Back Pay vs. Front Pay: How Economists Measure Employment Damages

Back pay is what the plaintiff lost between the adverse action and trial. Front pay is what the plaintiff will lose after trial. The line between them sounds simple, but most of the disagreement between opposing economists in an employment case comes down to how that line is drawn, what is subtracted from each side of it, and how long the future loss is assumed to last.

This article is written by Roman Garagulagian, Ph.D., principal of Forensic Economic Services, LLC and Vice President–West of the National Association of Forensic Economics. It explains how an economist builds each figure, what counsel should decide before the economist does, and where these calculations are usually attacked. It is not legal advice: the rules that govern each remedy depend on the claim and the forum, and counsel sets them.

The two periods

Back pay runs from the date of the termination, demotion or failure to hire to the date of judgment or trial. It is a past loss, so it is not discounted to present value. It is measured against what the plaintiff actually earned in the meantime.

Front pay runs from the date of judgment forward. It compensates for earnings the plaintiff is expected to lose because reinstatement is not ordered, not practical or not wanted. Because it is a future loss, it is projected and then discounted to present value.

How each is decided depends on the claim. Under Title VII and the ADEA, back pay and front pay are equitable remedies, and in many federal courts the judge rather than the jury decides front pay. The Supreme Court held in Pollard v. E.I. du Pont de Nemours & Co., 532 U.S. 843 (2001), that front pay is not subject to the statutory cap on compensatory damages. In FEHA cases tried in California state court, past and future lost earnings are usually presented to the jury as economic damages. The economist’s arithmetic is similar either way. The audience, and how much explanation it needs, is not.

How back pay is built

1. The but-for earnings stream

Start with what the plaintiff would have earned had the employment continued: base pay, scheduled raises, overtime where it was regular, bonuses and commissions that were a reliable part of pay, and any promotion the record shows was likely. The anchor is the plaintiff’s own history at the employer, not a peak year and not an industry average, unless the history is too short to use. Where the claim is that pay or promotions were themselves discriminatory across a workforce, the but-for earnings come from a statistical model of comparable employees instead; see pay equity and wage discrimination analysis.

2. Benefits

Health coverage, employer retirement contributions and 401(k) match, paid leave, stock grants and other benefits belong in the loss if the plaintiff would have received them. They can be valued at the employer’s cost or at the cost to the plaintiff of replacing them; the two can differ a great deal for health insurance, and the choice should be stated. Double counting is common: a benefits percentage applied on top of a compensation figure that already includes employer contributions.

3. Interim earnings and mitigation

What the plaintiff actually earned after the adverse action is subtracted. That offset is usually the single largest adjustment to back pay, and it requires the plaintiff’s post-termination pay records and tax returns, not an estimate.

Whether the plaintiff looked hard enough for work is a separate question, and it is a legal and factual question before it is an economic one. Under Title VII, amounts “earnable with reasonable diligence” reduce back pay. In California, the employer generally bears the burden of showing that comparable or substantially similar employment was available and that the plaintiff did not make reasonable efforts to obtain it (Parker v. Twentieth Century-Fox Film Corp. (1970) 3 Cal.3d 176). An economist can show what comparable jobs paid and how long comparable workers took to find them. Whether the plaintiff’s search was reasonable is for the trier of fact.

4. Cut-offs

Several events can end or reduce back pay, and counsel should tell the economist which ones are in play: a plant closure or layoff that would have ended the job anyway, a period when the plaintiff could not have worked for reasons unrelated to the claim, an offer of reinstatement, and after-acquired evidence of misconduct that would have led to termination (McKennon v. Nashville Banner Publishing Co., 513 U.S. 352 (1995); Salas v. Sierra Chemical Co. (2014) 59 Cal.4th 407). Under Title VII, back pay also cannot reach back more than two years before the EEOC charge was filed.

5. Interest and taxes

Past losses are not discounted, but they may carry prejudgment interest depending on the claim and the forum. Some federal courts have also allowed an adjustment for the extra tax a plaintiff pays when several years of wages are received in one lump sum; others have not. Both are questions for counsel, and the economist can quantify whichever rule applies.

How front pay is built

Front pay uses the same components, projected forward: but-for earnings and benefits, less what the plaintiff is expected to earn instead. Three assumptions carry most of the weight.

Duration

How long will the gap last? Front pay is not automatically owed to retirement. The duration should rest on something in the record: the plaintiff’s age and occupation, the time comparable workers take to regain comparable pay, how long employees in that role typically stayed with the employer, the plaintiff’s job search so far, and any vocational opinion in the case. A front-pay figure that runs to age 67 with no discussion of why the plaintiff will never close the gap is the most common target on cross-examination. Where the evidence supports a range, show the range.

Expected replacement earnings

If the plaintiff has already found work at lower pay, the difference is the starting point. If not, the economist needs a supported estimate of what the plaintiff can earn, usually from published wage data for the occupation and region or from a vocational expert. Assuming zero replacement earnings for a healthy, employable plaintiff rarely survives scrutiny.

Growth and discounting

Future earnings are grown at a rate tied to the plaintiff’s history or to published wage data, and the net loss is discounted to present value. The growth rate and the discount rate have to be consistent with each other, both nominal or both real. The gap between them drives the result more than either number alone.

Where these calculations are usually attacked

• A baseline built on the best year. One strong bonus year projected across a career.
• No offset, or a guessed offset. Interim earnings left out, or estimated when the records were available.
• Benefits counted twice. A fringe-benefit percentage applied to pay that already includes employer contributions.
• Front pay with no end in sight. A duration assumed rather than supported.
• Back pay that ignores a cut-off. A later layoff, a reinstatement offer or after-acquired evidence ignored.
• A discount rate chosen for effect. A rate with no stated source, or one inconsistent with the growth rate.

Each of these is a question of evidence, and each can be checked against the report. If the opposing expert’s figure is already served, our rebuttal of an opposing damages expert starts by reproducing it. For one example, see a front-pay figure built on an assumption nobody had tested.

What the economist needs

• Pay records and W-2s from the employer for at least three years before the adverse action
• The plaintiff’s tax returns before and after
• Benefits plan summaries and statements (health, retirement, equity)
• Offer letters, compensation plans and bonus or commission schedules
• Post-termination pay records, offers received and job-search records
• Any vocational, medical or life-care report that bears on future work
• The complaint and the claims pleaded, so the remedies can be matched to them

Employment damages are one of our core practices; see employment damages economist and expert witness. For class-wide exposure, see wage-and-hour and PAGA damages. For how the discipline works in general, see what a forensic economist does.

Frequently asked questions

Is front pay the same as future lost earnings?

In substance, largely yes: both measure earnings the plaintiff is expected to lose after trial. The terms differ by claim. “Front pay” is the name for the equitable remedy under Title VII and the ADEA. In a FEHA or other state-law damages claim, the same loss is usually called future lost earnings.

Is back pay discounted to present value?

No. Back pay is a past loss and is stated in the dollars in which it was lost. Depending on the claim and the forum, it may carry prejudgment interest. Front pay is discounted because it has not yet been lost.

Do unemployment benefits reduce back pay?

It depends on the claim and the jurisdiction, and courts have not treated the question uniformly. Counsel should tell the economist which rule applies; the economist can present the figure with and without the deduction.

When should an employment economist be retained?

Before the damages number is stated to the other side, whether in a demand, at mediation or in initial disclosures. An early preliminary range tells counsel what the record supports before the case is valued on an assumption.