AB 749 and the Minimum TD Rate

Saturday, April 12, 2003 | 0

Introduction:

One of the most frequently asked questions that I have encountered in presenting training programs for clients on AB 749/486 is whether payment of full wages by an employer will prevent the necessity of making payment of TD at the new minimum rate of $126.00. It is puzzling to try and figure out what the purpose for instituting a minimum rate might be. Prior to reinstating a minimum rate for TD (there had been a minimum rate for TD before the 1990 workers compensation changes were implemented) the labor code required payment of full wages, without deductions, for those with earnings less than $126.00 per week ($126 was the last minimum rate before AB 749) which seemed to be a more than adequate and even generous level of benefit. The question then becomes "how hard is the minimum TD rate benefit?". Are there ways to avoid having to pay even individuals who had no income, such as volunteers, such a minimum rate with it's obvious drawbacks, such as serving as a significant disincentive to return to work and encouraging prolonged disability etc?

Analysis:

This author has consistently recommended that the imposition the minimum TD rate prohibits payments of benefits at a lower rate, even if the employer continues actual wages and the injured worker suffers no wage loss. I continue to believe that this is the correct, though unpalatable answer to this question, for reasons that I will discuss below. However the answer to this question turns out to be quite complex with some interesting history in the development of the law in this area. Additionally, there is certainly some support for the concept that where an employee suffers no wage loss, TD is not payable.

Surprisingly, there is very little case law that is directly on point on this issue The first case that dealt with the issue of TD for an employee without wages was MacDonald v Western Asbestos, (1982) 47 CCC 365 (en banc). In that case the WCAB, en banc, determined that a retired (for 7 years) asbestos worker was entitled to TD at minimum rates while temporarily disabled from his asbestos exposure. The holding in MacDonald was both criticized and distinguished in Gonzales v WCAB (1998) 63 CCC 1477; 68 Cal. App. 4th 843, wherein the Court of Appeals held that an employee who had voluntarily retired from employment after an injury but unrelated to the injury, had removed herself from the labor market and was not entitled to TD benefits after retirement. The court in Gonzales specifically stated that "Our touchstone is still earnings capacity." However the court did note that one of the differences in the MacDonald case and the Gonzales circumstances was the existence of a minimum TD rate.

In between the MacDonald and Gonzales decisions this area of the law took an unusual turn. The combined questions of whether payment of the minimum TD rate could be avoided by making payment of the injured workers full wages, thereby negating any actually wage loss and whether employees who had periods of no earnings still had to be paid minimum benefits was addressed in a WCAB en banc decision which issued jointly in two cases accepted for review by the board. In a 3-2 decision the WCAB in Cone v. Republic Indemnity Company of America and Hayes v Santa Barbara School District (1988), 53 CCC 251, determined that where there was no wage loss, the obligation to pay TD did not arise in spite of the minimum TD rate (which at the time of these claims was $112 per week). In Cone, the employer simply continued wages and argued, successfully, that there was no wage loss. In the Santa Barbara School District case the employer argued that the employee was not entitled to TD for the summer break as she would not have worked and therefore had not wage loss for that period.

The WCAB cited the holding in the California Supreme Court case of Hererra v WCAB, (1969) 71 Cal. 2d 254, 34 Cal. Comp Cases 382 as demonstrating that "the operative factor to a workers' compensation award of temporary disability indemnity, is wage loss". The WCAB distinguished the MacDonald case on the basis that the applicant in that proceeding had an unrecognized potential for earnings and that the employer would receive a windfall if TD was not paid. In this two en banc cases there was no windfall, as the employees received the same amount in wages as they would have received while working.

If the issue had stopped there, then a very strong argument; based upon the en banc decision in Cone, et al and the Gonzales and Hererra appellate cases; would have supported the concept of avoiding the minimum TD rate by paying full wages even when at less than the minimum rate and also requiring wage loss before paying any TD at all. However, at this point these cases take an unusual turn. The applicant in Hayes, appealed the WCAB determination to the Court of Appeals. The applicant in Cone did not and the board's determination in that case became final. In Hayes the applicant was successful and the Court of Appeals reversed the WCAB decision and ordered the board to award TD at the minimum rate for the full period of applicant's disability including her summer breaks. However the decision of the Court of Appeals (which can be found at 54 CCC 334) was ordered unpublished and is therefore not citable authority on this issue. The WCAB issued a follow up en banc decision in Hayes, issuing an award consistent with the Appellate opinion, which became the law of the case for that matter. (Hayes v Santa Barbara School District, (1990), 55 CCC 352). As an en banc decision, this opinion is also citable authority.

