Calculating Economic Loses from Lost Earnings in Employment Termination Cases in the Ninth Circuit

Cardboard box with office suplies on the desk. Dismissal of employment and resignation concept. Bankruptcy and economy crisis.

Charles L. Baum II, Ph.D.

Published June/July 2022

The United States Supreme Court during its 2019-2020 term reviewed several employment termination cases to determine whether the Civil Rights Act protects workers based on sexual orientation[1] and gender identity.[2]  The Supreme Court determined (in Bostock v. Clayton Cty., Ga., No. 17-1618 (June 16, 2020)) that protections extend to these workers. This will likely make economic damage awards in employment cases more prevalent. Federal courts already awarded damages for economic losses from wrongful employment terminations due to discrimination based on gender, race, national origin, and religion under Title VII of the Civil Rights Act, age through the Age Discrimination in Employment Act (ADEA), disability through the Americans with Disabilities Act (ADA), and pregnancy through the Family and Medical Leave Act (FMLA). 

This article reviews methods used to calculate economic losses and evaluates whether these approaches are acceptable under federal statutes and Ninth Circuit case law.  Eight key elements are examined. 

Lost earnings

Economic losses from lost earnings are awardable in federal employment termination cases to make wrongfully terminated workers whole.[3]  Damages for both back pay (lost earnings from the time of the termination to trial)[4] and front pay (lost earnings after the trial)[5] are available, though reinstatement is available as a substitute remedy that may be preferred to front pay.[6]  Front pay should be the monetary equivalent of reinstatement.[7] Awards for lost pay in termination cases should be calculated as the amount the plaintiff would have earned absent the termination with the amount actually earned or that could have been earned after the termination deducted.[8]

Economic loss calculations have been based on the worker’s average earnings over the several years prior to the termination or on earnings at the time of the termination.[9]  This information is likely reported on income tax returns, w-2 forms, and pay stubs.[10]  When this information is not available, or when past earnings is not believed to be an accurate reflection of lost front pay, occupation-specific average earnings from the Bureau of Labor Statistics for each state and metropolitan area may be considered.[11]

Fringe benefits

Many workers prefer to receive a portion of their compensation in the form of fringe benefits.  According to the Bureau of Labor Statistics, currently the average employer cost of fringe benefits for private-sector workers is 29.9 percent of total compensation and the average employer cost for public-sector workers is 37.7 percent of total compensation.[12]  Common fringe benefits include insurance, retirement, and government-mandated benefits.  The monetary value of a worker’s fringe benefits could be measured by the terminated worker’s cost to replace them in the market or as the employer’s cost to provide them.[13] These amounts will differ when employers receive group rates or when benefits through employers are tax deductible.  Lost fringe benefits are typically awardable as economic losses in federal employment cases.[14]  However, in the Ninth Circuit, health and life insurance are valued as out-of-pocket replacement costs incurred by the terminated plaintiff, rather than the cost of the premiums to the terminating employer.[15] If the terminated worker did not replace the lost health insurance, then the medical costs while uninsured that would have been paid by the defendant’s insurance plan are awardable.[16]

Worklife projections are published in tables by economists based on government survey data and are functions of the probability of being alive, able to work, and in the labor force.

Worklife expectancy

Courts must determine the appropriate period over which to calculate losses when awarding damages for lost front pay.  In the Ninth Circuit, this should be “temporary in nature”[17] and should not be “an annuity to age 70.”[18]  The Ninth Circuit otherwise provides no stipulations for the duration of lost front pay.  Three approaches have been used.  First, courts have considered the period to common retirement ages, such 62, 66, or 68 years.[19] The Social Security Normal Retirement Age, which is the age one first becomes eligible to retire and receive full retirement benefits, has historically been 65 years, but it increases by 2 months for each year from 1938 to 1943 and from 1955 to 1960 after 1937 in which an individual was born, up to a maximum of 67 years for those born in 1960 or thereafter.  Second, courts have used worklife projections.[20]  Worklife projections are published in tables by economists based on government survey data and are functions of the probability of being alive, able to work, and in the labor force.[21]  Worklife projections are provided for each age and separately by gender, race, education, and labor force status (e.g., for those employed and for those unemployed).  Third, courts have used fixed post-trial periods (e.g., 3 or 11 years).[22]

