Average Wrongful Termination Settlement in California

If you were fired for a reason you believe was illegal, you probably want to know what a wrongful termination settlement in California could be worth. No reliable average exists. Below, we explain why settlement amounts vary, what can increase or decrease a claim’s value, how settlement differs from severance, and how settlement payments are taxed.

Key Takeaways

• Wrongful termination can lead to different types of damages. Employees fired in violation of fundamental public policy may be able to recover tort damages, including emotional distress damages, under Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167.
• Lost wages affect settlement value. Back pay and other lost earnings may be reduced by income earned after termination or income the employee reasonably could have earned through comparable employment. This reflects the duty to mitigate damages recognized in Parker v. Twentieth Century-Fox Film Corp. (1970) 3 Cal.3d 176.
• In a FEHA lawsuit, a court may award the prevailing employee reasonable attorney’s fees and costs under Government Code section 12965.
• Federal law caps combined compensatory and punitive damages in Title VII cases at $50,000 to $300,000, depending on employer size, under 42 U.S.C. section 1981a(b)(3). FEHA’s remedy provisions do not contain those dollar caps.
• Not every wrongful termination claim allows emotional distress damages. Claims based solely on breach of an employment contract are generally limited to contract remedies, as explained in Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654.

Is This Your Situation?

• You were fired soon after you complained about discrimination, harassment, unpaid wages or a safety problem.
• You were let go during or after pregnancy, medical leave or a request for a disability accommodation.
• Your employer offered you severance and wants a signature quickly.
• You resigned because your working conditions became intolerable.

What Decides the Value of a Wrongful Termination Settlement?

Four things usually shape value: the legal reason the firing was unlawful, the pay you lost, the damages that legal theory allows, and the strength of the evidence. An unfair firing is not always an illegal one. Without a contract, employment is generally at will, and the employee “can be fired with or without good cause” (Foley). But an employer cannot fire someone for a reason the law prohibits. That is where California wrongful termination claims begin.

“I think one of the biggest misconceptions is that just because someone else had a case similar to yours and received a certain amount of money, you should expect the same,” says Danielle Langella, an associate attorney at Abramson Labor Group. “Every case is like a snowflake. No two are exactly alike. Even if the circumstances seem similar, there are so many factors that go into determining what a case is worth. Just because someone else received $100,000 doesn’t mean your case is worth $100,000. It could be worth more; it could be worth less. It really depends on the specific facts of your situation.”

The Legal Reason for the Firing

“Wrongful termination” covers several different claims. Each one allows different damages.

FEHA prohibits termination based on protected characteristics, such as being fired because of your age or fired because of pregnancy or for exercising protected pregnancy leave rights. It also prohibits retaliation, such as being fired after reporting sexual harassment (Gov. Code §§ 12940(a), 12940(h), and 12945). A firing tied to a health condition raises similar questions, covered in whether you were fired for medical reasons.

Whistleblower claims under Labor Code section 1102.5 are covered in our article on being fired for whistleblowing. If you resigned, Turner v. Anheuser-Busch, Inc. (1994) 7 Cal.4th 1238 held that a constructive discharge “is legally regarded as a firing rather than a resignation” (California Supreme Court). The employee still must prove an underlying wrong to recover. See constructive discharge in California.

Lost Pay and the Duty to Look for Work

Lost earnings are often a major factor in determining the value of a wrongful termination claim. They may include back pay, which covers wages and benefits lost between termination and the relevant recovery date, and front pay, which compensates for certain future lost earnings when reinstatement is not appropriate.

Employees generally have a duty to make reasonable efforts to find comparable employment after being terminated. Under Parker, the employer must prove what the employee earned or could have earned elsewhere. Jobs the employee did not take count only if the work was “comparable, or substantially similar.” Turning down work “of a different or inferior kind” does not reduce recovery.

