How to Calculate Damages in Employment Litigation

Male and female entrepreneur brainstorming over document during meeting in office
••• Maskot/Maskot/GettyImages

Related Articles

For those involved in employment litigation, as either an employer facing a lawsuit or as an employee who files it, it is important to know what kinds of damages are available and how to calculate them. Understanding this can help determine the amount of an award a jury's verdict will bring or the appropriate amount to offer or expect to receive when settling out of court.

Types of Employment Litigation

The U.S. Equal Employment Opportunity Commission (EEOC) states that employers must have a specific number of employees for coverage under anti-discrimination laws. This number will vary on the type of employer and the discrimination alleged. Some laws that protect workers are:

  • Title VII of the Civil Rights Act: Prohibits private employers with over 15 workers from discriminating against an employee including based on color, race, sex, religion or natural origin or ancestry, familial status and disability.
  • Pregnancy Discrimination Act: Prohibits businesses with 15 or more employees from discriminating due to pregnancy or related conditions.
  • Equal Pay Act: Men and women must earn the same wages for equal work in the same workplace.
  • Age Discrimination in Employment Act: Prohibits businesses with 20 or more employees from discriminating against workers over age 40.
  • Title I of Americans With Disabilities Act (ADA): Prohibits companies with 15 or more employees from discriminating against disabled employees.

In addition to federal laws, states have their own laws that prevent discrimination, harassment and hostile work environment. State and federal laws cover job applicants as well as employees.

Wage and Hour Laws

An employer can find themselves in a lawsuit based on wage law violations on the federal, state or local level. These are known as wage and hour laws​.​ The Federal Labor Standards Act (FLSA) covers these and sets the federal minimum wage, governs child labor, overtime pay and record-keeping. The FLSA protects both exempt and nonexempt salaried workers. Many states, counties and cities also have their own wage and hour laws that can exceed the federal requirements.

A worker can bring a wage claim against an employer who failed to pay overtime or minimum wage pay. In some instances, misclassification occurs if an employer classifies workers as independent contractors to keep them from getting health insurance, overtime pay or other employee benefits they would be entitled to.

Unlawful Workplace Conduct and Employee Options

When subjected to unlawful conduct, employees can pursue actions to collect damages. Those who faced a demotion or lost a promotion can file a claim for lost wages to cover the difference in earnings and benefits between their current position and the one they lost in those instances.

When an employee resigns in the face of unlawful conduct by an employer, it may be viewed as surrendering their legal rights or, on the other hand, could be seen as a "constructive" firing. Employees can also lose their claim for unemployment insurance (UI) benefits, although some states will pay them if the employee had "just cause" for leaving. The general purpose of monetary damages is to compensate the worker for what they lost as a result of the employer's actions. A worker in a lawsuit against their employer must prove they suffered losses and show how much they lost.

Defining General Damages in an Employment Action

General damages are more abstract than simple wage claims; they are also more challenging to calculate because they are subjective. Emotional distress, mental anguish, PSTD, shortened life expectancy, pain and suffering, disfigurement, long-term medical care or treatments, and defamation can all qualify for general damages. Loss of consortium, defined as having trouble developing or forming relationships after the incident, also falls under this umbrella. Courts base awards for general damages on the seriousness of the case; the more detrimental the event is to the plaintiff, the larger the award can be.

Defining Compensatory Damages

Compensatory damages, also known as special damages, describe costs to the worker as a result of their firing. These can include out-of-pocket medical, travel or moving expenses. The court will need evidence of these damages, such as medical or moving bills or some other proof of payment to these entities. These can also be economic damage; for example, the worker can show how losing their job damaged their credit because they couldn't pay their bills and resulted in higher interest rates and less borrowing power.

When a worker is unlawfully fired, they should keep written records of the events leading up to that incident and be specific about who, what, where, how and why. To maximize the value of their court case, they should diligently organize this information in a physical or digital folder, along with their records.

