Proper Calculation of Damages When Ex-Employee Starts Own Business Before Trial
By Ted Olsen
Wrongly discharged employees have the legal duty to act reasonably to attempt to mitigate their losses. Ex-employees are required to apply for available positions for which they would be suited and otherwise pursue leads for available jobs. In today's economy, however, it is not unusual for a dismissed worker to give up a job search when early attempts prove ineffective, and to start his or her own business. If the business booms, that's great (for both the ex-employee and employer). But if, as with most new enterprises, the business takes off slowly or loses money, how should the person's back pay be calculated? Does the new business stop the running of the back pay damages? The Colorado Court of Appeals, in Bonidy v. Vail Valley Center for Aesthetic Dentistry, P.C., Case No. 09CA0602, 2010 Colo. App. LEXIS 367 at *6 (Colo. App. Mar. 18, 2010), recently answered these questions.
Ms. Bonidy was found by a jury to have been wrongly discharged from her employment as a dental assistant, in July 2004, in retaliation for her husband's complaints to her employer that she was being denied the right to take rest breaks provided by Colorado Wage Order No. 22, in violation of public policy.
After a few months of unsuccessful job hunting, in November 2004, Ms. Bonidy opened her own business. The trial judge ruled that her back pay equaled her wages from the discharge date to the date she opened her own business. This ruling effectively meant that any plaintiff who goes into business for themselves, by doing so, would stop the back pay period, presumably because the plaintiff had taken himself or herself out of the job market.
On appeal, the Court of Appeals ruled that Ms. Bonidy's back pay ran from her discharge to the trial. The Court adopted the general formula for calculating back pay as the amount the employee reasonably could have expected to earn absent the wrongful termination, reduced by either (a) the employee's actual earnings in an effort to mitigate damages or (b) the amount the employee failed to earn by not properly mitigating her damages. But going into a new business, by itself, did not terminate the back pay period.
The Court also ruled that Bonidy's evidence was sufficient to support an award of exemplary damages against the employer.
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©2010 Sherman & Howard L.L.C. May 10, 2010