The method for calculating an injured worker’s average weekly wage is often a hotly contested issue in Defense Base Act claims. Insurance carriers want to reduce the claimant’s average weekly wage (or “AWW”) because the smaller the AWW, the cheaper the claim. Of course, injured workers want to establish a higher AWW for the opposite reason.
Recently, I’ve fielded a few questions about the AWW for injured workers with delayed onset occupational diseases, including pulmonary and psychological injuries. How should the parties calculate the injured worker’s AWW when the disease arose after the claimant returned to the United States? Should the parties calculate the AWW using overseas wages prior to the last date of employment, stateside wages, or the national average weekly wage? And, perhaps most importantly, can carriers use the Longshore and Harbor Workers’ Compensation Act’s retirement provisions to reduce a contractor’s AWW?
I prepared this blog post with a particular set of hypothetical facts in mind. Imagine that a contractor works overseas in Afghanistan for two to three years. The contractor works 7-days-per-week. He returns home to the United States where he eventually develops a delayed onset occupational disease. He’d like to go back overseas but he cannot do so because of the injury. The contractor has a non-deployable medical condition. The injured contractor can, however, work a lower paying stateside job, and he does so. Because the injured contractor did not return to work in Afghanistan, and because the occupational disease arose after his overseas employment, Employer/Carrier takes the position that the injured contractor voluntarily retired. Thus, Employer/Carrier calculates a lower average weekly wage by using the national average weekly wage. The injured contractor argues that the Employer/Carrier’s calculation is fundamentally flawed because it uses the wrong calculation method and narrowly defines the word “retirement.”
In my opinion, the injured contractor is right.
Calculating Average Weekly Wage:
An employee’s average weekly wage must be calculated in accordance with Section 10 of the Longshore and Harbor Workers’ Compensation Act, 33 U.S.C. § 910 (1984). The Defense Base Act incorporates Section 10, applying it to all claims.
Essentially, there are four ways to calculate average weekly wage for this hypothetical: Section 10(a), Section 10(b), Section 10(c), and Section 10(d)(2). One of those sections must be used to calculate the AWW.
Section 10(a) and Section 10(b) are rarely used in DBA claims. Why? Because Section 10(a) and Section 10(b) apply to 5-day and 6-day workers. Nearly every DBA contractor–at least those stationed in war zones–are 7-day workers. As such, I am excluding Sections 10(a) and 10(b) from this inquiry. That leaves two methods for calculating the AWW: Section 10(c) or Section 10(d)(2).
Section 10(c) is the catch-all. It says:
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 most 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.
The objective of Section 10(c) is to calculate at a sum that fairly and reasonably represents a claimant’s annual earning capacity at the time of injury. “Earning capacity” is the amount that the employee “would have the potential and opportunity of earning absent the injury.” See James J. Flanagan Stevedores, Inc. v. Gallagher, 219 F.3d 426, 434 (5th Cir. 2000). The term encompasses the claimant’s “ability, willingness, and opportunity to work,” see Palacios v. Campbell Indus., 633 F.2d 840, 843 (9th Cir. 1980), or the amount of earnings the claimant would have the potential to earn absent injury. See, e.g., Tri-State Terminals, Inc. v. Jesse, 596 F.2d 752, 757 (7th Cir. 1979).
The Benefits Review Board has reasoned that overseas earnings best reflect an injured contractor’s earning capacity. For instance, in Profitt v. Serv. Employers Int’l Inc., 40 BRBS 41, 45 (2006), the Board stated:
Use of only the wages claimant earned from employer appropriately reflects the increase in pay claimant received when he commenced working for employer in Iraq . . . Moreover, the use of claimant’s earnings with employer fully compensates claimant for the earnings he lost due to his injury. 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. . . . Thus, while claimant’s employment in Iraq was not necessarily intended to be long-term, claimant’s injury cost him the ability and opportunity to earn higher wages for at least the rest of his contract term. In addition, post-injury events, such as decreased work opportunities or wages, generally are irrelevant to the calculation of a claimant’s average weekly wage.
In nearly every Defense Base Act claim I litigated over the last decade, Section 10(c) has been used to calculate an injured DBA contractor’s average weekly wage.
Section 10(d)(2) and Retirement:
Section 10(d)(2) is applied in a very specific fact scenario: when the injured worker has retired. In the this section, I address Section 10(d)(2) and the concept of retirement.
First, the statutory language. Section 10(d)(2) states:
(2) Notwithstanding paragraph (1), with respect to any claim based on a death or disability due to an occupational disease for which the time of injury (as determined under subsection (i) of this section) occurs–
(A) within the first year after the employee has retired, the average weekly wages shall be one fifty-second part of his average annual earnings during the 52-week period preceding retirement; or
(B) more than one year after the employee has retired, the average weekly wage shall be deemed to be the national average weekly wage (as determined by the Secretary pursuant to section 906(b) of this title) applicable at the time of injury.
So, based on Section 10(d)(2), a retired injured worker’s average weekly wage is calculated by either using the 52 weeks before retirement or the national average weekly wage if the occupational disease arose more than one year after retirement.
