Lost Earnings

Lost Earnings

Lost earnings are calculated by comparing the plaintiff's expected income with actual income. For past losses (those that occurred prior to trial), this calculation is usually based on the assumption that the plaintiff's earnings would have been in equilibrium. Plaintiff's expected income is assumed to include cost-of-living adjustments and scheduled promotions and raises but does not include factors such as claims that the plaintiff was about to change to a more lucrative occupation. This calculation is simple for employees and persons in stable businesses. It becomes more difficult when it involves a plaintiff in a transitory state. For example, assume that the plaintiff is just starting a private medical practice. He has been in business six months when he is severely injured in an automobile accident and he is unable to return to work. If it takes four years for his case to go to trial, he will be entitled to the earnings he lost during that period. His income during the first six months of practice probably will not be representative of what his earnings would have been when the practice was fully established. In this case, the plaintiff's counsel will need to present projections of his client's potential earnings capacity.

Future earning capacity is what the plaintiff might have earned had the injury not occurred. The damages would be this earning capacity minus projected earnings in the injured condition. This is not always a positive number. If because of injuries the plaintiff was retrained for a higher-paying job, he or she may have no damages attributable to lost earning capacity. If the plaintiff is well along in life in a dead-end job, then or her his future earning capacity may simply equal present wage plus cost-of-living adjustments.

The difficult cases involve plaintiffs starting their careers. These cases require a balancing of the plaintiff's goals against the probability of his or her achieving those goals.

Assume that the plaintiff has suffered a head injury that makes it impossible to do any job more demanding than manual labor. If the plaintiff is a successful surgeon, then his future earning capacity is fairly certain, as is his potential professional lifetime. Assuming a net income of $200,000 per year and 25 years until retirement, minus a potential income of $5,000 per year as a laborer, a first-level approximation of lost earning capacity would be ($200,000 - $5,000) x 25, or $4,875,000. If he is a first-year medical student, it is fairly certain that he would have become a physician, but his level of future financial success is much less certain. In this situation, the plaintiff's future earning capacity may be limited to the average income for physicians in general. If the plaintiff is a freshman in college, then the probability of his becoming a surgeon is further reduced, as is his ability to establish a high future earning capacity.

These assumptions about the uncertainty of the plaintiff's future may cause the jury to award him less money for lost future earning capacity, but they do not prevent the plaintiff from putting on evidence to reduce the assumption of uncertainty. If the college freshman is an honor student at Yale whose mother is a prominent surgeon and there is evidence that he intended to join her practice, the jury might assume that he had a high probability of achieving his goals. Information that tends to convince a jury that the plaintiff's goals were both reasonable and personally achievable is key to a successful claim for a large award for loss of future earning capacity.

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Lost Earnings