Economic Analysis in Employment Case, Part 5

Other Issues or non-Issues


Lost pension and other deferred compensation benefits may be recoverable as backpay. [County of Alameda v. Fair Employment & Housing Comm’n (1984) 153 Cal.App.3d 499, 509, 200 Cal.Rptr. 381, 386–fringe benefits properly included in backpay award (citing United States v. Lee Way Motor Freight, Inc. (10th Cir. 1979) 625 F.2d 918,

945–“A normal part of the backpay award should have been the inclusion of the company’s health, welfare and pension benefits”); Ackerman v. Western Elec. Co., Inc. (ND CA 1986) 643 F.Supp. 836, 855, aff’d (9th Cir. 1988) 860 F.2d 1514–plaintiff entitled to full backpay award, which includes pension benefits]

Calculating loss:  No widespread consensus exists on how to calculate these lost

benefits. [See Baker v. North Central Dialysis Ctr., S.D. (ND IL 1987) 48 FEP 31, 36–cut-off when plaintiff obtains other employment; Ventura v. Federal Life Ins. Co. (ND IL 1983) 571 F.Supp. 48, 50-51–pension paid through normal retirement date; Blum v. Witco Chem. Corp. (3rd Cir. 1987) 829 F.2d 367, 374–lost pension benefits may be

calculated as part of “front pay”]

According to the forensic economics literature, we would say the best approach would be to compute the reduction in payout at the time of retirement, rather than employer contribution. This approach, however, is more complicated, uses assumptions contributing to perhaps a more speculative figure and this method is more time-consuming for the economist.

Health Benefits

GENERALLY: Fringe benefits lost—use employer contributions. If unavailable or too difficult to obtain then use appropriate national averages. For instance, I have used:

Loss of non-legally required benefits, estimated at 18% of salary, according to the United States Department of Labor, Bureau of Labor Statistics, Employer Costs per Hour, September 2003, the national average non-legally required benefits as a percent of salary is 18% This figure includes paid leave, supplemental pay, insurance, and retirement.

Recovery may be allowed for the replacement cost to the plaintiff (premiums plaintiff must pay to obtain substitute coverage), not merely the amount it would have

cost the employer to provide such coverage. [Wise v. Southern Pac. Co. (1970) 1 Cal.3d 600, 607-608, 83 Cal.Rptr. 202, 207]

Social Security

It is certainly inappropriate to consider this potential loss in employment matters. (The reduction in employer contribution is offset by reduction in employee contribution.) In personal injury matters it is less clear.

Certainly any Social Security Disability payments must be deducted from any potential loss. Employee contributions must also be deducted

I offer the following references and case law in support of potentially excluding legally required benefits in employment cases:

Factor, McConaghy, and Phillips, Litigation Economics, 1997.

Ireland, Horner, and Rodgers, Expert Testimony: Reference Guide for Judges and Attorneys, 1998.

Roseman and Fort, Journal of Forensic Economics, 1992.

Taylor and Ireland, Litigation Economics Review, Fall 1996, pp. 79-88.

Fleming v. Nestor 363 US 603, 4L ed 2d 1435, 80 S Ct 1367 (1960)

Richardson v. Belcher, 404 US 78, 30 L Ed 2d 231, 92 S Ct 254 (1971)

Weinberger v. Wisenfeld, 65 Cal App 3d 136, 135 Cal Rptr 189 (1976)

Marriage of Nizenkoff, 65 Cal App 3d 136, 135 Cal Rptr 189 (1976)

Farquharson v. Travelers Insurance Company, Mich Appp. 329 N W 2d 484 (1982)

Unused Vacation

Unused vacation:  Payment for unused vacation time is recoverable as part of backpay. Vacation pay constitutes additional compensation for services rendered. [Henry v. Amrol, Inc. (1990) 222 Cal.App.3d Supp. 1, 4-5, 272 Cal.Rptr. 134, 136].

