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Calculating Economic Damages in Wrongful Termination and Class Action Cases

TASA ID: 10362

Program Description:

On January 10, 2017, The TASA Group, in conjunction with Forensic Economist Nora Ostrofe, presented a free, one-hour interactive webinar presentation, Calculating Economic Damages in Wrongful Termination and Class Action Cases, for all legal professionals. During this presentation, Ms. Ostrofe discussed:

•          Wrongful Termination Damages

•          Determining The Period of Loss

•          Expected Period of Unemployment

•          Determining Lost Earning Rate

•          Determining Future Earning Rate

•          Mitigation Earing Capacity

•          Discounting To Present Value Wages

•          Discounting Future Lost Wages to Present Value

•          Discovery

•          Opposing Experts

•          Consequential Damage

•          Class Action Cases


Calculating Economic Damages in Wrongful Termination and Class Action Cases from The TASA Group, Inc. on Vimeo.



About The Presenter:

Nora Ostrofe has served as a forensic economist for the past 17 years. She has a Bachelor’s Degree in economics from UCLA, an MBA from St. Mary’s College, and a certificate in accounting with distinction from U.C. Berkeley.



Lauren: Good afternoon and welcome to today's presentation, Calculating Economic Damages and Wrongful Termination and Class Action Cases. Please note, the information presented by the expert is not to be used as legal advice and does not indicate a working relationship with the expert. All materials obtained from this presentation are merely for educational purposes and should not be used in a court of law, sans the experts consent, i.e. a business relationship where she or he is hired for your particular case.

In today's webinar, Ms. Ostrofe [SP] will discuss Wrongful Termination Damages, Determining the Period of Loss, Expected Period of Unemployment, Determining Lost Earning Rate, Determining Future Earning Rate, Mitigation Earning Capacity, Discounting the Present Value Wages, Discounting Future Lost Wages to Present Value, Discovery, Opposing Experts, Consequential Damage, and Class Action Cases. To give you a little background about our presenter. Nora Ostrofe has served as a forensic economist for the past 17 years. She has a bachelor's degree in economics from UCLA, an MBA from St. Mary's college, and a certificate in accounting from U.C. Berkeley.

Attendees, you require a passcode. The word for today is Economic. During the Q&A session, we ask that you enter this passcode into the Q&A widget for CLE reporting purposes. The Q&A is located to the left of your screen. Please remember that if you are applying for CLE credit, you must log onto your computer as yourself and stay for the full 60 minutes. You are also required to complete the survey at the end of the program. Please note that CLE credit cannot be given to those watching together on a single computer. Tomorrow morning, we will send out an email with a link to the archived recording of the webinar. The slides can be downloaded from the resource list by clicking the link at the bottom of your screen. Thank you all for attending today. And, Nora, the presentation is now turned over to you.

Nora: Thank you. I'm Nora Ostrofe and I'm a forensic economist. And, I do specialize in employment cases. So that's what I'm going to be talking about this morning or afternoon, depending on where you are. I just want to draw your attention to the image there of Martha Stewart. No one was more disappointed to me when Donald Trump became president because I lost my poster child for this presentation. And I had to go from Donald Trump who is, kind of, a more an impactful image to Martha Stewart.

Anyway, today, we're going to be going over the following topics, which is determining the period of loss. That's always something that isn't as cut and dried in a termination case as it is, say, in a personal injury case. Because, in most cases, people can return to work, but it's questionable as to whether or not they're going to be able to mitigate their losses and how long it will take them to get back to where they were before they were terminated from their job. So I'm going to be looking at that. Also, what exactly they lost, their lost earnings rate, what the expected job search period for alternate employment would be, how to determine mitigation earnings in alternate employment, how to discount the present value, and then the kind of data you want to be looking for in discovery.

The title is a little misleading because I'm going to touch lightly on class action cases and I can address any questions people have on them. But I'm not going to give through class action damage calculations with the kind of ringer I'm going through wrongful termination damage calculations. I do have a webinar that's exclusively devoted to that. That's going to be on July 13th, 2017 at 11:00 a.m. So if you've just got on for that, you may want to do something until the end of the webinar when I address that topic or drop off and come back in July.

Okay, Determining the Period of Loss. Okay. In a termination case, we have back pay and front pay. Back pay represents what the plaintiff lost from the point that they were discharged or terminated from their job, usually up to the point of trial. And front pay is going to be future damages. In my experience, it's usually harder to collect on a front-pay claim than it is on a back play claim because the future is always an open question and it's easier to assume that the plaintiff might have the opportunity to mitigate in the future. So that's just usually harder to recover. Unless, you know, they've found a job and it's somewhat comparable, not really, and it looks like they're going to be there, you know, up until retirement. Back pay, in some cases can be doubled in some kinds of claims. For instance, I'm currently working on a False Claims Act case where back pay is doubled. So, also, you want to look at potential penalties where back pay may not just be what they lost but some multiple of that.

