Understanding Employment Discharge Damages and Lost Earnings Since COVID-19

Explore the impact of employment discharge post-COVID-19 on damages such as lost earnings, wages, benefits, retirement, and more. Learn about components of lost earnings, duration of loss factors, and how to calculate but-for earnings. Understand the nuances of mitigating losses, reinstatement, and claiming future earning capacity in employment disputes.

• Employment Discharge
• Lost Earnings
• COVID-19
• Damages
• Mitigation

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1. EMPLOYMENT DISCHARGE: EMPLOYMENT MARKET CHANGES SINCE COVID-19 Prof. Dan Scheitrum August 17, 2023 San Luis Obispo County Bar Association Continuing Legal Education Presentation

2. Categories of Employment Discharge Damages Past Lost Earnings Wages & benefits Future Lost Earnings Wages & benefits Other contract damages Retirement/pension Stock options etc.

3. Components of Lost Earnings But-for Earnings Generally known with certainty Duration of Loss Mitigation Earnings Level & Timing Earnings Growth Rate Discount Rate

4. But-for Earnings Generally known with certainty Value of terminated employee s wages & benefits they would have earned Usually set at the last available level of earnings at time of separation If claiming denied a promotion or raise, could be based on the earnings given the promotion/raise

5. Duration of Loss Depends on many factors Nature of dispute Reinstatement Mitigation Employment Duration of expected employment with separating employer

6. Duration of Loss (cont.) Depends on many factors Nature of dispute Claim of lost earnings (front pay) or lost earning capacity? Reputational harm? Permanent occupational loss? May claim loss of future earning capacity Lost earning capacity may be calculated through end of worklife expectancy Reinstatement Mitigation Employment Duration of expected employment with separating employer

7. Duration of Loss (cont.) Depends on many factors Nature of dispute Reinstatement If an employee may be reinstated, losses generally stop at that date. May be a date in the future if position is currently occupied, meriting front pay Mitigation Employment Duration of expected employment with separating employer

8. Duration of Loss (cont.) Depends on many factors Nature of dispute Reinstatement Mitigation Employment If employee fails to mitigate, defense may conduct labor market survey indicating availability of substantially similar jobs. If defense demonstrates employee failure to mitigate, losses may cease after duration of reasonable job search Duration of expected employment with separating employer

9. Duration of Loss (cont.) Depends on many factors Nature of dispute Reinstatement Mitigation Employment Employee obtains mitigation employment at equal or greater level of earnings: losses stop at that point Employee obtains mitigation employment at lesser level of earnings, but more rapid earnings growth allows her to overtake earnings at prior position: losses stop at point mitigation earnings exceed but- for earnings Duration of expected employment with separating employer

10. Duration of Loss (cont.) Depends on many factors Nature of dispute Reinstatement Mitigation Employment Duration of expected employment with separating employer Mitigation employment not available? Only available at lesser level? Losses may continue into the future Without permanent occupational/reputational harm, losses are generally warranted through the end of employee s expected employment relationship with defendant employer How to determine this?

11. Duration of Loss (cont.) Length of reasonable job search Rule of thumb Six months One month per $10k of salary Data-driven U.S. BLS: Duration of Unemployment June 2023 Median: 8.7 weeks June 2023 Average: 20.7 weeks Depends on state of economy & job market Changes over time

12. Duration of Loss (cont.) Length of reasonable job search Rule of thumb Six months no basis One month per $10k of salary no basis Data-driven U.S. BLS: Duration of Unemployment June 2023 Median: 8.7 weeks June 2023 Average: 20.7 weeks Depends on state of economy & job market Changes over time

13. Duration of Loss (cont.) Duration of Unemployment (weeks) 45 40 Mean 35 30 20.7 25 20 15 10 Median 5 8.7 0 2004 2005 2012 2022 2000 2001 2002 2006 2007 2008 2009 2010 2013 2014 2015 2016 2018 2019 2020 2021 2023 2017 2003 2011 Source: U.S. Bureau of Labor Statistics

14. Duration of Loss (cont.) Unemployment Rate 18% 16% 14% California 12% 10% 8% 4.6% 6% National 4% 2% 3.6% 0% 2018 2019 2020 2003 2004 2005 2000 2001 2006 2007 2008 2009 2010 2013 2014 2015 2016 2022 2023 2002 2012 2017 2021 2011 Source: U.S. Bureau of Labor Statistics

