ISSUE – Attorney Fees, Part One

Jack_crop 72dpiThe so-called “American Rule” requires that litigants in U.S. courts bear their own expenses, including attorney fees. The Longshore Act, however, contains a “fee shifting” provision, whereby, under certain circumstances, the employer is liable for the injured worker’s “reasonable” attorney’s fee. Section 28 of the Longshore Act governs attorney fees (33 U.S.C. 928).

Section 28(a) states:

“If the employer or carrier declines to pay any compensation on or before the thirtieth day after receiving written notice of a claim for compensation having been filed from the (district director), on the ground that there is no liability for compensation within the provisions of this Act, and the person seeking benefits shall thereafter have utilized the services of an attorney at law in the successful prosecution of his claim, there shall be awarded, in addition to the award of compensation, in a compensation order, a reasonable attorney’s fee against the employer or carrier in an amount approved by the (district director), Board, or court ….”

So section 28(a) shifts fee liability to the employer unless the employer pays “any” compensation within 30 days of receiving written notice of the claim from the U.S. Department of Labor. This presents a challenge to the employer, since the Act does not require that a claim include specific evidence as to what the injured worker is actually claiming. A valid claim is a written expression of the intent to assert a right to compensation. It does not have to initially include evidence of disability or impairment. The notice of claim alone starts the thirty days.

The employer must immediately investigate the claim to determine if “any” payment is due. It doesn’t seem fair, but failing to pay because of lack of information provided by the claimant will likely be construed as “declining” to pay. Fair or not, the employer has 30 days under section 28(a) to investigate the claim and make a payment or risk liability for paying the claimant’s attorney fee if the claim is successful, regardless of how sketchy and contradictory the initial information might be.

“Any compensation” doesn’t mean that the employer must pay the equivalent of everything ultimately determined to be due and payable. But the tactic of paying $1.00 won’t avoid liability under section 28(a), since this will not be considered to be “compensation”, but rather a transparent attempt to avoid fee liability. On the other hand, there is good faith action that an employer can take in those thirty days that may avoid fee liability. For example, admitting liability and paying one week of compensation at a rational average weekly wage toward a possible scheduled award may avoid attorney fee liability under section 28(a).

Review: before the claimant’s attorney fee is assessed against the employer/carrier under section 28(a), there must be a claim filed with the U.S. Department of Labor’s District Director, the employer must receive written notice of the claim from the District Director, the employer must then allow thirty days to pass without “any” payment, and the employee must “thereafter” use an attorney to prosecute his claim successfully.

Section 28(a) issues turn into section 28(b) issues when the employer initially pays voluntary compensation within thirty days but a subsequent dispute arises about the total amount due (or a variety of other issues).

Section 28(b) states:

“If the employer or carrier pays or tenders payment of compensation without an award… and thereafter a controversy develops over the amount of additional compensation, if any, to which the employee may be entitled, the (district director) shall set the matter for an informal conference and following such conference the (district director) shall recommend in writing a disposition of the controversy. If the employer or carrier refuse to accept such written recommendation, within fourteen days after its receipt by them, they shall pay or tender to the employee in writing the additional compensation, if any, to which they believe the employee is entitled. If the employee refuses to accept such payment or tender of compensation, and thereafter utilizes the services of an attorney at law, and if the compensation thereafter awarded is greater than the amount paid or tendered by the employer or carrier, a reasonable attorney’s fee based solely upon the difference between the amount awarded and the amount tendered or paid shall be awarded in addition to the amount of compensation.”

So there are four conditions that have to be met before the employer is liable for the claimant’s attorney fee under section 28(b): 1) there must be an informal conference, 2) followed by a written recommendation by the District Director, 3) the employer refuses to adopt the recommendation, and 4) the employee procures the services of an attorney and achieves a greater award than what the employer was willing to pay following the written recommendation.

NOTE: the strict condition of an informal conference followed by a written recommendation may not be required in the federal Ninth Circuit court of appeals, but the Benefits Review Board will apply the literal requirements of section 28(b) in all of the federal circuits.

If the conditions for an attorney fee assessed against the employer/carrier as spelled out in sections 28(a) and (b) are not met, the successful attorney can still get paid for his “reasonable and necessary” work. Section 28(c) provides that an attorney fee “may” be approved payable by the claimant as a lien on compensation (as opposed to the mandatory “shall” language of sections 28(a) and (b)). Section 28(c) also applies in those cases where the claimant is represented by a non-attorney.

