"How much is my lawsuit worth?"

"What can you get for me?"

Many people ask these important questions when they are contemplating action against an employer. They are very reasonable questions, but they are also very difficult to answer, especially during the first stages of a lawsuit.

These questions and answers are designed to help you think about this issue and help you develop some insight into how your lawyer arrives at an answer to the above questions.

back to top

This page addresses the following topics for building your case in any kind of legal or quasi-legal challenge to a termination or other adverse action against you in the workplace.

Work with your attorney

To build a winning case, the burden is on you, your union or your attorney to gather evidence, both written and oral, that is specific, accurate, and objective. Even if you don't end up in court, you need to have a case that a judge could find credible in order for your employer to consider settling the claim in your favor.

This advice applies to cases brought in a wide range of forums, include the courts, administrative agencies, like the EEOC or NLRB, and arbitration. Communicating with your union is especially important in an arbitration under a collective bargaining agreement, because in that situation, the union is primarily responsible for making your case.

Gather documents

Gather and put in chronological order all of the documents that you can find concerning your employment-every pay stub, every memo, every handwritten note. Try, within your company's rules, to get copies of:

• Performance evaluations
• Disciplinary warnings or reprimands
• Letters of thanks or praise (from managers, customers, or co-workers)
• Internal memos
• Company bulletins
• Attendance record
• Any document stating the reason for your dismissal
• Handbooks, manuals, or other documents describing work rules, policies, and procedures
• Pension benefits and retirement plan information
• Documents related to your unemployment compensation claim
• Copies of work assignments
• Organizational charts, diagrams, floor plans, etc.

Do not take documents or access information to which you have no right and are not entitled. If you are a union member, ask your union to assist in acquiring documents that are otherwise difficult to obtain, but to which you are legally entitled.

Identify witnesses

If you think co-workers or others observed your wrongful treatment, make a list of their names, addresses, and home telephone numbers, along with a summary of what you expect them to say - whether good or bad. The "bad" or unfriendly witnesses are especially important to discuss with your attorney so that he or she can evaluate the damage they might do to your case. Forewarned is forearmed.

Ask friendly witnesses to give you a written statement of anything they saw or heard in person regarding your situation as soon as you decide to take action against your employer. Memories fade over time. Make sure the witnesses state only the facts of which they are personally aware and give specific examples of what they have seen themselves or what they were told directly. General statements such as, "Everyone knew that the supervisor was out to get her," are not helpful to your case. Get statements that specify the who, what, when, and where of the discriminatory or otherwise unlawful action, such as your employer's yelling at you or interfering with your work. If possible, have the written statement signed in front of a Notary Public.

The most useful witness statements are fact-intensive and unembellished by anger toward your employer or by friendship to you. They should be detailed enough so that whoever reads them - the court, an attorney, or an agency investigator - will see the "big picture."

If you know of employees who were mistreated in the same way you were, ask them for statements about the way they were treated. If your supervisor, for example, made insulting and demeaning remarks to you and other workers, get statements from the other co-workers that quote or paraphrase the remarks, give the dates on which they were made, and name any others who were present.

This is a selection from Job Rights and Survival Strategies by Paul H. Tobias and Susan Sauter.

back to top

This page provides answers to the following questions:

Why might I need a lawyer to handle a employment-related problem?

To fully enforce state and federal laws protecting employees against illegal actions by their employers, you will need an attorney in many situations where you have a serious problem with your employer and need to take legal action. Most attorneys representing employees do so because they understand that non-unionized employees are relatively powerless against employers.

While you may be caught up in a serious employment dispute only once or twice in your lifetime, some larger employers and their attorneys handle many employment disputes every single day. Most employers have much more experience and resources than you to evaluate and handle claims. An employee who has not consulted an attorney can be at a real disadvantage.

Succeeding in an employment lawsuit without a lawyer (called filing "pro se") is virtually impossible. Besides knowing the law (only some of which is covered elsewhere on this website) and the associated court procedures, an attorney will know what information you need to win, how to get it, how to present witnesses and documents to the court and jury, and how to prevent a company and its attorneys from using unfair tactics to win the case. Don't make the mistake of thinking that you will win and save yourself some attorneys fees by taking the case to trial by your self. You could end up with nothing. Worse, you might end up having to pay your employer for the expenses they incurred in defending your lawsuit.

Do I need to talk to a lawyer right away?

Here are some of the situations in which you are strongly encouraged to speak with an attorney immediately:

• You have concerns about how you are being treated in the workplace or whether your termination or lay off was legal;
• You are considering quitting your employment because of your employer's apparently unlawful conduct;
• You do not want to or cannot negotiate with your employer regarding severance pay;
• You do not clearly understand your rights or are unsure of the proper action to take after your termination;
• You are nearing the end of your "statute of limitations" or deadline for filing suit and are still unsure of how or where to file a claim;
• You are being pressured to sign a complicated and lengthy "release of claims" that you do not fully understand;
• You want to file a lawsuit in state or federal court;
• You know of many other employees who want to bring the same type of claim against the same employer;
• You are dissatisfied with a governmental agency's (such as the EEOC) investigation of your complaint;
• You have powerful evidence that your termination was illegal.

If you delay contacting an attorney, you will not know what you may be able to do to prevent your situation from worsening and you may not properly document events as they occur. Because it is your burden to prove an illegal motive, such as discrimination or retaliation, you must document the evidence that supports your claims. If you fail to document events as they happen, later you may not have the evidence necessary to prove your case. You need documents or a witness to confirm facts and events. If it is your word against your manager's word, it will be very difficult to prove your claim.

Example: if you are given a poor job evaluation, placed on a "performance improvement plan" and then threatened with termination, an attorney will help you to evaluate your possible claims and how to document your case. Usually, the employer is very experienced at documenting poor performance to defend itself against claims. However, by documenting events in a way that refutes the reasons for the adverse action, the employer may back off.

Without legal help early on, you may not be prepared to counter the employer's stated reason for your poor evaluation or termination.

Visit the Workplace Fairness Employment Attorney Directory to search for a lawyer in your area.

back to top

This page provides answers to the following questions:

How do I file a claim with a government agency?

A claim must generally be made in writing to the federal or state agency. Some agencies, such as the federal Equal Employment Opportunity Commission (EEOC), require you to mail a charge of discrimination or complete one in person at an EEOC office. Other agencies, such as the Occupational Safety and Health Administration (OSHA), will accept complaints over the phone, on their website, or via fax, in addition to those written complaints made through the mail or in person at an OSHA office.

What information should I include in the complaint?

The general rule is to include all of the details that would enable the agency to determine if you have a claim or the law has been violated. The most basic information to include is:

• Your name, address, and telephone number.
• The name, address, and telephone number of the employer, employment agency, or union that you wish to file the claim against.
• An estimate of the number of employees (or union members), if you know. (Certain laws only apply to employers with a minimum number of employees).
• A short description of the facts supporting your complaint that a law has been violated.
• The date(s) of the violation(s).

Be sure to follow all directions on the form, and do not leave any requested information blank if you have a way to find out the information before submitting the form.

back to top

1331 Pennsylvania Ave NW #1150 Washington, DC 20425

Phone: (202) 376-8105 TTY: (202) 376-8116 E-Mail: publications@usccr.gov Website: www.usccr.gov

Agency Information/Mission: The Civil Rights Act of 1957 created the U.S. Commission on Civil Rights. Since then, Congress has reauthorized or extended the legislation creating the Commission several times; the last reauthorization was in 1994 by the Civil Rights Commission Amendments Act of 1994.

Established as an independent, bipartisan, fact-finding federal agency, our mission is to inform the development of national civil rights policy and enhance enforcement of federal civil rights laws. We pursue this mission by studying alleged deprivations of voting rights and alleged discrimination based on race, color, religion, sex, age, disability, or national origin, or in the administration of justice. We play a vital role in advancing civil rights through objective and comprehensive investigation, research, and analysis on issues of fundamental concern to the federal government and the public.

Information on Filing a Complaint

Getting Uncle Sam to Enforce Your Civil Rights

Civil Rights Directory

950 Pennsylvania Avenue N.W. Office of the Assistant Attorney General Washington, D.C. 20530

Department Comment Line: 202-353-1555 Department of Justice Main Switchboard: 202-514-2000

TDD: 800-877-8339 Additional Contact Information: https://www.justice.gov/crt/contact-office E-Mail: Contact individual department, as listed at Civil Rights Section Home Pages Website: http://www.usdoj.gov/crt

Agency Information/Mission: To enforce the law and defend the interests of the United States according to the law; to ensure public safety against threats foreign and domestic; to provide federal leadership in preventing and controlling crime; to seek just punishment for those guilty of unlawful behavior; and to ensure fair and impartial administration of justice for all Americans.  

Thomas Jefferson wrote, “The most sacred of the duties of government [is] to do equal and impartial justice to all its citizens.”  This sacred duty remains the guiding principle for the women and men of the U.S. Department of Justice.

Disability Rights Section Home Page The Disability Rights Section works to achieve equal opportunity for people with disabilities in the United States by implementing the Americans with Disabilities Act (ADA). The Section also carries out responsibilities under Sections 504 and 508 of the Rehabilitation Act, the Small Business Regulatory Enforcement Fairness Act, and Executive Order 12250.

Employment Litigation Section The Employment Litigation Section enforces against state and local government employers the provisions of Title VII of the Civil Rights Act of 1964, as amended, and other federal laws prohibiting employment practices that discriminate on grounds of race, sex, religion, and national origin. The Section also enforces against state and local government employers and private employers the Uniformed Services Employment and Reemployment Rights Act of 1994, which prohibits employers from discriminating or retaliating against an employee or applicant for employment because of such person's past, current or future military obligation.

Office of Special Counsel for Immigration-Related Unfair Employment Practices (OSC) The Office of Special Counsel for Immigration-Related Unfair Employment Practices (OSC) enforces the anti-discrimination provision (§ 274B) of the Immigration and Nationality Act (INA), 8 U.S.C. § 1324b.

This federal law prohibits: 1) citizenship status discrimination in hiring, firing, or recruitment or referral for a fee, 2) national origin discrimination in hiring, firing, or recruitment or referral for a fee, 3) document abuse (unfair documentary practices during the employment eligibility verification, Form I-9, process, and 4) retaliation or intimidation.

U.S. Department of Labor

Frances Perkins Building 200 Constitution Avenue, NW Washington, DC 20210

Phone: (866) 4-USA-DOL TTY: (877) 889-5627 E-Mail: See DOL E-Mail Topics for further information Website: www.dol.gov

Agency Information/Mission: To foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.