15. Duration of Loss (cont.) Duration of expected employment with separating employer Function of employee age, industry, education, labor market, and tenure with employer at time of separation Baum, Charles L. "Employee tenure and economic losses in wrongful termination cases." Journal of Forensic Economics 24.1 (2013): 41-66. Economic model that calculates hazard rate likelihood of separation for employees specific to their demographic and employment characteristics and the industry and job market Can be used to calculate likelihoods into the future of employee remaining employed with defendant employer into the future Economist may stop loss calculation when likelihood falls below 50%

16. Duration of Loss (cont.) Consider an allegedly wrongfully terminated: 40-year-old man Restaurant Server 5 years of employment with employer Unemployment rate is 4% HS Diploma Likelihood Remaining Employed w/ Separating Employer 100% 75% 50% 25% 0%

17. Duration of Loss (cont.) Consider an allegedly wrongfully terminated: 40-year-old man Restaurant Server 5 years of employment with employer 2 years Unemployment rate is 4% HS Diploma Likelihood Remaining Employed w/ Separating Employer Likelihood Remaining Employed w/ Separating Employer 100% 100% 5 year tenure 75% 75% 50% 50% 25% 25% 2 year tenure 0% 0%

18. Duration of Loss (cont.) Consider an allegedly wrongfully terminated: 40-year-old man Restaurant Server 5 years of employment with employer Unemployment rate is 4% 8% HS Diploma Likelihood Remaining Employed w/ Separating Employer Likelihood Remaining Employed w/ Separating Employer 100% 100% 4% Unemployment 75% 75% 50% 50% 25% 25% 8% Unemployment 0% 0%

19. Duration of Loss (cont.) Consider an allegedly wrongfully terminated: 40-year-old man Restaurant Server Construction 5 years of employment with employer Unemployment rate is 4% HS Diploma Likelihood Remaining Employed w/ Separating Employer Likelihood Remaining Employed w/ Separating Employer 100% 100% Server 75% 75% 50% 50% 25% 25% Construction 0% 0%

20. Duration of Loss (cont.) Consider an allegedly wrongfully terminated: 40-year-old man Solar Sales 5 years of employment with employer Unemployment rate is 4% HS Diploma College Degree Likelihood Remaining Employed w/ Separating Employer Likelihood Remaining Employed w/ Separating Employer 100% 100% College Degree 75% 75% 50% 50% HS Diploma 25% 25% 0% 0%

21. Wage Growth May be prescribed Union/government employment Alternatively, turn to market information Change in average weekly earnings Average Weekly Earnings of Production and Nonsupervisory Employees, Total Private $1,000 8% $974.45 $750 6% $500 4% $250 2% $0 0% 2023 2007 2019 2000 2001 2002 2003 2004 2005 2006 2008 2009 2020 2022 2010 2011 2013 2014 2015 2016 2018 2021 2012 2017

22. Wage Growth May be prescribed Union/government employment Alternatively, turn to market information Change in average weekly earnings Average Weekly Earnings of Production and Nonsupervisory Employees, Total Private Nonsupervisory Employees, Total Private Average Weekly Earnings of Production and $1,000 $1,000 8% 8% $974.45 Level $750 $750 6% 6% $500 $500 4% 4% $250 $250 2% 2% Annual % change, 5-year rolling average $0 $0 0% 0% 2023 2007 2019 2000 2000 2001 2002 2003 2004 2005 2006 2006 2008 2008 2009 2009 2020 2021 2022 2010 2011 2012 2013 2014 2015 2016 2018 2021 2012 2017 2002 2003 2004 2007 2020 2023 2001 2010 2011 2013 2014 2015 2016 2018 2019 2022 2017 2005

23. Past Lost Earnings But-for Earnings Value of employee s wages & benefits they would have earned but for the separation Less Mitigation Earnings Time to reemployment Level of mitigation income Duration of Loss Through time to reemployment (if mitigation employment at equal or greater level) Alternatively, through trial date Earnings Growth Rate Discount Rate not applicable

24. Future Lost Earnings But-for Earnings Value of employee s wages & benefits they would have earned but for the separation Less Mitigation Earnings Time to reemployment Level of mitigation income Duration of Loss Through time to reemployment (if mitigation employment at equal or greater level) Through end of likely tenure with employer Through end of worklife expectancy Earnings Growth Rate Discount Rate

25. Thank you! Questions? Prof. Dan Scheitrum Scheitrum Consulting, LLC dpscheitrum@scheitrumecon.com 805-316-7175