.

But as a practical matter, some employers like to settle all claims arising out of the employment relationship when they settle a workers’ compensation case. In these cases there is usually consideration, or seperate amounts, to settle the workers’ compensation claim and the employment law claim. Sometimes this can be advantageous for a client. I am not sure of how the release was structured in the Louisiana case, but here is how I structure so-called global releases. In short, you need two releases: one for the workers’ compensation claim and one for the wrongful termination case.

Settling the workers’ compensation case

I wrote earlier about the so-called exclusive remedy of workers’ compensation. In Nebraska, that exclusive remedy also means the workers’ compensation court has limited jurisdiction. Nebraska courts have stated repeatedly that the Nebraska Workers’ Compensation Court can not adjudicate employment law cases because they are a court of limited jurisdiction. Neb. Rev. Stat. §48-139 gives the court jurisdiction over workers’ compensation settlements. 48-139 also dictates the language of workers’ compensation settlements, states when settlements must be approved by the court and mandates the filing of settlement papers with the court. In short, if the Nebraska Workers’ Compensation Court does not have jurisdiction to hear a wrongful termination or discrimination case, any settlements in that court should not effect any wrongful termination case or discrimination case.

Settling the wrongful termination or discrimination case

A settlement agreement in a wrongful termination case is a different document. Usually there is no requirement that it be filed or approved by a court. These agreements are often synonymous with severance agreements and oftentimes included language required by the Older Workers’ Benefit Protection Act if the employee is over 40 years old.

Settlement agreements in employment cases usually also talk mention tax liability. Tax liability is usually not mentioned in a workers’ compensation settlement as workers’ compensation benefits are almost never taxed. But settlement proceeds in a wrongful termination or discrimination case are usually taxable and those agreements should include some discussion of tax liability.

Sometimes employers will want a resignation as a condition of paying a settlement to an injured employee. If the employee is still working, that provision can be a deal breaker. But for an employee who has been terminated the extra money for a wrongful termination claim can be beneficial. Settling all claims at once may also help an employee minimize taxes by apportioning the majority of the value of the severance or employmennt law settlement into the non-taxable workers’ compensation settlement.

The offices of Rehm, Bennett, Moore & Rehm, which also sponsors the Trucker Lawyers website, are located in Lincoln and Omaha, Nebraska. Five attorneys represent plaintiffs in workers’ compensation, personal injury, employment and Social Security disability claims. The firm’s lawyers have combined experience of more than 95 years of practice representing injured workers and truck drivers in Nebraska, Iowa and other states with Nebraska and Iowa jurisdiction. The lawyers regularly represent hurt truck drivers and often sue Crete Carrier Corporation, K&B Trucking, Werner Enterprises, UPS, and FedEx. Lawyers in the firm hold licenses in Nebraska and Iowa and are active in groups such as the College of Workers’ Compensation Lawyers, Workers' Injury Law & Advocacy Group (WILG), American Association for Justice (AAJ), the Nebraska Association of Trial Attorneys (NATA), and the American Board of Trial Advocates (ABOTA). We have the knowledge, experience and toughness to win rightful compensation for people who have been injured or mistreated.

This entry was posted in employment law, Nebraska, Workers Compensation and tagged , , , , , .

Proposed 401(k) Changes Act As Stealth Tax Hike; Could Foreshadow More Anti-Worker Laws

Posted on by

Congressional Republicans have proposed to tax contributions to 401k retirement plans in a move that amounts to a stealth tax hike on the middle class. The proposed tax on 401ks is also part of the trend of business attempting to shed benefits offered to their workers.

Employees are not taxed on money they contribute to 401k plans, but those contributions are taxed upon withdrawal from the account during retirement. The tax benefits to tax deferral are two. One taxes paid during retirement are generally paid at a lower marginal rate because income is lower during retirement. Secondly, because of the time value of money a dollar in taxes paid today is worth more than a dollar of taxes in the future. Descriptions of the proposed change in 401k taxation as a mere accounting gimmick are misleading and inexcusable from a publication like the New York Times.

The other benefit to a 401k plan to employees is that employers can match employee contributions and employers can get a tax deduction for that contribution. The proposed changes in 401k taxation are expected to lead to an increase in popularity of Roth IRAs. Roth IRAs tax contributions but do not tax withdrawal. Employers can offer and contribute to Roth IRAs, but employer contributions in Roth IRA are taxable for the employer as well, so few employers match Roth IRA contributions like they do with 401ks.

401k or defined contribution plans largely replaced defined benefit or pension plans. The shift from pensions to 401ks has reduced income for many current retirees and will continue to do so for future retirees. The effective end of the pension in the private sector, which coincides with decline in union membership, coupled with reductions in the purchasing power of Social Security retirement benefits resulted in a substantial increase in senior citizens who are forced to work in retirement. This increase in senior citizen employment driven by reduced retirement income forced some senior citizens, who are deemed “work campers,” to become migrant laborers who travel the country in recreational vehicles from temporary job to temporary job.

Curtailing 401k accounts would continue and worsen these trends as the 401k account has essentially replaced traditional pensions. The prospective end of 401ks may be the first tangible result of more draconian employee benefit reforms in the 2010s and 2020s.  The emergence of the gig economy will probably be the catalyst for any new round of anti-worker reforms.