Backpay includes “not only the periodic monetary earnings of the employee, but also the other benefits to which he is entitled as part of his compensation.” [Wise v. Southern Pac. Co. (1970) 1 Cal.3d 600, 607, 83 Cal.Rptr. 202, 207].

Nonforfeitable:  California law prohibits employers from enforcing a “use it or lose it” vacation policy (unused vacation time not compensable and cannot be carried over to

following year): “(W)henever a contract of employment . . . provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all

vested vacation shall be paid to him as wages . . .” [Ca Labor § 227.3; see Henry v. Amrol, Inc., supra, 222 Cal.App.3d Supp. at 4-5, 272 Cal.Rptr.

Loss of Future Earnings (“Front Pay”): Damages may include, in addition to backpay, an award of the salary and benefits a wrongfully discharged plaintiff would have earned from the employment after the time of trial. [See Pollard v. E.I. du Pont de Nemours & Co. (2001) 532 U.S. 843, 848, 121 S.Ct. 1946, 1949; Smith v. Brown-Forman Distillers Corp. (1987) 196 Cal.App.3d 503, 518, 241 Cal.Rptr. 916, 924].

Mitigation of Loss

Subtract these earnings  from past loss and future loss.

I repeat the following:

Lifetime front pay upheld under FEHA:  An award of front pay that compensated plaintiff for the remainder of her entire working life has been upheld under California’s FEHA. [See Bihun v. AT&T Information Systems, Inc. (1993) 13 Cal.App.4th 976, 996-997, 16 Cal.Rptr.2d 787, 797-798–damage award upheld based on finding that plaintiff would have remained with AT&T “indefinitely” but for sexual harassment]. See also Williams v. Pharmacia.

A female employee was denied a promotion to company controller because of gender

discrimination. Because no comparable position was available, she could not be “made whole” by staying on the job. An award of postresignation backpay and front pay damages was therefore proper (subject to duty to mitigate damages). [Cloud v. Casey, supra, 76 Cal.App.4th at 908, 90 Cal.Rptr.2d at 765]

The seminal California case regarding the collateral source rule is Helfand v. So. Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1. There, the California Supreme Court stated:  “We therefore reaffirm our adherence to the collateral source rule in tort cases in which the

plaintiff has been compensated by an independent collateral source—such as insurance,

pension, continued wages, or disability payments…”  Id. at 13.

Further, numerous federal courts have applied the collateral source rule to prohibit introduction of disability or unemployment benefits to offset wage loss claims in employment discrimination cases.  Whatley v. Skaggs Co. (10th Cir. 1983) 707 F.2d 1129, 1138 (Title VII action, court held: “The trial court’s refusal to deduct plaintiff’s disability benefits from defendant’s back pay liability is likewise not error.  Such benefits are from a collateral source, and offset is not required.”); EEOC v. Sandia Corp. (10th Cir. 1980) 639 F.2d 600, 625

Punitive Damages

Economic analysis may be required only in assessing defendant’s financial condition. This may include computing net worth and/or business valuation. The latter, in particular, requires somewhat different methodology than what has been discussed herein.

About George Jouganatos, Ph.D.

Professor of economics for over 18 years, taught economics, finance, and quantitative analysis at UC Davis and Santa Cruz, California State University, Sacramento, and University of San Francisco. Has written many economic impact, efficiency, cost, and feasibility studies; designed economic models, strategic plans, and performance measures. Has written and conducted seminars in the field of economics of development, political economy, economic history, environmental economics, public policy, operational analysis, and economic modeling and forecasting. Over 25 years of consulting services providing economic and statistical analysis for the private and public sectors. Specialties include, but not limited to, personal injury, wrongful death, wrongful termination, housing discrimination, employment discrimination, economic loss, business valuations, lost profits, divorce, general economic and public finance issues. Consultation and testimony for numerous attorneys in California, New York, Nevada, Iowa, Montana, British Columbia, Oregon, New Mexico, and Hawaii. Expert witness and article contributor for

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