Section 28(c) states:

“In all cases fees for attorneys representing the claimant shall be approved in the manner herein provided. If any proceedings are had before the Board or any court for review of any action, award, order, or decision, the Board or court may approve an attorney’s fee for the work done before it by the attorney for the claimant. An approved attorney’s fee, in cases in which the obligation to pay the fee is upon the claimant, may be made a lien upon the compensation due under an award ….”

In all cases, the claimant’s attorney must file an application for approval of his fee for his work at each level of proceedings. The application must describe the work that was performed, specifying the number of hours and the hourly rate of the person performing the work. The fee is never simply a percentage of the benefits awarded. The award is calculated under what is called the “Lodestar method”, which multiplies a reasonable hourly rate by the number of hours reasonably expended, taking into consideration various discretionary factors, including the results obtained.

The guiding principle of fee shifting is that “reasonable” fees are to be calculated according to the prevailing market rates in the relevant community.

Note: no contract pertaining to the amount of an attorney fee will be valid. The attorney must follow the application procedures spelled out in the Longshore Act regulations at 20 C.F.R. 702.132 and 20 C.F.R. 802.203.

Section 28(e) states, “A person who receives a fee, gratuity, or other consideration on account of services rendered as a representative of a claimant, unless the consideration is approved by the (district director), administrative law judge, Board, or court, or who makes it a business to solicit employment for a lawyer, or for himself, with respect to a claim or award for compensation under this Act, shall, upon conviction thereof, for each offense be punished by a fine of not more than $1,000 or be imprisoned for not more than one year, or both.”

Now that we have some idea who pays the claimant’s attorney’s fee and why, we can discuss how the amount of the fee is derived.

But that discussion is for Part Two.

ISSUES – STATE GUARANTEE FUNDS

Jack_crop 72dpiThis is mostly a reiteration of a piece that I posted on August 5, 2010.  It’s important, in my opinion, and it bears repeating.  Brokers and maritime employers should be aware of a potential gap in protection in their insured Longshore Act coverage.  (By the way, if you are an ALMA Member you don’t have to worry about the problem I’m about to describe).

I’ll start at the beginning.

The U.S. Department of Labor (DOL) administers the Longshore and Harbor Workers’ Compensation Act, and its extensions, the Defense Base Act, the Outer Continental Shelf Lands Act, and the Nonappropriated Fund Instrumentalities Act.

Section 935 of the Longshore Act provides that payment of benefits by an insurance carrier on behalf of an insured employer discharges that employer’s obligation to pay those benefits. But if the insurance carrier fails to pay then the employer must immediately assume its primary obligation to pay all benefits due and payable, subject to the penalty and interest provisions of the Act.

The DOL implemented a security requirement in 1990 applicable to authorized insurance carriers rated lower than “A” by the A.M. Best Company, in order to protect injured workers from the consequences of default in the payment of benefits due to insolvency, and to protect the Special Fund administered under section 944 of the Act.  This was in response to the carrier insolvencies during the 1980s and the subsequent failure by many state guarantee funds to protect Longshore employers and employees.

Due to the inability of Best ratings (or any other rating system) to predict insurance carriers’ financial viability for the long term of the typical workers’ compensation long tail obligation, and the continuing failure by many state guarantee funds to protect maritime employers, DOL published new regulations during 2005 aimed at requiring security from insurance carriers without regard to Best ratings, but rather aimed specifically at business written in those states where the state guarantee funds do not fully protect Longshore benefits.

State insurance laws creating and governing guarantee funds come with a wide variety of restrictions and conditions.  Some states’ funds simply do NOT pay federal Longshore benefits.  These states are:  Arizona, California, Iowa, Kentucky, Missouri, New Mexico, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, West Virginia, and Wyoming.  Longshore Act business written in these states must be fully secured with DOL.

In addition, provisions in many other states restrict Longshore protection.  A partial list of the restrictions on state payments includes time limits for filing, claims definitions that do not recognize occupational disease exposures, non-payment of deductible portions of an employer’s exposure, maximum limits on benefits, restrictions based on the financial size of the insured employer, restrictions based on financial viability of the insured employer, residency requirements, and payments that are limited to state rates that are lower than federal Longshore rates.