Summary of the Major Laws of the Department of Labor

Workers Information Page

ELaws: Employment Law Assistance for Workers and Small Businesses

Wage and Hour Division Home Page

Occupational Safety & Health Administration

200 Constitution Avenue, NW Room Number N3626 Washington, D.C. 20210

Phone: (800) 321-OSHA (6742) TTY: (877) 889-5627 Additional Contact Information: OSHA Contact Information E-Mail: OSHA E-Mail Form Website: www.osha.gov

How to File a Complaint with OSHA

OSHA Complaint Handling Process
OSHA Regional and Area Offices
OSHA eTools and Electronic Products for Compliance Assistance

Employee Benefits Security Information

Frances Perkins Building 200 Constitution Avenue, NW Washington, DC 20210

Phone: (Toll-Free) (866) 444-EBSA (3272) TTY: (Toll-Free) (877) 889-5627 E-Mail: www.askebsa.dol.gov Website: www.dol.gov/ebsa

Agency Information/Mission: EBSA is committed to educating and assisting over 200 million pension, health and other employee benefit plan participants and beneficiaries and more than 3 million plan sponsors and members of the employee benefit community. EBSA promotes voluntary compliance and facilitates self-regulation, working diligently to provide quality assistance to plan participants and beneficiaries. EBSA's goal in providing direct assistance is to raise the knowledge level of plan participants and beneficiaries, service providers and other interested parties and to ensure that they have access to available plan documents filed with the Department of Labor. This enables participants to better understand and exercise their rights under the law and, when possible, to recover any benefits to which they may be entitled.

What You Should Know About Your Pension Rights
ERISA Compliance Assistance
EBSA Frequently Asked Questions
EBSA Regional Offices

National Headquarters 131 M St NE Washington, DC 20002  National Contact Center P.O. Box 7033 Lawrence, Kansas 66044

Toll-Free (National Contact Center): (800) 669-4000 Phone (National Headquarters): (202) 663-4900 TTY: (202) 663-4494/ Toll-Free: (800) 669-6820 Fax: (703) 997-4890 E-Mail: info@eeoc.gov (Please include your zip code and/or city and state so that your email will be sent to the appropriate office.) Website: www.eeoc.gov National Contact Center Website: https://eeoc.custhelp.com/app/home

Agency Information/Mission: The U.S. Equal Employment Opportunity Commission (EEOC) is responsible for enforcing federal laws that make it illegal to discriminate against a job applicant or an employee because of the person's race, color, religion, sex (including pregnancy, gender identity, and sexual orientation), national origin, age (40 or older), disability or genetic information. It is also illegal to discriminate against a person because the person complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit.

Most employers with at least 15 employees are covered by EEOC laws (20 employees in age discrimination cases). Most labor unions and employment agencies are also covered.

The laws apply to all types of work situations, including hiring, firing, promotions, harassment, training, wages, and benefits.

The EEOC has the authority to investigate charges of discrimination against employers who are covered by the law. Our role in an investigation is to fairly and accurately assess the allegations in the charge and then make a finding. If we find that discrimination has occurred, we will try to settle the charge. If we aren't successful, we have the authority to file a lawsuit to protect the rights of individuals and the interests of the public. We do not, however, file lawsuits in all cases where we find discrimination.

Federal Equal Employment Opportunity (EEO) Laws
Prohibited Practices
Contacting the EEOC
EEOC Field Offices and Jurisdictional Map

1615 M Street, NW Washington, DC 20419

Phone: (202) 653-7200/ Toll-Free: (800) 209-8960 V/TDD: (800) 877-8339 Fax: (202) 653-7130 Additional Contact Information: Official Contact page E-Mail: mspb@mspb.gov Website: www.mspb.gov

Agency Information/Mission: The mission of the MSPB is to "Protect the Merit System Principles and promote an effective Federal workforce free of Prohibited Personnel Practices." MSPB's vision is "A highly qualified, diverse Federal workforce that is fairly and effectively managed, providing excellent service to the American people." MSPB's organizational values are Excellence, Fairness, Timeliness, and Transparency. More about MSPB can obtained from MSPB's Strategic Plan. MSPB carries out its statutory responsibilities and authorities primarily by adjudicating individual employee appeals and by conducting merit systems studies. In addition, MSPB reviews the significant actions of the Office of Personnel Management (OPM) to assess the degree to which those actions may affect merit.

back to top

Will a lawyer charge me for an initial consultation? If so, how much?

Some do, some don't. It may also depend on whether you were referred to the lawyer through a referral service that has a special arrangement with that lawyer for a lower consultation rate. Many lawyers charge their regular hourly rates for a consultation, calculated in tenths of an hour (six-minute intervals) or quarter-hours. Others have a special, lower rate just for consultations.

Sometimes a lawyer will ask a flat fee regardless of the length of the consultation; a few give free consultations, but they usually are very selective about whom they see for a consultation. Free consultations are rare because employment cases are very difficult to evaluate and also very difficult to win, and often a consultation is all the individual needs in order to learn his or her rights and decide what to do.

Ask about the consultation fee before you make the appointment. Also ask whether the fee needs to be paid at the time of the consultation, and whether checks or credit cards are accepted.

Do I still have to pay the consultation fee if the lawyer tells me I don't have a case?

You can expect to pay the consultation fee even if the lawyer tells you that you have no case. You are paying for the information and advice you get, and it can be very valuable to hear this early, before you spend a lot of time, money, and energy on a case you are not likely to win.

How does my lawyer get paid if I retain (hire) one?

Again, there are many different arrangements possible, depending on the individual attorney's practices. The main types of arrangements are:

• hourly
• contingency; and
• modified contingency

How does paying my attorney by the hour work?

The attorney asks for a retainer fee up front, which represents an advance against expected fees and costs. Depending on what the attorney is retained to do and how much it is expected to cost, the retainer fee may be a few hundred dollars or it may be much larger, in the thousands or even tens of thousands.

How does paying my attorney on a contingency basis work?

The term contingency means that the lawyer's fee is contingent upon recovering some money for you, through winning or settling your case. If the lawyer is unsuccessful and you get nothing, your lawyer also gets nothing. A common contingency fee is 1/3 of whatever you receive, after any out-of-pocket expenses are paid back to whoever advanced them.

What is a modified contingency arrangement?

There are different structures, but the general idea is a reduced hourly rate, and then an enhancement if the lawyer gets a recovery for you, and no enhancement if she does not. For example:

• The attorney may charge half their usual hourly rate; the other half is contingent upon a recovery for you, and if the lawyer gets nothing for you, the 50% rate is all you pay.
• On the other hand, if they do recover something for you, they will take the other 50% of the hourly rate from the recovery, plus a 'bonus' of 20% of the net recovery after fees, to compensate them for the risk of not getting fully paid.
• Another version might involve charging full hourly rates with a cap of $5,000 or $10,000, and 10% or 15% of anything recovered above a certain amount.
• Another, in an appropriate case, might be a flat fee to negotiate an employment contract or a severance agreement.

There are many other possibilities. Make sure you understand what your lawyer is proposing and how it would work if you settle, if you win, and if you get nothing.

If I win my case, how will my lawyer's fees be paid, and who will pay them?

Where civil rights statutes generally give the court discretion in whether or not to award a prevailing plaintiff attorney's fees, the Fair Labor Standards Act mandates this award. This fee-shifting provision requires that if the plaintiff wins a lawsuit under the FLSA, his "reasonable attorney's fees" must be paid by the employer or other entity that was found to be at fault. The purpose of this provision is to enable people to get competent representation even if they are not rich, and even if they could not find lawyers to represent them on contingency because the amount at stake is not large enough. Lawyers who take these cases, in which they help individuals enforce the civil rights laws, are considered "private attorneys-general."

How will I receive the attorney fees from the other side?

When the lawsuit is over and you have won, your attorney will file with the court an application for attorneys' fees. The application has to include his time records and an affidavit describing his relevant legal experience and justifying his hourly rate. The application must calculate the fees based on an hourly rate multiplied by the number of hours, regardless of what kind of arrangement you have with your lawyer - even if it is pure contingency.

The defendant's lawyers will do their best to reduce the amount the court will decide to award, attacking your fee application by arguing that your attorney's hourly rate is too high, he was inefficient, he did not have to assign so many associate lawyers to do a given task, or your case was only partly successful. The judge will usually reduce the fee application somewhat. The defendant then has to pay the final amount to you or to your lawyer, depending upon whether you have already paid your lawyer.

Is it possible for my lawyer to get more money than I do from the lawsuit?

Yes. It is not unheard of for the lawyer representing you to receive more money than you do. This is because your lawyer's fee is based on how many hours he or she worked to win your case, while your recovery is based on what you lost as a result of discrimination or other wrongful conduct by your employer. If your damages are low, but your lawyers had to work long and hard to get them for you, they may receive more than you do. Any other rule would discourage competent counsel from taking cases with relatively low damages or working hard to win them.

Do I have to pay taxes on the fees that my lawyer receives?

Ultimately, no. The law has recently been changed so that although you initially pay taxes on your attorney's fees (they are considered non-wage income to you and should be reported on a Form 1099), you can then deduct them when you file your income tax return.

If I lose my case, how will my lawyer get paid?

That depends on your retainer arrangement with your lawyer. If she is to be paid on an hourly fee basis, you are responsible for any fees still due. If she is to be paid on pure contingency, you are responsible only for any out-of-pocket costs that your lawyer advanced, but you do not owe any fee. If there was some other arrangement, it will govern.

If I can't afford the fees, what about companies that 'invest' in my lawsuit and pay the costs and fees, then get paid back only if and when I win?

Some of these companies may not be reputable. You can contact your local Better Business Bureau, but if the company you are asking about has been the subject of complaints and changed its name, the BBB may not have information about it. Ask the company for references and call the references before making the commitment to go this route.

If I lose a lawsuit, will I have to pay the fees for the other side's lawyers?

If your lawsuit was not frivolous, meaning completely without merit and brought just to harass the defendant, you will not have to pay the other side's attorneys, even if you lose.

Is any of this different if my case is a class action?

Class actions are always brought only on a contingency fee basis. Class members do not ordinarily have to contribute to attorneys' fees or costs before settlement or judgment.

If a lot of work has to be done before the lawsuit starts - initial consultation and strategy conferences, an EEOC charge, or settlement negotiations that fail - and then I file a lawsuit and win, can I get paid back for all the fees and costs that were spent on the preliminary work?

Generally, yes. There may be a question of whether the preliminary work was necessary, but work done in the EEOC before bringing a federal lawsuit is clearly necessary, since filing a charge with the EEOC and getting a Notice of Right to Sue is required before you can file a lawsuit in federal court alleging discrimination based upon sex, race, age, religion, or national origin.

If I have a lawsuit with a number of different claims and win on only some of them, does it affect the attorneys' fees I can recover from the defendant?

