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Mitigation of Damages Defense Against Title VII Wrongful Termination Claim and the Effect of Claimant’s Termination from Interim Employer 

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Reminger Co., LPA Spring 2015 Employment Practices Newsletter
June 1, 2015

When litigating employment cases involving a Title VII1  claimant’s allegations that he or she was wrongfully terminated, one of the key defenses at an When litigating When litigating employment cases involving a Title VII  claimant’s allegations that he or she was wrongfully terminated, one of the key defenses at an employer’s disposal is that the plaintiff/former employee failed to mitigate his or her damages. Usually, this defense alleges that the plaintiff failed to make reasonable efforts to secure replacement employment after being discharged.  In other words, a discharged employee, even when terminated on discriminatory grounds, may not sit back and watch his or her purported damages accrue rather than seek a new job.  However, the failure to seek replacement employment is not the only context in which the defense may be raised.  In particular, a more nuanced articulation of the “mitigation of damages” defense becomes necessary if the plaintiff did obtain replacement employment but was subsequently fired from that position for cause.  Under these circumstances, the employer may still argue that the value of those interim earnings should be deducted from any back pay award because the claimant unreasonably failed to maintain his or her interim job.  

This article provides defense counsel with a litigation tool when the issue of damages mitigation arises in factually similar employment cases.   Unfortunately, the body of case law regarding the effect of subsequent terminations on back pay awards is relatively small, but several federal appellate courts have indeed held that employment plaintiffs have a duty to use reasonable diligence in maintaining interim employment.  Thus, in cases where a plaintiff alleging wrongful termination is discharged by an interim employer, defense counsel should investigate not only the facts surrounding the primary claim, but also those of any subsequent discharge.  

A Claimant’s Duty to Minimize Damages under § 706(g) of Title VII

A Title VII claimant’s duty to mitigate damages derives from § 706(g),2  where it states “[i]nterim earnings or amounts earnable with reasonable diligence by the person or persons discriminated against shall operate to reduce the back pay otherwise allowable.”  The statutory language cited thus provides that any amounts earned by a wrongfully terminated employee from subsequent employment act as a credit toward the employer in calculating the claimant’s backpay award.  The U.S. Supreme Court has interpreted this section of Title VII to “require[] the claimant to use reasonable diligence in finding other suitable employment.”3   Although a claimant need not seek or accept employment that is demeaning or constitutes a demotion, he or she will forfeit the right to back pay if a “substantially equivalent” job is refused.4 

Title VII’s remedial provision relating to back pay is equitable in nature and seeks to restore what the claimant lost as a result of the discriminatory discharge.5   As a consequence, “[s]ince only actual losses should be made good, it seems fair that deductions should be made not only for actual earnings by the worker but also for losses which he willfully incurred.”6  Logically, then, any amounts the claimant failed to earn as a result of not using reasonable diligence must be credited to the employer.  This understanding thus leads to the three main questions which are the central focus of this article: 

(1) Does a Title VII claimant alleging wrongful termination have a duty to use reasonable diligence to maintain substantially equivalent employment after it has been obtained? 

(2) If so, what level of conduct by the claimant is required in order to meet the “reasonable diligence” standard in maintaining subsequent employment?  

(3) What is the practical effect to a Title VII back pay award when a claimant is subsequently terminated for cause?

These questions are addressed in the sections below and implicated in the following factual scenario.  Suppose an employee is discriminated against and discharged by employer #1 in January 2015.  Claimant then looks for a new job and obtains a position with employer # 2 in July 2015 that is substantially equivalent to his previous job.  Suppose, then, that the employee is fired for cause by employer # 2 in August 2015 and sues employer #1 for wrongful termination in January 2016, alleging back pay damages for all of 2015.  Certainly, employer #1 is entitled to have the wages earned during July and August subtracted from any back pay award pursuant to black letter employment law.  However, can employer #1 also defend against the back pay claim on the grounds that claimant failed to mitigate his damages from August 2015 to the time of litigation as a result of being terminated from the subsequent employer?  And what would be the effect on the back pay award if claimant obtained another job following the second discharge?  

Federal Case Law and the Duty to Use Reasonable Diligence in Maintaining Replacement Employment

Ford Motor Co. v. EEOC

Any meaningful discussion of the “failure to mitigate damages” defense in the context of an employer’s liability for back pay under Title VII includes the U.S. Supreme Court’s 1982 case, Ford Motor Co. v. EEOC.  In Ford Motor Co., the Court considered the issue of whether an employer charged with illegal gender discrimination during its hiring process could toll its liability for back pay simply by offering the claimants the previously denied jobs.7   The EEOC countered that the employer’s offer should have no effect on the accrual of back pay because the offers did not include retroactive seniority, which the claimants would have obtained had they been hired from the outset.  