Okay. Determining the period of loss, as I said, is, kind of, a gray area in termination cases. It can be a number of things. It can be from the time the plaintiff is terminated to, ultimately, the expected date of their retirement if they're just never going to get back to where they were. It could be to the end of their work life expectancy. That's the of years they're expected to remain active in the workforce. And that's usually a shorter period of time than their expected retirement date. It can be to the end of their expected tenure with a terminating employer. For instance, younger workers tend not to stay with one employer for a lifetime. So if you have a 20-something or a 30-something, it may just be the expected duration. You know, maybe three to four years or longer that they would be expected to be with that employer until they've moved on to somebody else. It can be when earnings and benefits in their alternative work post-termination job equals their earnings and benefits in the last job. And, sometimes, that's a very short period. And it can be when the plaintiff begins work at a comparable job with equivalent earnings. Sometimes they may be in a lesser job, but you can make a reasonable assumption that at some point as they work their way up the ladder, they may recover their past loss.

Expected Date of Retirement. This can vary. Some occupations have a mandatory retirement age. For instance, air traffic controllers have to retire at 56, FBI agents have to retire at 57, airline pilots have to retire at age 75. So, if you have an occupation that's like that, that may be the first thing you want to look at is, is there a point where that person has to retire? Sometimes it can be the age to which the plaintiff planned to work and you need to provide some justification for that. You know, maybe most people in that occupation retire in their early 60s, but they might have kids in college, they might have insufficient retirement savings and would have to continue to work for financial reasons. So you want to look into the specific case of your plaintiff to see how long they plan to work. It can be the age when full retirement benefits are received. If the person has a pension plan, very often, you can look at the actuarial assumptions for the pension plan to find out when most people retire. Or, for instance, I once had a union case where I was on the defense and they had an early retirement option which the plaintiff qualified for. And we were able to argue that he would have retired at 56 instead of 62 simply because the benefits were very attractive.

Okay, work-life expectancy is a little bit different than retirement age. That's the number that we calculate, which is the number of years they're expected to remain active in the workforce. And it's a little bit less than the number of years to retirement because it takes time out for periods of unemployment or periods of disability. And we calculate that by gender, highest educational level achieved, and so forth. One thing to remember about work-life expectancy is, it does increase with education and it does also tend to, if the longer somebody works, the longer that they're expected to work. So, for instance, sometimes people come to me and they have an elderly client, maybe somebody who's in their 60s or even their 70s. And they've been told by opposing counsel that they really don't have any claim of economic loss because that person was 63 and they were going to retire anyway.

So if I can draw your attention to, right there on the far left-hand corner where it says age, and you'll see a 65 and 75. Even at very low levels of education, for instance, less than high school diploma, if you're 65, you would be expected to work about 3.2 more years on average. And at 75, you'd still be expected to work about two more years. If you had a professional degree or a PhD at age 65, you could be expected to work seven and a half more years. And even at 75, you could be expected to work 5.6 more years. So if you have an older plaintiff, it's not necessarily that you don't have a loss and that they just were going to retire next year anyway.

Also, if you look at these numbers going across for levels of education as I just pointed out. The more education someone has, the longer they're expected to work. There's a couple of reasons for that. One of them is, generally, the more education you have, you tend more to be in a sedentary job that allows you to work longer or in an established career that would allow you to work longer.

Okay. All right. Again, if you're not going to go all the way to the end of your career, you might want to look at the expected tenure with the terminating employer. And we have studies of expected tenure. The Bureau of Labor Statistics puts out a publication every two years that gives the median years of tenure according to age, education, occupation, and industry. And you can look up, based on the plaintiff's age, gender, educational attainment, occupation, and industry, how long they would be expected to work. Now, you can also look... Sometimes, unions might have data on average tenure at a particular job, or the employer may have data on tenure that's specific to that company and you may want to look into that as well.

Tenure is, sort of, an interesting statistic because it tends be heavily determinant on age. So, for instance, when they give tenure for an occupation or for a particular industry, that's for workers of all ages and it tends to be a little bit shorter than if you look up the tenure by somebody's age, okay? Okay, in general, tenure, as I just said, increases with age. Fifty-five percent of workers age 55 or older have 10 or more years of tenure with their employer. So if you have a plaintiff that's that age, the likelihood that they would have remained with that employer till retirement is relatively strong, you know, whereas only 12% of workers aged 30 to 34 years have 10 or more years of tenure. So if you have a younger worker, it's less likely that they're going to remain with that employer to the end of their work-life expectancy.

Interestingly, during periods of high unemployment, people usually stay at their current job because it's harder to move. So, if you had somebody who was terminated, say, during the recession or something like that, the probability that they would have remained there longer is higher. People often erroneously assume that tenure gets shorter during periods of economic uncertainty but that's not true. It's lower for service sector jobs, for instance, leisure and hospitality has the lowest tenure of all. But it depends on the situation of the worker. I once had a case with a well-known seafood chain involving a number of workers that had a discrimination claim. And I had a 20-something whose tenure was, maybe, four to five years. But then I had a 50-something who had been at the same restaurant over multiple employers and was in his 50s. And, you know, he was a long timer. Whatever the tenure data is for the leisure and hospitality industry, he was probably going to be there for the rest of his life. Also tends to be quite high for government and public sector workers. I would imagine because they generally have pension plans and have a strong incentive to remain in those jobs.

