Economic Damages Case Study

Ex-Employee Overestimates Financial Losses

When an individual is fired or laid off but believes that this event was somehow unfair or in violation of labor laws, they may file a suit against their former employer. In employment law, this is called a wrongful termination suit. The goal of this lawsuit is for the defendant–the former employer–to compensate the plaintiff for economic losses of salary, benefits, and career earnings. But these cases bring up all sorts of questions: Was the layoff simply unfortunate, or was it actually a wrongful termination? Is the plaintiff actually owed any money? If so, how much?

The compensation that the plaintiff hopes to receive is called economic damages. Before trial, economic experts from both sides will each put out an estimate that they feel is most favorable to their client. These estimates incorporate several factors: Past lost wages (salary lost since the employee was fired), future lost wages (money the plaintiff could have been expected to earn, had they not been fired), and benefits or stock options lost in the termination event. They would also take into account subsequent efforts by the plaintiff to find a new job.

The Challenge in Economic Damages Cases

But there are less obvious questions that the economic experts need to consider: What was the plaintiff’s earning history? What is the labor market data in this field–that is, what are the job prospects? And, how likely was it that the plaintiff would have continued to be employed by this same company long-term? Would the plaintiff be able to find a similarly paid position? All of these are important considerations in calculating economic damages. And for Welch Consulting, this is where our expertise lies.

The Economic Damages Case Details

In a big firm, a high-ranking company executive was laid off. She sued the firm that fired her for economic damages. She claimed that she lost a significant amount of money in the lay-off and that even after a lengthy job search, she still could not find a similar position. Her lawyers argued that her firing cost her a career of high earnings.

The plaintiff also argued that the company owed her some benefits besides her salary. At her former firm, she had earned a substantial pension, which she claimed she had lost–and that she would be unable to make up the losses starting at a different firm, since she would have to start at a lower salary. In addition, she claimed she had lost lucrative company stock options.

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Our Economists’ Approach


Our economic consultants regularly work on cases like this one, so after consulting with company HR, we began our analysis.

To start, our experts suspected that the plaintiff was over-stating her losses. We looked at market data for jobs similar to the one from which she had been fired, and found something interesting: The difference in salary between her lost job and a similar one were not nearly as great as she claimed. What’s more, had the plaintiff gotten a new job, she would have started gaining more skills–which could have helped her to earn an even higher salary than she had earned at her previous firm.

We also looked at career statistics for jobs like hers to see how long employees in her position generally stayed at their firms. We found that, generally, employees did not stay nearly as long as the plaintiff expected.

Our Analysis


Our analysis of labor data, turnover statistics, and typical earnings showed that the plaintiff’s losses were not nearly as significant as she and her expert had claimed. In fact, our research showed that if she had obtained a similar position, she could soon have matched and exceeded her previous salary by learning new technical skills.

We also showed that her pension was already fully vested. In the plaintiff’s case, that meant that she could no longer expect her pension to grow, even if she had stayed at her former firm for a longer period of time.

And what about the stock options she had supposedly missed out on? We showed that they had already been paid out. These particular options had only been available to employees once, during a major company-wide merger–so it certainly wasn’t reasonable to expect that to be a common occurrence in the future.

Results of the Economic Damages Case

Welch Consulting’s economic damages experts were able to present a significantly smaller estimate of damages than the plaintiff. Ultimately, the fired employee’s estimates of financial losses were found to be far too high. And because our estimate was based on labor and economic data, and was far more credible, the court agreed with us.

Due to our expert analysis, the court found in favor of the defendant.

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