Earnings Include Employer-Provided Living Quarters and Benefit

Tuesday, September 20, 2011 | 0

The California 3rd District Court of Appeals has ordered published a recently issued decision on calculation of temporary disability benefits where the employee’s earnings include not only salary but also living quarters including utilities but where the living expenses are identified by the parties as being included in the employee's wages.

In Motheral v .WCAB, State Compensation Insurance Fund, the applicant was a camp ranger employed full time by the Boy Scouts of America. His wages were a combination of salary along with room, board (including utilities) and some expense for automobile usage. He was paid an annual salary equal to 40 hours per week at the minimum wage. His employment contract specified that his salary was inclusive of $5,055 per year for his living quarters and utilities (gas, electricity and telephone) at the ranger’s residence. It also provided that he would receive $187.50 a month for use of his vehicle for business. Motheral sustained a serious injury to his foot ultimately resulting in amputation. During his time off work, State Fund paid him temporary total disability based on the employer’s reported wages based on minimum rates.

A dispute arose over the calculation of applicant’s TTD rate. The employer asserted the applicant’s earnings were always intended to be at minimum rates. The Boy Scout Council reduced the employee’s gross earnings by $35.27 per week. The deduction was based on an Industrial Welfare order that limited an employer’s credit to that amount for provision of a single occupancy room. The order allowed additional amounts for a one-room apartment. The employee claimed regardless of the amount his earnings were credited, he was entitled to the value of the actual lodging and utilities which he valued at $550 per month including the utilities based on what he had previously paid for living expenses and also comparing the cost to what his girlfriend paid.

The trial judge awarded applicant benefits based on the minimum wage (as adjusted by the statutory increases over the years) but did not include any additional consideration for the living quarters. His rational, accepted by the Workers' Compensation Appeals Board on reconsideration, was the parties intended to pay applicant based on the minimum wage and therefore his living quarters were already included in the minimum-wage calculation.In his report and recommendation on reconsideration, the workers' compensation judge acknowledged Labor Code Section 4454 ordinarily required addition of an employee's room, board and other expenses to his earnings for calculation of TTD. The WCJ noted if the lodging costs were valued at a higher level, the employee’s salary would have been reduced to account for the higher level of living quarters and such a result would not have been acceptable to applicant. The WCJ in effect agreed with defendants that all parties, including applicant, agreed the intent was to pay him at minimum wages and all parties should be bound by that agreement.

The Court of Appeals, however, focused on the statutory language in Labor Code Section 4554:

"The market value of board, lodging, fuel, and other advantages received by the injured employee as part of his remuneration, which can be estimated in money, shall be included in determining average weekly earnings. Such average weekly earnings, however, shall not include any sum which the employer pays to or for the injured employee to cover any special expenses entailed on the employee by the nature of his employment . . ."

After reviewing the statute the Court had little difficulty in concluding the additional consideration and payments to applicant constituted remuneration (payment) for his service and therefore were includable in his earnings calculations for TTD:

"…there is no question that the lodging, utilities, and car allowance Motheral received were remuneration, and therefore, should have been considered in calculating his average weekly earnings and resulting temporary disability payment.  As detailed in his employment contract, Motheral received lodging and utilities in exchange for his services. While the contract contemplated that at least a portion of the value of his lodging and utilities would be deducted from his wages, the amount of such deduction was limited..

"... As for the car allowance, it was to be paid regardless of how much or even whether Motheral drove, and therefore, constituted remuneration.  (Burke, supra, 74 Cal.Comp.Cases at p. 364.)  Accordingly, it, too, should have been included in  the calculation of Motheral’s average weekly earnings."

The court therefore held the applicant was entitled to have the value of the additional remuneration calculated at market values and included in his earnings for TTD;

"…On remand, the Board is directed to recalculate Motheral’s average weekly earnings using his minimum wage salary, less the applicable lodging credit, plus the market value of his living quarters, utilities (gas, electric, and local telephone service), and one quarter of his monthly car allowance."

In a footnote the court observed any attempt to reduce the employee's minimum wage earnings more than what was allowed by the Industrial Wage Regulations would be void as a matter of law. If the fair market value of the lodging exceeded the credit allowed to the employer, the net effect was additional income to the employee in the form of better living quarters.
  
"…To the extent the fair market value of the lodging Motheral received exceeded the applicable lodging credit, that amount constituted an economic advantage which Motheral was entitled to have included in calculating his average weekly earnings and resulting disability benefit…."

The original decision was not ordered published but the applicant attorney made an application for publication that must have been persuasive to the court.

Comments & Conclusions

This decision reflects a fairly well-entrenched tradition of interpreting earnings statutes liberally on behalf of the employee. In this case the court did not even need to resort to citations to Labor Code Section 3202 (liberal interpretation). It found a solid basis in its interpretation of the minimum wage law. Its rational is expressed very succinctly in the final footnote referenced above and its observation the parties cannot contract for less than the minimum wage with whatever adjustments are allowed by rule.

While the employer likely thought it was giving the employee a break by only charging him $35.27 for lodging worth much more, the quality of the lodging might very well have also been a significant incentive for the employee to stay at a minimum-wage job. It is difficult to argue with the court’s analysis the difference in the actual value of the lodging and the credit asserted was a distinct benefit to the employee. It is very likely, with a minimum wage salary, the employee could never have afforded similar lodging with utilities included and still have money remaining to live on.

This case appears to have very little application in our general worker’s compensation community as these circumstances are quite unique. However it is important to take note of the lump-sum payment for mileage as being a part of wages pursuant to Burke v. Workers’ Comp. Appeals Bd. (2009) 74 Cal. Comp. Cases 359, 363 (writ den.). Many employers provide a fixed amount for travel regardless of how much is actually traveled, the holding in this case may have somewhat wider application that one would expect at first blush.

<i>Richard M. "Jake" Jacobsmeyer is a partner with the Shaw, Jacobsmeyer, Crain & Claffey law firm in Oakland.</i>