A New Twist Complicating the Challenge of Assessing Lost Earnings Damages in Employment Suits

By Grant Waterkotte

It is no secret: California is viewed as perhaps the most employer unfriendly litigation forum in the Union. So long as California remains the eighth largest economy in the world, there will be no shortage of employers providing the legal system with ample opportunities to demonstrate this.

Naturally, employers seek to prevent litigation as a general rule. But no matter how diligent the employer, litigation has a way of rearing its ugly head. When the inevitable happens, it is incumbent upon those in the employer’s risk management department to accurately assess the risks involved.

Enter Villacorta v. Cemex Cement: the most recent complication to the confounding challenge of assessing damages in wrongful termination suits. Under Villacorta, an employee can obtain indefinite lost wages even if he finds subsequent employment in the exact same field at a higher salary.

In Villacorta, Plaintiff was a mechanical engineer/ maintenance planner at Cemex’s Victorville cement plant. Plaintiff was one of hundreds of employees laid off. Plaintiff sued Cemex for wrongful termination, emotional distress and national origin discrimination. Plaintiff was Filipino. He contended that he was laid off when several, less qualified Venezuelans were not.

Plaintiff’s salary at the time he was laid off was approximately $65,000. He was unable to find employment for eight months. Plaintiff eventually found a job in Lebec, CA – 120 miles from his home in Corona. Plaintiff received a 7% pay increase at his new job. Plaintiff’s counsel asked the jury to award $44,000 in lost wages for the eight months Plaintiff was unemployed.

Plaintiff’s counsel did not ask for future lost wages. The jury ultimately awarded $198,000 in past lost wages. This figure reflected what Plaintiff would have made at Cemex from the date of his termination through the trial date. The jury awarded nothing for past/future emotional distress.

Defense counsel moved for judgment notwithstanding the verdict, lost, and then appealed. The Appellate Court upheld the verdict, reasoning that it would only be appropriate to reduce the jury’s verdict if Plaintiff had failed to mitigate his damages for past lost earnings.

The general rule is that an employee cannot recover past lost wages if the employer proves that a plaintiff could earn a similar amount with “reasonable effort.” An employer must show that this new employment was “substantially similar” to the plaintiff’s prior job. The mitigation argument can be defeated if the plaintiff’s new position is “inferior” to his original job. There are multiple factors that the jury must consider to determine if the new job is “inferior” – including location.

Here, Plaintiff’s new job – while in Southern California – was approximately 120 miles from his previous job. The Court ruled that this distance was sufficient to render the new job “inferior.” Thus, no mitigation of damages was possible.

The practical implications of this ruling are astounding. Consider this absurd example: a VP for a small Los Angeles software company is fired. He sues for wrongful termination. While suit is pending, he obtains the job as CEO of Apple Computers, with a 300% salary increase. However, he must relocate to the Bay area. Under Villacorta, the relocation alone could be sufficient to deem the new job “inferior” – hence no mitigation or setoff.

Granted, the above example stretches the holding in Villacorta mightily. But the Villacorta holding undoubtedly raises the potential recovery for lost wages in a wrongful termination suit, and highlights one of the many hurdles that employers must overcome to obtain a reasonable result.

What then, can be done? First, efforts to safeguard against employment lawsuits – through legally sufficient policies/procedures, continuous education and follow through with staff must be implemented. Second, when employment suits arise despite these efforts, outside counsel must be directed to target discovery towards the employee’s new line of employment. Outside counsel should make every effort to obtain evidence and admissions demonstrating that the new line of work is equal to/better than the prior job. Finally, the risk of a jury determination that the new employment is “inferior” must be considered at an early stage by the risk management department. This factor must be weighed in making the appropriate business decision in relation to litigation risks/costs.

California is unlikely to become more employer friendly in the near future. The Villacorta holding is simply another example demonstrating that is imperative for employers to remain alert to the ever changing litigation landscape, and ensure that they are making the correct choices moving forward.

Grant Waterkotte is a shareholder and founding member of Pettit Kohn Ingrassia & Lutz, PC. His employment practice is primarily focused on litigation, but also includes general counseling in relation to the broad spectrum of legal issues that employers wrestle with on a daily basis. Grant’s extensive and successful trial experience led to his induction into the Los Angeles Chapter of the American Board of Trial Advocates at the age of 35. He routinely tries cases for his clients across Southern California, and is now licensed in Arizona as well. Grant can be reached at (310) 649-5772 or via email at gwaterkotte@pettitkohn.com.

Click here to view the PDF copy of the Los Angeles Business Journal’s Employment & Labor supplement published on January 20, 2014.