The emergence of the gig economy has led to an increase in fights over employee classification. Gig economy workers, like Uber and Lyft drivers, tend to be classified as independent contractors who aren’t eligible for even rudimentary employment benefits like unemployment and workers compensation insurance.  

Courts and legislators have yet to conclusively answer whether gig economy workers are employees or independent contractors. No less a luminary than former Treasury Secretary Robert Rubin lead a panel of prominent Democratic economists and elected officials in a forum about modernizing labor laws to promote the gig economy. Anyone who remembers the results of the financial reforms promoted by Rubin in the 1990, should shudder when Rubin discusses reforming laws governing the employer-employer relationship.

The rise of the gig economy is leading to calls for portable benefits not tied to the employee-employer relationship as a way to address concerns about how to classify gig economy workers. Portable benefits are an old idea in the political arena.  The Affordable Care Act increased portability of health insurance through health care exchanges. Even business groups critical of the ACA praised how the ACA increased portability of health care benefits. Many employers like the idea of “portable benefits” as it reduces employee costs.

But it would be unfair to dismiss the potential good from portable benefits. Proponents of portable benefits argue that portable benefits help low wage employees who do not but do not have employee benefits like retirement and health insurance even if they are classified as employees. If portable benefit schemes gain traction, they should be implemented in a way that helps workers rather than as a way to reduce income and benefits going to workers.

There are valid criticisms of 401k accounts. Matt Bruenig of People’s Policy Project states that tax deferral benefits of 401k accounts accrue to wealthier Americans. Progressive lawmakers like former Iowa Senator Tom Harkin have proposed Universal Savings Accounts (USAs) that would give employees a low-cost way to save for retirement independent of an employer-provided retirement account like a 401k. USA accounts could be a good replacement for 401k accounts if there was a realistic chance they could be implemented. As it stands now it is likely 401k accounts will be curtailed without the prospect for the adaptation of USA accounts in the near future.

While Congressional Republicans are working to curtail the 401k plan as an employee benefit, some Democrats are also anxious to help employers shed benefits traditionally offered to employees. These benefits can be voluntary benefits like health insurance or mandatory benefits like workers compensation and unemployment insurance. Either way workers need to filter out the noise of politics as entertainment and support political candidates who unambiguously put workers ahead of political donors from big business.

The offices of Rehm, Bennett, Moore & Rehm, which also sponsors the Trucker Lawyers website, are located in Lincoln and Omaha, Nebraska. Five attorneys represent plaintiffs in workers’ compensation, personal injury, employment and Social Security disability claims. The firm’s lawyers have combined experience of more than 95 years of practice representing injured workers and truck drivers in Nebraska, Iowa and other states with Nebraska and Iowa jurisdiction. The lawyers regularly represent hurt truck drivers and often sue Crete Carrier Corporation, K&B Trucking, Werner Enterprises, UPS, and FedEx. Lawyers in the firm hold licenses in Nebraska and Iowa and are active in groups such as the College of Workers’ Compensation Lawyers, Workers' Injury Law & Advocacy Group (WILG), American Association for Justice (AAJ), the Nebraska Association of Trial Attorneys (NATA), and the American Board of Trial Advocates (ABOTA). We have the knowledge, experience and toughness to win rightful compensation for people who have been injured or mistreated.

This entry was posted in Government, Legislation and tagged , , , , .

Tax Day For Independent Contractors: More Paperwork, More Taxes

Posted on by

The issue of whether Uber drivers and other so-called “Gig Economy” workers are employees or independent contractors is a hot topic among lawyers and policy makers. But last week independent contractors in the Gig Economy and beyond had a more mundane but no less serious dilemma:

Filing their taxes

Independent contractors are required to pay their full FICA and Medicare taxes. These higher taxes can be offset by more liberal deductions but that assumes a contractor has more expenses to deduct.

Deductions also require paperwork.  Filing your taxes as an IRS Form 1099 independent contractor is more complicated than filing your taxes as an IRS W-2 employee.

Independent contractor status can be helpful for someone who wants to be an entrepreneur. But for those who just want to support themselves and family, involuntary independent contractor status can mean higher taxes, more paperwork and more risk of trouble with the IRS and state revenue agencies.  Future tax days could be even more stressful if more workers are forced into independent contractor status in order to support themselves and families.

The offices of Rehm, Bennett, Moore & Rehm, which also sponsors the Trucker Lawyers website, are located in Lincoln and Omaha, Nebraska. Five attorneys represent plaintiffs in workers’ compensation, personal injury, employment and Social Security disability claims. The firm’s lawyers have combined experience of more than 95 years of practice representing injured workers and truck drivers in Nebraska, Iowa and other states with Nebraska and Iowa jurisdiction. The lawyers regularly represent hurt truck drivers and often sue Crete Carrier Corporation, K&B Trucking, Werner Enterprises, UPS, and FedEx. Lawyers in the firm hold licenses in Nebraska and Iowa and are active in groups such as the College of Workers’ Compensation Lawyers, Workers' Injury Law & Advocacy Group (WILG), American Association for Justice (AAJ), the Nebraska Association of Trial Attorneys (NATA), and the American Board of Trial Advocates (ABOTA). We have the knowledge, experience and toughness to win rightful compensation for people who have been injured or mistreated.

This entry was posted in employment law, Government, Misclassification and tagged , , , , , .