Ogilvie Overturned: The Issues we Face

Thursday, September 1, 2011 | 0

On July 29, the California 1st District Court of Appeal issued the long-awaited decision of Ogilvie v. WCAB, (2011) 76 CCC 624. The court held that the 2005 Permanent Disability Rating Schedule may be rebutted, but specifically rejected the method established by the appeals board in the en banc decisions Ogilvie v. City and County of San Francisco. Instead, the court relaxed the standard for rebutting the schedule, but provided very little additional guidance on how this should be accomplished.

Factual and Procedural History

Ogilvie involved an applicant who sustained an admitted injury to her right knee, low back and neck. The parties stipulated that her disability would rate at 28% under the 2005 schedule after adjustment for age and occupation, and after apportionment. But the applicant sought to rebut the rating.

Vocational rehabilitation experts for both sides testified that the applicant had a 51% to 53% loss of earning capacity. The applicant argued that the opinion of both experts effectively rebutted the application of the scheduled rating. The workers' compensation judge considered several methods for calculating the applicant's award, and determined that the applicant's injury caused permanent disability of 40% after adjustment for age and occupation, and after apportionment; he concluded that this was "the most fair and adequate rating in light of the evidence of actual diminished future earnings in this case."

The Workers' Compensation Appeals Board granted reconsideration and issued two en banc decisions. In its original decision, the appeals board held that the diminished future earning capacity (DFEC) portion of the 2005 schedule was rebuttable, but rejected the way the WCJ in the underlying case had determined what the loss of earning capacity actually was. Specifically, it held that the schedule could not be rebutted by simply subtracting what the applicant would make as a result of the injury from what the applicant would have made after the injury, and figuring a percentage. Nor could it be calculated by taking two-thirds of the injured employee's estimated diminished future earnings and comparing that figure with the permanent disability money chart to approximate a corresponding permanent disability rating.

Instead, the Appeals Board held that the DFEC component of the 2005 schedule could be rebutted by a manner consistent with Labor Code Section 4660. The appeals board then established such a method. It replicated the empirically based method used in the Rand study that established the DFEC adjustment in the rating schedule. 

The Appellate Court's Decision: Reversal and Remand

The 1st District Court of Appeal reversed the decision of the appeals board. It held that the WCAB had "acted in excess of its authority" when it created its alternative method of calculating permanent disability once the FEC portion of the rating string had been rebutted. So all of the calculations and machinations created in the underlying en banc Ogilvie decisions have been abolished by the Court of Appeal.

The court held that the employee could use methods that predated SB 899 to rebut the schedule. Because it could not determine from the record how to do that, the Court of Appeal remanded the case back to the appeals board to make the determination. We can expect another round in the continuing Ogilvie drama.

Rebutting the Entire Schedule, Not Just Its Parts

The appellate court did confirm that the Permanent Disability Rating Schedule may be rebutted. In this way, it agreed with the Appeals Board. It allowed for rebuttal of the schedule, but in a different way from the Appeals Board.

In the cases of Almaraz/Guzman and Ogilvie, the appeals board had contemplated rebuttal of the rating schedule by addressing certain parts of the rating string. In Almaraz/Guzman it was explained that the basic impairment percentage under the American Medical Assocation guides could be rebutted under certain circumstances. In Ogilvie it was shown that the FEC adjustment in the rating string could be rebutted and replaced by following a specific formula. Neither of these cases attempted to explain when the schedule as a whole could be rebutted. Rather, they attempted to help the parties understand how the schedule should be rebutted by giving guidance on how specific parts of the rating string could be rebutted and alternatively assessed.

Still, there was no refutation of the idea that the schedule as a whole, and not just one part, could be rebutted. Indeed, there is a long-standing body of law upholding the principle that this may be done. Before the Almaraz/Guzman and Ogilvie cases, there was LeBoeuf v. WCAB and its progeny. In those cases, it was held that the applicant’s failure to complete the process of vocational rehabilitation was evidence that had to be considered when assessing permanent disability. A showing that an employee is not amenable to rehabilitation would be enough to rebut the schedule. After SB 899, the Costa v. Hardy cases verified that the schedule indeed was rebuttable, and added that the defense is obligated under LC 5811 to pay the experts who might be used to establish that rebuttal.