The following states have demonstrated that their guarantee funds do not provide full protection for Longshore benefits:  Alabama, Arkansas, Delaware, Illinois, Indiana, Louisiana, Maine, New Jersey, New York, Oregon, Pennsylvania, Utah, and Wisconsin.  Longshore business written in these states must be partially secured with DOL.

States’ funds that have paid or are likely to pay Longshore benefits in full include:  Alaska, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Kansas, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada,  New Hampshire, North Carolina, Rhode Island, South Carolina, Texas, Vermont, Virginia, and Washington.  Security with DOL is not required for Longshore business written in these states.

In those states where guarantee funds have paid full Longshore benefits in the past, it is not a sure thing for the future.  State laws and their interpretation have proven to be very changeable.  I note that the “State Guarantee Fund Longshore Security Factor Chart” on the DOL/OWCP/DLHWC website has not changed since I myself composed it back in 2005.  If your Longshore coverage is in an insured program, you would be well advised to check those states in which you have maritime operations to determine the current status of Longshore claims in the event of an insurance carrier default.  (As I said above, if you’re with ALMA, don’t worry about it.  You’re secure.)

The lesson:  If you are a maritime employer you cannot always rely on state guarantee funds to protect you if your insurance carrier fails to pay your claims.

ISSUE: The Nonappropriated Fund Instrumentalities Act

Jack_crop 72dpiWe’ve discussed the Defense Base Act on several occasions, as well as the Outer Continental Shelf Lands Act.  These are two well known extensions of the Longshore and Harbor Workers’ Compensation Act.  There’s another extension of the Longshore Act that doesn’t get as much general attention.  It’s the Nonappropriated Fund Instrumentalities Act (NFIA), 5 U.S.C. sections 8171 et seq. (1952).

The NFIA extends Longshore Act benefits to, “… civilian employees, compensated from nonappropriated funds, of the Army and Air Force Exchange Service, Army and Air Force Motion Picture Service, Navy Ship’s Stores Ashore, Navy exchanges, Marine Corps exchanges, Coast Guard exchanges, and other instrumentalities of the United States under the jurisdiction of the Armed Forces conducted for the comfort, pleasure, contentment, and mental and physical improvement of personnel of the Armed Forces ….” 

The employees covered by the NFIA work at base exchanges and other retail and recreational activities on U.S. military bases.  These activities are not funded by public appropriations but rather are operated from revenue generated by the activities themselves.

Coverage includes,

  1.  “those employees of such nonappropriated fund instrumentalities as are employed within the continental United States” (Alaska and Hawaii are considered to be part of the continental United States), and,
  2.  “those United States citizens or permanent residents of the United States or a Territory who are employees of such nonappropriated fund instrumentalities outside the continental limits of the United States.”

For employees working outside of the continental United States who are neither citizens nor permanent residents of the United States or a Territory, “compensation shall be provided in accordance with regulations prescribed by the Secretary of the military department concerned and approved by the Secretary of Defense or regulations prescribed by the Secretary of the Treasury ….”

The larger nonappropriated fund instrumentalities are individually self-insured for their NFIA exposure by virtue of their self-insurance authorization from the U.S. Department of Labor, which administers the NFIA.

There are some quirks to NFIA coverage. 

1)      The so-called “Zone of Special Danger” doctrine, which the courts apply in Defense Base Act cases (and in the old, now repealed District of Columbia Compensation Act extension of the Longshore Act), is not applicable to NFIA cases.

2)      There is an apparent coverage conflict with the Defense Base Act.  The Defense Base Act provides that it covers all employment on U.S. military bases overseas, and upon any lands occupied or used by the United States for military or naval purposes in any Territory or possession outside the continental United States.  There is no conflict, however, since for employees of the nonappropriated fund instrumentalities overseas, the NFIA pre-empts the DBA and applies as the nonappropriated fund instrumentalities employees’ exclusive remedy.

3)      Off duty military personnel working at a nonappropriated fund instrumentality, for example on a part time basis, are not covered by the NFIA.

4)      Nonappropriated fund instrumentalities’ employees “shall not be held and considered as employees of the United States for the purpose of any laws administered by the Civil Service Commission or the provisions of the Federal Employees’ Compensation Act ….”

