The Witness Box

Commenting on expert evidence, economic damages, and interesting developments in injury, wrongful death, business torts, discrimination, and wage and hour lawsuits

Thursday, May 29, 2008

Returns to college continue into later life..

Traditional wisdom suggests that individual wages will increase over a person's working life. However, the increase in wages will decrease over time. Traditionally, it has been shown that in later life the earnings profile actually slopes down. That is the person's wage will actually fall in later life.

New research contradicts this findings for college graduates.


Title: Cohort Analysis of US Age-Earnings Profiles
KOSEI FUKUDA Bulletin of Economic Research, Vol. 60, Issue 2, pp. 191-207, April 2008

Abstract: Aggregate data on US earnings, classified by period and by age, are decomposed into age, period and cohort effects, using the Bayesian cohort models, which were developed to overcome the identification problem in cohort analysis. The main findings, obtained by comparing college and high school graduates, are threefold.

First, the age effects show a downward trend for the age group of 45-49 onwards for high school graduates but do not show any such trend for college graduates.

Second, the period effects show a downward trend for high school graduates but reveal no such trend for college graduates.

Third, the cohort effects are negligible for both college and high school graduates.

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Monday, May 26, 2008

Statistical evidence of police racial profiling is ok

The MA Supreme Court overturned the appeallate court's exclusion of statistical evidence based on the stops made. The Supreme Judicial Court said that defendants can compare the racial composition of people stopped on a certain stretch of road with the racial composition of everyone who uses the road. (Boston Herald)

From boston.com:

Worcester District Attorney Joseph Early Jr. said the court has provided safeguards for prosecutors and defense attorneys by laying out a clear standard for showing discriminatory treatment through statistical information.

"It says that you've got to look on the highway. If a highway is passing through Grafton, Auburn, Millbury, you don't go to the towns, you find out what the racial composition of the people actually using the road is," Early

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Friday, May 23, 2008

Economics Majors are Hot!

MSN reports the highest starting salaries, and economics majors, have the highest at $52,926. They did not report the variance, but clearly salaries vary by industry, with consulting paying the most on average.

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Thursday, May 22, 2008

Wage and hour count

From http://entertainingemploymentlaw.blogspot.com/2008/04/wage-and-hour-class-actions-by-numbers.html:

The authors performed an interested count of wage and hour cases in the month of March. Highlightt:

Primarily TargetedFood (e.g., coffee shops, franchises, wineries) (14 wage/hour actions)Financial Services (e.g., Prudential, JP Morgan, Countrywide) (9 wage/hour actions) Entertainment (e.g., Casinos, Clubs, Theaters) - 6 wage/hour actions)

Busiest Plaintiffs' counsel -George Kingsley of Kingsley & Kingsley.

Top Five Busiest Courts for wage and hour class actions (March 2008) -
LA Superior Court (39 wage/hour class cases);
Federal District Court, Central District (22 wage/hour class cases); San Diego Superior (11 wage/hour class cases);
Alameda Superior (7 wage/hour class cases);

Orange County Superior (5 wage/hour class cases). Most interesting March 2008 case - Bissett v. Sutter Health, et. al (and I mean et al. - lots and lots of hospitals - throughout California). Plaintiffs counsel is Robert Cantore of Gilbert Sackman. The firm's website (which prominently displays their representation of unions) is here.

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Wednesday, May 21, 2008

Expert Directory Listing for Daubert-Quality experts ONLY

According to an email solicitation from, The Daubert Expert Witness directory, (http://www.daubertexpertwitness.com/) the group has created a new expert listing service. The new service will contain only those expert witnesses who can confirm that they have successfully defeated a Daubert challenge.

The charge for a listing is $495 a year for experts. Free for attorneys. Experts have to be able to prove they have survived a Daubert challenge in the past. The FAQ does not say that having your testimony excluded makes you ineligible; you just have to have survived one challenge in the past.

All and all a good idea; we wish them luck on the site.

However, one question comes to mind. What if the expert is 1 (successful challenge) and 29 (exclusions)? Only the 1 successful challenge will show. Not sure how a listing by this expert would be all that helpful for the potential retaining attorney.