The Court of Appeal in Ogilvie embraced both a rebuttal of the schedule as a whole and the possibility of rebuttal by attacking one component of the rebuttal string. It stated that "... the ambiguity lies in determining just how an employee’s overall rating and its component parts may be rebutted while remaining loyal to the Legislature’s design to provide a system that is objective and uniform in application." The court did not mention the Almaraz/Guzman decisions at all, although it clearly did not contradict or in any way overturn them. What it did was provide three ways the schedule may be rebutted.

Permanent Disability Defined

First, however, the court made a statement about the nature of permanent disability, and the according showing that had to be made to rebut the schedule. In particular, it took note of the fact that the definition of permanent disability had changed in 2004.

Senate Bill 899 had redefined permanent disability under LC 4660 as "diminished future earning capacity." The previous statutory definition had been the "ability of such injured employee to compete in an open labor market." The court considered this change, and concluded that the terms "diminished future earning capacity" and "ability to compete in the open labor market" had no meaningful difference.

Accordingly, the court concluded that the means an employee may use to challenge a scheduled rating due to diminished earning capacity predate SB 899. It stated that the change of wording did not "... suggest that a party seeking to rebut a permanent disability rating must make any particular showing."

Two Methods of Rebuttal That Will Be Difficult to Use

The court explained that there were three methods by which an employee could challenge the scheduled%age of permanent disability. Two of them are somewhat esoteric and require detailed study and analysis of the underlying basis of the permanent disability schedule. They will be difficult to use, and we may not see them as frequently.

1. A Factual Error in the Calculation of a Factor in the Rating Formula or Application of the Formula

The court held that the schedule may be rebutted if a party can show a factual error in the application of a formula or the preparation of the schedule. That is, a challenge to the presumptive disability rating is permissible on the basis that the schedule, or one of its component factors, was incorrectly applied or calculated.

The court made two points about this method. The first appears to address more technical areas. The court cited several cases, all of which predated SB 899, in which the schedule was simply misapplied in some way.

The second point is that, under SB 899, the schedule was created in accordance with a study done by the RAND Institute for Civil Justice. The working paper released by RAND described the methodology used to arrive at the empirical adjustments to disability ratings due to diminished future earning capacity. The court noted that the data assembled to consider earnings loss attributable to certain injuries were based on injury descriptions in the California Permanent Disability Rating system, and added that at the time the future earning capacity adjustments were established, there was no direct link between the data used by RAND and the AMA guides. It stated that an ideal system would combine information on earnings losses with actual AMA guide ratings. It also added that the working paper made certain assumptions, and that if any of them is incorrect, the estimated rating could be biased.

This method of rebuttal will require an applicant to analyze the RAND study, and the methodology used to adjust disability ratings due to diminished future earning capacity. The applicant must show that there was an error in the calculation or application of the schedule; the applicant must show that the earning capacity adjustments based on the RAND study are incorrect, or that the formula was incorrectly applied. One imagines that some applicant attorneys may have the wherewithal to do this but not many.

2. The Omission of Medical Complications Aggravating the Employee's Disability in Preparation of the Rating Schedule

The court held, "A scheduled rating may be rebutted when a claimant can demonstrate that the nature or severity of the claimant’s injury is not captured within the sampling of disabled workers that was used to compute the adjustment factor." This, too, references the Rand study, and refers to cases in which the applicant has the kind of injury that was not really part of the cases considered.

The court found that in "certain rare cases," the data used to arrive at a diminished future earning capacity adjustment might not capture the severity or all of the medical complications of an employee's work-related injury. As an example, the court stated that a claimant who sustains a compensable foot fracture with complications resulting from nerve damage may have greater permanent effects of the injury and thereby disprove the scheduled rating, if the sampling used to arrive at the rating did not include any workers with similar complications.

Rebutting the schedule under this method will also require an applicant to analyze the RAND study. It will require an applicant to assess the different types of cases included within the RAND study and show that his or her injury was not captured within the sampling of disabled workers used to calculate the adjustment factor. As such, it is relatively a lot of work for an applicant attorney.

The court stated that if an applicant could rebut the schedule under this method, the scheduled rating should be recalculated to take into account the extent to which the claimant's disability was aggravated by complications not considered within the sampling used to compute the adjustment factor. It left it to the appeals board, however, to prescribe the exact method for such a recalculation. This is an ironic and perhaps confusing comment, given the court’s destruction of the appeals board’s effort to provide specific alternative calculations in the underlying case.