5)      The United States is exempt from liability as a third party with respect to disability or death covered by the NFIA.

So that’s it.  There’s the Defense Base Act, the Outer Continental Shelf Lands Act, and the Nonappropriated Fund Instrumentalities Act.  We’re out of extensions to the Longshore Act. 

 

ISSUE: Outer Continental Shelf Lands Act

Jack_crop 72dpiThe Outer Continental Shelf Lands Act (OCSLA) extends the provisions of the Longshore and Harbor Workers’ Compensation Act to disabilities or death resulting from any injury occurring as the result of operations “arising out of or in connection with any operations conducted on the outer Continental Shelf for the purpose of exploring for, developing, removing or transporting by pipeline the natural resources … of the subsoil and seabed of the outer Continental Shelf ….”  It provides for criminal penalties and personal liability for corporate officers if the company does not comply with the requirement to maintain proper workers’ compensation insurance coverage. 

To be covered by the OCSLA, the claim for disability or death must arise from an injury “occurring as the result of operations” as described above.

If you are an employer with oil and gas operations on the OCS, do not overlook possible OCSLA exposure. It can be complicated sorting out the various exposures among the different workers’ compensation and liability laws that may apply on the OCS.  It is important to determine precisely where your employees are and what they are doing.  For example, are they working in state waters or on the OCS?  Are they engaged in oil and gas exploration, development, removal or transportation, or are they engaged in maritime employment?  Are they working on vessels, or on fixed platforms, or on objects whose vessel status is unclear?  Are they working on land in operations that have a “substantial nexus” with the employer’s on-OCS operation?

When injuries occur, there are possible remedies available under state workers’ compensation laws, the Longshore and Harbor Workers’ Compensation Act, the OCSLA, the Jones Act, the General Maritime law, section 905(b) of the Longshore Act, and state tort remedies.

Here are some general principles to help you be alert to possible OCSLA exposure.

There is a status test for OCSLA coverage.  The worker must be engaged in work integral to operations conducted on the OCS for the purpose of exploring for, developing, removing or transporting by pipeline the natural resources of the subsoil and seabed of the OCS.

There is a situs of operations test.  The employer must be conducting oil and gas operations on the OCS of the United States.

The OCSLA is intended to provide uniform coverage for OCS workers, including work on platforms, in transit to and from platforms, on pipelines between platforms and shore, and at onshore facilities “integral” to the resource extraction processes on the OCS.

What does “integral” mean?  What does “substantial nexus” mean?  We don’t know yet, since “substantial nexus” is a recently formulated case by case test.  It does not mean merely connected with or peripheral to OCS operations.  The work must be a necessary part of furthering regular, ongoing OCS operations.  For example, constructing fixed offshore platforms on shore would be work covered by OCSLA. 

What are state waters?  For most states, state waters extend from the shoreline out to a distance of 3 nautical miles (a nautical mile equals 1.15 land miles).  In the cases of Florida and Texas, state waters extend out 9 nautical miles.  For the Great Lakes, state waters extend to the international boundary.  Beyond these limits for the coastal states, you are on the OCS.  The Supreme Court has defined the OCS as “The gently sloping plain which underlies the seas adjacent to most land masses, extending seaward from shore to the point at which there is a marked increase in the gradient of the decline and where the continental slope leading to the true ocean bottom begins….”

If you are an oil and gas worker working on a fixed platform in state waters, you are covered by state workers’ compensation laws.  You do not meet the Longshore Act “status” test, because oil and gas exploration is not maritime employment, and you fail the Longshore Act “situs” test because the fixed platform’s purpose is to further gas and oil production, a non-maritime activity, and the platform is considered to be an “artificial island”.

An injury does not have to occur on the OCS in order to be covered by the OCSLA.  Based on the U.S. Supreme Court’s recent decision in Pacific Operators Offshore LLP v. Valladolid, the injury may occur anywhere, but there must be “substantial nexus” between the injury and the employer’s extractive operations on the OCS.  There is a situs of operations test, but not a situs of injury test.

Longshore Act insurance coverage does not provide coverage for OCSLA exposure.  If you have a possible OCSLA exposure then you need the specific OCSLA endorsement on your standard workers’ compensation policy (the form of endorsement for OCSLA coverage is found at 20 C.F.R. 704.351).  You meet the OCSLA insurance requirement the same way that you meet the Longshore Act insurance requirement.  You buy coverage from an insurance company authorized by the U.S. Department of Labor, or you obtain the Department of Labor’s authorization to self insure (or you join a group self insured fund like ALMA).

