Employment Litigation Finance Glossary

ADA (Americans with Disabilities Act)

The federal statute prohibiting discrimination against qualified individuals with disabilities in employment, public accommodations, and other areas. Employment ADA claims typically arise from failure to provide reasonable accommodation or adverse actions tied to disability status. From a funding perspective, ADA cases are generally smaller in individual value than class wage claims but can be aggregated or paired with state-law analogs to reach fundable economics.

ADEA (Age Discrimination in Employment Act)

The federal law prohibiting employment discrimination against individuals aged 40 and older, including in hiring, firing, pay, and promotions. ADEA disparate impact claims face a higher evidentiary bar than Title VII claims following the Supreme Court's Gross v. FBL Financial Services ruling, which required but-for causation. Funders evaluating ADEA matters must assess the causation standard's effect on win probability and the damages cap under the statute.

Arbitration Clause (Employment)

A contractual provision requiring employees to resolve disputes with their employer through private arbitration rather than litigation, typically embedded in employment agreements or employee handbooks. Mandatory arbitration clauses significantly affect the litigation finance calculus by eliminating class or collective proceedings and routing claims into individual arbitrations with lower aggregate value and limited public discovery. Funders evaluating employment matters must determine at intake whether a valid arbitration agreement exists and whether any carve-outs, unconscionability defenses, or NLRA arguments might defeat enforcement.

Back Pay

Compensatory damages representing the wages, benefits, and other compensation a plaintiff would have earned absent the discriminatory or unlawful conduct, less any interim earnings. Back pay is often the primary quantifiable damages element in employment discrimination and wrongful termination cases, and it anchors the damages model funders use to assess case value. The calculation depends on the duration of unemployment, the plaintiff's compensation history, and the employer's defenses on mitigation.

Class Action (Rule 23 Opt-Out)

A federal procedural mechanism allowing a named plaintiff to sue on behalf of all similarly situated class members who do not affirmatively exclude themselves. Rule 23 class actions in employment contexts — covering discrimination, benefits disputes, and some wage claims — produce larger potential damages pools than FLSA collective actions, making them attractive to litigation funders evaluating aggregate recovery potential against investment risk.

Class Action Waiver

A contractual provision, often bundled with an arbitration clause, prohibiting employees from bringing class or collective claims against the employer. The Supreme Court's Epic Systems Corp. v. Lewis decision confirmed the enforceability of class action waivers in employment arbitration agreements under the Federal Arbitration Act, significantly narrowing the available plaintiff pool in funded employment cases. The presence of a class action waiver is often a threshold disqualifier for litigation finance consideration unless state-law exceptions or non-waivable statutory rights create viable workarounds.

Collective Action (FLSA Opt-In)

A mechanism under the FLSA allowing similarly situated employees to join a lawsuit by affirmatively opting in, as opposed to the opt-out structure of Rule 23 class actions. The opt-in structure typically produces smaller class sizes than Rule 23 actions, which directly affects aggregate damages and the funding economics. Funders assess the opt-in rate projections and how certification strategy will shape the recoverable pool.

Conditional Certification

The first stage of FLSA collective action certification, where a court makes a preliminary determination that potential opt-in plaintiffs are similarly situated to the named plaintiff. Conditional certification is often achievable on a lenient standard and triggers notice to the class, expanding the plaintiff pool. Funders frequently deploy capital at or after conditional certification because it validates the collective theory without requiring final merits adjudication.

Disparate Impact

A theory of employment discrimination holding that a facially neutral policy or practice unlawfully discriminates if it produces a statistically significant adverse effect on a protected group, without adequate business justification. Disparate impact claims depend heavily on statistical evidence, making expert testimony central to both liability and damages analysis. Funders assess the quality of available workforce data, the strength of the statistical methodology, and whether the employer has a viable business necessity defense.

Disparate Treatment

The most direct form of employment discrimination, involving intentional adverse action against an individual or group because of a protected characteristic. Disparate treatment claims are typically proven through direct evidence of discriminatory intent or circumstantial evidence under the McDonnell Douglas burden-shifting framework. For funders, individual disparate treatment cases rarely meet minimum funding thresholds alone, but systematic disparate treatment across a workforce can support a pattern-or-practice theory with much larger damages exposure.