This leaves us with an en banc decision in Cone v RICA where the actual decision has been reversed by the Court of Appeals, but the appellate decision in not citable authority because it has been ordered unpublished and the WCAB has issued an en banc decision implementing the Hayes appellate decision that TD cannot be paid at less than the minimum rate. To add to the confusion, while it seems that the holding in Cone would be suspect as authority since the principle has been reversed by the appellate court, Cone was cited as authority for the decision in Gonzales along with Hererra for the proposition that paying full salary eliminates wage loss and therefore the need to pay TD!

Conclusion:

Having reviewed all of the above material, it is still my belief, reluctantly, that AB 749 will require TD payable at minimum rates even where there is no demonstrated wage loss. Given this confusing state of affairs, one would certainly be entitled to ask as to why I believe that the ultimate answer to this mess will be to require the minimum TD rate to be paid even in the face of payment by the employer of full salary? There are several reasons to reach that conclusion:

First; while Cone is certainly citable authority on this issue, I have to believe that it must be the weakest en banc authority in the history of worker's comp. It was a razor thin close decision from one of the most conservative WCAB boards in recent memory. It is extremely unlikely that the current WCAB will view these issues in the same fashion as the board in 1988. Additionally, it must be considered significant that the actual holding in Cone was reversed by the Court of Appeal in the companion case thereby requiring the WCAB to issue another en banc decision awarding TD benefits where there was no wage loss. It is only a fluke that Cone is citable authority at all. (If the value of Cone's TD had been more than the $1250 or so at risk, that case certainly would have gone up to the next level and have been overturned also.)

Secondly, the rules of interpretation of legislative intent will likely require the courts to interpret the imposition of a minimum TD rate as setting a floor on TD payments. One of the rules in divining legislative intent is that the legislature is presumed to know the state of the law when it passes new laws. The legislature had created a system which allowed the payment of actual wages in lieu of minimum TD for the period between 1990 and 2002. If the legislature had wanted to allow a "soft" minimum TD rate, it would have left the statute the way it was. By changing the statute the courts will be required to interpret the new language as meaning something different from the old language. (This was one of the arguments made by defendant/petitioners in the Lockheed-Martin v WCAB case which applied the predominate causation threshold to consequential injuries. Defendants successfully argued that the legislature, by removing language that limited the application of the increased threshold to consequential injuries, must have intended a different result- the Court of Appeals agreed.)

Finally the legislature gets to set the rules that we operate under. The legislature can set the limits of compensation at whatever level it chooses. Just as the is a certain amount of injustice in an injured worker who earns $2500 a week only getting $602 in TD and losing the rest, so is there a clear injustice in paying employees more, sometimes significantly more, than they earn in TD benefits. In the long haul it probably evens out for the most part. One of the real problems with payment of full salary is posed by those who have no earnings at all. The employer is not able to pay full wages. However the legislature has dictated a minimum TD rate and there is no way out of this dilemma that does not involve paying TD and if any TD is paid, it must be at the minimum.

The one impact that I do believe the above case law discussion demonstrates, is that the issue if far from clear. I believe that if an employer wishes to rely upon the holding in Cone and the language in Hererra and Gonzales, until there is additional clarification in the law the likelihood of a penalty pursuant to LC 5814 should be minimal. There is after all a published decision of the WCAB holding that TD is not payable when full salary is paid. It may be weak authority, but it is as much as we have at this point. I do believe that if an employer is going to advocate this issue, it is important that the employer must be the one to pay the full salary, not the carrier or TPA. Under such circumstance it could at least be argued that the changes to the TD rate do not apply as the employer is paying the benefit, not the carrier/TPA. In this fashion the arguments can be made based upon Hererra, Cone and Gonzales cases with their language of the "touchstone" for TD being wage loss.

I would suggest that the best manner to approach this issue would be to select a case with relatively little TD, pay at the minimum rate but file a request for an expedited hearing to bring the issue before the WCAB (earnings rate is one of the issues for determination at an expedited trial). This should result in a prompt decision with the losing party appealing fairly quickly. At that point you are off to the races in getting clarification on this topic.

Attorney Jake Jacobsmeyer is a member of the firm Adelson, Testan & Brundo. He can be reached by e-mail at RichardJacobsmeyer@atblaw.net, or by phone at (925) 609-1990.