To repeat, even if the employer has state workers’ compensation insurance coverage and USL&H insurance coverage, if an employee has an injury that is covered by the OCSLA, then the employer must have OCSLA coverage or it will be considered uninsured for that injury.     

ISSUE: Discrimination

Jack_crop 72dpiEmployers should be aware that there is a remedy in the Longshore Act for workers who have been fired or “in any other manner” discriminated against for claiming or attempting to claim compensation under the Act or for testifying in a proceeding under the Act.

Formerly section 49 of the Longshore Act, current section 948(a) (33 U.S.C. 948(a)) states, “It shall be unlawful for any employer or his duly authorized agent to discharge or in any other manner discriminate against an employee as to his employment because such employee has claimed or attempted to claim compensation from such employer, or because he has testified or is about to testify in a proceeding under this chapter….  Any employer who violates this section shall be liable to a penalty of not less than $1,000 or more than $5,000, as may be determined by the deputy commissioner (district director)….  Any employee so discriminated against shall be restored to his employment and shall be compensated by his employer for any loss of wages arising out of such discrimination.”

The remedy for the worker is reinstatement to the job (if he is capable of performing it) and lost wages.  In addition, the employer is liable for a penalty payable to the Special Fund.  Note:  Effective November 17, 1997, the penalty range was increased to not less than $1,100 or more than $5,500 pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990 as amended by the Debt Collection Improvement Act of 1996.

A complaint by an injured worker under section 948(a) begins in the U.S. Department of Labor’s district office, where the District Director will investigate the circumstances and issue a recommendation.  Any party who disagrees with this informal recommendation may have the matter referred to the Office of Administrative Law Judges (OALJ) for a formal hearing.

The injured worker bears the initial burden of proof.  In order to establish a prima facie case of discrimination, an injured worker must demonstrate that his employer committed a discriminatory act motivated at least in part by a discriminatory animus or intent.  For example, discharging an employee may violate section 948(a) even if it is only partly motivated by the fact that the worker has filed a claim for compensation.  The testimony of the parties is frequently decisive in these cases, and the Administrative Law Judge will assess credibility and may infer animus or intent to discriminate strictly from circumstantial evidence.

The ALJ may look at the timing of the injured worker’s termination, for example, and if it occurred coincidentally with the filing of a claim for compensation, the ALJ may consider that the termination was motivated at least in part by the claim.  The ALJ will also look at whether the injured worker was treated differently compared with other employees in similar circumstances.  The inquiry will be into whether the basis for the employer’s action is genuine or merely a pretext for discrimination.  The ALJ is seeking the actual reason for the employer’s action.

The employer must defend the discrimination claim by showing that its action was not motivated, in any part, by the worker’s exercise of his rights under the Act.  Note that the essence of discrimination is treating the worker in a disparate manner from other employees.  It is always very important to show that the employer has consistently applied its personnel policies and work rules equally to all workers in all circumstances.

Miscellaneous:

The refusal to hire a person who has been adjudicated to have filed a fraudulent claim for compensation is not a violation of section 948(a).

A section 948(a) discrimination claim may be settled under the provisions of section 8(i), but only as to past and existing claims.  Possible future discrimination claims can never be settled under section 8(i).

If a discrimination claim is settled under section 8(i), and if it includes a penalty payable to the Special Fund, the Department of Labor’s District Director must be a party to the settlement.

Although a successful claimant will not receive back pay and, for example, temporary total disability benefits for the same time period, an ALJ may order job reinstatement with the claimant’s ability to perform the job duties postponed until maximum medical improvement.

In section 948(a) discrimination cases, you frequently see a record of disputed oral communications, misunderstandings, bad timing, and inconsistencies on the employer’s part in enforcing its rules and policies.  Circumstances may suggest animus where none in fact exists.  The employer’s best policy is consistent application of written policies and rules.

ISSUE: Choice of Physician

Jack_crop 72dpiExcept for the February 17, 2009, recreational boat repair amendment to section 2(3)(F), the Longshore Act has not been amended since 1984.  And since 1984 there have been significant changes in the workers’ compensation laws of many states.  Consequently, there are provisions in the Longshore Act that are conspicuous because of trends in states’ laws in other directions.