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Tuesday, May 20, 2008

Military Survior Benefits are Increasing

As of March 2008, if a military member died under the old rules the surviving spouse then received 35% of his retirement pay. Under the new rules, that spouse now will receive 55%.


Details (from retirement planner newsletter):

As March came to an end so did the Survivor Benefit Plan (SBP) Social Security Offset. As a result of Public Law 108-375, the Social Security Offset for annuitants was eliminated effective April 1, 2008. The law provided for a phased-in elimination which began October 1, 2005, and ended March 31, 2008, with the last Social Security Offset deduction. Prior to October 2005, at age 62 the SBP annuity was reduced because the beneficiary became eligible to receive the retiree’s Social Security benefits.

Effective April 1, 2008, annuitants that had their annuity reduced by the Social Security Offset now have the offset removed. Annuitants that were eligible for the minimum annuity percentage of 35 percent prior to October 2005 are now entitled to the full 55 percent of the base amount. Annuitants who were receiving the Supplemental Survivor Benefit in addition to the basic benefit will also be paid at the new rate of 55 percent. The minimum annuity percentage is now 55 percent for all annuitants.

For example: with a $1,000 base amount the annuitant should see an increase in monthly annuity to $550 (55% x $1,000).

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Friday, May 16, 2008

CFO as own firm's financial expert in tortious interference lawsuit

Fox in the hen house?

In business cases, some attorneys like to use the CFO or other financial person from the company that is claiming damages as an damages expert. Clearly, there are advantages. Very few persons will know the company's books as well as the CFO or similar persons. However on the flip side the issue of credibility must be weighed against those advantages.

Below is a case study of a case where the plaintiff in a tortious interference case used the CFO of the injured firm as their sides expert.

The report

In the case the plaintiffs alleged that the defendant undertook a number of illegal actions and unrightfully stole some of the plaintiff's clients. To calculate the damages in the case, the plaintiff's expert, the company's CFO, based the damages on the the previous year's revenue from the customers that the defendant allegedly stole. The CFO took the income for the customers that they identified (it was about 17 firms) and calculated the the percentage of the unit's revenue that the 17 firms comprised. She found that the 17 firms comprised about 83% of the unit's revenue.

The CFO then subtracted the unit's share of the direct expenses from the total revenue to arrive at the yearly damages. She assumed that the expenses that were attributable to the 17 firms was equal to the firms % share of the units total revenue. That is she assumed that the cost to service the 17 firms was equal to 83% of the unit's total measured direct cost.

She estimated that the plaintiffs damages were $6.56 million per year. She then multiplied the damages by 9, 12, and 15 years to arrive at her final damage analysis. Her implicit assumption was that the clients that the defendant allegedly stole would have been long term clients.

The problems


There are several problems with the CFO's analysis.

1. There was no explanation as to how the 17 firms were selected. According to the defendant not all of the firms, actually only 5 of the 17, ultimately ended up as clients. It is not clear where the 12 other firms went.

2. For the 5 clients that ended up with the defendant, most had not been long term clients before the alleged illegal acts took place. Some had only been clients for less than 1 year. In short it is not clear where the justification is for the assumption that they were long term clients

3. There was no discounting of the alleged damages. In damages cases, all future losses must be discounted. The discount factor, which takes into account of the risk associated with the future revenue stream, is in excess of 20% per year. Using the discount factor lowers the damages.

4. It is not clear all cost were accounted for. After a quick review of the income statements, it appeared some of the cost that were being classified as indirect (i.e. overhead) are related to the unit in question's operation. The CFO esential took out all overhead cost and did not allocate any to the unit in question. If damages are approriate then the net income, not the ad-hoc net income measure of the CFO.

5. It is not clear that the ratio approach to calculating the cost and expenses is appropriate. It may be more correct to use industry standards instead of the ad-hoc assumption the CFO used

6. Most importantly, an average of revenue needs to be used. Using the last year is problematic because the 17 firms that were identified had account balances that were higher in the previous year than in previous years. Using an average will account for this issue.