Ultimately the court held that, although the employer clearly engaged in unlawful sex discrimination, tolling its liability for back pay was consistent with the remedial principles of the statute because the duty to mitigate damages included the obligation “to accept an unconditional offer of the job originally sought, even without retroactive seniority.” 8   The Court grounded its holding on the premises that the remedial purpose of § 706(g) was “to make the victims of unlawful discrimination whole by restoring them so far as possible … to a position where they would have been were it not for unlawful discrimination.”9   As a result, the Court delivered a major holding establishing the equitable purposes of Title VII’s remedial scheme and held that the duty was broader than merely having to seek replacement employment.

Brady v. Thurston Motor Lines, Inc.

Following the principles set forth in Ford Motor Co., the U.S. Court of Appeals for the Fourth District in 1985 further defined the reach of the “failure to mitigate” defense in Brady v. Thurston Motor Lines, Inc.10   Specifically, in Brady, the court considered what effect, if any, subsequent terminations for cause would have on a Title VII plaintiff’s claims for back pay.11   In this case, the employer’s liability for improperly terminating claimants on the basis of race was previously determined during the first stage of a bifurcated trial.  The only issue on appeal, however, was the extent to which the employer could be required to compensate the claimants for back pay after a dismissal for cause from a subsequent employer.  

Two of the Brady plaintiffs had obtained replacement work with other companies following their unlawful terminations from the defendant trucking companies.  However, both of these substantially equivalent replacement positions ultimately ended in the claimants’ discharge for cause.  One claimant was hired by a warehousing company, only to be discharged when he violated a stated company policy for operation of the warehouse.  The second claimant was hired by a different trucking company, but was subsequently terminated after an incident where he loaded freight on the wrong truck.  Thurston argued that any liability it might have to the claimants for back pay was cutoff as a result of these discharges for cause.

In order to determine whether these subsequent terminations should have any effect on Thurston’s liability for back pay, the Fourth Circuit looked to “the long-standing principle that a claimant who voluntarily quits comparable interim employment fails to exercise reasonable diligence in the mitigation of damages.”12   However, the court cautioned, “the rule that voluntary termination of interim employment tolls the back pay period is not unqualified.” 13   Accrual of back pay would be tolled “when the voluntary termination is without compelling or justifying reasons.”  14 As a consequence, the court held that “the rationale which supports the tolling of the back pay period following a voluntary quit should also apply to those terminations which result from violation of an employer’s rules.” 15  Therefore, the court concluded, because the subsequent terminations were justifiable for cause, they “amount[ed] to a lack of reasonable diligence in maintaining interim employment.” 16  The Fourth Circuit then held that Thurston’s liability for back pay was tolled by the terminations.    

In so holding, the Fourth Circuit explicitly rejected the district court’s determination that the claimants would not have failed to mitigate their damages absent a finding that they had “engaged in ‘misconduct’ within the meaning of [North Carolina’s unemployment compensation statute].”17   In its view, the court of appeals considered that standard far too narrow to comply with Title VII’s requirement that all claimants use reasonable diligence to minimize their injuries.  As a result of the Fourth Circuit’s holding in Brady, a plaintiff’s discharge for violating a subsequent employer’s rules effectively tolls the accrual of back pay for which an employer in violation of Title VII would otherwise be liable.

Thurman v. Yellow Freight Systems, Inc.

The U.S. Court of Appeals for the Sixth Circuit reconsidered the issue of tolling periods for Title VII back pay in Thurman v. Yellow Freight Systems, Inc.18  In that case, the court looked at whether the reasoning behind the employer’s justified termination had any bearing on whether to toll the back pay accrual period.  The plaintiff in Thurman, who was not hired by the company on account of his race, was then hired by a second trucking company but later terminated for cause after he got into an accident with the subsequent employer’s truck.19   In holding that the discriminating employer’s liability for wrongful termination was not tolled, the court adopted the standard that only an employee’s willful violation of the subsequent employer’s rules or commission of “gross” or “egregious” conduct is sufficient to toll the back pay period.20 

Obviously, this holding is somewhat at odds with the Fourth District’s holding in Brady as that court expressly rejected using a standard that narrowed the “reasonable diligence” language in § 706(g) of Title VII to require “wanton or willful disregard for the employer’s interest.”21 At minimum, however, the import of Thurman makes clear that accidental violations of a subsequent employer’s rules or mere workplace negligence, albeit for cause, is likely insufficient to toll the accrual of back pay in Title VII cases. 