One example involves choice of physician and supervision of medical care.

Many states now use employer and carrier appointed medical review boards to evaluate and approve medical treatment in workers’ compensation cases.

This trend has not been reflected in the Longshore Act.

(All references to “the Secretary” below mean the Secretary of Labor.)

Section 7(b) of the Longshore Act (33 U.S.C. 907(b)) states:  “The employee shall have the right to choose an attending physician authorized by the Secretary to provide medical care under this Act ….” 

The injured worker picks his treating doctor.  This right of the injured worker is as unconditional as anything gets in the Longshore Act, but there are several considerations that come into play. 

For example, Section 7(b) goes on to say: “… If, due to the nature of the injury, the employee is unable to select his physician and the nature of the injury requires immediate medical treatment and care, the employer shall select a physician for him.”   

In such an emergency situation, although it is unstated, it is understood that the employer’s selection does not eliminate the worker’s right to choose when he is able to do so.  An issue may arise, however, if the worker continues to see the employer selected doctor for treatment for a significant period of time before seeking to change.

Section 7(b) also provides that, “The Secretary shall actively supervise the medical care rendered to injured employees, … and shall have authority to determine the necessity, character, and sufficiency of any medical aid furnished or to be furnished, and may, on his own initiative or at the request of the employer, order a change of physicians or hospitals when in his judgment such change is desirable or necessary in the interest of the employee ….”

This authority to “actively supervise the medical care” is delegated from the Secretary through the Director, Office of Workers’ Compensation Programs, to the District Directors of the Division of Longshore and Harbor Workers’ Compensation.  Based on this authority most medical management issues are handled in the district offices of the Division of Longshore and Harbor Workers’ Compensation.  Issues involving factual disputes are referred to the Office of Administrative Law Judges.

The choice of treating physician must be made from among those physicians “authorized by the Secretary”.  “Authorized by the Secretary” means that all properly licensed physicians are authorized to treat workers under the Longshore Act.  

According to the DOL’s regulations at 20 C.F.R. 702.404, the term physician includes doctors of medicine, surgeons, podiatrists, dentists, clinical psychologists, optometrists, chiropractors, and osteopathic practitioners within the scope of their practice as defined by State law.  The term includes chiropractors only to the extent that their reimbursable services are limited to treatment consisting of manual manipulation of the spine to correct a subluxation shown by X-ray or clinical findings.

(Section 7(c) provides a limit:  that injured workers cannot choose a physician who is on the Department of Labor’s annually prepared list of physicians who are not authorized to provide medical care or services under the Act.)   

Also, unless there is prior approval by the U.S. Department of Labor’s District Director, the worker’s choice is limited to doctors located within 25 miles of the employee’s home or place of work.  This limitation does not apply to referrals by the treating physician for specialized treatment or examination.

Finally, section 7(b) states that, “Change of physicians at the request of employees shall be permitted in accordance with regulations of the Secretary.”

Once the injured worker has made his initial, non-emergency, choice of attending physician any subsequent change must have the prior written approval of the employer/carrier or the District Director.  This consent is always granted in cases where an employee’s initial choice was not a specialist whose service is necessary for or appropriate to proper care and treatment.  In all other cases, consent may be given upon a showing of good cause for change based on the evaluation of the justification for change presented by the injured worker.  And as noted above, the best time to request a change is shortly after the injury or shortly after treatment has begun.  The more time that passes in treatment with the initial choice, the more questions that will arise with regard to the good cause or justification for any change. 

Finally, the injured worker does not have the right to select his own pharmacy.  Pharmacies are not included in the definition of “physician”.

So, under the Longshore Act, the injured worker chooses his treating physician, and medical issues are addressed in the Department of Labor’s Longshore district offices.

ISSUE: Average Weekly Wage

Jack_crop 72dpiYou would think that at any given time, the worker and the employer would know how much the worker was being paid.  But it’s not always so easy.

In the majority of cases the injured worker and the employer are able to reach an agreement on the worker’s average weekly wage (AWW) as of the time of the injury or disability.  This is generally to the advantage of the employer, since even a small adjustment to the AWW in the injured worker’s favor in a contested case will shift the burden to the employer to pay the worker’s attorney fees.  There are a wide range of issues are contested in this area.  I’ll try to list the most common.