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Thursday, May 15, 2008

Employment practices are getting smaller

Looks like the employment practices in big firms are getting smaller....and going out on their own. This article, from the Austin Business Journal, discusses a recent move by the last portion of Vand E's employment section in Austin, Texas.
employmentchanges.pdf

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Tuesday, May 13, 2008

Guide to writing stats based expert reports

A great article for teaching/learning how to write an empirical economics article. The guidelines in the article are very similar to the ones that could be used to write a readable expert witness report.

sample_econometrics_paper.pdf

(source: Prof. Tomas Dovark, Union College)

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Monday, May 12, 2008

Hispanic women in the labor force

New Pew Center research shows demographic trends for Hispanic women with a focus on the differences between U.S. born Hispanic women, and non-Hispanic women.

http://pewhispanic.org/files/factsheets/42.pdf

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Saturday, May 10, 2008

Duty to find employment or comparable employment after employment termination?

What is the standard? Here are two attorneys with differing opinions:

Concerning a workers compensation claim:...In addition, you should start keeping a daily log, in a spiral bound notebook, of all the job searches you undercut after you have been fired. This is important because after you are fired, you have a duty to "mitigate" your damages. This means that you have a duty to go and look for other work. If you do not, you may be precluded from obtaining recovery of money damages for lost wages. This does not mean that you have to be successful, but you have to show that you have been diligent in seeking other employment.

In ADA case: Back Pay
This is the most common form of relief.
Includes the value of wages, salary, and fringe benefits the claimant would have received during the period of discrimination from the date of termination/failure to promote to the date of trial or settlement.
You have a duty to mitigate these damages by taking reasonable efforts to find comparable employment after you have been terminated.

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Friday, May 09, 2008

Forced to exercise...

excercise stock options, that is. In short, are hypotheical losses from an early employee stock exercise an economic damage? There is at least one case, that says yes. Anyone know of any more cases?


See:

Stock Inflates Damage Award

The Tenth Circuit has affirmed a case where the measure of damages included the appreciation of stock, after the employee was forced to prematurely exercise stock options. Greene v. Safeway Stores, Inc. , Nos. 99-1215, 99-1228, 2000 WL 504738, at *1 (10th Cir. Apr 28, 2000).


At the time of Greene's termination, he had 250,000 fully vested Safeway stock options. The exercise price was $1 per share. Greene also had roughly 250,000 more options that had not yet vested. The subscription agreement required plaintiff to exercise his vested options within ninety-five days of his separation from Safeway. Had Greene not exercised the vested options within ninety-five days, they would have expired.

Greene exercised all of his vested opinions on December 21, 1993 and acquired Safeway stock with a market value in excess of $3,000,000. Greene's gain on the transaction was roughly $2,160,000. Greene immediately incurred a tax liability of roughly $850,000.
Greene testified at trial that, had he not been terminated, he would have refrained from exercising his stock options until the date he planned to retire. Greene also testified he sold all of the shares he acquired within a few months of exercising them because he needed to pay the Internal Revenue Service and because he was without income to cover his daily living expenses.

During the trial, Greene had an accountant testify that, had Greene exercised his vested options on January 31, 1996, instead of December 21, 1993, he would have reaped the benefit of increases in the market value price of Safeway stock for an incremental gain in excess of $3,000,000. The accountant also testified that, had Greene retired from Safeway in November 1995, as he had planned, options that had not yet vested at the time of Greene's termination would have vested and could have been exercised to purchase additional Safeway stock for a gain of more than $1,000,000.

The appellate court agreed that stock appreciation could be included in the damage award.

This decision demonstrates that substantially more than lost wages can easily be at risk should an employee wrongfully terminate an employee with options.

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Thursday, May 08, 2008

Backdoor to Duty to mitigate damages in employment termination case

In a whistleblower case over Pfizer Inc.’s alleged illegal marketing of human growth hormone Genotropin, a judge has denied Pfizer Inc.’s bid to force a former executive to turn over information as to whether he made adequate efforts to look for work after he was fired.

