economic damagesEmployers do not always need to provide a good reason for terminating their employees, but in some cases, it can be considered wrongful termination. The remedy for wrongfully terminating an employee is typically to provide financial compensation for economic damages the employee faced. Whenever a person is terminated from their position, it is expected that they will go through some period of economic loss prior to finding a new job. Even after they find a new job, they still might not be able to make the same amount as in their previous position. 

Many factors play into what economic damages result from wrongful termination and they may vary greatly from person to person. The help of expert economists is frequently used in order to determine economic damages that have occurred after a wrongful termination. Labor economists play an important part in wrongful termination cases and their input on these matters greatly affects the outcome. 

Lost Earnings

The economic damages that occur from a wrongful termination are caused by a person’s lost earning from losing their job. A person’s lost earnings can also vary depending on the amount of time they were unemployed. This includes receiving compensation for back pay and front pay. 

Back Pay

Back pay refers to the amount that the employee would have made from the date they were terminated up until the day the trial begins. Had they not have been fired, this is the amount they would have made. The employee’s back pay would be the amount of their lost earnings during this period. Determining how much a person’s back pay is can be simple by providing documentation of their previous earning in the position, including any benefits or bonuses they might receive. 

Front Pay

Front pay is intended to provide compensation so that it makes it as if the employee was never terminated. After being let go, it can take longer for a person to make the same amount they had with their old position. Unlike back pay, front pay provides compensation going into the future, not only up to the day of the trial. This is done when reinstatement is not an option, which could be the case for a number of reasons. Determining front pay can be difficult, which requires economists to determine when the employee would realistically be at the same level they were before they were terminated.  

Loss of fringe benefits

In many jobs, a person’s wages are not the only economic loss they might have experienced. The loss of benefits from their termination must also be determined to understand what the economic damages are. For many, these benefits include medical coverage provided by their employer. Some companies might also offer benefits such as stock options and transportation reimbursement. A common benefit that many employees have through their employer is retirement plans. The total amount of benefits a person receives from their employer can be significant, so it’s important that these are taken into consideration when determining economic damages. 

Efforts to Mitigate Loss

The natural step to take after losing a job is to find a new one quickly, and it’s also expected of someone after they’ve been wrongfully terminated. After being terminated, employees do have a duty to mitigate the damages they might have faced. A person must be able to prove that they made efforts to find a new, comparable job for themselves. That’s to say, an employee can’t pass up job opportunities if they’re available. 

The defendant may be able to show that no significant attempts to secure a new job were made, which would make the economic damages they’ve faced worse. If a person doesn’t make an adequate attempt to provide for themselves when positions where available, they can’t place all of the blame on their employer. In order to show this, defendants may gather information regarding similar jobs in their location the employee could have applied to but failed to do. 

If the employee has already been hired for a similar job, the amount they are owed in back pay can also change depending on their new wages. In some events, a person might take a new job after they were wrongfully terminated where the pay is greater than what they had previously made. If the employee makes more in their new job, these wages can be used to offset what they would have been owed in back pay.  

Labor Economist Consulting Services

Determining economic damages from wrongful termination requires close attention to detail to carefully analyze all data involved. With the help of experienced labor economists, economic damages can be clearly proven, making them critical in wrongful termination cases.



G. Edward (Ted) Anderson is a Senior Economist and Principal of Welch Consulting, located in the Los Angeles, California office.



The opinions expressed are those of the author(s) and do not necessarily reflect the views of our firm or its clients.