Collateral Benefits and Front Pay: A Rule of No Offset Encourages Agency Recoupment

Abstract

If an employee is wrongfully discharged for discriminatory reasons he may sue his employer to receive compensation in the form of lost wages and the right to be reinstated to the same position.' If reinstatement is not possible, the monetary award can continue into the future, allowing the employee a reasonable amount of time to find comparable employment. The employee's discharge may also trigger (or increase) a collateral benefit distributed by a third party, such as unemployment compensation or a pension benefit. If the employee is able to collect both his lost wages (for example, $1,000 per month in salary) because he cannot be reinstated, and the collateral benefit (for example, $200 per month in unemployment benefits) he will receive $1,200 per month$200 more than he would earn if still employed. To avoid this windfall the court may reduce, or offset, the damages that the employer must pay by the amount of the benefit. In our example, with a $200 offset, the employee will receive the amount he would have earned if still employed-$1,000 per month. However, because the employer will only pay $800 per month, it is not forced to internalize the full cost of its actions. In effect, the provider of the benefit subsidizes the harm.3 Whether the employee or the employer is credited with the benefit, one side is given a windfall it arguably does not deserve. There are three potential rules that can be applied in cases involving collateral benefits and front pay awards. First, there may be a