The defense argued that the plaintiff's sizable assets created a situation where the plaintiff did not have to work. Accordingly the defense argued that because of his assets, he had failed to mitigate his damages by finding employment. Pfizer's attorney wanted the court to order the plaintiff to turn over financial information.

The court denied the motion

See:

Excerpt From, Ex-Exec Can Shield Info In Pfizer Whistleblower Spat:

The plaintiff's economic expert has calculated the plaintiff's economic losses for the period after his termination at over $9 million. In an effort to determine whether Rost fulfilled his duty to mitigate his damages by making adequate efforts to look for work after he was fired, Pfizer had sought documents and deposition testimony that would reveal Rost's assets during the period after he left Pfizer.

The company said the existence of significant assets could explain Rost's "lackadaisical attitude toward finding meaningful employment.

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Wednesday, May 07, 2008

Catching up after a job loss: The literature

What does the literature say about earnings losses after a job loss:

Generally, the evidence supports the conclusion that, on average, the earnings loss for an individual who losses a job will diminish slightly in time but the losses will last longer than 5 years.

(from listserv)

Most studies of displaced workers have found losses of roughly 5 to 25 percent (or, conversely, replacement rates of 75 to 95 percent).

At the lowend of the range of findings, David Shapiro and Steven Sandell ( The ReducedPay of Older Job Losers in The Problem Isn t Age: Workers and OlderAmericans, Praeger, 1983) found wage losses of about 4 percent.

At the high end of the range offindings, Louis Jacobsen, Robert LaLonde, and Daniel Sullivan ( EarningsLosses of Displaced Workers , AER, 1993) found earnings losses averaging about 25 percent.

Studies by Christopher Ruhm ( Are Workers Permanently Scarred by JobDisplacement? , AER, 1991) and Ann Huff Stevens ( Long Term Effects of JobDisplacement: Evidence from the Panel Study of Income Dynamics , NBERWorking Paper 5343, 1995) found earnings losses in the neighborhood of 15 percent.

Using PSID data, Stevens found that earnings lossesaveraged 6 to 12 percent seven plus years after displacement compared to about 15 percent one year after displacement.

****

Do Terminated Employees Catch Up? Evidence from the Displaced Workers Survey, David Macpherson and Michael Piette, Journal of Forensic Economics 16 (2), 2003, pp. 185-199. found that wage losses ranging from 10% to 40%.

- In addition, the authors found that more tenured persons and older persons tended to have larger wage losses

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Tuesday, May 06, 2008

How far do economic damages go on in employment termination cases?

Economic damages in employment discrimination cases are different from damages in personal injury cases. In a nutshell, the economic damage calculation in employment termination cases needs to take into account that the terminated plaintiff may, and in all likelihood will, obtain alternative employment.

With re-employment income in mind, there are two components that are unique to employment termination cases. One component is the expected amount of time that the plaintiff would have been expected to work at the defendant had they not been wrongly terminated. The other component is the amount of time that it takes before the terminated individual is able to earn wages at their replacement employment that exceed the amount that they would have been expected to earn had they not been terminated.

These two factors generally determine how far economic damages will go into the future. Here are a couple of studies that have looked at these issues.

Duration of Employment, Robert Trout, http://nafe.net/JFE/j16_2_05.pdf and http://nafe.net/JFE/j08_2_06.pdf

Do Terminated Employees Catch Up? Evidence from the Displaced Workers Survey, David Macpherson and Michael Piette, Journal of Forensic Economics 16 (2), 2003, pp. 185-199.

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Thursday, May 01, 2008

Did you know?

In California, by law, a worker can not be prevented from discussing wages with co-workers?

Labor Code § 232 provides:
No employer may do any of the following:
(a) Require, as a condition of employment, that an employee refrain from disclosing the amount of his or her wages.
(b) Require an employee to sign a waiver or other document that purports to deny the employee the right to disclose the amount of his or her wages.
(c) Discharge, formally discipline, or otherwise discriminate against an employee who discloses the amount of his or her wages.

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