Mitigating factors

Those who are injured are typically expected to take action to limit damage.  Federal courts require terminated workers to attempt to minimize their losses by finding another job in employment cases.[23]  In turn, courts have awarded economic damages for the difference in what earnings are projected to have been absent the termination and actual or projected earnings given the termination.[24]  Terminated workers are required to use diligent effort to find reasonably comparable employment.[25] However, they need not “go into another line of work” or “accept a demotion.”[26] In the Ninth Circuit, damage awards for lost back and front pay are not forfeited by a failure to mitigate, but they should be reduced by what the plaintiff could earn with reasonable mitigation efforts.[27]  The burden to prove the plaintiff did not adequately mitigate damage resides with the defendant.[28] In the Ninth Circuit, the defendant must prove both the availability of substantially equivalent positions the plaintiff could have obtained and that the plaintiff did not use reasonable diligence seeking them.[29]

Terminated workers may receive income or benefits from collateral sources.  If deducted, then the collateral benefits may become a windfall for the wrongdoer.  If not deducted, then the plaintiff may receive a double recovery.  Just the opposite, it would seem consistent for a payment from a fund financed by the defendant employer to be credited against any liability.[30]  Federal courts in most circuits have wide discretion to deduct collateral benefits in employment cases.  For example, in the Ninth Circuit, unemployment benefits have been deducted in some employment cases—with the court maintaining the discretion to apply the collateral source rule[31]—but not in other cases.[32]

Growth rates

Economic theory predicts wages will grow over time, with price inflation and labor productivity, and over a worker’s career, with on-the-job training and work experience.  Federal courts have awarded economic losses for lost front pay with wage growth incorporated.[33]  Courts have based wage growth on the rate of past raises and salary increases, shown on tax returns.[34]  Historical rates of wage growth can be calculated from data provided by the Bureau of Labor Statistics.  Their Current Employment Survey provides wage information for production and non-supervisory workers and their Employment Cost Index does so for civilian workers.[35]  Future wage growth forecasts are provided by economists for the Economic Report of the President, the Congressional Budget Office, and the Social Security Advisory Board.[36]  Ninth Circuit courts have not made any adjustments for wage growth absent evidentiary support.[37]

Discounting to present value

Federal courts direct future losses to be discounted to present value[38] so that a lump-sum damage award when invested by the terminated worker will grow to the amount of the future loss when that loss would have occurred.  This is necessary because invested money earns interest. 

Courts in federal employment cases have used three methods for present-value discounting. The ‘case-by-case’ method uses separate and independently-determined rates for future wage growth and present-value discounting. The ‘below-market’ discount method uses a market interest rate on investments otherwise used for discounting, adjusted for the taxes that would be paid on investment earnings, minus the rate of general price and wage inflation as measured by the Consumer Price Index.  The ‘total offset’ method uses the same rate for wage growth and present-value discounting such that the two cancel each other out, resulting in no explicit adjustments for either.  The Ninth Circuit does not specify a rate for present-value discounting, and any of these approaches may be used.[39]

Courts in federal employment termination cases indicate the interest rate to use for present-value discounting should be one on “the best and safest investments,”[40] but no further guidance is provided.  Interest rates are higher on riskier investments, all else equal, to compensate investors for assuming risk.  Interest rates are also higher, all else equal, on investments with longer maturities, because risk (or uncertainty) increases with time.  Many consider short-term government treasuries to be the investment closest to being risk-free.  Treasury bills are securities with a maturity of a year or less, while treasury notes have maturities of more than 1 year, but less than 20 years, and treasury bonds have maturities of 20 or more years. 