Here is a graph that, sort of, by color, just, sort of, shows you expected tenure by age. And the orange bar represents about 1 to 4 years of tenure. So you notice that, that, kind of, dominates in the 16 to 24-year-old age group, 25 to 34-year-old age group, and then it begins to shrink at age 35 or older. The purple bar represents workers that have 10 or more years of tenure. And you'll notice that, once you get, sort of, to age 45 and above, that, that predominates. So once we get into the 40s, you're going to be expecting a fairly high tenure on the job, if not to retirement or the end of work-life expectancy.

Okay. This is tenure by education and you'll notice that the bars, all of a sudden, get a whole lot shorter. That's because this is for everyone, it's not segregated by age. But, in general, you'll notice that lengthier... What's interesting about this graph to me is that the purple bar which is 10 years or more of tenure is actually highest for high school graduates not for people with a college degree or with a bachelor's degree. And then, the shortest tenure is for people with less than a high school diploma. And, again, those people are usually not in career jobs and are not expected to stay as long.

This is tenure by occupation. Notice here, the tenure bars get very short. And that's, again, because this isn't segregated by age. But the longest tenures are expected far over there to the left. You'll see the purple bar, kind of, predominates, and that's for management professional and related. And right next to it, we have the shortest tenures for service-sector workers. And then sales people, construction, and production transportation material moving are, kind of, about the same. Okay.

And here we have tenure by industry, okay? So this is another way we can look at tenure. And you'll notice, median tenure for all industries is about 4.6 years, about 5 years. And then you'll notice the longest bars are, interesting, manufacturing with a median tenure of 6 years, and then government workers. Overall, people in the public sector have a median tenure of about 8 years, federal workers have the longest at 9.5, state has the shortest at about 6.4 years, and local government workers have a median tenure of about 8 years.

Okay. Now, another thing you may have to look for if the plaintiff has not yet found work and is still looking for work is the time it would take them to find work. And this is also an area where we can find data from the Bureau of Labor Statistics which does studies based on a plaintiff's age, gender, industry, education, occupation. Again, same categories as with tenure. About the number of weeks it's going to find them to be re-employed. Now, this is often data that you can use as a benchmark if your plaintiff hasn't found re-employment, how long it would be expected for them to find work. Or if you're trying to show that somebody isn't making a concerted effort to find alternative work or just isn't taking the duty to mitigate seriously, you can point out that their period of unemployment has exceeded what one might expect.

I would put a caution that this is a figure that's the number of weeks to reemployment, but it's not necessarily reemployment in a comparable job or a job that's going to mitigate lost earnings. It's just to reemployment to any job so there is that caveat. Generally, when a vocational expert is used, they almost always say six months no matter what the situations. So if you're trying to counter an expert that has just, kind of, put out a boilerplate statistic like that, this is another use for this kind of data because it's a little bit more precise than just a rule of thumb.

Okay. Here we have... This is, kind of, an interesting chart to me because it shows the expected period of unemployment for two years for men and women, 2007. Which was, kind of, the year, just going into the recession, and then 2011 after we had been in that, sort of, post-recession. The Great Recession was from about December of 2007 to June of 2009. And you can clearly see in this chart that there's some lagging effects. For instance, the blue bar is 53 weeks or more of unemployment. More than a year. That's really pronounced in the 2011 years and it's almost minuscule in the 2007 period. So, sort of, in a normal period, you know, most people are going to have found employment in about six months, you know, 15 to 26 weeks. And quite a few have found reemployment in fewer than five weeks, okay?

Okay. These are a number of graphs about the labor force. And, what's interesting to me is, they, sort of, show you the period spanning 1990 to 2014 and the bars are recessionary periods. So you can, sort of, look at this data and get a sense of, depending on when the termination occurred, what was going on in the labor force with respect to people able to move between jobs. So, for instance, this is a measure of the civilian labor force. You'll notice that it's steadily growing from 1990 to 2014. But that third bar over there which spans the great recession, labor force just remains, pretty much, flat.

Okay. This is civilian labor force participation rate, those working or looking for work. And you'll notice that there's, kind of, a big drop during the recession and then it, sort of, continues to go down. So, participation. This is, sort of, a misleading graph because it's just looking at labor force participation as a percentage of the workforce. And it's not really that steep a drop. It's from about 67% down to about 63%, but you'll notice that the participation rate is steadily falling.

Okay. This is civilian employment, and you'll notice there's, again, a big drop between the years 2008 to 2010, and then a steady progression, almost, to previous pre-recessionary highs. Okay, this is the employment to population ratio. Okay. Shows a big drop during the recession and not that much of a recovery. This is part-time workers as a percentage of total employed. And you'll notice that we've got a big jump to part-time work since the recession. So that's another reason why, when we're looking at BLS data and they show period to reemployment, that doesn't necessarily mean that the person has gone to another full-time job at the same pay that they were before. A lot of people may be marginally employed, or just in a part-time job, or at Starbucks and unable to get back to where they were.