If you do not succeed on all your claims, it may well affect the fees that are recoverable. If you recover nothing for yourself except "nominal" damages such as $1 for hurt feelings, there is a real risk that you may not be granted any attorneys' fees at all from the defendant. Although the calculation of fees should not be based on a formula, there are some cases in which courts have apportioned the fees based on the proportion of successful claims to unsuccessful claims. For instance, if your lawsuit had five claims and you prevailed on only two, such a decision would grant you only two-fifths of the fees requested - perhaps with further reductions for inefficiency, supposedly inflated hour rates, etc. There are other cases in which courts have even cut the attorneys' fees they award because the plaintiff sought large damages but obtained only a smaller amount.

If I have a 1/3 contingency retainer arrangement with my attorney, can I get her fees paid based on the same method, rather than hourly, after I win my lawsuit?

No. A court will grant attorneys' fees, to be paid by the losing defendant after you win, only on an hourly basis. If the hourly total is more than 1/3 of your recovery, the attorney is paid in full and you keep your full recovery. If the hourly fees granted are less than 1/3 of your recovery, the attorney receives the amount granted by the court, and any shortfall between that and 1/3 of your recovery comes out of your recovery - unless you and your lawyer have made a different arrangement in your retainer agreement.

If my lawyer and I part company before I win my lawsuit, do I still have to pay him?

The retainer agreement might say that under some circumstances you owe your lawyer nothing. On the other hand, it might say that if you discharge him without a good reason, or if he withdraws from representing you because you are not cooperating or following his advice, he is entitled to the full hourly value of the time he spent on your case, even if you would otherwise pay him only on contingency. Read the retainer agreement carefully.

My lawsuit ended up settling fairly quickly, but the fees my lawyer charged me still ended up being high. Do I have to pay?

Furthermore, make sure that everything you are being billed for was agreed to in the retainer agreement and to ask as many questions about your bill as you want. If your lawyer is billing you by the hour, you have a right to know how those hours were spent.

Due to some unexpected money problems I do not think I will be able to afford my attorney's fees. What should I do?

As soon as you know you have a potential issue with paying your attorney's fees you should tell your lawyer. Many lawyers will attempt to work out a payment plan that works for you under your new circumstances, but some will want to get out of your case if they cannot be paid the agreed upon fee. If you do need to change lawyers it is better to do so earlier rather than later in a case. It will not do you any good to keep your problems a secret from your lawyer as they are like any other professional and have legal rights to be paid the agreed amount for work done.

back to top

An employment class action occurs when an employer has wronged a large group of employees or applicants. To simplify and speedup the case, all the lawsuits are joined together into a class action. Though class actions are faster than having a trial for each individual lawsuit, a class action on averages takes longer and costs more than a typical lawsuit. There are also many class action specific rules to follow. To learn more about class actions and your rights related to class actions, read below:

What is an employment class action?

It is a lawsuit by a small group of people (called Plaintiffs/Class Representatives) on behalf of a larger group of people. In an employment class action, you are trying to prove that the actions of the employer in discriminating against the smaller group is typical of the discrimination faced by the larger group of people, due to a common factor such as their race, age, sex, national origin, ethnicity, etc.

Class actions are essential to the enforcement of our nation's civil rights laws, since they are often the only way that individual employees can challenge discrimination. With a class action, one lawsuit can vindicate the rights of a larger group of people where no individuals or their attorneys will otherwise have enough of an economic incentive to bring suit on their own. This ensures that anti-discrimination and civil rights laws are adequately enforced.

Because class action lawsuits have been so successful at protecting the interests of employees and consumers, businesses and employers have been fighting back to restrict the ways in which class actions have been brought, resulting in the 2005 passage of the so-called "Class Action Fairness Act." This law moved many class actions from state to federal court, where it has historically been more difficult for workers to prevail.

How is a class action different than an individual discrimination case?

A class action will take longer to get to trial than an individual case because it requires a decision "as early as possible" of whether a class can be maintained. This means in most instances that the investigation regarding the class claims must be conducted first (generally from four to eight months). Only after a decision on the class claims will an investigation and a trial occur regarding your individual claims.

What do the courts require in order for a case to be brought as a class action?

Rule 23 of the Federal Rules of Civil Procedure, which is the set of rules governing federal class actions, requires:

• That the class be so numerous that joinder of all members is impracticable;
• That there be questions of laws and fact that are common to the claims of the class representatives and the class;
• That the claims or defenses of the class representatives be typical of the claims or defenses available to the class members; and,
• That the class representatives will fairly and adequately protect the interests of the class.

Are there any other special requirements in employment class actions?

Yes. In employment cases, the plaintiffs must prove that they meet one of two additional rules under Federal Rule 23(b), either that:

• The party opposing the certification of a class action has acted or refused to act on grounds generally applicable to the class, making final injunctive or corresponding declaratory relief appropriate for the class as a whole; or,
• The questions of law or fact common to the members of the class predominate over any questions affecting only individual members; and,
• That it be found that a class action is superior to other available methods for the fair and efficient determination of the controversy.

How many people are necessary to meet the legal requirements for a class action?

The law requires that the class "be so numerous that joinder of all members is impracticable," which means the employer's illegal conduct must have affected enough employees or applicants for hire that joining all of them together, and then presenting before the court evidence of each of their separate factual and legal claims, is not practical.

How many is that?

There is no exact number of individuals that you must have before you can file a class action. However, as a general rule, less than 20 individuals is not enough for a class action and more than 50 individuals is almost always enough. Between 20 and 50 individuals can be a gray area, depending on such factors as:

Where the affected individuals are geographically located; and,

How easy it is to identify all the individuals who potentially were affected in the past or might be affected in the future by the employer's discriminatory employment actions.

What does the law mean when it says that "the questions of law and fact must be common to the claims of the class representative and the class?"

This means that both the class representatives and the larger class proposed to the court must present substantially the same legal and factual questions as each other, so that one court determination could resolve all or most of the legal and factual issues in the case.

What does the law mean when it says that "the claims or defenses of the class representatives must be typical of the claims or defenses available to the class members?"

This means that the type of lawsuit and its defense that the class representatives would bring against the employer is similar to the lawsuit that other members of the larger class could also bring, so that a decision regarding the class representatives will be binding on and applicable to the claims of the class members.

What does the law mean when it says that the class representatives must fairly and adequately protect the interests of the class?

This means that a determination in the class representatives' favor will also be beneficial to the interests of the larger class involved, and covers such issues as:

• There can be no "actual" conflicts of interest between the class representatives and the class members. (However, the employer must prove the actual existence of a conflict of interest, as it is not enough for the employer to merely allege a potential conflict of interest.);
• The class representatives must fight to be sure that the proper relief is provided for them and the rest of the class members;
• Class representatives must hire competent legal counsel familiar with class actions to represent their interests and those of the class.

What does the law mean when it says that the party opposing the certification of a class action has acted or refused to act on grounds generally applicable to the class, thereby making final injunctive or corresponding declaratory relief appropriate for the class as a whole?

This means that the employer has done or refused to do something in violation of the law which generally affects the larger group of class members, so that a class action lawsuit would allow the court in a single trial to fix the problem for everyone if the plaintiffs prove their case. In terms of fixing the problem, the court must be able to issue an injunction, which is an order directing the employer to stop its illegal conduct, that solves the problem, rather than only being able to remedy the problem by giving each class member money damages.

What does the law mean when it says that the questions of law or fact common to the members of the class must predominate over any questions affecting only individual class members? 

This means that the legal and factual questions that affect everybody are more common than the legal and factual questions affecting only a few people, so a mass determination of the legal and factual issues would be preferable to many individual cases. It is similar to the requirement discussed in question 5 in requiring that a common claim be shared by all class members, but it goes further to require that the common claims predominate over any individual issues. The rule does not require that every issue in the claim be common; rather, it requires that there be substantial common issues which predominate over individual ones.

What does the law mean when it says that a class action should be superior to other available methods for the fair and efficient adjudication of the controversy?

It means that if you can decide in one class action the same issues that would have to be tried in hundreds of repetitive individual trials, the class action will result in a valuable savings of judicial time and resources (also known as judicial economy) and will prevent inconsistent judgments, so is therefore a method superior to the other methods available to decide the cases. Moreover, where you have many class members who have suffered small losses, reducing the likelihood that they could afford to go to court individually against the defendant employer, a class action is a fair way to ensure the laws against discrimination can be enforced.

What are the various stages of a class action case?

The first stage of a class action is the investigation, which is called discovery. This generally involves requests by the individuals listed as named plaintiffs/class representatives to get computer data from the defendant. The data must then be analyzed by a statistical expert for disparate impact (in other words, to see if the actions of the defendant discriminate against the plaintiffs and the class). There will also normally be depositions (interviews that are recorded by a court reporter, but not involving a judge) of company officials regarding the procedures being challenged by the plaintiffs, and sometimes, an Industrial and Organizational Psychologist is used if a written test is involved.

After discovery is completed, including the filing of all appropriate expert reports and motions for and against class certification, the Court then ordinarily has either a hearing or just oral arguments regarding class certification. After ruling on class certification, the Court sets another scheduling conference to determine the time to be allowed for discovery regarding the merits of the class and individual claims (if the Court has granted class certification) or the merits of the individual claims only (if class certification has been denied).

Once this discovery is completed, the defendant will have the opportunity to move for summary judgment, which is a process where the defendant can request that the Court dismiss the case instead of having it tried before a jury. If summary judgment is denied, then a trial on the merits will follow.

How long do class actions last as compared to cases for individual plaintiffs?

Class actions normally last longer than individual cases because there is discovery related to the class claims, motions that a court must rule upon for or against class certification, and sometimes a class certification hearing or oral argument that all must occur before you get to discovery and a trial on your individual claims. Typically, class cases will last a year or two longer than an individual case.

What are the remedies available to me in an employment class action?

Under the present law, it is very hard for plaintiffs to receive compensatory and punitive damages because the court will not normally certify a class if there are going to be individualized determinations of damages for each class representative and class member. As a result, most class actions now seek only back pay and interest and injunctive relief.

I have been asked if I would be willing to be a "class representative" in a class action case. If I agree, what are my duties and responsibilities?

Class representatives in a class action not only represent themselves, but must also adequately and properly represent the interests of the other members of the class in both the money to be paid out and the changes that are to be made by the employer in the way it does business (called "injunctive relief"). Class representatives can not use their position to pay themselves more money or to obtain more rewards for themselves at the expense of the class.

Class Representatives are generally required to help with the discovery conducted in the case, including answering written questions asked by the defendant (called interrogatories) and providing answers to questions under oath before a court reporter (called a deposition). Additionally, although many law firms now pay the actual litigation costs, a class representative must be prepared to pay his or her percentage of the costs of the litigation if called on to do so.