Emotional Distress and Punitive Damages

In a private FEHA lawsuit, “the superior court may award compensatory and punitive damages,” according to the California Supreme Court in Peralta Community College Dist. v. Fair Employment & Housing Com. (1990) 52 Cal.3d 40. Compensatory damages can include emotional distress, and Tameny claims allow tort damages.

Punitive damages punish rather than repay. Under Civil Code section 3294, they require proof “by clear and convincing evidence” that the employer was guilty of “oppression, fraud, or malice.” The statute covers obligations “not arising from contract,” so a contract-only claim does not allow them.

Attorney’s Fees

Under Government Code section 12965, a court in a FEHA case may award the prevailing party reasonable attorney’s fees and costs. A prevailing employer “shall not be awarded fees and costs unless the court finds the action was frivolous, unreasonable, or groundless when brought,” or the employee kept litigating after it clearly became so. For the employee’s side, read about contingency fees for employment lawyers.

No FEHA Damage Cap vs. Federal Title VII Caps

Under federal Title VII, certain compensatory damages, including emotional distress and future non-economic losses, and punitive damages are subject to combined statutory caps based on employer size (42 U.S.C. section 1981a(b)(3)):

These caps do not include back pay, front pay, or certain other forms of relief.

California’s FEHA does not impose equivalent statutory dollar caps on compensatory and punitive damages. This distinction can significantly affect potential recovery when an employee’s termination supports claims under both state and federal law.

Statutory Penalties

Some Labor Code claims add penalties on top of damages. Labor Code section 98.6 allows a civil penalty of up to $10,000 per employee for each violation, awarded to the employee, for retaliation over wage complaints and related activity. Section 1102.5 allows up to $10,000 for each violation. If an employer willfully fails to pay all final wages when due, Labor Code § 203 may also impose waiting-time penalties equal to the employee’s daily wage for each day payment remains outstanding, up to 30 calendar days. For retaliation cases, see our article on the average retaliation settlement.

Arbitration Agreements

An enforceable arbitration agreement may require an employee to pursue a wrongful termination claim before a private arbitrator rather than in court. Arbitration changes how a claim is resolved, but it does not necessarily limit the damages an employee can recover. In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, the California Supreme Court held that mandatory arbitration of FEHA claims must allow employees to recover the types of relief otherwise available in court. The court rejected an arbitration agreement that improperly limited available remedies, including a restriction to back pay.

What Drives Value Up and What Drives It Down

Most cases have factors in both columns. An employment attorney can evaluate how they apply to your specific facts.

“Documentation is huge,” Langella says. “Having a paper trail can make a big difference in the value of a case. I always encourage employees to make sure their complaints are documented in writing, whether that’s through an email or a text message. And if you have a conversation with your employer in person or over the phone, follow up in writing to confirm what was discussed. At the end of the day, it’s much easier to prove what happened when you have something in writing rather than just your word against theirs.”

Settlement vs. Severance: What Is the Difference?

Severance is compensation an employer may offer when employment ends, often in exchange for an employee’s agreement to release certain legal claims. A wrongful termination settlement resolves an existing dispute over whether the termination was unlawful. In either situation, signing a release generally means giving up the claims covered by that agreement.

California law provides certain protections when employees are offered separation agreements. Under Government Code section 12964.5, an employer offering a separation agreement must generally notify the employee of the right to consult an attorney and provide at least five business days to consider the agreement. An employee may choose to sign sooner, provided the decision is knowing and voluntary and is not improperly induced by the employer. Different rules apply to qualifying negotiated settlements of employment-related claims that have already been filed in court, before an administrative agency, in arbitration, or through an employer’s internal complaint process. Our article on severance agreements in California explains what to look for in the release.

Langella sees one pattern often: “being offered severance right after they’re terminated and feeling pressured to sign the agreement as quickly as possible. A lot of people see the dollar amount being offered and focus on that without really understanding what they’re giving up in exchange. What they don’t always realize is that by signing, they could be waiving valuable legal claims.”

How Are Wrongful Termination Settlements Taxed?