Defining Punitive Damages

Punitive damages, also known as exemplary damages, are those damages an employer must pay for particularly egregious workplace actions. These damages don't reimburse a worker for actual losses; instead, they intend to punish the employer to prevent them from engaging in similar future behaviors. Most claimants cannot recover punitive damages, and even when are awarded punitive damages can be challenging to recover and quantify. As a result, the court can ask the employee to show a significant burden of proof regarding punitive damages, and the amount of the award is entirely at the jury's discretion.

Compensatory and Punitive Damage Awards

A worker may receive compensatory and punitive damages in an intentional employment discrimination case based on their race, color, sex (such as sexual orientation, gender identity and pregnancy), genetic information, religion or disability. There are limits as to how much a person can recover in a lawsuit based on the size of a business, according to the federal Equal Employment Opportunity Commission (EEOC):

  • For companies with 15 to 100 employees, the limit is $50,000.
  • For companies with 101 to 200 employees, the limit is $100,000.
  • For companies with 201 to 500 employees, the limit is $200,000.
  • For companies with 500 or more employees, the limit is $300,000.

Under the Equal Pay Act, victims of intentional age discrimination or sex-based wage discrimination cannot recover compensatory or punitive damages, but they can seek "liquidated damages." The amount of a liquidated damage award is usually equal to the back pay awarded the victim.

Defining Back and Front Wages

Back wages are earnings that an employee would have earned if the lawsuit had not occurred. To calculate these, the worker can subtract what they made after a firing, demotion or lost promotion from what they made before. This takes some guesswork because there are many elements up in the air; the total amount of back wages should cover the time between when the incident occurred and when the court issues the award. This may or may not happen quickly due to several factors, including the court caseload.

Front wages are wages that a worker would have earned were they not fired, demoted or passed over in a promotion; these incur from the time they win at trial until a future point to be determined. The court usually awards these earnings after testimony from an expert who can offer data about the foreseeable future and assess an adequate replacement income.

A worker can calculate this estimate by thinking about when they roughly find replacement income. If it's within two years, it is more likely that there won't be any front wages awarded because the worker would have replaced their income before the trial concluded. If it isn't within two years, the worker can assume they will receive about two years worth of front wages, but there is no guarantee that they will get that much, as these amounts are discretionary.

Lost Wage Formulas

These formulas can help a worker or employer roughly calculate damages in wages and other benefits.

  • Begin with the value (adjusted for inflation) of the worker's wages or salary and benefits (for example, health insurance) they would have earned from the date of the event up until the date of the court verdict. This will be the worker's past lost wages.
  • Add the value (also adjusted for inflation) of the worker's wages or salary and benefits, beginning with the verdict and continuing for as long as they may reasonably have been on the job. This will be the worker's future lost wages.
  • Finally, add other damages caused by an employer's behavior for an approximate total. For example, in New York, emotional distress awards can be between $30,000 to over $200,000.

Future lost wages and benefits are not easy to calculate for various reasons, mainly because there is no way to know how long someone would have stayed at their job had the incident not happened. However, there are tangible factors that give a rough idea of how long this would be, including the employee's age, work performance and intent regarding the time they worked with the employer and the odds that the business would continue operations that included their job.

High-Level Earners and Lost Benefits and Wages

A high-level wage earner in a lawsuit with their employer can also recover damages for the amount of money and benefits they would have earned during that time just as someone who makes less money would. This includes damages for overtime, unpaid wages and any other compensation withheld by the former employer.

Employees can also recover their bonuses and health insurance, pensions, 401ks, stock options and profit-sharing. If the worker earns money while litigation continues, the court may reduce the payout. High-wage earners who are out of work longer will see significantly greater damages than someone who earns less and gets a new job reasonably quickly.

For example, if an executive in a wrongful termination lawsuit earned $1 million annually and got a new job making $750,000 a year, they can recover $1 million in lost wages loss, plus an extra $250,000 per year for future wages lost and a mitigation salary of $750,000 for a few years. Due to the complex calculations of mitigation losses, net present value, and other financial issues, the court may require expert testimony from an economist. The court will subtract what the worker earns from their total damages award; other elements can also affect that number, such as disability or unemployment insurance benefits. The court can also project economic damages beyond the verdict date or compensate the worker for losses that they will incur in the future.