That begs the question: what is retirement? The answer to this question can be found in the Code of Federal Regulations, at 20 C.F.R. § 702.601 (1985). There, the term “retirement” is defined as follows:
For purposes of this subpart, retirement shall mean that the claimant, or decedent in cases involving survivor’s benefits, has voluntarily withdrawn from the workforce and that there is no realistic expectation that such person will return to the workforce.
That is a very broad definition that contemplates a complete and total retirement from the workforce. I take the word “workforce” to mean any gainful employment. That is, Section 10(d)(2) applies when the injured worker retires from working at all. The legislative history of this provision proves I’m right.
The History of Coverage and Compensation After Retirement:
Retirees were a central focus of the 1984 amendments to the Longshore and Harbor Workers’ Compensation Act. Before the 1984 amendments, injured workers whose occupational disease arose after their voluntary retirement were denied compensation benefits. Congress felt that this was too harsh of a result.
More to the point, however, is the fact that the legal effect of “retirement” was debated in connection with Social Security retirement benefits. Consequently, the genesis of the Longshore Act’s retirement provisions appears to be rooted in voluntary withdrawal from gainful employment. Just consider the following passages from the Congressional Record submitted on Sept. 20, 1984, 130 Cong. Rec. S11621-27:
The second issue address with respect to occupational disease is whether retirees, or their survivors, should be entitled to compensation where the disease does not manifest itself until after retirement. Assuming that they should be, a further question arises as to the level of benefits.
The Longshore Act does not express rules governing compensation for retirees. Yet, since the beginning, it has been beyond cavil that benefits paid to a worker disabled during employment could continue throughout his retirement years. The Senate bill took this for granted as it added an offset provision authorizing an employer to reduce its compensation liability by a percentage of the amounts an employee became eligible to receive Social Security benefits. The theory behind this proposal was that workers’ compensation and Social Security are both an income-replacement mechanism and that there should be some coordination of benefits. . . .
The House Labor Committee flatly rejected any Social Security offset. While the issue was joined in conference, a series of controversial rulings at the agency level came to the attention of the conferees. In Abuddell v. Owens-Corning Fiberglass, 16 BRBS 131 (Feb. 28, 1984), the Benefits Review Board denied compensation benefits to a worker who had manifested an occupational disease–asbestosis–after permanently retiring from the work force. The Board viewed the retiree as, by definition, being without a wage-earning capacity. Therefore, this disease could not diminish that capacity for purposes of computing compensation. An identical result was reached in Redick v. Bethelehem Steel Corporation, 16 BRBS 155 (Mar. 20, 1984). Similarly, in Worrell v. Newport News Shipbuilding and Dry Dock Company, 16 BRBS (ALJ) 216 (Mar. 15, 1983), an administrative law judge ruled that a widow was not entitled to death benefits where her retired husband died from mesothelioma. The judge reasoned that the retiree’s average weekly wage at the time of death was zero, which must be regarded as the ceiling placed on such benefits by virtue of section 9(e).
The conferees concluded that these interpretations of the Longshore Act did not represent equitable policy. A person’s eligibility for compensation should not necessarily be dependent upon the fortuity of when he becomes disabled. Moreover it is arguable that the Aduddell decision ironically sows the seeds for mischief against employers in the future. It will be remembered that workers’ compensation embodies a social contract between employers and employees . . .
. . .
The effect of Aduddell and Worrell, it seems to me, is to deny to employees and their survivors part of the benefit of the bargain. It would not take a great leap in logic for a court to conclude that the deprivation of the right to compensation should vitiate the employer’s immunity for tort liability. The conference substitute forecloses this possibility by reaffirming that a retiree retains his employee status for purposes of compensation.
The conference substitute therefore makes express provision for the payment of benefits to retirees who become disabled during retirement as a result of an occupational disease. . . .
From the legislative history, it is clear that the retirement provisions of the Longshore Act focused on workers whose occupational disease arose after they voluntarily and permanently withdrew from any gainful employment. Moreover, Congress recognized that this coverage was included within the grand bargain struck between injured workers and employers when workers compensation statutes were enacted in the first place: employers received tort immunity and workers received the promise of fast benefits.
If employers lost tort immunity, then they would become open to civil lawsuits. Damages for civil lawsuits are far more expensive than Defense Base Act claims. Just consider the recent headlines about the jury award of $72,000,000 to the Alabama family of a woman who died from ovarian cancer allegedly caused by Johnson & Johnson’s products. Further, a simple search on Westlaw or a quantum study book will reveal damages awards that far exceed the value of a DBA claim for a lifetime of benefits at the maximum compensation rate. Add to that the value of the defense contracts (which you can find by running a search on the Federal Procurement Data System website and sorting the list by “Action Obligation ($)”) as well as the amount that the employer pays for DBA insurance, and it looks like employers and carriers are getting a pretty good deal with tort immunity…at least to the point that their AWW complaints shouldn’t garner much sympathy.