EEOC Charge

A formal complaint filed with the Equal Employment Opportunity Commission alleging that an employer engaged in unlawful employment discrimination, a mandatory prerequisite to filing a federal discrimination lawsuit under most statutes. The charge filing tolls the statute of limitations and triggers an EEOC investigation, conciliation process, and eventual right-to-sue letter. For funders, a well-documented EEOC charge record — including the employer's response and any EEOC cause findings — is a meaningful due diligence input, as it may preview the employer's litigation posture and settlement appetite.

Employment Class Action Financing

The deployment of third-party capital to fund employment class or collective actions in exchange for a portion of the recovery, enabling plaintiff-side firms to manage the substantial discovery, expert, and administrative costs of large workforce disputes without diluting their contingency economics. Employment class action financing differs from single-case commercial funding in its sensitivity to certification risk, arbitration clause exposure, and opt-in or opt-out rate projections that determine whether aggregate damages will sustain the investment. Sophisticated funders in this space evaluate not just liability strength but the procedural pathway to a certified, uncollapsed class as a threshold condition for deployment.

ERISA (Employee Retirement Income Security Act)

The federal statute governing employer-sponsored retirement and benefit plans, imposing fiduciary duties on plan administrators and trustees. ERISA breach-of-fiduciary-duty claims — particularly those alleging excessive 401(k) fees or imprudent investment selection — are a growing area of litigation finance activity because they involve large plan assets, defined plaintiff classes, and structured settlement frameworks. Fee-related ERISA cases often settle on a percentage-of-plan-assets basis, making damages modeling relatively tractable.

Final Certification

The second and dispositive stage of FLSA collective action scrutiny, applying a more rigorous similarly-situated standard after discovery has closed. Decertification at this stage collapses the collective into individual claims, destroying the aggregate damages pool and undermining the funding thesis. Litigation finance underwriting must account for decertification risk as a binary downside scenario distinct from merits failure.

FLSA (Fair Labor Standards Act)

The federal law establishing minimum wage, overtime pay, recordkeeping, and child labor standards for covered employees. FLSA collective actions are among the most commonly funded employment matters because wage and hour claims across large workforces produce predictable, calculable damages tied to hours worked and pay differentials. Funders evaluate whether the employer's pay practices were systemic and whether the plaintiff class is large enough to justify litigation economics.

Front Pay

A forward-looking damages remedy compensating a plaintiff for future lost earnings when reinstatement is impractical or unavailable, typically awarded in lieu of reinstatement. Front pay calculations require assumptions about career trajectory, discount rates, and the duration of future harm, making them more speculative than back pay and subject to greater dispute at trial. Funders treat front pay as an upside component of the damages range rather than a baseline, given its inherent uncertainty.

Meal and Rest Period Violations

Claims arising from an employer's failure to provide legally mandated unpaid meal breaks or paid rest periods, governed primarily by state law with California's requirements being the most stringent and frequently litigated. In California, each missed meal or rest period entitles the employee to one hour of premium pay, creating per-violation damages that aggregate rapidly across large workforces. Funders view California meal and rest period cases as highly quantifiable and often pairable with PAGA claims, making them structurally attractive for portfolio funding arrangements.

Misclassification (Employee vs. Contractor)

The practice of categorizing workers as independent contractors rather than employees, depriving them of wage and hour protections, benefits, and the right to organize under federal and state law. Misclassification cases have become a major litigation finance opportunity, particularly in the gig economy, where the scale of affected workers and the systemic nature of the classification decision produce large aggregate damages. Funders evaluate the applicable economic reality test or ABC test under state law, the employer's degree of behavioral control, and recent regulatory and judicial trends in the relevant jurisdiction.