AWW is important, of course, because in cases of total disability, or partial disability based on the section 8 schedule, the weekly compensation rate is two-thirds of the AWW, and in cases of permanent partial disability based on a loss of wage earning capacity the weekly compensation rate is two-thirds of the difference between the AWW and the post injury wage earning capacity.  Thus a higher AWW means a higher weekly benefit for the injured worker.

Here’s what the Longshore Act says in section 10 (33 U.S.C. 910):

“Except as otherwise provided in this act, the average weekly wage of the injured employee at the time of the injury shall be taken as the basis upon which to compute compensation and shall be determined as follows:

(a)  If the injured employee shall have worked in the employment in which he was working at the time of the injury, whether for the same or another employer, during substantially the whole of the year immediately preceding his injury, his average annual earnings shall consist of three hundred times the average daily wage or salary for a six-day worker and two hundred and sixty times the average daily wage or salary for a five-day worker, which he shall have earned in such employment during the days when so employed. 

(b)  If the injured employee shall not have worked in such employment during substantially the whole of such year, his average annual earnings if a six-day worker, shall consist of three hundred times the average daily wage or salary and, if a five-day worker, two hundred and sixty times the average daily wage or salary, which an employee of the same class working substantially the whole of such immediately preceding year in the same or in similar employment in the same or a neighboring place shall have earned in such employment during the days when so employed.

(c)  If either of the foregoing methods of arriving at the average annual earnings of the injured employee cannot reasonably and fairly be applied, such average annual earnings shall be such sum as, having regard to the previous earnings of the injured employee in the employment in which he was working at the time of the injury, and of other employees of the same or most similar class working in the same or more similar employment in the same or neighboring locality, or other employment of such employee, including the reasonable value of the services of the employee if engaged in self-employment, shall reasonably represent the annual earning capacity of the injured employee.

So, section 10 provides three alternate methods of determining the injured worker’s AWW.  Sections 10(a) and 10(b) provide a formula:  the AWW is calculated by dividing the total “wages” of the injured worker during the 52 weeks preceding the injury by the number of days “so employed” to get the “average daily wage”; this average daily wage is then multiplied by either 260 for a five day a week worker or 300 for a 6 day a week worker to get the average annual earnings.  Section 10(d) provides that the “average annual earnings” is then divided by 52 and the result is the AWW.

Section 10(a) is used if the evidence provides the worker’s actual earnings during the year preceding the injury and the worker worked for substantially the whole of that year (generally more than 75% of available workdays), and was a five or six day worker.  It is generally required that all of the worker’s jobs were comparable to the job he was performing when he was injured.

Section 10(b) is used where the worker was not employed in that employment for substantially the whole year (e.g., less than 75%) but there is sufficient evidence of the wages of comparable employees who did work the whole year as five or six day workers.

Section 10(c) is used if neither 10(a) nor 10(b) can be used.  The object is to arrive at an AWW that reasonably and fairly represents the worker’s annual earning capacity at the time of the injury.  The Administrative Law Judge has wide discretion under section 10(c).

It seems pretty straightforward.  What’s so complicated?

First, there is clearly the built in potential for over-compensation.  In many cases, workers do not work all of the 260 or 300 days for a five day or six day a week worker, but the act gives them credit for this many days if they work “substantially” the whole of the year.  This is a minor point, however, that the courts appear to be comfortable with.

So, let’s look at the definition of wages in section 2(13).

“Sec. 2 When used in this Act –

(13) The term ‘wages’ means the money rate at which the service rendered by an employee is compensated by an employer under the contract of hiring in force at the time of the injury, including the reasonable value of any advantage which is received from the employer and included for purposes of any withholding of tax under subtitle C of the Internal Revenue Code of 1954 ….  The term wages does not include fringe benefits, including (but not limited to) employer payments for or contributions to a retirement, pension, health and welfare, life insurance, training, social security or other employee or dependent benefit plan for the employee’s or dependent’s benefit, or any other employee’s dependent entitlement.”

So, “wages” is basically defined as what the I.R.S. considers to be taxable income and taxable advantages and excludes “fringe benefits”.  There is no shortage of arguments over what types of payments to workers constitute “wages” and are therefore to be included in earnings to increase the AWW.