As a result, even if your case is being handled on a contingency basis, you generally will be required to pay some amount of money to be held in trust toward the costs of the case. This money will be refunded to you if you win or settle the case. Class representatives may also be required to travel at their expense to the place where the lawsuit was filed, the corporate headquarters, or some other mutually convenient location to have their deposition taken, and if the lawsuit is lost, could be held liable for their percentage of the costs of litigation.

There are several of my co-workers who would be willing to join me in bringing a class action case against our employer. How do we get started if we think we might have a good case?

The first, and most important, step in this process is to find a law firm that has handled this kind of work before so they can advise you and your co-workers of the strength of your case.

I have just received a notice that I am a member of a class in a lawsuit against my employer. What do I do?

Read the Notice carefully as it will tell you what to do. Then, talk with a law firm that has handled class actions so you will know the strength of your position and what your rights are.

I do not wish to participate in a class action lawsuit that has been filed. What do I do to exclude myself from the case?

Notify the Court or the Class Administrator, as set forth in the Notice, that you do not want to be a part of the case and do not want any of the money that may be owed to you.

I do not wish to participate in a class action that has been filed against my employer, because I was planning to file my own lawsuit against the company. Am I required to be a member of the class?

The answer to this question depends on how your case is certified, as a B-2 class or a B-3 class.

A B-2 class is appropriate where an employer has acted against a class of people and thus, changes at the company (injunctive relief) are necessary. If a B-2 class is certified and the Court approves the settlement proposal, you cannot pursue your own case.

A B-3 class is appropriate where there are employment issues affecting a class that dominate over issues that affect individual members of the class, and in addition, a class action is the most effective means to address the issues. If a B-3 class is certified, then you can opt-out of the case and pursue your own case.

A law firm familiar with class action cases can inform you about how the case has been certified.

I have been a member of a class that has been certified by the court. I received notice of the proposed settlement, and I do not think it is a very good deal. Can I object to the settlement?

As a practical matter, if you are just upset with the amount of money you are to receive according to the class settlement, you will find it difficult to get the settlement overturned unless there is some major problem with the overall settlement.

I have heard a lot about class action lawyers making lots of money in class action settlements. How do I find out what the lawyers are getting paid?

The amount of money that the attorneys are to receive will be set forth in the Class Action Notice sent to you.

Most class actions take two to five years, thousands of man hours, and often from $500,000 to $1,000,000 in cash to bring to court, all of which are generally funded by the law firm representing the plaintiffs and class.

Since most plaintiffs in employment class actions are not wealthy and cannot afford to pay their attorneys by the hour, these cases are often handled on a contingency fee basis, meaning the attorneys pay these large costs over many years and only get paid if they win or settle your case. Finally, the probability of success on any employment class case is generally no better than fifty percent.

For all of these reasons, fees and expenses for the law firm handling a class action can often be quite large, but are in most cases deserved.

I heard that the court has approved the settlement in the class action case of which I am a part. How long will it take me to receive my settlement payment?

The Class Action Notice will tell you when the Fairness Hearing, when the Court will finally approve or disapprove the proposed settlement, will occur. After the Fairness Hearing, the Court will issue a Final Order approving or disapproving the settlement of the class action (either the day of the hearing or generally within thirty days of the hearing date). If there are no appeals of the Court's final order, the payments to class members will be made within 30 to 60 days after the time to appeal the final order of the Court has passed.

back to top

The purpose of damages is to put an employee back in same place they would have been if it weren’t for the employer’s actions or inaction. There are several ways a court tries to do this, including back pay, front pay, and punitive damages. To learn more about damages and your rights related to damages, read below:

If I win my case, what will I receive?

The damages a court can award depend on the type of claim. Damages include all of the financial and emotional losses a person suffers as the result of an employment dispute. The purpose of a damages award is generally to put the individual back into the same place they would have been had they not lost their job. In most state and federal discrimination cases, the employee is entitled to receive the following types of damages: back pay; front pay; lost benefits such as health, vacation, sick leave, and pension; reinstatement; reasonable accommodations; and compensatory and punitive damages.

Will I be able to receive all of the back pay that I would have earned had I not lost my job?

Back pay and benefits are among the types of damages most typically awarded in successful employment cases. Back pay includes all of the wages, salary, bonuses, commissions, and benefits lost because of an unlawful dismissal or discrimination, minus any amount the employee was able to earn in the interim.

Back pay includes much more than your salary or wages. It includes interest, overtime, shift differentials, and raises you would have received. The value of employer-provided housing lost because of the discrimination is part of a back pay award. Back pay is calculated from the date of the discrimination or job loss to the date of the court's decision.

Will I be able to receive all of the benefits that I would have earned had I not lost my job?

All of the benefits an individual lost because of the discrimination or unlawful action are included in the amount of back pay. For example, you should be paid for unused earned vacation time plus vacation time accrued up to the court's decision. If your company allots a certain number of sick days per year, you are entitled to the value for the number of unused sick days you have earned. If the company pays for health or life insurance benefits, you should receive the value of the premiums or benefits the company would have paid had you continued to be employed. Your former employer may also be required to pay any unreimbursed medical expenses which would have been covered by the employer's health plan.

Back pay also includes all forms of pension benefits that you have earned or accrued. Adjustment to pension benefits made during the time period of your case would also be included. Essentially, anything that was part of the compensation and benefits provided by your employer may be part of the back pay award.

Can I get my job back?

Reinstating employees into the jobs they lost is the preferred remedy by courts in discrimination cases, and may be a remedy in other kinds of cases as well. Sometimes, however, courts will not order reinstatement because of the now-hostile relationship between the former employer and employee, or because there is no longer a job available.

I am returning to my job and my employer has to make reasonable accommodations for me. However, what exactly are "reasonable accommodations?"

What qualifies as a “reasonable accommodation” depends on the employer. A reasonable accommodation is anything that enables a disabled employee to do their job and does not create an undue hardship for the employer. An undue hardship varies depending on the size and structure of the employer and the difficulty of providing the accommodation."

What damages can I get if I'm not reinstated to my job?

If a court believes that reinstatement is not appropriate given the circumstances, it generally awards "front pay," which is the amount of compensation and benefits the court views necessary to make up for the difference in pay that the employee would have earned in the future. The amount of front pay depends on how long the court finds it will take the employee to return to the same level of pay that he had when he was terminated. Front pay includes all lost benefits, just as back pay does.

What are "compensatory" damages?

The purpose behind compensatory money damages is that they are intended to make you "whole." Compensatory damages are also called actual damages. In employment cases, they refer to the damages that are harder to measure, such as the following:

• Emotional distress
• Pain and suffering (such as grief, fright, anxiety, humiliation, and depression)
• Permanent disability
• Mental impairment
• Medical bills

In employment discrimination cases brought under the federal anti-discrimination law, Title VII, the compensatory and punitive damages (but not back pay) that a jury could award to plaintiffs for discrimination are capped. If the employer has:

• 15-100 employees, the cap is $50,000
• 101-200 employees, the cap is $100,000
• 201-500 employees, the cap is $200,000
• 500 employees and up, the cap is $300,000

Other types of cases, and cases brought under some state laws may not be subject to these caps, however.

What are "punitive" damages?

Punitive damages are damages awarded in cases of malicious wrongdoing to punish or deter the wrongdoer or deter others from behaving similarly. In employment cases, punitive damages are designed to punish the employer and make it an example for others, where it can be shown that the employer intentionally discriminated with malice or reckless indifference.

Despite a popular misconception, the employer's conduct need not be "egregious" to allow an award of punitive damages. It is not the seriousness of an employer's conduct that governs whether punitive damages will be awarded, but its intentions: did the employer "discriminate in the face of a perceived risk that its actions will violate federal law." Put simply: did the employer know that a particular action was discrimination that was against the law, and still decide to do it anyway?

Employers who adopt an anti-discrimination policy, effectively enforce the policy, and thoroughly document the policy's strict enforcement may use the policy as a "good-faith" defense against punitive damage awards, as well as decrease the likelihood that discriminatory conduct will occur in the first place.

Punitive damages are not available against the federal, state or local governments, but only against private employers. Punitive damages are very rarely awarded by courts. Many employers choose to settle cases in which their exposure to punitive damages is significant, to avoid the potentially large financial liability as well as the negative publicity resulting from a public award of punitive damages imposed by a jury.

However, when punitive damages are awarded, the amount can be significant. As discussed in the previous question, the combination of punitive and compensatory damages is capped in federal discrimination cases under Title VII according to the employer's size. These caps may not apply, however, to cases brought under laws other than Title VII, including other federal and state laws.

What are "liquidated" damages?

Liquidated damages are a type of punitive damages, where the penalty amount for a proven violation of a law or a contract provision is designated in advance.

Under the law, a penalty amount such as "double damages" or "treble damages" is a common liquidated damages penalty. For example, while the Age Discrimination in Employment Act (ADEA) and the Fair Labor Standards Act (FLSA) do not provide for punitive damages, liquidated damages of up to twice the amount of back pay may be awarded in the event of a "willful" violation, if the employee proves that employer knowingly violated the ADEA or acted in "reckless disregard" of its provisions, or willfully violated the FLSA.

Liquidated damages provisions are also common in contracts. For example, if you settle your lawsuit against your employer with a confidentiality provision, which requires you to keep the amount and certain facts about the resolution of your case a secret, the settlement agreement may have a liquidated damages clause which requires you to pay the employer a pre-designated amount for violating the agreement.

Although a liquidated damages provision eliminates the need to prove damages of a particular amount, if the liquidated damages amount is unreasonable and excessive when compared to the damage for which it was designed to compensate, it may be declared void.

Do I have to look for another job while my case is in court?

Yes. In employment cases, you must make a good faith effort to reduce the money that you have lost in wages because your former employer caused you to lose your job. As a discharged worker, you have two obligations:

• to make reasonable efforts to find employment, and
• to accept employment of a "like nature," if offered.

If the other side can convince the judge or jury that you did not do what was reasonable, you could win your case, but still be awarded only one dollar (called "nominal damages"). However, if you did reasonably look for other work, you will not be denied damages for lost wages just because your efforts were unsuccessful and even if your efforts could have been "more exhaustive." For more information, see our site's page on mitigation.

I've heard about multi-million dollar awards in cases. How is that possible?

Multi-million dollar awards are rare in discrimination cases. They can happen in class actions where the claims of many employees are combined or in cases involving highly paid executives. For more information, see the the information under “How do I value my case?” section under Protect Your Rights.

In most cases, employees who have lost their jobs due to discrimination are entitled to their lost wages and benefits. Employees can also seek punitive and compensatory damages in cases alleging discrimination based on race, sex, religion, national origin, color, creed, or disability under Title VII. The employee must prove that the employer engaged in a discriminatory practice with "malice or with reckless disregard" for the employee's rights. Intentional actions by an employer causing the embarrassment, mental distress or humiliation of a person because of race or sex will support an award of punitive damages. An employer's failure to take action to protect employees from racial or ethnic slurs of fellow employees can also entitle the employee to punitive damages. As referenced above, there are dollar limits on the amount of punitive and compensatory damages that can be awarded in cases alleging discrimination based on race, sex, religion, national origin, color, creed, or disability under Title VII.