The tax treatment of a wrongful termination settlement depends on what each portion of the payment compensates. According to IRS Publication 4345:

• Lost wages: Payments for severance, back pay, and front pay are generally taxable as wages and subject to applicable employment taxes, including Social Security and Medicare taxes.
• Emotional distress: Damages for emotional distress unrelated to physical injury or physical sickness are generally taxable, although certain unreimbursed medical expenses attributable to that distress may be excluded.
• Punitive damages: Punitive damages are generally taxable.

Settlement agreements may allocate payments among categories such as lost wages, emotional distress, and attorney’s fees. However, the IRS considers the substance of the underlying claims, not just the labels used in the agreement.

Because the allocation can affect taxes and reporting obligations, consider having a qualified tax professional review the settlement terms before signing.

What to Consider Before You Accept an Offer

1. Review the agreement carefully. Take advantage of any applicable review period before signing a severance or settlement agreement, and make sure you understand which legal claims you may be releasing.
2. Create a timeline. Document when you reported concerns, requested leave or accommodations, disclosed a pregnancy or medical condition, received disciplinary warnings, and were terminated. Note who was involved in each decision.
3. Preserve relevant documents. Keep copies of documents you are lawfully entitled to keep, such as pay stubs, reviews, handbook discipline rules and your termination letter.
4. Document your job search. Keep records of applications, interviews, offers, and efforts to find comparable employment, as these may affect the calculation of lost wages.
5. Check for an arbitration agreement. Review any employment agreements you signed to determine whether your claims may be subject to arbitration.
6. Consult an employment attorney. Before signing a release, consider having an attorney evaluate your potential claims, the proposed compensation, and the rights you may be giving up.

How Long Do I Have to File a Wrongful Termination Claim?

Different employment claims have different filing deadlines. For many California discrimination and retaliation claims under FEHA, an employee generally has three years from the date they were last harmed to begin the process with the California Civil Rights Department.

Public-policy, contract and whistleblower claims have their own deadlines. Our article on the wrongful termination statute of limitations in California explains how these clocks differ. An employment attorney can evaluate which deadlines apply to your situation.

When to Talk to a California Employment Lawyer

If you were fired after a complaint, a leave request, a pregnancy announcement or an accommodation request, were offered severance in exchange for a release, or resigned because conditions became intolerable, consider speaking with a California employment lawyer. An attorney can identify the legal theories that apply, review any severance or arbitration agreement, and explain the deadlines. In Los Angeles County, see how a Los Angeles wrongful termination lawyer at our firm reviews these cases.

At Abramson Labor Group, we represent California employees in wrongful termination cases. Our case reviews are free and confidential, and we work on contingency. Request your free case evaluation or contact us to talk through what happened.

Frequently Asked Questions

Is a wrongful termination settlement calculator accurate?

Not reliably. A calculator cannot tell whether your claim allows emotional distress or punitive damages, what comparable work was available, or whether federal caps apply. Two workers with the same salary can have very different claims.

What if I took a lower-paying job after I was fired?

Taking a lower-paying job does not necessarily prevent you from recovering lost wages. Earnings from subsequent employment generally reduce your lost-pay damages, but you may still be entitled to recover the difference between what you previously earned and what you earned afterward. Under Parker v. Twentieth Century-Fox Film Corp., an employer seeking to reduce damages based on an employee’s failure to mitigate must establish that substantially comparable employment was available. Employees generally are not required to accept substantially different or inferior work merely to reduce their damages.

Does it matter who at the company decided to fire me?

It can, for punitive damages. Under Civil Code section 3294(b), a corporate employer owes punitive damages for an employee’s conduct only if an “officer, director, or managing agent” authorized, ratified or committed it, or knew of the employee’s unfitness in advance and acted with conscious disregard of others’ rights.

This article is general information about California law, not legal advice. Every situation is different. For advice about your specific case, talk to a licensed California employment attorney.