Here are just a few examples of the issues that arise:

-          “per diem” payments – usually not taxable thus not includable in “wages”, but there have been instances where so-called “per diem” payments were made without reference to any travel costs and were simply wages under a misleading name;

-          Guaranteed Annual Income (GAI) payments made to longshoremen based on seniority and hours worked constitute wages;

-          Overtime pay is usually included if the overtime pay is a regular part of the worker’s employment;

-          Vacation and holiday pay earned prior to the date of injury but paid after is usually included in the AWW;

-          Tips are usually included if the contract of hire contemplated tips as a regular part of the worker’s pay;

-          Usually included in AWW is payment that the worker receives as a lump sum payment for unused vacation or sick pay that is “sold back” to the employer, but extra days “so employed” are not created with those payments;

-          Container Royalty Payments (CRP) made to longshoremen as part of the collective bargaining agreement are usually included in the AWW.

A good general guide is if the payments constitute taxable income under the I.R.S. code then they should be included in the calculation of the worker’s AWW as “wages”.

Once you sort out what’s to be included in “wages” there are other issues.  Section 10 provides three alternate methods for calculating an AWW.  Which one do you use in a given case?

The typical approach is that section 10(a) is to be used if its requirements are present, i.e., the worker worked regularly and substantially for the whole of the year preceding the injury (over 75%) in the same or a comparable job in which he was injured, and he was a five or six day worker.  Sections 10(a) and 10(d) contain the formula for deriving the AWW in this case.

If section 10(a) does not apply because of the work record of the injured worker, but there is adequate evidence of the earnings of workers in similar jobs, you can use section 10(b).

Section 10(c) is most commonly used in contested cases.  This is problematic for employers, as it gives the ALJ very wide discretion in arriving at the worker’s wage earning “capacity” as of the date of the injury.  The ALJ can use the earnings over a few week period, or fish around back over many years, looking for an “earning capacity” for even workers with the most spotty or intermittent work record.  It’s pretty much wide open.  The interpretation of “annual earning capacity” under section 10(c) frequently simply does not reflect the real world work history of the injured worker. 

You can see the effects of this approach in Defense Base Act cases, where workers leave their customary careers and jobs in the U.S. for what are in effect work on temporary government contracts overseas in places like Iraq where they are paid three or four times what they were earning in their U.S. jobs.  When the workers are injured within days or weeks of arriving overseas, they are paid DBA benefits based on the temporary and hugely inflated AWW of their work on their overseas contracts.  The overseas work in combat areas is not comparable to work in the U.S., so you are calculating AWW under section 10(c) in these cases.

Some other issues:

-          Is the worker a five day or six day worker?  There is no established test for this.  It is up to the Administrative Law Judge (ALJ) to determine based on the injured worker’s work record in the year preceding the date of injury or onset of disability.

-          What if the injured worker had been scheduled to receive a bonus or a pay raise or a promotion but the injury intervened?  Generally, speculative events or events scheduled or occurring after the date of injury do not figure into the AWW.  But remember, under section 10(c), there are exceptions to every general principle.    

-          How do you count the “days when so employed” as the phrase is used in sections 10(a) and 10(b)? It is important because in the formula the average daily wage is calculated by dividing the “days so employed” into the total earnings and then multiplying the result by either 260 or 300 for five or six day workers respectively.  The result is divided by 52 under section 10(d) and you have your AWW.   So the fewer “days so employed”, the higher the ultimate AWW will be.

Essentially, “days so employed” means the days actually worked, plus holiday and vacation days that the worker was paid for but did not work.  So only actual days worked or paid in lieu of work are counted as “days so employed”.

-          What exactly does “earning capacity” mean as it is used in section 10(c)?  This is hard to pin down given the wide discretion exercised by the ALJs.  For example, “The goal of Section 10(c), that of arriving at a reasonable ‘annual earning capacity’, is intended to reflect the potential of claimant’s ability to earn.”  Or, “the amount of earnings the claimant would have the potential and opportunity to earn absent injury.”  This kind of vague language gives you an idea of how much discretion is exercised under section 10(c). As I noted, it’s wide open.

This has gotten too long, but at least we’ve scratched the surface.  The point is that AWW can become a very complicated issue.   

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