Method No. 3: Impairment of Rehabilitation

The court held that a scheduled rating may be effectively rebutted "when the injury to the employee impairs his or her rehabilitation, and for that reason, the employee's diminished future earning capacity is greater than reflected in the employee's scheduled rating." This is the rule expressed in LeBoeuf, and the court stated, "An employee effectively rebuts the scheduled rating when the employee will have a greater loss of future earnings than reflected in a rating, because due to the industrial injury, the employee is not amenable to rehabilitation."

This language is fraught with ambiguities and omissions, and will be the subject of litigation for many years to come.

The court was careful to add, however, that LeBoeuf was applicable only when "the employee's diminished future earnings are directly attributable to the employee's work-related injury, and not due to nonindustrial factors such as general economic conditions, illiteracy, proficiency to speak English, or an employee's lack of education." The court explained that holding an employer liable for any loss of earning capacity that the employee may have no matter the cause would create a disincentive for employers to extend opportunities for employment or advancement. This statement, too, will be the subject of extensive litigation.   

Analysis of the Ogilvie Decision

The 1st District Court of Appeal's decision has greatly expanded the grounds on which an employee may rebut the schedule based on his or her diminished future earnings capacity. It rejected the formula created by the appeals board in favor of three different methods to rebut the schedule. The first two methods will require familiarity with the Rand study and the methodology used to adjust disability ratings due to diminished future earning capacity. So it seems unlikely that many practitioners will frequently attempt to rebut the schedule using these methods.

It is more likely that attempts to rebut the schedule under Ogilvie will arise under the third method; that is, showing that the employee is not amenable to rehabilitation and has suffered a greater loss of earning capacity than reflected in the scheduled rating. But there are some serious questions regarding how to rebut the schedule under this method.

Issue No. 1: What Is Impairment of Rehabilitation?

What must an employee demonstrate to show that he or she is not amenable to "rehabilitation?" What does the term rehabilitation mean here? Unfortunately, we simply do not know.

Several possibilities could benefit the defense or the applicant depending on how narrowly the term is defined. Here are some.

1. Rehabilitation may mean the applicant’s successful completion of a vocational rehabilitation program within the confines of the expired workers’ compensation benefit.

In this version there would be little to no room for the applicant to claim an inability to rehabilitate vocational rehabilitation does not exist. Under LeBoeuf, rehabilitation referred to the workers’ compensation benefit of vocational rehabilitation. An injured employee was not considered amenable to rehabilitation if he or she could not participate in a formal rehabilitation program. But the right to vocational rehabilitation benefits was repealed effective Jan. 1, 2009, and the court's decision in Ogilvie seemingly ignores this fact. (The way the case is written, one is tempted to believe that the court did not even realize that the benefit had been repealed.) So how can an employee show that he or she is not amenable to rehabilitation when the right to vocational rehabilitation no longer exists? The employee can’t.

It is an established principle of legal construction that the Court of Appeal knows the legal context in which it makes decisions. Because the Court of Appeal knew that vocational rehabilitation had been repealed, it seems unreasonable to argue that it intended this interpretation.

2. Rehabilitation may mean the applicant’s successful participation in and completion of a formal retraining program.

Because vocational rehabilitation has been repealed, this term could mean that the applicant participates in an alternative formal program of vocational rehabilitation. For example, the state of California has a program of rehabilitation, and commercial programs are available as well. Note that nothing in the law requires the defense to pay for this sort of program, so for this interpretation to have meaning, the applicant presumably would have to pay for the program and then fail. This may not be a reasonable expectation.

3. Rehabilitation may mean that the applicant makes successful use of the voucher.

The only thing in the workers’ compensation system that even looks like vocational rehabilitation is the voucher. It’s possible that first, an applicant must demonstrate an inability to use the supplemental job displacement benefit under LC 4658.5 for education-related retraining or skill enhancement to establish this method for rebutting the schedule. But the use of a voucher arguably would be only one element of the applicant’s overall rehabilitation.

4. Rehabilitation may mean that the applicant has returned to work, has been accommodated or has been through the return-to-work accommodation process.

