Wrongful Termination Expert Witness Testimony


Issues Considered by the CPA Expert Witness When Calculating Wrongful Termination Damages

The basic questions to answer in determining damages in wrongful termination, personal injury and wrongful death cases are the same: how much would plaintiff have earned in active work and retirement through his or her death, absent the critical event, and how much can plaintiff reasonably be expected to earn today (if anything)? These are questions forensic accountants can answer. (Personal injury cases may call for an additional expert, a vocational rehabilitation expert; wrongful death cases require consideration of the deceased’s personal consumption, which is within the purview of the CPA expert witness.)

The bases of the calculation of damages in wrongful termination cases are the facts learned and assumptions made by the CPA damages expert. The most important of these facts and assumptions are summarized below.

Key Facts and Assumptions in Wrongful Termination Damages Calculations

Facts Assumptions
   Hire date    Reemployment date
   Termination date    Retirement date
   Reemployment date    Date of death
   Pre-termination wages    But-for wage growth
   Post-termination (mitigating wages)    Future mitigating wage growth
   Historical    But-for benefits
   Retirement plans    Future mitigating benefits
   Mitigating retirement benefit plans
   Prejudgment interest rate    Discount rate


Worklife Expectancy
An often-cited source for information on worklife expectancy is the article “The Markov Process Model of Labor Force Activity: Extended Tables of Central Tendency, Shape, Percentile Points, and Bootstrap Standard Errors,” Gary R. Skoog, James E. Ciecka and Kurt V. Krueger, Journal of Forensic Economics 22(2), 2011, pp.165-229.  The article includes tables showing worklife expectancies for initially active and initially inactive men and women by level of education.  For example, the graph below shows worklife expectancies by age for initially active men with a bachelor’s degree (but not higher).

Life Expectancy
Authoritative information on life expectancy are available from several sources, including National Vital Statistics Reports prepared by the U.S. Department of Health and Human Services, and Actuarial Life Tables prepared by the Social Security Administration. The graph below shows the life expectancy by age for white women.

Wage Growth
A key challenge in determining damages in wrongful termination damages is to project by what amount plaintiff’s total earnings would have increased (or decreased), both but for and currently expected, given the termination (which is assumed to be wrongful) has occurred. There are many resources that provide information on historical and currently projected earnings in the United States. These include the Census Bureau, Bureau of Labor Statistics, Social Security Administration and the Organization for Economic Cooperation and Development.

The graph below shows historical and projected future earnings for an individual who earned $60,000 in 2017, based on alternative projections made by the Social Security Administration.

Above and beyond wages and salary, fringe benefits can be a significant portion of an employee’s compensation. News releases by the Bureau of Labor Statistics regarding employer costs for employee compensation are an important source for information on the value of these benefits. The table below shows that, for example, average benefits for civilian workers can increase the cost of an employee’s total compensation by 46.6% over the cost of the employee’s wages and/or salary.

Cost of Benefits As a Percent of Wages and Salaries Civilian Workers Private Industry State and Local Govern-ment
 Wages and salaries 100.0% 100.0% 100.0%
Paid leave 10.4% 10.1% 12.0%
Supplemental pay 4.8% 5.6% 1.6%
Insurance – Other 0.7% 0.7% 0.5%
Insurance – Health 12.2% 10.8% 18.5%
Retirement – Defined benefit 4.8% 2.2% 17.1%
Retirement – Defined contribution 2.9% 3.3% 1.3%
Legally required 10.7% 11.2% 8.8%
Subtotal – Benefits 46.6% 43.9% 59.7%


Discount Rate
Projected future earnings in wrongful termination cases can continue many years, particularly with regards to retirement earnings, which often are assumed to continue from plaintiff’s worklife expectancy (i.e., age at retirement) to plaintiff’s life expectancy (age at death). The choice of which discount rate is applied to these projected future earnings can have a material impact on the calculated present value of these earnings. The table below shows the impact of choosing different rates to discount to present value projected future earnings of $50,000 per year beginning five years from today and continuing for an additional 20 years while growing 3% annually.

Present Value of Future Cash Flows

Not Discounted Discounted
20-Year T Bond (2.98%) Moody’s Baa Bond (4.82%) 20-Year T Bond + 5% Risk Adjustment (7.98%)
$1,433,824 $908,382 $700,389 $464,536


Contact a CPA Expert Witness Experienced with Wrongful Termination Cases
When you are working on a wrongful termination case and need the help of a CPA expert witness to calculate the damages caused by wrongful termination, call the experienced experts at Thomas Neches & Company, LLC.