Again, this employed part-time for economic reasons. We see a big jump in that since the recession. So, possibly, if you have a plaintiff that's not fully mitigating and says that this is the only job they can find, there's data to support that. And then this is civilian unemployment. You'll notice a big rise there along the third bar which is from 2008 to 2010, and then, not quite back to where it was by 2014. Okay.

All right, this is the civilian unemployment rate. Again, a big jump during the recession and not quite back to pre-recession levels yet. And this is, kind of, an interesting chart. This is the ratio of unemployment. And you'll notice this orange line right here is 27 weeks or more, so longer than six months and it's still not back to... This is where number of people who were right down here taking six months to find a job, big peak after the recession and not quite back to where it was either.

Okay, long-term unemployed. Again, big jump in those people since the recession. Okay, people not in the labor force who want a job. Increase in them. And persons not in the labor force. This red line below is discouraged workers. These are people who just fall out of the statistics. Okay. And, these are people who are marginally attached. Big jump in those since the recession.

Okay. So that's the data and that's the job market that the terminated plaintiff is looking for work in. And one thing that you always want to do, if you are representing the plaintiff is, make sure that the plaintiff is really out there pounding the pavement, okay? And, more so, more than that, able to prove it, okay? Ideally, the job search is documented, it's varied. They aren't just on the internet looking for jobs, but they're also networking, meeting with potential employers, going on informational interviews, and so forth. They should be doing that full time. It's a job in itself, 40 hours a week, okay? Vocational expert can assist you in recommending jobs through its methods or evaluating the appropriateness of the plaintiff's job-search efforts if the defendant is asserting that they're not doing enough to find alternative work. Vocational experts can also be hired by the defense to point out that the plaintiffs didn't do a good job of trying to mitigate their losses.

Okay, some difficulties in mitigating losses from wrongful termination. Sometimes, people's whole career has been interrupted and they can't really recoup time or position loss with the terminating employer. They may have fallen off the ladder. They have the stigma of the termination, and they have the stigma of the lawsuit to boot. Plaintiff could also be disabled from seeking comparable job during the work conditions with the terminating employer. I once had a discrimination case with an African-American gentleman who was a construction supervisor who was in a workplace where his coworkers left the news on his desk. And, he felt that he could not return to construction work because of the potential of discrimination and was undergoing retraining for a different career. I had another case with a real-estate agent who was showing a house and had a potential customer expose himself to her in an isolated setting and she was having emotional difficulties returning to her job. So that is something that, whether you're on either side of the case, the plaintiff may have to, in order to recoup their losses, may have to retrain, possibly, for a whole new career.

Okay. Sometimes plaintiff can't find a comparable job at comparable pay because the last job is unique, there is scarcity of comparable jobs, there is economic conditions within the industry that makes it hard for them to find another job, or they've been defamed which also can happen. You know, sometimes if you don't get an enthusiastic reference from your former employer or just the standard, you know, confirmation of pay and the amount of time worked that's enough to prevent you from getting reemployed. A plaintiff may be subjected to discrimination during the job search. I've had a couple of cases where people had ankle or foot injuries, or worked for a big box stores and were being accommodated. And then were let go and were unable to find another retail job because of their disability. Okay, we're going to break for questions right now.

Lauren: Now we are entering the Q&A session. During this time, please enter the passcode in the Q&A widget to the left of your screen. The passcode code is Economic. Also, enter any questions that you have for Ms. Ostrofe as well. So the first question we have is, "I assume the work loss calculation process will be roughly the same for a young man in college training to be a fireman who was injured and never gets to work at all but will survive? I guess he's asking...

Nora: Could you...

Lauren: Go ahead.

Nora: Could you project an entire career as a firefighter? Yes, you could. What I would expect, though, is, you would have to prove that he was going to qualify as a firefighter and meet all the physical demands and so forth. And then, another thing that I would expect on the defense is, you would want to look at the tenure patterns of firefighters. You could probably get that because that's usually a state or local government job, and you'd want to get the actuarial assumptions for the pension plan, and look at the attrition rates of firefighters, and adjust your calculations for that. But, yes, you could project a career. But I'd be very careful to do the research to really make that stick and come up with a realistic analysis and defend it.

Lauren: Which life-expectancy table do you utilize or recommend?

Nora: I use the Skoog-Ciecka. And the most recent table is 2011. And it can be found or downloaded from the "Journal of Forensic Economics." My email address will be available at the end of the session. And if you would like me to email it to you, I have it in Excel form, I'd be happy to do that.

Lauren: Given the trend in corporate America to hire only part-time workers, do these calculations apply as they do for permanent or full-time workers?