Perhaps this term refers to the applicant’s efforts to return to gainful employment after reaching permanent and stationary status. The California scheme requires that at this stage the employer must consider, via an interactive process, returning the applicant to the original position or to modified or alternative work. Only if this effort fails is the applicant released to the general labor market. Perhaps rehabilitation also includes an applicant’s effort to find new work if the accommodation process fails.

If this standard is used, it may be results-oriented. It is possible that the applicant will be found to be impaired to the extent that he or she is unable to find work, and work that pays about the same. If so, the question of what constitutes rehabilitation might become mixed with the question of how to calculate permanent disability once the schedule is rebutted an issue discussed later in this analysis.

5. Rehabilitation may mean simply the healing process culminating in permanent and stationary status.

Perhaps the term refers to the healing process the applicant undergoes before reaching permanent and stationary status. After all, the applicant may go through a lot simply to return to a state of maximum health, and that healing process is aimed at least in part on returning to gainful employment. But healing and rehabilitation, it seems, are distinctive terms. Arguably, to apply the term rehabilitation requires something more than just treatment. The workers’ compensation case law has traditionally made this distinction.

There are no easy answers here. Almost certainly, there will have to be an en banc decision to decide this point.

Issue No. 2: What Does It Mean to Leave Out Nonindustrial Factors?

As noted above, the court recognizes that LeBoeuf applies only when the employee's diminished future earnings are attributable directly to the employee's work-related injury, and not due to nonindustrial factors such as general economic conditions, illiteracy, proficiency to speak English or an employee's lack of education. The court then leaves it up to the vocational experts to determine the degree to which these factors account for an employee's loss of future earnings.

But the court provides no guidance on the evidence needed to establish that an employee's diminished future earnings are directly related to an industrial injury, or how an expert is to separate the nonindustrial factors from the industrial factors.

This goes to the court’s surprising and perhaps glib refusal to make any distinction between the old and new definitions of permanent disability. The "ability of such injured employee to compete in an open labor market" could be viewed as having both the element of the applicant’s ability (read: work restrictions) and the marketplace in which the applicant with such abilities could be employed. The new definition after SB 899 is less clear; permanent disability is "diminished future earning capacity" but relative to what, exactly? It seems the court feels that the employment market still pertains. But what is the distinction between the marketplace and "general economic conditions?" In some sense, the marketplace itself is a nonindustrial factor. These distinctions and definitions, on the present record, are confusing, and will have to be hashed out in the courts.

Issue No. 3: How Do Rebuttal of Parts of the Schedule and Rebuttal of the Whole Schedule Interact?

In discussing the method by which the schedule may be rebutted, the court decided that a party did not need to make "any particular showing." The court did agree that the statute mandates the use of a numeric formula, and held firmly that "It must be initially applied." Once the schedule is rebutted, however, the court relied on the LeBoeuf case and the pre-SB 899 way of challenging the schedule. This involved rebutting the schedule as a whole, and not just one part of it.

So there was an explicit rejection of the idea behind the Ogilvie decision at the appeals board level. That is, the court held that focusing solely on a rebuttal of the FEC adjustment alone was not the way to go. It said, "Nothing in Senate Bill No. 899 authorizes or compels the calculation of an alternative diminished earning capacity adjustment factor as the WCAB devised. ... the WCAB acted in excess of its authority."

Notably missing from the court’s discussion is any guidance as to how its decision should be read together with the 6th District Court of Appeal's decision in Milpitas Unified School District v. WCAB (Guzman) (2010) 75 CCC 837. In Almaraz/Guzman, the court decided that the base impairment rating indeed could be rebutted under certain circumstances and within certain parameters, including a directive that the alternative base impairment be found within the four corners of the AMA guides. How does this possibility mesh with the idea that the applicant may simply rebut the schedule as a whole?

Take, for example, the hypothetical case referred to by the court in Ogilvie. Suppose an applicant sustains a compensable foot fracture with unexpected complications arising from nerve damage. This is the sort of case to which the Almaraz/Guzman analysis might apply. If so, the base impairment might be raised considerably perhaps even enough so that the rebuttal of the schedule as a whole would result in a lower permanent disability rating. Is the applicant then allowed to choose which method to use in order to maximize the benefit?