NLRA (National Labor Relations Act)

The federal statute protecting employees' rights to organize, engage in collective bargaining, and participate in concerted activities for mutual aid or protection. The NLRA is increasingly invoked as a defense against arbitration class action waivers, with some plaintiffs arguing that waivers interfere with the right to engage in concerted activity — an argument ultimately rejected by the Supreme Court in Epic Systems but that continues to generate circuit-level litigation. Funders in the employment space monitor NLRA developments because shifts in how waivers are enforced directly affect whether class-wide funding structures remain viable.

PAGA (California Private Attorneys General Act)

A California statute authorizing employees to sue employers on behalf of the state for Labor Code violations and collect civil penalties, with 75% of the recovery remitted to the California Labor and Workforce Development Agency and 25% retained by the aggrieved employees. PAGA claims are particularly valuable to litigation funders because they are not subject to class action waivers under California law following Viking River Cruises v. Moriana, preserving representative standing even when an arbitration agreement exists. The per-violation penalty structure — often $100 per employee per pay period for initial violations — can generate enormous aggregate exposure against large employers with systemic pay practices.

Pattern or Practice Claim

A discrimination theory alleging that an employer engaged in a routine or systematic policy of intentional discrimination against a protected class, rather than isolated incidents. Pattern-or-practice claims are typically brought by the EEOC or through class actions and carry the highest potential liability because they implicate company-wide policies. Litigation funders view these as high-conviction funding targets when statistical evidence and documentary support are strong, given the scale of potential back pay and injunctive relief.

Punitive Damages (Employment)

Non-compensatory damages intended to punish an employer for malicious or reckless disregard of an employee's federally protected rights, available under Title VII, the ADA, and the ADEA. Under Title VII and the ADA, punitive damages are capped by employer size, ranging from $50,000 for small employers to $300,000 for employers with more than 500 employees, which constrains aggregate recovery in class cases. Funders model punitive exposure separately from compensatory damages and weight it against the evidentiary burden required to establish the requisite mental state.

Reinstatement

An equitable remedy in employment cases requiring an employer to restore a wrongfully terminated or demoted employee to their former position. Courts may award reinstatement in lieu of or alongside monetary damages, though it is often unavailable or impractical due to hostility between the parties or elimination of the position. From a funding standpoint, reinstatement reduces the monetary damages pool, and funders underwriting employment cases should model recovery scenarios with and without reinstatement as an available outcome.

Right-to-Sue Letter

A notice issued by the EEOC authorizing a charging party to file a private lawsuit after the EEOC concludes its administrative process, triggering a strict 90-day filing deadline. Receipt of a right-to-sue letter is a jurisdictional prerequisite to federal court litigation under Title VII, the ADA, and the ADEA. Funders underwriting employment discrimination matters must verify that the right-to-sue letter has been received and that the filing deadline has not lapsed or is being carefully managed.

Title VII

The federal civil rights law prohibiting employment discrimination based on race, color, religion, sex, or national origin. Title VII claims form the core of most employment discrimination litigation and can be pursued as individual charges, pattern-or-practice suits by the EEOC, or private class actions. For funders, Title VII cases carry meaningful uncertainty around non-economic damages and jury behavior, requiring careful evaluation of the employer's exposure history and EEOC charge record.

Wage and Hour Violations

A broad category of employer conduct violating federal or state laws governing minimum wage, overtime pay, tip pooling, recordkeeping, and related compensation obligations. Wage and hour claims are among the most frequently funded employment matters due to their systemic nature, calculable per-plaintiff damages, and amenability to class or collective treatment. Funders assess the number of affected employees, the applicable wage and overtime rates, the violation period, and whether the employer's record-keeping deficiencies will facilitate or complicate damages proof.

Wage Theft

A colloquial and increasingly statutory term describing employer conduct that deprives workers of earned wages, including failure to pay minimum wage or overtime, illegal deductions, off-the-clock work requirements, and tip skimming. Several states have enacted wage theft prevention laws with enhanced criminal and civil penalties, expanding the damages available in funded matters and increasing the deterrent pressure on employers to settle. For litigation funders, wage theft cases involving large retail, hospitality, or logistics employers with documented policies of non-compliance represent high-priority portfolio targets given their scale and systemic proof.