Calculating Economic Losses in 11th Circuit Employment Termination Cases.

• Author: Baum, Charles L., II
• Position: U.S. 11th Circuit Court of Appeals

Economic damages from lost pay have always been an important consideration when employment lawyers are advising potential plaintiffs as to the value of their claims, and when employment defense lawyers are deciding whether to recommend going to trial or settling. With the U.S. Supreme Court's recent expansion of employment discrimination protection to include LGBT employees in Bostock v. Clayton Cty., Ga., 140 S. Ct. 1731 (2020), employment lawyers have yet another reason to ensure they have a sound working knowledge of the standards applicable to calculating economic damages.

Attorneys often ask economists to calculate economic losses and to testify to the amount in court. This article describes nine factors that must be considered when calculating economic losses from lost pay in employment termination cases: back and front pay, fringe benefits, work life, mitigation, collateral benefits, pay raises, present value, pre-judgment interest, and tax liability. This article also reviews the guidance provided by 11th Circuit caselaw for addressing each factor, and it summarizes notable differences between the 11th Circuit and other federal circuits. The article notes which approaches and methodologies tend to benefit the plaintiff by increasing economic damages and which reduce the size of the damages to the benefit of the defendant.

Back and Front Pay

Federal courts award victims of unlawful discrimination in employment termination cases damages for lost pay to make them whole. (1) Lost back pay, which is lost compensation from the discriminatory action to the date of judgment, (2) and lost front pay, which is lost compensation between judgment and reinstatement (3)--both may be recovered. Reinstatement is preferred as a remedy to lost front pay in the 11th Circuit, but when extenuating circumstances warrant, lost front pay in lieu of reinstatement may be awarded. (4) Extenuating circumstances that would make reinstatement ineffective as a remedy include antagonism and discord between the parties, (5) intimidation and threats from management, and a plaintiff's damaged emotional wellbeing. (6)

Economists have provided lost back- and front-pay calculations for the 11th Circuit. (7) Economics experts may base lost earnings on the amount the plaintiff was earning at the time of the termination or on an average of the terminated worker's earnings in prior years. This information is typically available from tax returns, W-2 statements, and pay stubs. When earnings had been falling, the amount of economic losses calculated will be larger when using a multi-year average, benefiting the plaintiff. Using earnings at the time of the termination would benefit the defendant in this example. Just the opposite, when earnings were rising over time, the economic losses will be larger using earnings at the time of the termination and smaller using a multi-year average.

Calculations for lost pay should cease once the terminated worker has an opportunity to move to that worker's "rightful place" (8) (i.e., the worker's position absent the discrimination). Further, if the terminated worker's job is eliminated, and that worker would not have been retained in any capacity or reassigned, then calculations for lost pay should cease after that time. (9)

Fringe Benefits

Workers on average receive about 30% of their compensation in the form of fringe benefits, such as "health insurance coverage, life insurance benefits, annual retirement contributions, and profit sharing." (10) The 11th Circuit awards damages for lost fringe benefits in employment cases, (11) and attorneys have used economists to calculate the value of the lost fringe benefits, such as pensions. (12) The value of a worker's fringe benefits could be based on the cost incurred by the employer to provide them or on the cost in the market by the terminated worker to replace them. Awarding market replacement costs would likely benefit the plaintiff because employers often pay lower group rates.

Several federal circuits (the Fifth, (13) Sixth, (14) Seventh, (15) Eighth, (16) and Ninth (17) circuits) have restricted the value that can be recovered for lost health insurance to be the plaintiff's actual out-of-pocket insurance replacement costs, rather than the premium contributions from the terminating employer or market premiums for replacement insurance the plaintiff did not actually purchase. In other circuits, such as the Fourth Circuit, the wronged plaintiff may recover the value of lost health insurance provided by the defendant employer. (18) While the 11th Circuit has yet to address this issue, several district courts in the 11th Circuit have not awarded damages for lost health insurance benefits when the terminated worker did not pay to replace those benefits and the insured risk did not occur. (19) In these districts, the appropriate measure for the loss is either the replacement cost paid by the terminated worker or the out-of-pocket expenses incurred from not having insurance, not the terminating employer's premiums. (20)

Worklife

To receive a damage award for lost front pay, plaintiffs bear the burden of providing the court with evidence of how long they would have worked for the defendant employer absent the termination. (21) This may partially be based on worklife expectancy. (22) Worklife expectancies are calculated by economists using government data and are published in academic journals. (23) Economists have projected worklife expectancy for courts, (24) but, in practice, courts in the 11th Circuit have also simply considered lost front pay over a set number of years, such as five or eight years, (25) or to a common retirement age, such as 65 or 70 years, (26) which, in one case, was a 32-year period. (27) In the 11th Circuit, plaintiffs may not be able to recover damages for lost front pay if their job has since been eliminated, (28) although plaintiffs have successfully argued in this circuit that they could have been reassigned to another position with the defendant employer absent the termination. (29)

Mitigation

Terminated workers are required to mitigate their losses by diligently searching for replacement employment that is substantially equivalent to the lost position. (30) Lost pay can only be recovered for periods when terminated workers are able and willing to accept substantially equivalent replacement employment. (31) With mitigation, the economic losses from lost pay are calculated as the difference in projected pay from the terminating employer (without the termination) and pay from replacement employment. (32)

Terminated workers must use reasonable diligence searching for another job to mitigate damage, (33) but they "need not go into another line of work, accept a demotion, or take a demeaning position." (34) Terminated workers need not move to another city. (35) Attending school or helping a spouse start a new business after a failed job search following an employment termination is not necessarily a failure to mitigate. (36)

Traditionally, in the 11th Circuit, damage awards for lost pay were vacated if the defendant could prove that 1) the terminated plaintiff did not use reasonable effort searching for replacement employment; and that 2)...