The totality of the Ogilvie decision may lead one to believe that both a rebuttal of one part of the schedule and a rebuttal of the entire schedule are allowed. Applicants and their attorneys will argue for this. But perhaps rebuttal of the schedule as a whole effectively may violate the rule expressed in Almaraz/Guzman that requires a formulation of the base impairment within the four corners of the AMA guides. The relationship between these two methods will have to be explicated.

Issue No. 4: Once the Schedule Is Rebutted, How Is Permanent Disability Determined?

Although the court concluded that the schedule may be rebutted using the same methods that predate SB 899, it provided no guidance on how disability is to be calculated once it is determined that the schedule has been rebutted. In Ogilvie, the vocational experts testified that the applicant had diminished future earning capacity of 51-53%. The court remanded the case for consideration on whether the experts may have taken impermissible factors into account in reaching their conclusions. So there is little doubt that vocational experts will play an integral part in the analysis. Nevertheless, the court provides no guidance on how to convert an employee's loss of future earning capacity into permanent disability.

Generally, under LeBoeuf and former LC 4660, an employee's inability to compete in the open labor market could support an award of permanent total disability. As the court has held that "ability to compete in the open labor market" and "diminished future earning capacity" are the same thing, it’s likely that a total loss of future earning capacity will support an award of permanent total disability. But the court provides no guidance on how permanent disability is to be calculated if the loss of future earning capacity is different from the scheduled disability, but less than total.

Applicants, no doubt, will argue that the loss of future earning capacity should equal the level of permanent disability. That is, if the applicant would have made $1 million over the remainder of his or her lifetime, but now, as a result of the injury, will make only  $250,000, there is a 75% loss of earning capacity. As explained strongly in the appeals board’s Ogilvie decision, however, this interpretation would ignore the language of LC 4660(a) that "[i]n determining the%ages of permanent disability, account shall be taken of the nature of the physical injury or disfigurement, the occupation of the injured employee, and his or her age at the time of such injury," and not just the employee's diminished future earning capacity. This position will result in diminished future earning capacity being the only factor in an applicant's permanent disability. So it is not clear whether an employee's loss of future earning capacity will equal permanent disability, or whether some alternative calculation should be made.

Issue No. 5: Can the New Standard Help the Defense?

Can the defense use the standard laid out in the new Ogilvie case to its advantage? Unlikely.

Arguably, if the applicant returns to a secure job and there is no foreseeable effect on future earning capacity, there would be no permanent disability. Take, for example, a teacher who has tenure until retirement, and absolutely no plans to change careers. Would a minimal impairment affect earning capacity at all?

That ultimate question, however, is not at issue here. Rather, the question is: Under what circumstances can the schedule be rebutted? As a party, the defense could use any of the three methods outlined. But it seems unlikely that any would work.

The defense could scrutinize the RAND study and try to find reasons why the case falls outside the scope of the evidence used there. It could point out ratings errors too, but neither method seems likely to result in a rebuttal. Also, it does not seem possible that the defense could prove a lower permanent disability by way of showing an impairment in rehabilitation by definition, that seems to mean that the applicant is worse than expected.

With that said, perhaps the argument could be made that the schedule should be allowed to be rebutted by a showing that its application is inaccurate. After all, that is the central point behind this case: The schedule is rebutted because it does not accurately demonstrate the loss of earning capacity. If it could be shown that absolutely there was no loss of earning capacity, an enterprising defense attorney might try to make that argument. But the permanent disability in such a case is likely to be very low to start with. So the value in making such an argument in any individual case probably would be very low, and not worth trying.

Conclusion

Ultimately, the 1st District Court of Appeal's decision may have granted the employer in that case a reprieve, but the methods outlined in the decision go well beyond the one defined by the appeals board for rebutting the schedule. The court has expanded the means with which an employee may rebut the schedule based on his or her diminished future earnings capacity. But its decision creates even more confusion about how it is to be accomplished. Until further decisions are issued clarifying how permanent disability may be rebutted, this decision will leave parties struggling for answers and will remain a fertile source of litigation.

We seem to be back to the drawing board, a frustrating prospect given the extensive history of this issue. We can look forward to a lot of litigation, and the en banc decision that will be called Ogilvie IV.

To read the 1st DCA's opinion in Ogilvie, go here.

Michael Sullivan is the founder of Michael Sullivan & Associates, a workers' compensation defense firm with four offices in Southern California, and author of "Sullivan on Comp," a treatise on California workers' compensation law.