The EEOC Doesn't Like Hamburgers

What's not to like about a hamburger?  According to the EEOC, the way in which one McDonald's restaurant served it. 

The EEOC filed a lawsuit on behalf of Shaheed Khan, a Crew Trainer at a McDonald's, in federal district court in Fresno, California, alleging religious discrimination.  Mr. Khan grew a beard as part of his religious practices.  He informed McDonald's of his beliefs, and sought an accommodation to wear the beard.  McDonald's rejected the request. 

The parties settled the case soon after the case was filed.  McDonald's paid $50,000 to Mr. Khan, removed negative references related to his requested accommodation from his personnel file, and agreed to implement anti-discrimination policy and procedures, including training.  The $50,000 paid was allocated entirely to emotional distress damages so there would not be any tax withholding made of the proceeds. 

The case, and its settlement, pose very interesting issues.  Since the case was settled so quickly, we don't have the full facts of the case.  Instead we are limited to allegations.  Nevertheless, I will venture an opinion about a few things religious in the workplace. 

In my opinion, religious discrimination cases will be much easier to file and pursue after the 2013 changes to California's Fair Employment and Housing Act ("FEHA").  Of course, in pursuing McDonald's the EEOC did not base its actions on state law.  It did so under federal law, which requires an employer to make merely a "de minimus" effort to accommodate religious practices. 

Under FEHA, the standard an employer must meet is now much stricter.  Employers must explore available reasonable alternative means of accommodating religious beliefs or observances.  Moreover, the law requires an employer to provide an accommodation unless it would be an undue hardship to do so.  It will be very difficult for an employer to prove undue hardship.  You can see that this standard is much higher than the federal "de minimus," or minimal, standard. 

This change in California's law makes religious discrimination cases easier to pursue.  It puts religious requests for accommodation on a par with requests for disability   accommodations.  Personally, this does not offend me.  In fact, the change in the statutory law seems more consistent with constitutional law, which specifically references religious freedom in its text. 

It is also interesting that a government agency agreed to allocate the entire settlement to emotional distress damages.  I think the tax lawyers in my office would not recommend such an arrangement.  Typically, parties to a lawsuit attempt to minimize tax obligations in settlling cases.  If a settlement is based on lost wages, the employee is subject to withholdings for personal and payroll taxes, and the employer must pay payroll taxes.  If the parties don't allocate the settlement proceeds to wages, or allocates less proceeds to wages, then the employee takes home more money and the employer does not pay more in payroll taxes.  The IRS, however, does not look kindly on these arrangements.  Typically, a settlement must allocate a reasonable amount of the proceeds to lost wages, which is subject to the withholdings and payroll taxes. 

Maybe the EEOC knows something we don't know about taxation of settlement of employment cases.  If it does, I hope the agency shares.  Otherwise, it may have made more problems for Mr. Khan and McDonald's by allocating the settlement proceeds all to emotional distress damages. 

I just hope this is not a trend -- the EEOC suing hamburger joints.  I love hamburgers!