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Calculating a Wrongful Termination Settlement

Published November 8, 2021

Calculating a wrongful termination settlement can be incredibly complex. If you feel that you have been wrongfully terminated, or if you felt that you had to leave a position of employment that you felt was hazardous or hostile, you have the legal right to pursue claims of compensation from your former employer. Those who have been wrongfully terminated are best served by employing a lawyer who knows your legal rights. Here are some fundamental aspects of employee rights and employer duties that you should know before you seek compensation.

What is a Wrongful Termination Lawsuit?

When an employer fails to follow proper procedures before terminating an employee, the employee has been wrongfully discharged which is known as a wrongful termination. The basis for a claim can include acts of retaliation, violation of right to work laws, or workplace discrimination. Examples of such discrimination include racial, disability, religious, sex, age, and sexual orientation discrimination.  Further, you will need to establish evidence to support your claim which involves gathering multiple data points to calculate a settlement. Below is an example of a significant plaintiff award: Martinez v Rite Aid Corporation

How are Wrongful Termination Settlements Calculated?

Quantifying these damages requires calculating your total annual compensation from your former job. This includes your annual salary, bonuses and commissions, lost future raises, and all lost benefits. This number is then multiplied by the sum of the number of years that you have been unemployed and the number of years you can be reasonably expected to remain unemployed if you have not already found unemployment.  A simple formula for calculating damages in a wrongful termination lawsuit might look like this:

(Total Annual Compensation) x (# of Years Unemployed) = Economic Damages

However, this doesn’t account for numerous factors like age, type of job, education, experience, years expected to continue working, pain and suffering, and countless others. That’s why it’s critical to consult with an expert in forensic economic damages.

Types of Damages in a Wrongful Termination Case

There are various types of damages, which can be divided into economic and non-economic.

Economic damages include both past earnings and future earnings. Past earnings is the cumulative amount of income lost from the time you were fired until the time of trial. Future earnings is the anticipated income lost from the trial date until you are reinstated at a new job, either by the previous employer or new employer.

Non-economic damages are more difficult to calculate without the help of a forensic expert. These include pain, emotional suffering, and punitive damages. The various types of remedies within these two categories of damages include:

  1. Loss of Earnings
  2. Loss of Benefits
  3. Medical Expenses
  4. Cost of Job Search
  5. Pain and Suffering
  6. Punitive Damages
  7. Attorney Fees
  8. Liquidated Damages

Loss of Earnings

Lost earnings are damages in a settlement that were suffered from any lost income after termination, including. This includes past and future income. Lost future income is not only the income lost from being unemployed until you become rehired, it also includes any unrealized earnings growth from anticipated raises and expected promotions. Find out what factors are involved in a loss of earnings calculation.

Example: Assume you have been unemployed for six months before being rehired by a new employer at your previous annual $60,000 salary. If you can show that you were originally scheduled for a $10,000 raise from your previous employer three months after losing your job, you may be entitled to a remedy of $30,000 for the six months of lost base salary plus $2,500 for the three months of lost salary from the anticipated raise, for a total of $32,500.

Loss of Benefits

In addition to lost wages, lost benefits are also damages awarded in a settlement. These include the expenses for replacing fringe benefits like health insurance, life insurance, dental and vision insurance, or other non-pecuniary benefits that were part of your former employment agreement.

Example: Assume that after termination you were forced to pay the share of health insurance premiums that was previously covered by your prior employer to retain healthcare coverage under the COBRA act. If during your six months’ time of unemployment you paid $1,500 per month in additional healthcare premiums, you would be eligible for $9,000 in remedies.

Medical Expenses

A settlement can also compensate for medical expenses incurred from the loss of health coverage previously provided through your prior empower. If you were not able to continue coverage after termination, and you were unable to acquire affordable health insurance to replace it, then you would be eligible to be compensated for all of your medical expenses that would have been covered under the previous coverage.

Example: Assume your previous health plan had a 20% copay with a $500 deductible. If you suffered an injury that required hospitalization and medical services that totaled $10,000 in medical bills, and these services would have been covered by your previous healthcare policy, then you would be entitled to $7,500 in compensation. This is equal to 80% of the total covered medical expenses, less the $500 deductible.