In cases under the federal Age Discrimination in Employment Act (ADEA) and the Equal Pay Act, individuals who win their cases and can prove that the discrimination was "willful" can get liquidated damages, which is double the back pay award. Employees alleging retaliation under the ADEA can also get compensatory damages. 

If I win, are my attorneys' fees covered?

Yes. Under the federal discrimination laws and most state laws, the employer must pay your attorneys' reasonable fees if you prevail in your case.  However, if you lose, a court would not order you to pay the employer's attorneys' fees and expenses unless your claim was frivolous and wholly without merit. The employer could recover its court costs, including the expenses for depositions, which can total thousands of dollars.

It may take years to recover the income lost from the discrimination I suffered. Is there any other compensation to make up for those losses?

Yes, courts typically award prejudgment interest as an essential part of the back pay award. Prejudgment interest serves to compensate for the loss of the use of money you would have had absent the discrimination or loss of your job. The courts have substantial discretion in the calculation of prejudgment interest, including the interest rates to apply and the manner of compounding the interest.

Do I have to pay taxes on the damages I receive?

The entire damages award is subject to federal taxes to be paid by the individual, except for the portions allocated to prejudgment interest and attorneys' fees. (The attorney pays taxes on his or her fees.) However, back pay under some state laws is not taxable.

back to top

If you are suing your employer or former employer you may be surprised to learn that you have an obligation to minimize (mitigate) the damages to yourself and, as a result, how much your employer will owe you. If you lost your job, you have to make a good faith effort to find an acceptable job, and if you are injured on the job, you have to seek medical treatment right away. However, you are not required to take just any job offer and being unable to work anymore will not count against you. To learn more about mitigation and your rights related to mitigation, read below:

What does "mitigation" mean?

Whenever anyone has a legal claim against another, they have a duty to mitigate damages. That means you have to do what you can to minimize the damages. If you are hurt in a traffic accident, you have to take reasonable steps to get your injuries treated promptly. If you refuse to get medical help, and that refusal caused your injuries to get worse, the other driver will not be liable for the injuries you could have prevented. Similarly, if a warehouse ships lemons instead of apples, the grocer has to do the best they can with the lemons to lessen the claim against the warehouse. Lemonade anyone?

Do I have to look for a job once I've lost mine?

Yes. In employment cases, you must make a good faith effort to reduce the money that you have lost in wages because your former employer caused you to lose your job. As a discharged worker, you have two obligations:

• to make reasonable efforts to find employment; and,
• to accept employment of a 'like nature,' if offered.

If the other side can convince the judge or jury that you did not do what was reasonable, you could win your case, but still be awarded only one dollar (called "nominal damages"). However, if you did reasonably look for other work, you will not be denied damages for lost wages just because your efforts were unsuccessful and even if your efforts could have been "more exhaustive."

How does mitigation affect the damages I can recover?

When calculating the amount of back and front pay that you can be awarded in an employment case, the court must deduct any compensation earned by working from the date of the employer's unlawful action until the date of the verdict. Also, if you are awarded compensation for loss of future earnings, the court must deduct any compensation you are likely to earn from the date of the verdict until the anticipated end of your work life.

However, just because this amount will be deducted from your damages does not mean that you will receive more money if you do not work: the mitigation doctrine requires that you make the effort.

How can I show that I tried to find another job?

Since the employers will have lawyers to defeat your claim, you must be prepared to show what efforts you have made. This means you need a written record. You need to keep copies of any letters or resumes written, and any newspaper or magazine advertisements for jobs that you pursue. Keep your unemployment documents, as those papers also contain a listing of employers that you contacted in your search for work.

It is important to keep a written record of all your efforts to get a new job. You can keep this record in a diary or log entries in a book or pad. If you use a computer, be sure to keep backup copies. Share your "mitigation" record with your lawyer. Your lawyer can review it to give advice about whether you are recording enough activities. For each entry in your record, include the following:

• The date of each activity
• The name and address of the prospective employer you contacted
• The position you applied for
• The names of people you met
• The outcome - including whether you met the job requirements, got an interview, got an offer, leads on other jobs, or some other outcome

You can also record your registry with the state employment agency, the newspapers you read, and other efforts you make to get new employment.

What if I can't find an acceptable job?

If you do receive offers of another job, you do not have to accept just any job that is offered in order to meet your duty of mitigating your damages.

For example, if you were employed as a professional in a position that paid more than $50,000 a year and offered substantial benefits, you would not be obligated to take a job at minimum wage, or to take the first thing that comes along. Likewise, if the type of position you held is relatively common, we are not aware of any law that would require you to conduct a nationwide search for employment or take a job in a distant or undesirable geographic location.

If you have any questions about your obligations if you do obtain a job offer, it is good to consult your lawyer before making a decision that could damage your case.

After the experience I went through in my last job, I am ready to change fields. Am I required to look for work in the same field I was working in when I lost my job?

In some situations, you are more likely to be able to mitigate your damages if you pursue work in a different field, such as when you have been "blackballed," or the time you have spent away from work has caused your skills to erode.

I was holding down two jobs when I was let go. Do my earnings from my second job count to offset my damages?

If you were earning income from a second job prior to being let go, and you continued to earn the same amount of income from the second job after you were let go, that amount would not be included in the calculation of your earnings for the purpose of calculating damages.

However, if you used your second job to supplement your earnings after you were terminated, for example by taking on additional hours, then the additional income you earn will mitigate, or decrease the damages you are entitled to.

For example, if you earned $200 per week at a second job prior to being let go and were able to increase your earnings to $600 per week as a result of being let go, the damages you are entitled to will be decreased by $400 per week (current earnings of $600 minus the previous earnings of $200).

 After I was fired, I was forced to go on welfare. Is the income from public benefits included in the offset?

Generally, public benefits such as unemployment compensation, welfare, Food Stamps, etc., are not included in the calculation of your earnings and are not used to offset an award of back pay.

I went through severe harassment at work, which has made me unable to work. My doctor will not clear me to go back to work at all, since I have been diagnosed with post-traumatic stress disorder. Do I have to mitigate my damages?

One exception to the rule requiring you to mitigate your damages is when you become unable to work as a result of the employer's actions. However, the bar is set very high: otherwise, everyone who was wrongfully terminated would claim that he or she is too stressed out to work. If you have any questions about your obligations to mitigate your damages during a period when you are unable to work, you should consult a lawyer.

I want to use an alternative treatment like acupuncture to treat my injuries. Do alternative treatments count towards mitigation of damages?

If you choose to use alternative treatments like acupuncture or holistic remedies, you run the risk of a judge or jury considering your actions to be unreasonable and, therefore, not a proper mitigation of damages. To be safe you should receive mainstream medical treatment from licensed doctors.

back to top

The vast majority of cases settle before going to trial. Settling avoids adding more legal fees to your case and the uncertainty of a trial, and allows you to move on with your life. However, before deciding to settle you should make sure it’s right for you and you should know your rights. To learn more about settlements and your rights related to them, read below.

What does it mean to "settle" a case?

In the context of an employment-related matter, it means to end a dispute with your former, current or prospective employer (referred to as "employer"). Usually this means you receive some form of "consideration" -- money, non-cash benefits and occasionally an agreement to reinstate you or offer you a promotion. In exchange for this consideration, you waive, or give up the right to sue your employer, or if you have filed a lawsuit you agree to dismiss your claims.

What is a release?

A "release" is language contained in a document such as a separation agreement or a settlement agreement stating that you release your employer from all actual and potential legal claims in exchange for consideration.

I've just been fired. My employer is asking me to sign a release in exchange for severance payments. I haven't even made any claims against this employer. Is this a settlement?

Yes. You may not have any legal claims against your employer, or have not thought about suing the company or organization. However, your employer wants to make sure that you don't sue it in the future. Your separation agreement is a type of settlement, in effect. You waive your right to sue your employer in exchange for the severance payments.

How do I know if it's worth releasing my employer from a lawsuit for the amount of money being offered?

You need to consider the particular circumstances of your situation, including whether you believe your employer has acted unlawfully. Even then, you need to examine whether the amount of money offered in exchange for your release makes your legal claims worth giving up.

Should I consult with a lawyer about whether I have legal claims and whether to accept this severance?

You may want to seek a professional opinion from an attorney before signing the agreement - particularly if you are uncomfortable doing so. This is also good advice, if you are thinking about rejecting the substantial amount of money being offered to you. In either scenario, an attorney can help analyze whether you have any legal claims and whether those claims merit rejecting the money being offered.

What happens if my employer does something illegal to me after I sign a release?

You waive only claims which have occurred up through the date you sign either a separation agreement or settlement agreement. You can still bring a lawsuit concerning any conduct or actions which your employer takes against you after that date.

Have I lost the opportunity to settle my claims against my employer if I reject the severance offer?

No. You can propose settlement to the other side at any point in an adversarial proceeding (such as a lawsuit or administrative hearing). However, depending on what is being offered as "severance," it still may be the best option for you to settle now, rather than later. You should seriously evaluate any meaningful offer.

Why would my employer consider settling a dispute with me if I don't threaten to take them to court?

There are many reasons: First, even if you have no claim against your employer, that employer still wants the security of knowing that won't file claims against them in the future. Where your claims are strong, your employer may well want to minimize the risk of you going forward with a lawsuit.

My former employer has proposed that we go to mediation. won't I give up my right to file a lawsuit if I agree to attend?

 No. Mediation is a voluntary process. You do not waive any legal rights by agreeing to try to mediate your claims - unless you settle through this process and reduce the agreement to writing. In mediation, both parties agree to explore settlement through a third party trained in facilitating resolution of conflicts.

Won't initiating an offer to settle or go to mediation signal weakness in my case to the other side?

Your former employer may also want to resolve the case now, rather than later. It takes valuable time and often money for an employer to litigate a case in court - even if the company ultimately prevails. For some employers avoiding publicity may also be an incentive to settle early on. See the question on mediation in the Protect Your Rights section of the website for more information.

I've filed a lawsuit. My attorney tells me my case looks strong. Why would I want to settle if I won't get my "day in court?"

Getting your day in court can be important part of a lawsuit. It allows you to feel heard and empowered - but that's assuming the case proceeds as planned. Judges rule the courtroom. They control most of what evidence (good and bad for your case) the jury hears. Juries are made up of human beings who have their own views and biases. Going to trial is usually a high-risk situation because it has so many unpredictable factors which neither you nor your attorney can control. Justice does not always prevail.