Interest rates for discounting could be based on historical averages, the current rate, or a forecast of future rates.  Information on historical and current rates is available from the Federal Reserve Bank.[41]  Reasonable periods for historical averages may be 20 or 30 years.  Alternatively, a past period equal to the length of the future period over which lost front pay is projected may be appropriate for historical averaging.  Current rates indicate the amount of interest that can be earned on investments made today but may not represent future rates. Future interest rates are forecasted by economists for the Economic Report of the President, the Congressional Budget Office, and the Social Security Advisory Board.[42]

Pre-judgment interest

According to the economic theory for the time-value of money, increasing past losses for interest is the mirror image of discounting future losses for interest.[43]  Courts in the Ninth Circuit retain discretion to include pre-judgment interest for the lost use of back pay in economic damage awards.[44]  This is part of the process of making wrongfully terminated workers whole, because their lost pay if invested could have grown with interest. Federal statutes do not define the rate to use to calculate pre-judgment interest.  The court in the Ninth Circuit also retains discretion over the rate to use for pre-judgment interest.[45] Although different interest rates have been used, including state statutory rates and the IRS rates in 26 U.S.C. § 6621, the Ninth Circuit prefers the federal post-judgement rate specified in 28 U.S.C. § 1961—the rate on 52-week treasury bills.[46]

Tax adjustments

The U.S. Supreme Court has ruled that awards for economic damages in employment termination cases are taxable as income.[47] However, the tax owed on an award for economic losses may be different than the taxes that would have been paid on the earnings when otherwise received. First, a lump-sum payment if sufficiently large may move the terminated worker into a higher federal income tax bracket during the award year.[48]  Second, payroll or FICA taxes for Social Security and Medicare may not be owed on income from a damage award but would have been owed on earnings from employment.[49]  Third, worker contributions toward many fringe benefits, such as health insurance, are tax deductible but a damage award for lost fringe benefits will be taxed as income. 

The Ninth Circuit has recently joined several other federal circuits in leaving tax gross-ups to the discretion of the court, to make the plaintiff whole, after previously not authorizing compensation for tax differentials.[50] In other federal circuits, the plaintiff bears the burden of quantifying the needed tax adjustment, which can be satisfied with testimony from an economist.[51]


Attorneys and their clients likely must address eight key elements when calculating economic damages from wrongful employment terminations in federal cases.  This review is designed to provide a survey of the methods available to use in those calculations.  It also identifies which of these approaches have been used by federal courts and are permissible in the Ninth Circuit.  Since the U.S. Supreme Court has determined that Title VII protections provided by the Civil Rights Act extend to sexual orientation and gender identity, the methods outlined in this review can be applied to a new set of employment termination cases.

Charles Baum, Economics & Finance faculty.

Charles L. Baum earned a Ph.D. in economics in 1999, is a professor of economics, and has served as an economics expert in many employment cases around the United States.


[1] Zarda v. Altitude Express, Inc.,883 F.3d 100, 106(2d Cir. 2018); Bostock v. Clayton Cnty. Bd. of Comm’rs, 723 Fed. Appx. 964 (11th Cir. 2018).

[2] Equal Emp’t Opp. Comm’n v. R.G. & G.R. Harris Funeral Homes, Inc., 884 F.3d 560, 574 (6th Cir. 2018)

[3] Albemarle Paper Co. v. Moody,422 U.S. 405, 418 (1975).

[4] Id.

[5] Cassino v. Reichhold Chemicals, Inc., 817 F.2d 1338, 1346 (9th Cir. 1987).

[6] Thorne v. City of El Segundo,802 F.2d 1131, 1136 (9th Cir. 1986).

[7] Traxler v. Multnomah Cnty., 596 F.3d 1007, 1012 (9th Cir. 2010).

[8] Gotthardt v. Nat’l R.R. Passenger Corp.,191 F.3d 1148, 1158 (9th Cir. 1999).

[9] Velasco v. Broadway Arctic Circle, LLC, No. 4:11-cv-00102-BLW, 2012 WL 2505291, at *4 (D. Idaho June 28, 2012).

[10] Kelly v. Am. Standard, Inc.,640 F.2d 974, 985 (9th Cir. 1981).

[11] Bureau of Labor Statistics.  (2019). “Occupational Employment Statistics.”  Washington, D.C., U.S. Bureau of Labor Statistics:

[12] Bureau of Labor Statistics.  (2019).  “News Release.”  U.S. Department of Labor, Employer Costs for Employee Compensation – September 2019.  Washington, D.C.: U.S. Bureau of Labor Statistics:

[13] Galindo v. Stoody Co., 793 F.2d 1502, 1517 (9th Cir. 1986).

[14] Cassino,817 F.2d at 1348.

[15] E.E.O.C. v. Farmer Bros. Co.,31 F.3d 891, 902 (9th Cir. 1994).