Nora: That's a good question. I haven't seen any studies of what the tenure is, for instance, for somebody at Starbucks and so forth. But a lot of those jobs would follow into the leisure and hospitality industry and that might be problematic. So that would be actually a very good area of research. But, I think you could point out, you know, depending on the limitations of the plaintiff, if they are confined to part-time work. And, you know, it may be that these days, people do spend quite a bit of time at part-time work. So, again, I would look for data that supports the plaintiff's assertion of how long they would have remained in that job.

Lauren: Plaintiff required to take early election for Social Security benefits. Does this increase the damage calculation? Can plaintiff recover the difference between a lower monthly rate received from the early election?

Nora: That's a good question as well. If they are required to take an early election, usually, actuarially, it works out almost to about the same. But you can do that calculation. There's a program called the Anypia which you can download from Social Security, and they also have an online calculator where you could do it yourself, estimate your Social Security benefits. But, usually, you have to have their Social Security earning history and plug that data in for it to be precise. But you can do that as well and find out what the difference is in the monthly benefit, and then calculate it out. However, if they are forced to retire early, they're going to have lost earnings, plus, you know, so they would have had more years in the Social Security system so they would have lost earnings. And then, possibly, a lost retirement. But you'd have to do the math to see exactly what it is.

Lauren: Is there a difference between front pay and future lost earnings?

Nora: No, those are two names for the same thing.

Lauren: Is there a difference between loss of wages and loss of earnings capacity?

Nora: Yes. Earning capacity is usually used more in personal injury. It's sort of like what the person had the potential to make. Lost earnings is usually based on what the person on historical earnings and what the person actually made. But lost earning capacity, for instance, if you had a young worker who hadn't really achieved maturity and was, maybe, blackballed out of an industry and had the potential to make more. You could potentially make an earning capacity argument. But earning capacity is always something that's going to be vigorously sailed by the defense so you have to prepare to be attacked.

Lauren: That was our last question for now. Nora, you can continue on your presentation.

Nora: Okay. All right. So, now I'm going to get a little bit more into, technically, what we do to determine the loss earnings rate. And, one of the things we look at is wages or salary, okay? Depending on the type of worker. So, salaried worker, it's usually pretty clear. It's what their salary was, and then you may want to project forward any annual increases that they would have received. If it's somebody who is an hourly worker, you may want to look at how many hours they worked, and what their wage rate was, and what it was expected to be. And then you may want to, say, take their average hours worked over the past five years or over a business cycle and use that number of hours, and then multiply the number of hours by what their wages would have been going into the future. You may want to look at potential promotions that they would have gotten. If it's not speculative but, pretty much, assured, you can build that into your lost earnings rate.

One thing that people who are doing their own back-of-the-envelope calculations tend to overlook are benefits. And depending on what the worker received in fringe benefits, they can be, you know, quite a significant part of the compensation package. For instance, medical benefits, you know, quite a few people work for their medical benefits these days. I always really try to find out how much the medical, dental, and vision benefits were worth and add that to their earnings. Retirement and savings benefits, Social Security benefits is another thing you want to look for. Bonuses, stock options. Stock options these days are, I'm in that San Francisco, Bay Area, that's a significant source of compensation. If they had an expense account, employer-sponsored education, anything, you want to look at all that and you really want to put a dollar value on it.

I would often request this in a subpoena, then you have to draft it carefully. You want to ask for the employer portion paid towards every benefit that that person lists in their benefit package. And I wouldn't necessarily rely on the plaintiff to have this data. You know, they lose their COBRA statements, they don't know what the retirement plan was and everything like that. So, sometimes, although, plaintiff attorneys, in my experience, almost always rely on the plaintiff for this data and they don't use the subpoena. It can be well-worth just subpoenaing the employer, consulting with your economist, and getting a very detailed list of everything you want. You could find out future wage increases and so forth, and then you can have all that data prepared for your analysts to do the analysis.

You have to remember that an employment case, if you're on the plaintiff side, the defendant has all that information and you do not. And if you do a careful subpoena and get all of it, that will, in terms of data, put you on the same level as them. Otherwise, they're going to have the data and you're going to be guessing.

Okay. Again, future earnings rate. You want to look at the likely hood of bonuses, raises, promotions with the terminating employer. You can look at the past history of evidence or evidence of future wages, past history evidence of future promotion. That's often easy to get for people who, for instance, are union members or government workers. Because it's, generally, you can get it from the union, or if they're a public sector employee, it's public. It's much harder to get in private companies and you may just have to rely on what raises they got in the past or use some sort of index like the inflation. You know, they would have, at least, gotten raises that made them consistent with inflation, or 4%, or something like that. There is data from the BLS that you can use, but it's always best to get that data straight from the employer if you can.

You may want to look at likelihoods of a layoff. There's nothing like putting together your whole analysis and then being shown that your plaintiff was going to be laid off anyway. Likelihood of change of salary and benefits. Benefit contribution rates also change and you want to be aware of those. And likelihood of lateral or upwards career movement.

