What is an economic expert, and when does a company need one?

Consider a hypothetical situation in which a company must enact a reduction in force (RIF) due to significant lost profits during the COVID-19 pandemic. In the wake of these terminations, individual employees or groups of employees may allege that the layoffs disproportionately impacted certain protected classes more than others, that the criteria for determining which employees would retain their jobs were shaped by discriminatory animus, or that the layoffs themselves were conducted in an improper manner that violated fair labor standards. The employer may now be the defendant in a class action or single-plaintiff lawsuit, potentially costing millions of dollars in economic damages. Before reaching this point, counsel for the defense would be wise to retain an economic expert.

Economic experts are doctorate-level economists who are skilled at rigorously analyzing employment and labor data and providing recommendations based on their findings. Often these economists may appear as expert witnesses in trial; other times, they may evaluate the merits of claims or class certification, and provide analysis with respect to legislation (such as Title VII, the Federal Equal Pay Act, the Fair Labor Standards Act, or individual state labor laws.) They may also work to accurately and fairly compute economic damages in cases wherein liability is established, or recommend alternate strategies for mitigation if applicable.

The advantage of hiring an economist is not limited to bolstering the defendant’s credibility with the judge or jury at litigation; rather, an economic expert can offer a range of sophisticated analyses that may alter the defense counsel’s strategy and change the outcome of a case. Using well-known techniques such as regression analyses and–in the case of Welch Consulting economists–unique proprietary tools for economic modeling, an economist can isolate appropriate data about employment and hiring, including often-overlooked factors such as employees’ time with the company, level of experience and training, individual employees’ job mobility, or seniority levels taking into account company-wide mergers. In discrimination cases, as in tort cases, economists can also help develop a theory of an award or damages based on accurate calculations of potential profits or earnings that could have been accrued by the plaintiffs, had the event that is the subject of litigation (in the example above, the RIF) not occurred. 

What types of cases would be best served by retaining an economic expert?

There are three main areas in which economic expert analysis can vastly improve the outcome of litigation for the defendant. These are single-plaintiff cases, class action cases, and situations in which the defendant is found to owe economic damages.

Single Plaintiff Cases generally involve allegations of employment discrimination under statutes such as Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA) of 1967, the Americans with Disabilities Act of 1990, the Genetic Information Nondiscrimination Act (GINA), or the Uniformed Services Employment and Reemployment Rights Act (USERRA). This may pertain to claims of wrongful termination, lack of employment or advancement, pay inequity, or unfair or predatory stipulations at employee severance. 

When you need an economic expert

In a single-plaintiff case, the role of the economic expert would be to use hiring and employment data to determine the validity of the plaintiff’s allegation, if necessary serving as an expert witness for the defense, or potentially helping to reach a settlement that avoids litigation for both parties. In either event, this may involve calculation of economic damages: These can include salary, wages, bonuses, stock options, benefits such as health, unused vacation or sick leave, etc. 

An example of a single-plaintiff case in which Welch Consulting economists served as experts involves a minority firefighter who brought charges against the City of Los Angeles after he was the victim of a series of racially-motivated practical jokes. Our economists evaluated the damages report prepared by the expert for the plaintiff, factored the City’s pension and medical benefit alternatives into damages, and presented evidence of alternative re-employment opportunities outside active firefighting.

Class-Action Cases involve a group of employees making the same claim of discrimination, wrongful termination, or pay inequity on the basis of a shared characteristic that they allege has resulted in an adverse effect. Alternatively, Wage and Hour claims are common forms of class action litigation: These cases involve allegations of incorrect–though not necessarily discriminatory or malicious—payments, or allocation of benefits, on the part of an employer to non-exempt (generally non-salaried) employees. These can include missed rest and meal breaks, time-clock rounding or time-shaving, incorrectly compensated off-the-clock or overtime pay, improperly allocated benefits, or misclassification of employees–all to the detriment of the members of the class. 

In a class-action case, one of the first steps taken by an economic expert may be to challenge class certification–that is, prove that the plaintiffs in the case do not in fact demonstrate commonality or typicality. In doing so, the economist would determine whether the allegation of wrong-doing is valid within the entire class, or only a sub-group within that class, and whether it can be shown to exist outside of that class (thus constituting a broader employment practice, with effects not limited to the putative class.) Assuming class certification was not defeated, the economic expert’s analysis would use labor and employment data to determine whether the wrongdoing alleged by the putative class was in fact a result of incorrect or discriminatory practices, or whether the adverse outcome was justified by bona fide reasons or legitimate business practice. In the event of judgement in favor of the plaintiff, our experts would help to calculate economic damages, which may include back-pay or other mitigatory solutions.

A sample class-action suit in which Welch Consulting economists were retained involves a large national food processing company, which was sued for economic damages relating to the amount of time employees spent “donning and doffing” (putting on and taking off protective equipment and non-equipment gear.) Employees claimed all such time should be considered compensable. Our economists combined employment history and payroll data with information about where in a processing line an employee was stationed in order to accurately calculate the extent to which an employee’s donning and doffing time was under-compensated in order for damages to be paid where due.  By isolating non-compensable activities, damage estimates were lowered substantially.

If economic damages are owed, how can an economic expert help?

If the allegations of the plaintiff are found to have merit, then economic compensatory damages, or economic losses, must be paid by the defendant. The amount of these damages is calculated after comparing the earnings or other value forgone as a result of the adverse incident (such as the RIF, in the example up top), minus the tabulation of alternate earnings or any mitigatory efforts, when possible. The economic expert’s calculations could greatly impact the number of damages paid by the defendant. Our economists look at past damages–that is, damages from the event in question (such as wrongful termination) until trial–and future damages, meaning wages or benefits that could have been reasonably expected to be accrued in the future had the event not taken place. Our analyses also take into account contract terms, employee mobility, and labor market factors such as industry uptick or downturn, and also examine whether other forms of mitigation are possible or have been applied.

How can a company limit its risk of class action and single-plaintiff litigation, and avoid costly economic damages?

Welch Consulting recommends that companies work proactively to minimize their exposure in employment and labor disputes. This can include yearly preemptive audits in which our economists can help your organization to identify and address any questionable pay, employment or hiring practices before troublesome allegations arise. In the event of a vulnerability, we can provide adverse impact analysis to determine the extent to which shortfalls may be explained by market fluctuations or justified by legitimate business practices. Companies may also choose to undergo internal audits in advance of OFCCP or EEOP examinations, as well as in advance of potential litigation. Welch Consulting can also help your company with “Big Data” analytics and organization, including labor and employment information, and facilitate the construction of a well-designed database so as to be prepared for any future litigation. 

Get in touch with us today to find out how our economists can support your business with rigorous analysis, expert testimony, and innovative consulting that yields practical solutions.