[16] Id.

[17] Cassino, 817 F.2d at 1347.

[18] Gotthardt,191 F.3d at 1157.

[19] Velasco,2012 WL 2505291, at *4.

[20] Jadwin v. Cnty. of Kern,No. 07-CV-0026-OWW-DLB, 2010 WL 1267264, at *11 (E.D. Cal. Mar. 31, 2010).

[21] Gary R. Skoog, James E. Ciecka, & Kurt V. Krueger, “The Markov Process Model of Labor Force Activity: Extended Tables of Central Tendency, Shape, Percentile Points, and Bootstrap Standard Errors,” Journal of Forensic Economics, 22 (2): 165-229 (2011).

[22] Traxler,596 F.3d at 1014.

[23] Ford Motor Co. v. E.E.O.C.,458 U.S. 219, 231 (1982).

[24] Cassino,817 F.2d at 1345.

[25] Jackson v. Shell Oil Co., 702 F.2d 197, 201 (9th Cir. 1983).

[26] Ford Motor Co.,458 U.S. at 231.

[27] Thorne,802 F.2d at 1137.

[28] Odima v. Westin Tucson Hotel, 53 F.3d 1484, 1497 (9th Cir. 1995).

[29] Id.

[30] McLean v. Runyon, 222 F.3d 1150, 1155 (9th Cir. 2000).

[31] Naton v. Bank of California,649 F.2d 691, 700 (9th Cir. 1981).

[32] Kauffman v. Sidereal,695 F.2d 343, 347 (9th Cir. 1982).

[33] Cassino,817 F.2d at 1347.

[34] Kelly,640 F.2d at 985.

[35] Bureau of Labor Statistics. (2019). “Current Employment Survey, Employment, Hours, and Earnings of Production and Nonsupervisory Employees.” Washington, D.C., U.S. Bureau of Labor Statistics: (Databases, Tables, and Calculators by Subject). See also Bureau of Labor Statistics. (2019). “Employment Cost Index, Historical Listing – Volume 5.”  Washington, D.C., U.S. Bureau of Labor Statistics: (Table 8).

[36]  Chairman of the Council of Economic Advisers.  (2019).  “Economic Report of the President, March 2019.”  Washington, D.C.: Government Publishing Office. See also Congressional Budget Office. (2019). “An Update to the Budget and Economic Outlook: 2019-2029.” (August 2019 Update); Social Security Trustees Report.  (2019).  “2019 OASDI Trustees Report.”  Washington, D.C.: Social Security Administration, 2016 OASDI Trustees Report, Economic assumptions and Methods, Tables V.B1 and V.B2.

[37] Traxler,596 F.3d at 1014.

[38] Jones & Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523, 533 (1983).

[39] Gauthier v. Eastern Oregon Corr. Inst.,No. CIV 04-290-SU, 2006 WL 2728957, at *4 (D. Or. Sept. 22, 2006).

[40] Jones & Laughlin Steel Corp.,462 U.S. at 537.

[41]  Board of Governors of the Federal Reserve System. (2019). “Economic and Research Data.” (Selected Interest Rates – H.15).

[42]  Chairman of the Council of Economic Advisers, 2019; Congressional Budget Office, 2019; Social Security Trustees Report, 2019.

[43] Arnold v. Pfizer Inc., No. 10-cv-01025-AC, 2015 WL 1262775, at *1 (D. Or. Mar. 18, 2015).

[44] Domingo v. New England Fish Co., 727 F.2d 1429, 1446 (9th Cir. 1984).

[45] W. Pac. Fisheries, Inv. v. SS President Grant,730 F.2d 1280, 1288 (9th Cir. 1984).

[46] Blankenship v. Liberty Life Assur. Co. of Boston, 486 F.3d 620, 628 (9th Cir. 2007).

[47] United States v. Burke, 504 U.S. 229 (1992).

[48] Clemens v. Centurylink Inc.,874 F.3d 1113, 1116 (9th Cir. 2017).

[49] Burke,504 U.S. at 231.

[50] Clemens,874 F.3d at 1116.

[51] Eshelman v. Agere Systems, Inc.,554 F.3d 426, 441 (3d Cir. 2009).