Okay. Here's an example of just, sort of, how you want to build in these changes in rates in your analysis. This is somebody who had some... I think it was a union worker so it was, kind of, an uneven pattern in wage increases. From year 1 to year 2, they got a 5%, year 2 to year 3, they got a 1%, and in year 4, they got a 7%. That wasn't uncommon, sort of, in the past couple of years. As we moved out of the recession, people would get small raises or no raises for a couple of years. And then, all of a sudden, they'd get like 6% or 7% to make up for past years. So that's one of the reasons why getting that data can be so valuable to you.

Medical insurance contribution rates. So, employers may cut back or their rates may go up and are increased. So you want to get changes on those rates as well. Retirement can often be a percentage of earnings. So if you have the data on the increase in pay, that's going to affect your retirement benefits as well because they will increase accordingly. So you want to get all that data and be pretty precise about it.

Okay, Mitigation Earning Capacity. That's going to be salary, wages, or benefits in mitigation employment, opportunities for advancement in mitigation employment, or actual work history since the incident. Testimony, perhaps if they haven't yet obtained reemployment by a vocational rehabilitation professional what their prospects are. Or, what you can do is, if they're expected to be reemployed in the same industry, you can look at, very often, for instance, in California, we have the Employment Development Department that does very precise studies of hundreds of jobs and projects forward the availability of jobs, the growth of jobs over the next 10 years and so forth that you can rely upon.

Okay, Discounting the Present Value. This is the point. We always have to talk about this in testimony, why we're discounting future front pay, or future damages, the present value. And it's the point where everyone's eyes glaze over but I'm going to explain it just so everybody understands it. Okay, first of all, what we use is, when we're going into the future, we're usually assuming that wages are going to grow just because we have inflation every year which has been running about 1% to 2%. We're going to expect that wages are going to grow about, maybe, 1%, 2%, 3%, 4%, 5% per year so future wages each year in the future are going to be expected to be higher. At the same time, if you're given money today to cover compensation that you would have received in the future, you can invest it and earn a return. For instance, you could put it in the bank or you could invest in government bonds and it would pay you interest. So when we are discounting the present value, what we're saying is, "Yes, this person would receive wages in the future, and the wages would probably be higher than they are today. But at the same time, if we give them the money today, they can invest it. So we're going to discount that front pay a little bit to account for the time value of money."

Okay. Right now, discount rates are still pretty low. For instance, a 1-year treasury bond is paying about 1%, and a 10-year treasury bond is paying about 2.5%. Wages are expected to grow at the rate of about 2%. So, one of the things you do is, you take the discount rate and you subtract the growth rate in order to get to the net discount rate. How much we're going to discount those wages to get the present value.

Right now, when I'm doing these calculations, I get a negative discount rate. In other words, the amount that wages are expected to grow is higher than the time value of money. But I usually, just to be conservative and because interest rates are expected to get higher as we move out of the recession, I usually use a discount rate of about 1%. But that's being generous. If I'm on the plaintiff's side, that's being a little bit generous to the defense. Okay.

So the first thing you want to do, I'm going to go through this step-by-step for people who had no idea what I just said. So we're going to project future wage increases. So if we assume that wages will increase 3% a year, here we go. So we start off 2013, this person was going to be paid $50,000, then they get a 3% wage increase. Three percent of $50,000 is $1,500 so that in 2014, they're going to receive a salary of $51,500. And then, in 2015, they're going to get a 3% wage increase on that so they're going to be receiving $53,045. And then 2016, higher wage and higher wage. So each year, if we're doing percentage increases, the wages are going to grow. So this person who had, perhaps, a salary of $50,000 at the time of termination, 4 years later, is going to be expected to be earning quite a bit more. Approximately $6,000 more just because they're going to be getting wage increases over time. Okay? There's this just graphically. Here's how the wages are growing with wage increases. Okay.

Now, we're going to take those wages that we grew because we're expecting future increases, and we're going to discount them to present value. That means we're going to reduce them slightly to account for the time value of money. As I said, we can invest money today and it will be worth more in the future. We want to know the amount of money we can invest safely today to equal the amount of money the plaintiff would have received as wages at some point in the future. Okay?

When we're discounting the present value, we generally look at treasury bonds, okay? And treasury bonds have different dates of maturity from 90 days to 30 years. The longer the period of maturity, the higher the interest rate. Something you want to look for, depending on which side of the case it is, defense-oriented economists will often favor 30-year-treasury rates because those pay a higher rate of interest and they can do more aggressive discounting. A plaintiff-oriented economist may use 90 days because those have the lowest interest rates, which means they will lightly discount in future. I usually use an average of a 90-day and a 10-year just to be, sort of, in the middle of the stream and right now I'm using a discount rate of about 1%. We assume we're using the current yield on a five-year treasury bond or 1.05%.

Okay. So this is a mathematical formula. I'm not going to go through it in a great deal of detail. But, usually, what we will do is, we will discount something over half a year because the payments somebody's salary is annual, but halfway through the year, they're only going to be paid half of their salary. So if we discount $50,000 for one year at an interest rate of 1.05%, it's going to be worth $49,740. We discount for the second year $51,500. That's the 50,000 after the 3% annual increase. We're going to discount it for a year and a half, it's going to be worth $50,699, okay?

