Creative Solutions in Employment Mediation: Beyond the Basics

March 3, 2025

In the complex arena of employment conflicts, the most effective resolutions often go beyond conventional monetary settlements.  Creative mediation approaches understand underlying interests, repair or provide closure for relationships, and create wiser outcomes for both employers and employees.  This article explores reinstatement and backpay as innovative solutions for parties and their attorneys to consider.

Reinstatement with Modified Terms

Recently, I mediated a case involving a nursing aid who was terminated due to severe mobility restrictions, yet she wanted to come back in a clerical capacity.  The employer was surprised to discover this during mediation, and it set the tone for a cooperative negotiation. There were no personal grudges to overcome, but rather a reasonable exploration of what was possible.  The employer explored what reinstatement could look like.  Ultimately, it did not appear simple as various administrative hurdles would need to be cleared— namely the clerical position required a promotion and the nursing aid would technically need to apply for the position.

On the other hand, consider a case of a software developer terminated after conflicts with management.  During mediation, it became clear that the company valued her technical expertise, but struggled with her communication style.  The resolution included reinstatement with a different reporting structure, clear performance metrics focused on technical contributions, a reintegration plan with team-building activities, and quarterly check-ins with an external coach for the first year.  This approach saved the company recruitment and training costs while providing the employee continued career stability.

Of course, there are some situations where reinstatement is not an option.  I once mediated a whistleblower case where an armed security guard physically threatened his superiors.  Given the hostile relationship between the parties, I helped steer the negotiations towards a financial settlement as opposed to reinstatement.

Strategic Backpay Arrangements

Terminated employees, including the nursing aid discussed above, can accept backpay instead of or in addition to a cash sum.  Backpay doesn’t need to be a simple lump sum, but can include administrative leave, phased payments, bonus-based recovery, tax-optimized timing, and combination approaches.  These options can satisfy an employee’s desire for financial stability.

Backpay options can save time and headaches.  Employers can process backpay through regular payroll systems and existing budgets, rather than obtain lengthy and uncertain board approval.  As a mediator, I was aware of a county employer’s obvious frustration in discussing a six-month claim approval process, so steering away from that resulted in an agreement.

Employers may also choose backpay settlements because of tax advantages.  In California, backpay is treated as regular wages for tax purposes, allowing employers to apply normal withholding patterns.  This means the employer can deduct these payments as ordinary business expenses, which may not be as simple with non-wage settlements.  California employers can also take state-specific deductions when processing backpay through their payroll systems, including contributions to California State Disability Insurance (SDI) and Employment Training Tax (ETT) programs.  Parties should discuss other tax advantages with their attorneys, as there are significant savings to consider. 

Likewise, employees may choose backpay settlements because it allows their retirement contributions to grow.  This was a key concern in my mediation involving the nursing aid who was in her 60s and close to retirement.

Employers with liability insurance should strategically negotiate backpay versus settlement sums based on their coverage.  For instance, many Employment Practices Liability Insurance (EPLI) policies define “loss” or “damages” differently than “wages owed”.  EPLI policies commonly contain exclusions for wages owed absent any wrongful act, wage and hour claims, and contractual obligations to pay compensation.  More sophisticated EPLI policies may include specific carve-outs for certain forms of backpay, particularly in discrimination or wrongful termination cases.

Finally, backpay has psychological benefits for both employees and employers.  For example, wrongfully terminated employees often want their employer to acknowledge that the employment relationship should have continued.  Backpay has the potential to make employees feel “whole” for lost wages.  Likewise, some employers would rather “correct” a payroll error than “pay off” a litigant.  Effective mediators can potentially reframe backpay issues to address underlying interests.

Conclusion

Successful employment mediation allows parties to move on with their jobs and lives.  It is often necessary to think outside the box with more creative solutions, including reinstatement and backpay.  Can you think of other innovative ways for parties to negotiate employment conflicts?