How do I know if a settlement offer is reasonable—the one the employer has presented seems too low?

One way to assess an offer is to determine what the optimal value is of your case. You may be surprised to learn that, under the best-case scenario, the value is not nearly as high as you think. See our site's page on Valuing Your Case. After realistically valuing your case, you should then discount that amount by some of the factors which can lessen its value. These include:

• adverse evidence which is discovered through the course of litigation;
• the court you are in;
• the attitude and rulings of the judge;
• who is litigating on the other side;
• the probability of appeals even if you win at trial;
• your financial resources; and,
• your tolerance for prolonging the process.

 What is an offer of judgment?

An offer of judgment is a procedure (based on rules which govern lawsuits filed in court) where the other side proposes in writing an offer to have a judgment (or order to pay a specific sum of money) entered into the court docket (or record). If you accept this offer, it is entered. You can enforce this judgment just as if you won a trial and the court ordered an award in your favor.

How can I decide whether or not to accept an offer of judgment?

You need to evaluate any offer of judgment as you would a settlement at any point in your case: weigh the risks and possible gains of going forward against the offer. Rejecting an offer of judgment, however, has one additional risk: If you reject an offer of judgment and win your case at trial you can be penalized if the amount of damages awarded by a jury or judge is less than the amount of the offer of judgment. In that situation, you will not be allowed to seek payment of your attorney's fees accrued after the date you reject the offer of judgment.

What do you mean if I reject an offer of judgment my attorneys' fees might not be paid?

Under most civil rights laws and anti-discrimination statutes, if you prevail in your lawsuit you will be awarded reasonable attorneys' fees and costs payable by the other side. Depending on your own fee arrangement with your lawyer, this may significantly impact your recovery. When you reject an offer of judgment and do not obtain a greater award than the offer at trial, you will not be able to request payment by defendant(s) of your attorneys' fees for any of his or her time spent after that rejection. Because of this potential penalty, you need to discuss the pros and cons of accepting or rejecting an offer of judgment with counsel. This is a serious legal decision which cannot be summarized adequately on this website. You must weigh the pros and cons of this decision with your lawyer.

If I don't settle, will I have to pay the other side's fees?

No, as long as the lawsuit you bring is not "frivolous" (without any legal basis). To help protect you against filing a frivolous lawsuit, choose a lawyer who is experienced in employment law. Also, always read the complaint, which is the document in which you present the factual basis for your claims, and which once filed begins the lawsuit. It is ultimately your responsibility to ensure that the facts in the case are correct.

How much will I "net" if I settle my case? (Or, how is my portion of the settlement calculated?)

This depends on the terms of the retainer agreement you entered into with your lawyer. These arrangements typically include contingency and modified contingency arrangements as well as payment of attorneys' fees on an hourly basis. See our site's page on attorneys' fees for additional information.

In any of these retainer arrangements, your attorney will be entitled to deduct their fees from your settlement. In contingency and modified contingency arrangements, these fees will amount to a percentage of the award. Where you have agreed to pay your attorney on an hourly basis, you will owe your attorney the balance of fees billed.

I don't understand how my attorney calculated his share of my award. I don't think he is following what we agreed to. What should I do?

The division of a settlement award between you and your lawyer should be spelled out in a written retainer agreement. To avoid any misunderstandings about what the written retainer says, always make sure you carefully read the provisions pertaining to attorneys' fees. If you don't understand what is written, make sure to ask your attorney to explain it to you before signing this document. See our the question on attorney fees in the Protect Your Rights section of the website.

What about the award of attorneys' fees? How is that applied to the gross settlement?

Any sum of money in a settlement allocated separately as payment of "attorneys' fees" should be credited against the fees you owe your attorney. How that is done depends on the type of retainer agreement you have with your lawyer.

Do I get to keep the entire amount of my settlement after I pay my attorney?

 No. The "net" amount after you pay your attorney is gross "income" to you. Money received as a settlement of an employment-related lawsuit is usually designated in one of two ways; as lost wages, or as compensation for emotional distress resulting from the conduct of your former employer. 

Under the law, money attributed to either category is taxable. You need to discuss with your attorney how to structure the settlement and how the money will be allocated. See our site's page on taxation for further information.

My friend received a large personal injury settlement. His entire award was tax free, why isn't my award tax-free?

Your friend's personal injury settlement predictably was tax free because the money he received was attributable to the pain and suffering he experienced as a result of a physical injury. In employment cases, most of the time, emotional injuries stem from non-physical acts taken by the employer or an employee against you. Money received on account of such suffering is taxable, although most likely not as wages, and thus not subject to Social Security taxes. All damages received in lieu of past or present income are taxable as wages.  

In a contingency arrangement, why is my lawyer getting one-third of the gross settlement instead of the after-tax amount of the settlement?

Virtually all contingency and modified contingency arrangements provide that your attorney receives his or her percentage from the gross settlement sum. Just like you, the money to your counsel is not net income. Your attorney or his/her law firm will have to pay taxes on the amount received in attorneys fees.

How will any settlement I receive affect my tax bracket or tax obligations?

You need to consult an accountant or tax lawyer about this question. Most attorneys who represent plaintiffs in employment-related cases do not have the training to advise you about tax matters. You should be aware, however, that any sizeable award can impact your income tax situation significantly. It is usually a good idea to consult with a tax advisor before making the decision to settle. Your attorney may be able to negotiate how the money is allocated and the timing of payments made - but it is ultimately your pocketbook the IRS will go after. See our site's page on taxation for further information.

My lawyer is pressuring me to settle. Isn't it my decision whether we should settle the case?

My lawyer says if I do not accept the settlement being offered she will withdraw from representing me. I am confused and angry. What steps should I take?

First, resist the temptation to assume your lawyer is selling you down the river by encouraging you to settle. Your attorney is almost always on your side. Even if you doubt the sincerity of your counsel to champion your cause, keep in mind that in most cases, your attorney stands to gain financially if you either continue the case (when you pay hourly) or if your offer increases (in a contingency case). So, there is no incentive to undercut the value of your case.

Second, speak candidly to your lawyer. Ask pointed questions about why the attorney does not want to continue if you refuse the current settlement proposal. Evaluate with your attorney how realistic your expectations are about settlement. Make sure your attorney explains what your case is worth. This will put some perspective on what you perceive as your attorney's "ultimatum."

Don't forget to examine your own motives for turning down a settlement offer. Are you seeking a form of "justice" which is not likely to happen? Are you afraid of closure - don't want to stop fighting with your employer? Are you seeking revenge, rather than making a smart business/life style decision? These questions can help you assess whether your attorney is making an unreasonable demand of you, or you are not seeing the case clearly, and the offer pending for what it is worth.

I've talked to my lawyer. We still disagree about settlement. He wants to make a motion to withdraw from my case. What do I do?

If you can't agree with your attorney about accepting a settlement, before he or she applies to the court to withdraw, consider consulting with one or more other attorneys. You can get a second and third opinion about the prudence of accepting a current offer, which may help to change your mind about the proposed offer. If not, perhaps another attorney would be willing to take your case. It always looks better to the court and opposing counsel for you to switch counsel rather than have your current lawyer make a public motion to withdraw.

I'm tired of litigation, and just want the case to be over. Should I take less than my attorney tells me my case is worth?

The decision whether to accept a settlement is always yours to make. A lawyer cannot compel you to reject a settlement offer. There are many reasons to settle a case for less than what your attorney thinks (best case scenario) it may be worth:

• You don't want to fight any more.
• You want to avoid a deposition (statement given under oath) or testimony at trial.
• You think a further financial investment in your case won't result in a better outcome.
• You want to move on with your life.
• You should always consider what is best for you and your family - sometimes money isn't the only thing that matters: resolution is.

I've been told that I will have to keep the settlement amount confidential if I settle the case. Do I have to agree to this provision?

Yes, if you want the money. Most if not all private employers will request that you keep the amount of the settlement confidential. Some employers will also require that you keep the facts surrounding the lawsuit and negotiations leading up to the settlement confidential. Public employers usually cannot require such a provision.

What happens if I reveal one of the confidences in my settlement agreement that I am supposed to keep secret?

You take the risk of being sued for breach of this provision of the settlement agreement. Some employers put a forfeiture or penalty provision in the agreement providing that you will have to pay back some or the entire settlement amount if you breach confidentiality. Almost all employers put in some type of penalty provision to ensure you don't talk to anyone outside of a very limited group specifically exempt from confidentiality.

My proposed settlement agreement permits me to speak with my immediate family members without breaching the confidentiality provision but doesn't include my live-in partner. If I can't avoid discussing the terms of the settlement with my partner, will I have violated the agreement?

Technically, yes. To avoid this problem, you need to inform and/or remind your attorney of your living situation. Most employers will permit you to discuss your case and settlement with individuals you live with or other people in your life with whom you have an intimate relationship.

How can I choose an attorney who won't undersell the value of my case, but who understands I don't want to litigate forever?

There is no formula to finding an attorney who fits this bill, but choosing one who can communicate well with you - by both listening and answering questions - should be at the top of your list. Deciding whether to settle your case can be challenging, frustrating and anxiety provoking. You should be able to process the pros and cons of any proposed settlement with your attorney in a manner which is both respectful of your feelings and impressions but also in which your attorney can disagree with you without your feeling betrayed. This can usually be accomplished when the relationship with your attorney is premised on trust. So when consulting or interviewing an attorney, look for someone who you believe you can rely upon to follow their advice.

back to top

Tax law can be very complicated and it can affect the amount of money that you ultimately receive from an employment case. For example, the taxes you pay on damages from your case may be higher than the taxes you would have paid on money from employment. There is an ongoing effort to change the laws in this area. However, Workplace Fairness is here to help you. To learn more about taxation in employment cases and your related rights, read below.

When I receive money from my employer in my employment case, is that money taxable?

Yes. The tax system starts with the basic premise that "All income is taxable, unless specifically excluded." This includes settlements and damages from employment cases. Due to the way the tax laws are structured, however, you may pay higher taxes on money you receive in an employment case than you would if you had continued working for your employer and paid taxes on your wages.

Why are damages from employment cases taxed at a higher rate than income I receive during my employment?

There are two ways that you may pay higher taxes in settling or winning your employment case. If you receive damages for noneconomic harm (also called "compensatory damages") such as the pain and suffering and emotional distress that employees suffer as a result of egregious, international harassment, retaliation, or similar workplace wrongs, you will be taxed on those damages, even though those who receive noneconomic damages in other types of cases, such as personal injury cases, do not pay taxes on these cases.

I suffered a physical injury when I was assaulted at the workplace. Are the damages I received on account of the physical injury taxable?

