The value of an injured worker’s weekly compensation rate rises and falls based on the amount of the injured worker’s average weekly wage (“AWW”) at the time of injury. Consequently, litigants often argue about the worker’s AWW—especially in Defense Base Act claims. Most of the time, the argument is—in my opinion—used as a way to artificially deflate the AWW and compensation rate.
Today’s post addresses a specific AWW argument that popped up in one of my cases. The issue is whether an employer and carrier may “blend” together pre-employment stateside and overseas wages to calculate the AWW of an employee who worked overseas for more than 52 weeks. I don’t think so. And perhaps a relevant factor in this inquiry should be the premiums paid by the employer to the carrier–which is a factor that some State courts look at in State workers’ compensation claims.
Definition of Wages:
There is a specific definition for the term “wages.” Not only does this definition apply to the Longshore and Harbor Workers’ Compensation Act (“LHWCA”), as extended by the Defense Base Act, it also applies to the premium calculations performed by many insurance companies. “Wages” mean:
[T]he 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 time of 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 (relating to employment taxes). 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.
See 33 U.S.C. 902(13) (1984) (emphasis added).
Many workers’ compensation insurance policies are calculated based on the wages paid by an employer. The insurance premium rate includes payroll and all other remuneration that can be classified as “wages.” For LHWCA and DBA claims, “wages” is either defined (1) by the insurance policy, or (2) in accordance with the LHWCA statute, 33 U.S.C. 902(13). Typically, insurance policies are for set periods of time–like one year.
Calculating AWW Pursuant to Statute:
An injured worker’s AWW is calculated pursuant to Section 10 of the LHWCA. The DBA also uses Section 10 for AWW calculations. The relevant date for an AWW calculation is the date of injury.
Courts typically use Sections 10(a) through 10(c) to calculate AWW:
- Section 10(a) applies when an employee worked substantially the whole of the year before the time of injury. It applies to employees who worked 5 and 6 days-per-week
- Section 10(b) applies when an employee had not worked “in such employment during substantially the whole of the year”. Section 10(b) also applies to employees who worked 5 and 6 days-per-week.
- Section 10(c) applies when neither Section 10(a) or Section 10(b) will work. Section 10(c) requires a fair and reasonable determination of the employee’s annual earnings, or the annual earnings of “other employees of the same or most similar class working in the same or most similar employment in the same or neighboring locality . . . .”
The average weekly wages for most Defense Base Act contractors fall within the Section 10(c) calculation. Why? Because the majority of DBA contractors work 7 days per week. If Sections 10(a) and 10(b) apply only to 5- and 6-day-per-week workers, then a 7-day-per-week DBA contractor is not allowed to calculate AWW using those subsections. Instead, most DBA litigants must rely on Section 10(c). Of course, if an employee was a 5- or 6-day-per-week worker then Section 10(a) or 10(b) may be more appropriate. (Plus, based on some of my recent DBA cases, it appears that more companies are using 6-day-per-week workers.)
All the same, Section 10(c) is not a snug fit. It was not originally intended to be used for employees who worked every day, twelve hours per day. The legislative history of Section 10 demonstrates that Section 10(c) was written for intermittent and irregular longshore employment:
This subsection in the present law is used where the employment itself, in which the injured employee was engaged when injured, does not afford a full year of work. . . . Thus, subsection (c) applies to seasonal, intermittent, discontinuous, and like employment which affords less than a full workyear or workweek.
See S.Rep.No. 1315, 80th Cong., 2d Sess., reprinted in (1948) U.S.Code Cong.Serv. pp. 1979, 1982.
Making Hay with the Lopez Decision:
I have seen a lot of AWW disputes based on an administrative law judge decision, Lopez v. Dyncorp. In my opinion, Lopez is being misused and improperly expanded to artificially deflate an injured worker’s AWW.
In Lopez, the contractor who was injured had only worked for the employer for a short period of time. Before that, he was out of work because of a non-work-related motorcycle accident. The injured worker wanted the ALJ to calculate his earnings using only his overseas wages. The employer and carrier asked the ALJ to blend together stateside and overseas wages. This is how the ALJ responded:
Claimant contends his average weekly wage should be $1,797.73, based on only his earnings while working for Employer. He argues that he was out of work from July 16, 2010 until he began working for Employer on April 9, 2011, because of his motorcycle accident. Employer/Carrier contend Claimant’s average weekly wage should be based on a blended rate based on his earnings while working for Employer and his earnings for the four years preceding his injury. Claimant earned $43,281.68, $52,543.72, $50,629.63, and $34,165.95 during the four years preceding his tenure with Employer performing similar rigger work. These figures yield an average annual salary of $45,155.24, and an average weekly wage of $868.37 ($45,155.24 ÷ $868.37). Employer/Carrier argue that an average of this figure and the $1,797.73 average wage he earned while working for Employer more accurately represents Claimant’s average weekly wage. By accepting pre-deployment wages, Claimant will receive the benefits of all wages paid by employer during his period of actual employment, without creating a windfall for Claimant or unfairly penalizing Employer.
More and more, carriers argue that the calculations applied in Lopez should be used for all DBA employees, even those employees who worked for more than one year with an employer. In other words, carriers use Lopez as a sword. But, I believe this could significantly under-compensate the vast majority of injured contractors. While it is okay to overcompensate a claimant vis a vis an average weekly wage calculation, see Matulic v. Dir., OWCP, 154 F.3d 1052 (9th Cir. 1999) (decision to use Section 10(a) to calculate AWW was “buttressed by the knowledge that some ‘overcompensation’ is built into the system institutionally.”), the same cannot be said with respect to undercompensating a claimant.
Premiums, Wages, and AWW:
Perhaps the cost of insurance premiums should be considered in the AWW calculation. Let’s say an insurance company charged premiums for a year-long policy based on overseas wages paid by the employer. If the premiums charged by the insurance company are based on the wages that the employer paid its employees, then it is arguable that the wage calculation used to determine an injured worker’s AWW should also be based on the wages that the insured employer paid to the injured worker at the time of the injury. There should not be any reference to an earlier time period–such as a time period where the employee engaged in stateside work. Instead, the focus should stay entirely on the wages that were considered when the insurance company calculated the premium it was going to charge the employer. In other words, if the insurance premium is based solely on overseas wages, then why not at least consider that fact when determining the insurance payout amount? This is especially true for an employee who worked more than one year prior to his injury.
Just food for thought.