Classification and valuation of damages under Title VII.

• Author: Reiss, Jerry

The starting point for any valuation of liability in an employment case is a review of the particular statutes that define and limit the available relief. The case law interpreting these statutes is useful, but does not substitute for the statutory language. Title VII may be the most challenging of these statutes. The Civil Rights Act of 1991 (1) (the CRA) added elements of damages to supplement the equitable relief traditionally available under Title VII. However, the additional categories it created have complicated the valuation process, accounting for some of the confusion and conflicts between experts and the courts on some important issues. This article will discuss some approaches to avoid that confusion.

The authors begin with a definition of front pay and distinguish it from front-end damages because certain front-end damages that exceed front pay qualify under the CRA as "future pecuniary losses" (2) subject to the statutory cap. By contrast, front pay is not subject to the statutory cap. (3) Adding to that, most of the circuits have ruled that front pay awards should not be decided by a jury and should only be granted by the trial judge after first determining that reinstatement is not a feasible option. A jury, however, may determine front-end damages. Next we identify back pay awards and distinguish them from back-end damages. Certain back-end damages will be subject to the cap, whereas back pay awards are not.

As will be shown, the proper characterization of damages is important in order to avoid under-compensating or over-compensating an employee, which may result in lower awards due to caps, but a proper characterization may increase them.

Front Pay Awards

The purpose of front pay is to provide an equitable remedy when it is impractical to order the employee's reinstatement to his or her previous job. (4) While reinstatement is the preferred or default remedy, a hostile work environment that existed before the litigation may make reinstatement impractical. (5) Oftentimes, the litigation itself creates an atmosphere of animosity that makes reinstatement unworkable. (6) Many employers will not want reinstatement for the fear that the animosity, which was created during litigation, will carry forward into the workplace. Other times, the position has already been filled. While it is not unheard of for courts to order a replacement employee discharged to recreate the vacancy, this relief is not always imposed.

When reinstatement is not a feasible option, the front pay award is only intended to bring the employee to the point where he or she would have been had the unlawful termination not occurred, i.e., to make the employee "whole" (7) or to restore the status quo. (8)

Likewise, if the discrimination under examination is a failure to promote, then front pay awards are measured by the income likely lost as a result of that failure. Use of the word likely is deliberate because the process of valuing lost pay is not an exact science.

Back Pay Awards

Back pay awards include pay and benefits lost as a result of the unlawful discrimination up to the time of trial. If the case involves an unlawful firing, then this loss includes wages and benefits that likely would have been earned had there not been an unlawful termination. These awards must be mitigated by what has been earned, or reasonably could have been earned, during the interim. (9) If the defendant is able to demonstrate that satisfactory efforts have not been made to secure new work, the judge or jury may decrease the amount of an award to reflect this mitigation. (10) Likewise, if the issue under examination is a failure to promote, then back pay awards are determined by the additional income likely lost as a result of that failure.

Another item to consider is sometimes thought of as a future loss, but is better considered a component of back pay. A valuation should include seniority-based benefits, certain types of retirement and welfare perks that pay benefits in accordance with a formula or schedule that is based on years of service. (11) This loss of accumulated service credit produces a future benefit component which is undervalued when reinstatement is not ordered, or retroactive service credit not given. As such, this future benefit, to the extent it relies on service credit lost up to trial, can be shown as back pay.

The reason is that in order for the employee to be made "whole," a subsequent employer must offer the same value of benefits as well as the same amount of compensation. When the new company's schedule of compensation and benefits are identical, the employee is made whole with respect to front pay. However, the amount of future benefits is not identical even when the schedule of benefits is identical, because of lost seniority. These benefits are net...