Johnson v. Spencer Press of Maine, Inc.

In 2004, the First Circuit in Johnson v. Spencer Press of Maine, Inc. addressed the lingering question of whether the back pay period was permanently terminated by a termination from interim employment for misconduct or a voluntary quit.22   In Johnson, the district court below had determined that the plaintiff, who was wrongfully terminated from Spencer Press on account of his religion, had failed to mitigate his damages after he was fired from a subsequent employer for eating on the job.23  However, the district court had gone on to conclude that this failure meant that “the possibility of back pay was permanently cut off.” 24   

Citing Brady and a similar case from the Eighth Circuit, the court in Johnson held that a subsequent termination for misconduct merely tolled the employer’s liability for back pay but could be reinstated if the claimant found a new job afterwards.  Any amounts or wages earned at the third employer would still be credited to the first employer pursuant to § 706(g), but would satisfy the statutory requirement that the claimant use reasonable diligence to mitigate his damages.  The First Circuit explained that the reason liability would not be permanently cut off was simply that “[h]ad there been no discrimination at employer A, the employee would never have come to work (or been fired) from employer B.”  Highlighting the equitable interests evinced in Title VII’s remedial scheme of restitution, the court stated that “[t]he discriminating employer should not benefit from the windfall of not paying the salary differential when the employee is re-employed by employer C.” 25

Conclusion

As the above-cited cases bear out, an employee alleging wrongful termination under Title VII has a statutory duty to mitigate his or her damages, which includes the duty to use reasonable diligence to seek and maintain replacement employment.  Although the differences in language cited by the Fourth Circuit and Sixth Circuit in their respective decisions on the issue vary slightly, it is clear that an intentional violation of a subsequent employer’s rules is sufficient to toll the period during which the offending employer can be held liable for back pay.  As the Sixth Circuit held in Thurman, workplace negligence or unintentional conduct, even if resulting in a discharge for cause, might not be sufficient for the initial employer to argue that the claimant failed to mitigate his damages.

Attorneys that practice in employment law and deal with Title VII wrongful termination claims should be keenly aware of the standard that all courts apply to these claims, which is that the claimant use “reasonable diligence” to obtain interim earnings.  Voluntary quits for personal reasons and willful violations of workplace rules clearly meet the standard under existing case law, however a myriad of other scenarios inevitably occupy the gray area waiting to be litigated and require the attorney to make compelling arguments based on the facts.  As with all affirmative defenses, counsel should be aware that the defense may be waived if not specifically pleaded from the outset and that the defendant employer bears the burden of proving by a preponderance of the evidence that the employee failed to mitigate his damages.  Nonetheless, the practical impact of a well-investigated and properly argued defense that the plaintiff failed to use reasonable diligence in maintaining interim employment represents a considerable weapon in the arsenal of the employment lawyer and can make all the difference between a sizeable damage award and a satisfied client.

1 42 U.S.C. § 2000e et seq.

2 42 U.S.C. § 2000e-5(g)(1).

3 Ford Motor Co. v. EEOC, 458 U.S. 219, 231, 102 S.Ct. 3057, 73 L.Ed.2d 721 (1982).

4 Id.

5 See id. at 230.

6 Phelps Dodge Corp. v. NLRB, 313 U.S. 177, 197-98, 61 S.Ct. 845, 85 L.Ed. 1271 (1941).

7 Ford, supra at syllabus.

8 Id. at 234.

9Id. at 230 (citing Albemarle Paper Co. v. Moody, 422 U.S. 405, 421, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975)) (internal quotes omitted).

10 Brady v. Thurston Motor Lines, Inc., 753 F.2d 1269, 1277 (4th Cir.1985).

11 Id. at 1271.

12 Id.  at 1277 (citing several federal courts of appeals decisions, as well as the NLRB).

13 Id.  at 1278.

14 Id. 

15 Id. 

16 Id.  at 1279.

17Id.  at 1277 (defining “misconduct” as “conduct which shows a wanton or willful disregard for the employer’s interest, a deliberate violation of the employer’s rules, or a wrongful intent”).

18 Thurman v. Yellow Freight Systems, Inc., 90 F.3d 1160, 1169 (6th Cir.1996)

19 Id.  at 1169.

20 Id. 

21 Brady, supra at 1277 (“We think the application of the North Carolina standard for eligibility for unemployment compensation benefits to a Title VII back pay claim is inappropriate.  The purposes served by the provision of unemployment benefits and the duty to mitigate damages are unrelated.”).

22 Johnson v. Spencer Press of Maine, Inc., 364 F.3d 368, 381 (1st Cir.2004).

23 Id. 

24 Id. 

25 Id.  at 382

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