In a case rejected for review by the Supreme Court, Murphy v. IRS, the DC Circuit Court of Appeals upheld the constitutionality of taxing non-economic damages in employment cases, even though these damages are not taxed in other types of cases. As this is one of the only rulings on this subject, it will most likely be necessary to pass new legislation to undo the previous change to the law.

Are my back wages taxable in employment cases?

Yes. Back wages are taxable as income, since if they were earned as wages during your employment, you would be taxed on them. Also, since you are required to pay taxes on the entire amount of your income in any given year, if you receive a lump-sum award for several years of lost back pay, you often will pay taxes at a higher rate than if you had earned that pay over a several year period. There currently is no way to average out your award so that you only pay taxes at the rate you would have paid had you still been employed. 

I settled my employment discrimination case back in 2003, and paid a very large tax bill, including taxes on the amount that went to my attorney. Has the law changed?

Yes. In October 2004, a provision ending double taxation of attorneys' fees in employment discrimination, civil rights and other cases regulating employment was passed as part of the America Jobs Creation Act of 2004. The law allows employees who have received a settlement or award to deduct the portion of the award paid to the attorney as attorneys' fees as an above-the-line deduction of attorneys' fees This means that payments will not be subject to the Alternative Minimum Tax or to the 2% floor on miscellaneous deductions, which caused employees to pay taxes on portions of the award that they did not receive - which went to their attorneys instead. It applies to settlements and awards made, and fees and costs paid, after the date of enactment.

What cases have affected the constitutionality of taxes on non-economic damages affecting the need for the CRTRA?

The recent ruling holds the IRS can continue to tax compensatory damages awarded to victims of whistleblower retaliation and other civil rights violations. These damage awards, which are intended to make the victim "whole" again, include payments for loss of reputation and emotional distress.

The case was brought by Marrita Murphy, an environmental whistleblower who won her case before the Department of Labor, and was awarded compensatory damages to vindicate her rights under six federal environmental whistleblower statutes. Murphy filed suit when the IRS demanded that she pay taxes on the "make-whole" award as if it were income. After having her case dismissed, Murphy filed an appeal.

After full briefing and oral argument, the Appeals court initially held that Murphy's award was not income and the tax on her damages violated the U.S. Constitution. Then, under pressure from the Bush Administration, the judges decided to rehear the case. In this ruling, Murphy II, the D.C. Circuit reversed its own previous decision, declaring that non-physical compensatory damages are taxable as gross income. The Supreme Court recently declined to hear this case.

When I receive a settlement or award from my employer, are they required to withhold taxes from the total amount I am supposed to receive?

If you receive a lump sum amount as a settlement of an employment law claim, then you must decide how to allocate the amounts, and which forms to use. You have two choices, Form W-2 and Form 1099-MISC. Within Form 1099-MISC, you have two further choices: Box 3 or Box 7. Box 3 is for "other income," including taxable damage awards. Box 7 is for "non-employee compensation" over $600. For example, suppose you settle your case for $100,000. You pay your attorney $30,000 as agreed in your retainer. Of the remaining $70,000, you and your accountant or tax adviser decide to allocate $25,000 to wage loss and $45,000 to emotional distress. Only the wage loss allocation will be subject to the normal withholdings if you choose the W-2 form option.

This tax stuff is complicated - I'm not sure I understand it. What do I do to make sure I comply with the law?

Tax law is very complicated, and the lawyer representing you in your employment case, who may be very knowledgeable about employment law, may not fully understand the tax implications either. Many employment attorneys recommend that their clients get independent tax advice from someone who specializes in tax law, such as an accountant, tax adviser or tax attorney. If your attorney makes this recommendation, or if you don't understand what your attorney has recommended regarding the tax implications of your settlement or award, you should definitely talk to someone who has specific expertise in tax law.

Now that you have concluded your lawsuit and received money from your employer, the last thing you probably want is an audit or further litigation. It is worth the relatively minimal investment to get sound tax advice, especially compared to the alternative of losing even more of your award to taxes and penalties.

back to top

Note: If you are currently pursuing or plan to bring a lawsuit against your employer, or have filed a claim with an administrative agency such as the EEOC, it is extremely important to consult with your lawyer (both your employment lawyer and your bankruptcy lawyer, if you have one) before filing for bankruptcy. This move will have extremely important consequences for your claim against your employer, so it is critical that your attorneys be aware of your plan to file for bankruptcy and have an opportunity to fully advise you how filing for bankruptcy will affect your employment case.

If you have already filed for bankruptcy and have not yet told your bankruptcy and employment lawyers, it is very critical that you do so immediately, as you and your attorneys must act promptly to try to minimize the consequences of the bankruptcy filing. The longer that you delay, the more likely it is that your actions may be viewed as an attempt to mislead or defraud the bankruptcy court, which could cost you the ability to pursue your employment case.

Having to file for bankruptcy during a dispute with your employer, or former employer, is an all too real possibility. After all, you likely would not be suing if you were getting the money you deserved. While the effects of bankruptcy may seem complicated at first, the basic rule is that your creditors take precedence. To learn more about bankruptcy and how it may affect your lawsuit, read below:

If I file for bankruptcy, how will it affect my employment case against my employer?

When you file for bankruptcy under any chapter of the Bankruptcy Code, all of your assets become "property" of the bankruptcy estate and becomes subject to administration by the bankruptcy court in which you file. Therefore, if you file for bankruptcy protection at any time after your employment claim arises, your interest in any pending lawsuit also becomes property of the bankruptcy estate, which includes "all legal or equitable interests of the debtor in property as of the commencement of the bankruptcy case." The relevant date for bankruptcy purposes is when the claim arises - when the event or events at work occurred that are the subject of your lawsuit - not when you actually file your administrative claim or lawsuit itself.

The consequences of your bankruptcy filing can be dramatic. Filing a bankruptcy petition literally robs you of any standing to direct the course of your employment lawsuit - and the authority to receive directly the proceeds of any monetary award obtained in the litigation.

Instead, the bankruptcy court and any trustee appointed by the court to administer your assets have the authority to determine:

• Whether to pursue a cause of action;
• The rate(s) at which any attorney will be compensated for the representation; and,
• Whether and upon which terms to settle the litigation.

Can my current attorney continue to represent me in my employment case once I have filed for bankruptcy?

Your attorney must obtain the bankruptcy court's approval to be retained as "special counsel" to pursue the litigation. Needless to say, your attorney may not be eager to continue representing you if there is a chance that he or she will not be retained by the bankruptcy trustee and/or receive the compensation agreed upon when you signed an agreement for representation. That is why you need to inform your attorney immediately, if you have not done so already, once you file for bankruptcy, so that your attorney can take the appropriate steps to be hired by the trustee to continue pursuing your case.

What happens if I filed my employment lawsuit first, and now need to file for bankruptcy?

The Bankruptcy Court requires debtors to identify all of their assets on their bankruptcy schedules in order to give the trustee and all creditors the opportunity to decide how to "administer" the bankruptcy estate. 

This means that when you file for bankruptcy, you must disclose, under penalty of perjury, "all suits and administrative proceedings to which the debtor was or is a party within one year immediately preceding the filing of the bankruptcy case." Additionally, you must disclose "contingent and unliquidated claims of every nature," and equitable interests. You also are obligated to estimate the value of the claims, which you should do in consultation with your employment attorney.

Therefore, any charge pending before the EEOC or any state office of human rights, or other state or federal agency administrative proceeding, as well as any claims pending in any court must be disclosed.

What happens if I have not disclosed my employment claim in my bankruptcy case?

A trustee, with the court's approval, may decide to wait to receive funds from a pending claim and distribute the proceeds to the debtor's creditors, or she may decide to "abandon" the claim, at which time any proceeds would go directly to the debtor. In many cases, the trustee will determine that the claim is too speculative or will take too long to prosecute, and therefore will not hold up the timely resolution of the bankruptcy case, and will elect to abandon the claim. Whether the trustee pursues the claim on behalf of the bankruptcy estate and its creditors is up to the trustee's discretion, but must be determined under the court's supervision.

Where, however, the trustee does not abandon the claim, the proceeds of the litigation must pass through the bankruptcy estate for distribution to your creditors. If any excess funds are available after all creditors have been paid, the trustee will disburse the remaining funds to the plaintiff/debtor.

What happens if my bankruptcy case has been closed already?

If you fail to disclose your employment claim to the bankruptcy court, you cause a predicament for your employment attorney and seriously jeopardize the potential value of your case.

The failure to disclose your claim to the trustee or to the court interferes with the trustee's and the court's ability to determine whether to "administer" or "abandon" it. Property of the estate that is not abandoned and that is not administered in the case remains property of the bankruptcy estate.

Courts have found that the creditors should have the opportunity to share in the fruits of any recovery you receive. It does not matter whether you acted in bad faith: courts allow for the possibility of honest error when you come forward offering to share the fruits of the recovery with your creditors.

I need my workers' compensation to pay my medical expenses. Will my workers' compensation become part of the bankruptcy estate?

All states have a list of assets that are exempt from becoming part of the bankruptcy estate, and chances are your workers' compensation is one of those assets. However, due to complicated nature of some states' bankruptcy laws, it is best to ask your bankruptcy lawyer about the laws in your state. For example, in California if your workers' compensation settlement has been modified, like when you receive an advanced payment on the settlement, then your workers' compensation may no longer be exempt.

back to top

Note: You as the plaintiff in an employment case may take advantage of some of the Bankruptcy Code's protections for creditors. Although you would obviously prefer not to have to pursue your claim against your employer in the bankruptcy court, you should not simply abandon your claim without assessing the potential to preserve the claim or judgment, by considering the available options in consultation with your lawyer and/or a bankruptcy attorney.

If you have filed or plan to file a lawsuit against your employer and they file for bankruptcy it can end up making your life more complicated. However, Workplace Fairness is here to help you work through the situation. To learn more about employer bankruptcy and lawsuits, and your rights related to them, read below.

After filing a lawsuit against my employer, I recently learned that my employer is filing for bankruptcy. How will this affect my employment claim?

The filing of a bankruptcy petition by a defendant company or individual is never good news for you as the plaintiff in an employment case. However, it doesn't have to be the end of the world -- or the end of your claims against the defendant. A plaintiff in an ongoing employment case is a creditor of the defendant employer, because under the Bankruptcy Code, a creditor includes any person who has a claim that arose against the debtor at the time of or before the filing of the bankruptcy petition. The Bankruptcy Code does provide mechanisms for creditors to maximize their claims against the debtor.