So here's where we grew the wages 3% up until $56,000. Then we take the $56,000, we discount it over that period and it's really worth $53,691. So when you're projecting future wages, you can't necessarily just take today's salary and multiply it for the next 20 years. So you've got to grow the wages over that 20 years by your wage growth rate or the raises that you expect them to get over the next 20 years. And then you've got to discount them to get to the present value of those wages over the same period. Okay. And there is just the graph. This is the grown wages, and this is what they are discounted. So this light gray line is really what you're going to be receiving after you discount to present value. Okay.

Now I'll go back there. So here, this was what the grown wages were worth. That would have... Get that calculation there. Okay. So, this sum right here where we grow the wages, what would have if we had just added up all these years would have been $265,456. The actual claim you're going to make is for $258,483 because what the plaintiff can do is take that award for front pay of the $258,000 and invest it at 1.05% and it will come out to what their wages would have been worth. Okay.

So, okay. Lost Fringe Benefit Data. Again, you're going to... Oh, I'm sorry. Oh, Lost Wage Data. Okay. So, again, what you'd like to get is the subpoenaed complete personnel and payroll records from the terminating employer. That should have everything in there, their contribution to fringe benefits, what they were paid, any deductions that they took, and so forth. If you can't get it there or you don't want to subpoena, another thing that you can do is get the Social Security Itemized Statement of Earnings. These days, plaintiffs can just go on the web and request that from Social Security. That's going to give you the annual amounts that were taxed for Social Security purposes, but it's not going to give you a lot of nice detail about benefits the way personnel and payroll records will. I'd ask, if you're not going to be able to get the payroll records from the employer, I'd ask for every pay stub that the plaintiff had, because the pay stub will often break that stuff down for you. You want W-2 Wage and Tax statements at least five years proceeding termination, all years post-termination. Documentation, as I said, the value of the employer paid portion of fringe benefits. If your plaintiff doesn't have a document from the employer, or a handbook, or something that says what their benefits are, sometimes you can just go to the employer's website under careers and they will list the fringe benefits associated with employment. And then you want to take a look at that and make sure you've accounted for everything and obtain the dollar value of it. Okay.

There we go. That's just a quick breakdown of things you want to look for, medical insurance, retirement 401(k) or 403(b). That would be for government employers' pension. Profit-sharing plans, employee stock-ownership plans. Those have value. Stock options, employee bonuses, any and all other fringe benefits.

Okay. Efforts to mitigate. You want to obtain from the plaintiff documentation of all the post-termination job search efforts that they made. Very often, if the plaintiff is collecting unemployment benefits, the states will require documentation efforts to find work in order to receive them and so they may be already doing it.

Okay, for mitigation wage data. Pretty much, you want the same thing from the mitigation employer. Usually, that's easier to get because the plaintiff is working for that company and they can just call up at HR and request it. But, again, you want personnel and payroll records, or you want the pay statements from the plaintiff, Social Security Itemized Statement of Earnings, W-2 Wage and Tax Statements, Tax Returns or Schedule Cs. If the plaintiff has gone from employment for an employer to self-employment, documentation, value of the employer paid portion of fringe benefits again. Okay.

Okay, Opposing Experts. Depending on which side you are on, if you're on the plaintiff side, the defense may present evidence of comparable jobs that existed and argue that the plaintiff's job-search efforts were inadequate. That's probably the primary way that, if the plaintiff is still unemployed or has not obtained comparable employment, that the defense can try to reduce losses. In my experience, it could be a very effective tool if used skillfully by the defense but it's, very often, badly done. And what you generally see is that the defense expert, sometimes an economist, but more generally a vocational expert, will come in and they generally think quantity is better than quality. So they will come in with listings for 500 jobs in the plaintiff's job title or job category that the plaintiff could have gotten.

And there'd be, like, internet postings, or used to be ad's out of the newspaper, that sort of thing. That's not really showing that comparable jobs existed. That's just showing that there were a bunch of jobs out there on the web that had the same job title as the one that the plaintiff lost. They usually don't include any information about what the job pays or what the employer was looking for. The qualifications for the job, whether the plaintiff would have met those, what fringe benefits they would have received in the job, whether or not the job is located, you know, like, a commutable distance from the plaintiff's residence and so forth.

So I think it would be better, if you were on a defense, to find four or five jobs that were available to the plaintiff, reasonable, you know, within six months of their termination. And check with the employer to determine whether or not they would have considered the plaintiff, despite their history of being terminated, and ensure that it pays a comparable amount. But I almost never see that done although it would be effective if presented well.

Plaintiffs may present evidence that no comparable jobs were available. And the way that they do that is go out and pound the pavement and make sure that if there was a comparable job out there, that they applied for it and were not accepted for it. Okay. Again, the opposing side may overreach. You need to show what is most reasonable, and probable, and why in a well-documented fashion. Okay.