Inappropriately Using Retirement Provisions to Deflate Average Weekly Wage:
The Defense Base Act community should consider an injured worker’s AWW against that backdrop. Congress meant to help retirees, not create a series of statutes prompting tenuous arguments to deflate a DBA contractor’s AWW.
Recently, the Benefits Review Board tackled this issue in Abdelmeged v. Global Linguist Solutions and Zurich American Insurance Company. There, the Board upheld the use of Section 10(c) to calculate the injured worker’s average weekly wage. Further, it upheld the ALJ’s use of overseas wages–not stateside wages–to calculate the AWW. Here’s what the Board said:
Employer also contends the administrative law judge erred in calculating claimant’s average weekly wage under Section 10(c) of the Act. It asserts that claimant’s situation is akin to that of a “voluntary retiree,” and his average weekly wage should be based on the national average weekly wage in effect as of the date of injury, December 16, 2011, $647.60, instead of on his actual wages the year before he left work due to his non-work-related Hepatitis C. Therefore, employer posits, claimant’s average weekly wage should be calculated in accordance with Sections 8(c)(23), 10(d)(2), and 10(i) of the Act, 33 U.S.C. §§ 908(c)(23), 910(d)(2), (i). Claimant and the Director assert that the administrative law judge properly used Section 10(c) and claimant’s actual wages during his last year of work to calculate his average weekly wage.
Under Section 10(c), the administrative law judge has broad discretion to arrive at a fair approximation of a claimant’s annual earning capacity at the time of his injury. Rhine v. Stevedoring Services of America, 596 F.3d 1161, 44 BRBS 9 (CRT) (9th Cir. 2010); Patterson v. Omniplex World Services, 36 BRBS 149 (2003); Browder v. Dillingham Ship Repair, 24 BRBS 216, aff’d on recon., 25 BRBS 88 (1991). Section 10(i) states that for purposes of calculating average weekly wage “with respect to a claim for disability or death due to an occupational disease which does not immediately result in death or disability, the time of injury shall be deemed to be the date on which the employee or claimant becomes aware, or in the exercise of reasonable diligence or by reason of medical advice should have been aware, of the relationship between the employment, the disease, and the death or disability.” 33 U.S.C. §910(i); Roberts v. Sea-Land Services, Inc., 132 S.Ct. 1350, 46 BRBS 15(CRT) (2012). Section 10(d)(2) provides that, when a retiree’s disability becomes manifest more than one year after his retirement, his average weekly wage is to be based upon the national average weekly wage applicable at the time of his injury. 33 U.S.C. §910(d)(2)(B).Regardless of when claimant’s disability commenced, as the administrative law judge is to determine on remand, we reject employer’s assertion that the administrative law judge inappropriately utilized the wages from claimant’s last employment with employer to ascertain claimant’s average weekly wage. “Retirement” occurs when a worker voluntarily removes himself from the workforce with no expectation of returning. Coughlin v. Bethlehem Steel Corp., 20 BRBS 193 (1988); 20 C.F.R. §702.601(c). Contrary to employer’s assertion, claimant did not voluntarily retire from the workforce: he was removed from work due to his Hepatitis C, with the seeming expectation of a return to work. Moreover, an employee’s “retirement” is not “voluntary” if his inability to work is due to his work-related injury. Harmon v. Sea-Land Service, Inc., 31 BRBS 45 (1997). Thus, claimant does not fall within the definition of a “voluntary retiree.” As the plain language of Section 10(d)(2) limits its use to those workers who have “retired,” it cannot apply in this situation, and employer’s proposed analogy fails. Moreover, the use of wages earned prior to the date of awareness has been recognized as appropriate in fact patterns such as the one here. LaFaille v. Benefits Review Board, 884 F.2d 54, 22 BRBS 108(CRT) (2d Cir. 1989) (finding that it is appropriate to apply Section 10(c) where disability pre-dates awareness and claimant has suffered a loss of earnings as of the date of awareness). Thus, pursuant to Section 10(c), the administrative law judge reasonably used the wages in the job in which claimant was injured to calculate his average weekly wage. Id.; see generally Rhine, 596 F.3d 1161, 44 BRBS 9 (CRT); Healy Tibbitts Builders, Inc. v. Director, OWCP, 444 F.3d 1095, 40 BRBS 13(CRT) (9th Cir. 2006). As it is rational, supported by substantial evidence, and in accordance with law, we affirm the administrative law judge’s average weekly wage calculation.
Earlier, I opined that the hypothetical injured worker was right. Employer/Carrier wrongfully used Section 10(d)(2) to deflate his average weekly wage, and wrongfully deemed him a “retiree.” A review of the applicable statute, regulation, case law, and legislative history supports my opinion.
Section 10(d)(2) might apply in some situations, but not as broadly as some employers and carriers might suggest. In most DBA claims, Section 10(c) is going to be used to determine an injured worker’s AWW. It makes sense to calculate an injured worker’s earnings by using the overseas wages he was paid in the job in which he was injured.