Cost of Job Search

Job search expenses are damages in a settlement that include any reasonable expenses incurred during your search to replace the lost job.

Example: If you had to travel to another city or state for conducting job interviews, and the prospective employer did not compensate you for your expenses, then you may be eligible for compensation for the hotel and transportation costs you incurred.

Pain & Suffering

The remedy for this damage in a settlement reflects any problems directly arising from the emotional distress that can be attributed to the lost job. The amount to be awarded for emotional distress is entirely up to the jury, which makes it difficult for your lawyer to estimate what you might receive for this remedy.

Example: The monetary value from these damages tend to increase if you have been diagnosed with major depressive disorder or post traumatic event syndrome. These damages can also increase if the emotional distress has led to a divorce or significant financial problems due to loss of income. You can be compensated for the expenses you have incurred in receiving counseling to address these issues.

Punitive Damages

You may also receive non-economic damages, which are provided in wrongful termination lawsuits if the employer has knowingly retaliated against or discriminated against you in violation of the law, or engaged in egregious or outrageous conduct with malice or reckless indifference. The value of this remedy in a wrongful termination claim is also determined by the jury and is difficult to predict. While rare, some recent cases have awarded up to $8 million in punitive damages to claimants.

Attorney Fees

If found guilty, the employer is required to pay the legal expenses and court costs you have incurred. This also includes the attorney contingency fee and any out-of-pocket expenses paid by the employee while pursuing the lawsuit.

Liquidated Damages

Some employment contracts have designated damages for which the employee is responsible upon contract termination. These expenses may also be waived by the court. For example, your employer may have paid the expenses for you to pursue education or training that was intended to help you carry out your job responsibilities. However, these reimbursements often require you to remain employed with the company for a minimum amount of time. Your employment contract may stipulate that if you leave your position prior to completing this period of time, you are liable for repaying the company some or all of these expenses. If you have been found to be wrongfully terminated, you may be eligible for remedies that compensate you for the education and training expenses you were forced to repay.

Average Wrongful Termination Settlement Amounts

The average wrongful termination settlement will vary. According to Equal Employment Opportunity Commission (EEOC) data, it’s estimated that an average out of court settlement varies from $5,000 to $80,000.  However, research has shown that higher settlement amounts occur when:

  1. The employee refuses the first settlement offer made by the employer
  2. The employer firm is larger in size
  3. A lawsuit is officially filed, and the employee initiates the discovery process for finding evidence

Studies of wrongful termination verdicts estimate that about 10% of wrongful termination cases result in a verdict of $1 million or more. Wrongful termination due to racial, disability or sex discrimination tend to generate higher settlements, particularly when involving physical harm or mental health issues on the employee.

Proving Damages in Wrongful Termination Claims

Proving wrongful termination damages is more than just an attempt at personal vindication against an employer. Successfully recovering your economic losses requires a thorough analysis of the facts and situations related to the termination. To illustrate, consider the case of unlawful discrimination under Title VII. The claimant must prove either of two theories: disparate treatment or disparate impact. Furthermore, calculating a settlement can go up and down based on many of the topics previously discussed. A forensic economist will have the expertise needed to successfully support the claimed damages.

You May Need a Forensic Economic Expert Witness to Testify at Trial

The National Association of Forensic Economics defines forensic economics as the application of economic theories and methods to matters within a legal framework. A forensic economist can be called on by a law firm as an expert witness during a civil trial to clarify and verify economic claims made in court. They are vital for contributing specific knowledge and giving expert advice on economic issues and other factors relevant to building a case when you pursue a claim of wrongful termination, including those related to COVID-19. Forensic economic experts gather the necessary information and assess the evidence for calculating both actual and potential losses of income and benefits. They are expert witnesses who gather data, perform analysis, and present facts, all within an open process that is available for review and verification by all parties involved. The analysis and results are provided in a report that is guided by law and satisfies the standards of legal precedence. The Knowles Group has been actively participating in trial work for 30+ years. Learn how we calculate economic damages in medical cases. Click here to see a list of our trials.

Eric Knowles, MBA

The Knowles Group has been providing professional economic services to the legal community since 1979. The firm has worked on behalf of thousands of attorneys in a dozen states and Canada. Testimony has been provided in both federal and state venues.