Case Documents. Other case documents you may want to get, depositions of the employer, work supervisor, human resources representative. Sometimes those people can answer questions about what raises would have been, whether or not the person was eligible for a promotion, whether or not, there was a riff or a layoff after they were terminated and so forth. Plaintiff's deposition, responses to form special interrogatories, responses to request for production documents.

For cases if they involve periods of disability, you definitely want an IME's report or the treating physician's report. And when they would have been able to return to work from the disabling condition, when they'd be permanent and stationary. And if there are any work restrictions that they would need to address in mitigating employment. Sometimes unemployment compensation can be offset so I put that in my report but I don't necessarily deduct it from the loss. If the finder of facts chooses to deduct unemployment compensation, the number is right there. And then you want to obtain the opposing and retained experts report complete file and deposition.

Okay, Practice Pointer. Early in the case, this will save you more money than anything else although people seldom do it. But, early in the case, you want to ask your...probably at the same time that you file your complaint, you want to ask an economist for a complete list of data needs, and then collect that data as early as possible. If you're not going to do any subpoenas, you're going to rely on the plaintiff. You want them hunting around their garage looking for their old W-2s, finding their pay statements, you know, so-forth thing, and collecting all of it. That way, if you have all the data that the economist has asked for right in hand, you can wait and not pay the economist. You can try and settle the case, you could have the economists do a rough calculation to try to settle the case. You have all of it in hand, and then, you know, two months before, or two weeks before the economist depo, if you've got to do a full report, you've got everything in hand and all they have to do is crunch the numbers.

What takes a lot of time in these cases is if the lawyer waits to the last minute then says, "Oh, you know, I need a report two or three weeks from now." And I'm on the phone with the plaintiff as they're going through the garage looking for their old W-2s. You know, "What was your 401(k) worth?" All that sort of thing. That's always really hard to do when you're under a time crunch. And it takes a long time because of the plaintiff doesn't have it, then I've got to go to third sources or try to see if I can find it on the web or that sort of thing. And I'm not actually doing the analysis, I'm just trying to find data that could have been located when we had time months before.

All right, I'll go off my Soapbox. Okay, let's see. I think before we do this, we could go to another question break. Can we do that? Hello, Lauren, we've got four minutes left. Okay, let's take one... Do you want me to go ahead and do this or do you want me to take some questions?

Lauren: Yes, I'll do questions now. Everyone, we are, once again, entering the Q&A session. During this time, please enter the passcode once again in the Q&A widget. The passcode is Economic. Also, any other questions that you have from Ms. Ostrofe can be answered during this time? The first question that we have is, "Once litigation is filed, what would be the best time to hire an expert, calculate, and disclose the damages calculation?"

Nora: I would say I would file the case, and then I would have the plaintiff... I mean, have the economist review the complaint and make a list of data. And then, I would wait to see. You know, usually, there's like summary judgment [inaudible 00:58:43] that you want to make sure to see if the case is real. You know, I would subpoena data. If it's a complicated loss case, you might just want to go ahead and subpoena the data. Probably, what you'd want to do is have your plaintiff looking for everything they have on that list and see if you can come up with it. And then, anything that you're missing, subpoena. Then I'd wait.

You know, usually, if you give an economist, you know, like a month before trial to do the analysis, that's an adequate amount of time. If you're going into a settlement conference, it's usually helpful to have an economist report. Because, then, it's not like you're doing a back-of-the-envelope calculation. You haven't necessarily left money off the table by not valuing benefits. And it generally just tends to be, sort of, a stronger talking point when you're going into this, "You know, this is what my economist said, this is the real deal. This is the loss backed up by expert opinion." So that's, kind of, the way that I would address that.

Lauren: Last question, "When you consider retraining a worker, how do you choose which career you are going to use to calculate future loss earnings?"

Nora: That usually comes from the worker themselves. You know, they may say, "You know, that's it. I'm done with construction, I'm going to go off, you know, and do something else." If it doesn't, you may want to look at their educational history, see what they can do. Sometimes in those cases, I've just looked at, for instance, the government has data on average earnings or median earnings by education. So, for instance, median earnings for someone with a college degree. And it's very detailed data by age so you can go to very generic estimates of what their earning capacity is based on that if you don't have anything else. Last question?

Lauren: That was our last question. All the questions will be forwarded to Nora by email. And that is all the time we have for this presentation at the moment. The TASA group, in addition to being your best source for testifying and consulting experts for the past 60 years, TASA also offers e-discovery and forensics solutions, free interactive webinars, day-in-the-life videos, research reports on expert witnesses such as Challenges History Report 2.0, Professional Sanction Search, and Extra Profile 360.

I want to take this opportunity to thank everyone for attending, and most especially, Ms. Ostrofe for her time and effort in creating this presentation. If you would like to speak with Nora, or if you would like to speak with a TASA representative regarding expert witness for a case that you are working on, please contact TASA 1-800-523-2319. One of my colleagues will be following up with you regarding your feedback on today's presentation. This concludes our program for today.


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