When an employee alleges wrongful termination, a core issue
that needs to be addressed is the amount of the economic
JOE EPPS, CPA/CFF/ABV, CFE, CVA, PRESIDENT
EPPS FORENSIC CONSULTING PLLC
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How to Assess Economic Damages
Once the terminated employ- ee has retained an attorney who determines the case is
actionable, both the Plaintiff and
Defense must evaluate potential
economic damages, even if the Defense attorney does not believe that
there is liability. The expertise of a
forensic accountant is a valuable resource in determining the relevant
areas to review and analyzing the
Determining Probable Wages
The starting point for the economic
damages is the probable wages (of
all types) that the Plaintiff would
have earned at the Defendant Company. Determining this includes an
analysis of past wage history of
the individual and information from
various sources of the probable future changes in wages.
Sources for these probable future
changes include information from
the employer for wages of others
in similar job positions, and often
consideration of industry wage data.
Depending on the size and sophisti-
cation of the employer, there may
be significant historical data on
changes in wage rates for employ-
ees in the same or essentially simi-
lar job positions. Industry informa-
tion may be considered in order to
get a bigger picture and, for small
employers, as a source for the prob-
able earnings range.
Analyzing Actual Income Earned
and Earning Capacity
One issue that always comes up in
these cases is the mitigation earnings to be offset against the projected earnings. The analysis must include the actual income earned and,
in some cases, the earning capacity.
The actual earnings are usually
provided by the Plaintiff and, once
again, industry data may be relevant
in those cases when earning capacity becomes an issue. Of course, this
can get more complicated when the
Plaintiff changes careers, starts a
business, or goes back to school.
Assessing Other Potential
Once the lost earnings have been
determined, the forensic accountant
turns to other areas of potential
economic damages. Fringe benefits
are the most common wage-related
issue which needs to be addressed.
When a person changes employment positions, there can be significant changes in their employee
benefits. These changes can result
in higher benefits or lower benefits.
Consider the case where the terminated employee had health insurance, dental and vision insurance, a
401k plan with a generous matching
provision and substantial vacation
and sick days available. Then, when
the employee obtains replacement
employment, they have no benefits
or very limited benefits. In such a
case, the loss of benefits can be a
greater economic damages component than the loss of wages.
Of course it can go the other way.
The terminated employee could find
employment in which they receive
much greater benefits and, in such
cases, the net benefits analysis
results in a credit against the lost
wages. Only a detailed analysis and
comparison of benefits will determine the net impact.
Other common potential economic damages may include differences
in driving distance, relocation expenses, and retraining or education
The forensic accountant looks to
the documentation provided by the
parties, plus outside sources, in
evaluating these and other potential economic damages.