Front Pay Uncapped: A New Risk
 
July 3, 2001
 

The United States Supreme Court recently made employment litigation potentially much more expensive for employers. In a unanimous decision, the Court held that "front pay" is not covered by the damages cap in Title VII and Americans with Disabilities Act (ADA) cases.

The damages cap was a part of the 1991 Civil Rights Act, which, for the first time, gave parties the right to a jury trial in Title VII and ADA cases. The maximum amount of compensatory and punitive damages that may be imposed ranges from $50,000 for the smallest employers to $300,000 for employers with more than 500 employees. If front pay were included in the cap, as the employer argued, the potential financial liability in Title VII and ADA cases would be limited to back pay and benefits lost, an amount of damages within the cap, and attorney fees. Now, front pay must be added as well.

Front pay is an amount to compensate for pay lost between the date of the judgment and reinstatement, or an amount in lieu of reinstatement which can run for months or years into the future. If the court, for example, orders an employee reinstated and there is no suitable position open, front pay can cover the period from the judgment until there is an opening. Most common is the situation where there are hard feelings or other reasons why reinstatement would not work; front pay is awarded as a substitute.

The Supreme Court did not consider when front pay is an appropriate remedy, leaving that question for another day. However, there are considerations available for employers, especially when the employee is no longer working for the defendant employer. It is settled law that a former employee who turns down an unconditional offer of reinstatement cannot be awarded any pay after the date of the rejected offer. In appropriate situations, such an unconditional offer of reinstatement can cut off both front pay and a portion of back pay liability.

If the employee fulfills his or her obligation to mitigate damages and obtains another job, the liability for back pay and potential front pay also decreases to the difference between what the employer was paying and what the former employee now earns elsewhere. In many instances, the new job pays more than the former job, thus curtailing liability for both back and front pay.

Another factor that can cut off back pay and, therefore, front pay, is the discovery of an action by the employee that would have resulted in termination of employment if the employer had known about it earlier. Such actions include stealing files or other materials from the employer or falsifying a job application, and usually are uncovered during the discovery process in a lawsuit. For that reason, it is worth delving into such possibilities while the EEOC or state deferral agency is investigating the former employee's charge of discrimination. It is necessary, however, that the employer establish that others guilty of the same infraction have been discharged.

An employer who fears a financial risk if the case goes to trial certainly should consider early mediation in an effort to reach a reasonable settlement. And, of course, there is always the possibility of summary judgment. The amount of damages does not even become a factor unless the employee prevails at trial. Front pay is one more dollar amount to include when considering the risks of litigation.

For more information please contact Mary Ann B. Oakley at 1-888-688-8500 or at maoakley@hklaw.com.