However, the purpose of a bankruptcy petition -- whether a Chapter 11 reorganization or Chapter 7 liquidation by a corporate entity or a Chapter 7 or Chapter 13 by an individual -- is to relieve the debtor of all debts that existed prior to the bankruptcy filing and give the debtor a "fresh start." A corporate entity or other business entity that initiates a debt reorganization process through the bankruptcy court generally has little incentive to carve out funds to pay debts incurred before the bankruptcy is filed, especially unliquidated, unsecured debt, such as a plaintiff's employment claim. Individuals who have filed for bankruptcy are equally motivated to wash away all of their debt. Even if you have obtained a judgment before the bankruptcy is filed, the debt could still be forever discharged by the bankruptcy court, which means that the debtor will not be obligated to pay any portion of the judgment.

Can I continue my lawsuit against my employer once it has filed for bankruptcy?

It depends. The filing of a bankruptcy petition by a defendant triggers an automatic stay of all litigation against the defendant/debtor. This means that you or your attorney cannot, without violating the stay, make any demand for payment, or start or continue any litigation that was or could have been initiated before the bankruptcy. This includes continuing with discovery or asking a judge to issue any orders in your case. If a judgment has already been entered, the stay prevents you from making any efforts to enforce it.

Any action taken in violation of the stay is void and a willful violation of the stay may be punishable by a citation for contempt of court, and/or require you to pay for attorneys' fees and damages incurred by the defendant/debtor. In order to recover from your employer, you will either have to be exempted from the stay, or continue your lawsuit in the bankruptcy court.

The EEOC is involved in my case. Can the EEOC continue its efforts once my employer has filed for bankruptcy?

You cannot take further action against the defendant employer once it has filed for bankruptcy, which includes starting or continuing any administrative proceeding before the Equal Employment Opportunity Commission or a similar state or federal agency.

However, when a "governmental unit," such as the EEOC or any state human rights commission, undertakes action against the employer/debtor for a public purpose (other than a private litigant's individual charge of discrimination, for example), the automatic stay does not apply to such proceedings. The Bankruptcy Code recognizes the higher public interest in allowing governmental entities to exercise their regulatory or police powers, notwithstanding the defendant's bankruptcy. Therefore, like other governmental entities, the EEOC and state human rights commissions have the authority to continue their proceedings in order to vindicate the public interest in eradicating employment discrimination and other violations of employee rights.

What positive steps should I take to preserve my claim?

Bankruptcy often is about negotiated resolutions. This is an area in which the squeaky wheel more often than not gets the grease. That is not to say that grease equals justice. However, careful planning may help you thwart a defendant employer's attempt to use its bankruptcy to avoid the debt owed to you as the plaintiff.

Here are some of the steps that you and/or your attorney can take to preserve your claim, discussed in more detail below:

• File a proof of claim.
• Check schedules / contact the debtor's counsel and/or the trustee.
• Seek relief from the automatic stay to liquidate the claim.
• In a Chapter 11 case, vote on the plan of reorganization.
• Participate on the unsecured creditors committee.
• File a nondichargeability complaint in the bankruptcy court.

What is a proof of claim?

The most important step in protecting your claim against the defendant employer in the bankruptcy court is to file a proof of claim. The proof of claim:

• Notifies the bankruptcy court of your claim and intention to share in any distribution of assets to creditors, regardless of whether the debtor included your claim on its bankruptcy schedules;
• Gives you the right to object to any activity in the bankruptcy case that may affect the adjudication or valuation of your claim; and,
• Helps assure that you are notified of the court's proceedings.

 The proof of claim is a single-page form that may be filed under your signature. Although you do not need the signature of an attorney admitted to the bankruptcy court in which the defendant/debtor has filed, in order to file the proof of claim, a bankruptcy attorney certainly should be consulted, as there are deadlines for filing the proof of claim.

The official proof of claim form is available from the bankruptcy court. Most, if not all, of the bankruptcy courts are online now, and make available all of the necessary forms, sometimes including model examples, in a downloadable .pdf format that can be printed out and completed, or in an online "writeable" form.

What information should I include on the proof of claim?

The claim form requires:

• Identifying the basis for the claim;
• The amount of the claim at the time the bankruptcy petition was filed;
• Whether any portion of the claim is secured; and,
• Whether you have an unsecured priority claim, as that term is defined by the Bankruptcy Code. In most instances, your employment claim will be a general unsecured claim.

You must be as complete as possible in asserting your proof of claim and should attach supporting documents, such as a file-stamped complaint, employment contract, or judgment, as appropriate. You should include all components of the claims and relief sought against the defendant/debtor in the proof of claim, including compensatory damages, equitable relief, prospective relief, prejudgment and postjudgment interest, and attorneys' fees. See our site's damages page for more information about these different types of damages.

If the complaint has been filed without a specific amount, you may list the amount of the claim as "undetermined." You should consult with your attorney to prepare this information, or have your attorney prepare it for you.

Are there debts the defendant can't discharge in bankruptcy?

If the defendant is an individual, certain types of debts are not eligible for discharge in the bankruptcy case. Pursuant to the Bankruptcy Code, any debt for "willful and malicious injury by the debtor to another entity" is excepted from discharge in the bankruptcy proceeding. 

Plaintiffs in employment discrimination cases have been successful in persuading bankruptcy courts that their debts are nondischargeable, based upon jury findings that defendants caused "willful and malicious injury," or when the jury awarded punitive damages requiring a finding of willful or malicious intent. If, however, you have not had the benefit of any pre-bankruptcy proceeding to obtain a finding of intentional willful and malicious injury against the defendant/debtor, you are unfortunately much less likely to have the bankruptcy courts consider the debt created by your case nondischargeable.

A plaintiff/creditor or judgment creditor may file a complaint in the bankruptcy court asking the court to determine whether the debt is dischargeable. You must act promptly to meet the bankruptcy court's short deadlines to initiate a complaint based upon willful or malicious injury, false pretenses, false representation, fraud, or fraud while acting in a fiduciary capacity.

Should I participate on the Unsecured Creditors Committee?

Yes, if possible. In a Chapter 11 case, the United States trustee may appoint a committee of unsecured creditors, whose role is to, among other things, investigate the assets and liabilities of the debtor, the operation of the business, participate in the formulation of the plan, and consult with the trustee or debtor in possession about administering the case. The committee also may be authorized to retain attorneys, accountants or other professionals to assist it.

The committee is composed of unsecured creditors, and provides a vehicle for a representative group to participate in the case in an orderly manner. Depending on the value of the plaintiff/creditor's claim, the funds available for distribution from the estate to creditors, and the nature of the defendant/debtor, whether a large or small corporate entity or an individual, participation on the committee may be an opportunity to advance your interests in the case.

In a Chapter 7 case, at the meeting of creditors (called a 341 meeting), the creditors may elect a committee of creditors who hold allowable unsecured claims to consult with the trustee or the United States trustee in the administration of the case, and to appear in court on any matter affecting the administration of your case.

You may have a reason to be concerned when the defendant settles your case at the last minute shortly before it files for bankruptcy.

Settlement agreements are subject to the "avoidable preference" provisions of the Bankruptcy Code. The policy behind these provisions is that the debtor's assets should be available to compensate all of its creditors, and not just those creditors the debtor "preferred" to pay immediately before the bankruptcy filing.

Any transfer of property, including money or a commitment to pay money in settlement of a claim against the defendant is subject to the bankruptcy court's authority to compel the transferee plaintiff/creditor to disgorge the money. Any transfer within 90 days of the bankruptcy filing is presumed to be an avoidable transfer and subject to return to the bankruptcy estate. If the transferee is an "insider" of the debtor entity, the preference period is one year. Insiders include people such as relatives, general partners, directors or officers of the debtor- check with your attorneys to see if this applies to you.

If a defendant employer is threatening to file bankruptcy or claims to be in a weak financial position, you should be aware of the risk of having to return the funds and should be reluctant to release or dismiss your pending claims under such pressure from the defendant. Once the defendant files for bankruptcy, a viable claim or judgment which existed before the bankruptcy filing is better than a claim you have already withdrawn by release or dismissal when you settled your case.

Do certain types of employment-related claims have priority in bankruptcy?

In order to receive priority treatment, the claims must be for unpaid wages or other forms of compensation, and have bedn earned within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first. 

Additionally, the unpaid wages or other forms of compensation must have been earned as:

• Wages, salaries or commissions, including vacation, severance, and sick leave pay earned by an individual; or,
• Sales commissions earned by an individual; or,
• By a corporation with only one employee, acting as an independent contractor in the sale of goods or services for the debtor in the ordinary course of the debtor's business if, and only if, during the 12 months preceding that date, at least 75 percent of the amount that the individual or corporation earned by acting as an independent contractor in the sale of goods or services was earned from the debtor.

The Bankruptcy Code preempts state statutes that recognize or allow for perfection of employee liens for unpaid wages.

What if my employer still owes me money that doesn't qualify as a priority claim?

The rest of an employee's claim for wages, salaries, or commissions is treated as a general unsecured claim.

For example, if you are owed $15,000 in unpaid wages earned before the bankruptcy filing and the employer files for bankruptcy, the amount of that compensation earned within 180 days before the filing (up to $12,850) will receive "priority" treatment and will be paid ahead of other general unsecured prepetition claims.

If all $15,000 was earned within the 180 days, you will have a $10,000 priority claim and a $2,150 general unsecured prepetition claim that waits in line further down the list of claims eligible for payment.

What if I had an employment contract?

An employee's claim for damages resulting from the termination of an employment contract is treated as a general unsecured claim and "shall" be allowed, absent an objection, and after notice and a hearing, to the extent that it does not exceed the compensation provided by such contract, without acceleration, for one year following the earlier of:

• The date of the filing of the petition; or,
• The date on which the employer directed the employee to terminate, or such employee terminated, performance under the contract; plus,
• Any unpaid compensation due under such contract, without acceleration, on the earlier of such dates.

My employer stopped making the contributions to my pension plan that it had agreed to make before it filed for bankruptcy. Can I recover those contributions in the bankruptcy proceeding?

They will be considered a priority claim up to the following amount for each benefit plan:

• The number of employees covered by each such plan multiplied by $10,000;
• Subtracting the aggregate amount paid to such employees for wages (as discussed in the previous question; and,
• Subtracting the aggregate amount paid by the estate on behalf of such employees to any other employee benefit plan.

In order to recover these payments through a bankruptcy proceeding, it will most likely be necessary to file a claim on behalf of all affected employees, so if this is an issue in your case, please consult with your attorney.

It is also possible that the Pension Benefit Guarnatee Corporation, a government agency responsible for protecting pension benefits by taking over defunct plans, may be involved in administering your plan, which could affect the benefits to which you are entitled. For more information, please consult with the PBGC's website or your attorney.

How far back can I recover damages from the defendant employer in my bankruptcy claim?

The Bankruptcy Code has been held to limit an employee's claim based upon a prepetition judgment obtained by the plaintiff against the debtor more than two years before the bankruptcy petition was filed. However, some courts have disagreed with these rulings, so it is important to work with your lawyer to determine what the scope of your claim should be. 

back to top