The Safe Harbor Provision of Labor Code Section 5814(b)

Saturday, August 26, 2006 | 0

By Jake Jacobsmeyer

The Court of Appeals has ruled that Labor Code Section 5814(b)'s "safe harbor" provisions are applicable, regardless of whether the applicant or defendant discovers the delay in payment of benefits, as long as the other provisions of the section are met. In doing so the court has reversed a decision of the trial judge, upheld by the Workers' Compensation Appeals Board, on reconsideration that denied relief under the section because the applicant had discovered and pointed out the delay in payment of benefits.

In this case the employee received an award of Permanent Disability benefits totaling over $31,000. The award was being paid out by the third party administrator (TPA) for the employer. During the payment of the award, the employer changed TPAs. However the first TPA had inadvertently coded the entire award as having been paid. When the new administrator pickup the file it looks as though no payments were due.

In fact, however, the award was only slightly over half paid. The applicant advised his attorney who inquired of the claims administrator as to why the award was interrupted.

After a delay of 47 days from the receipt of the inquiry from counsel for applicant, the TPA brought the award up to date and self-imposed a 10% penalty. Approximately two months later the applicant attorney filed a Petition for Penalty under Labor Code Section 5814 and 5814.5.

At trial, defendant argued that by bringing the award current and self-imposing a 10% penalty that Labor Code Section 5814(b) eliminated the 25% liability for penalty under subdivision (a) and as there was not 5814 penalty due, 5814.5 was also not applicable. The WCJ held that it was implied in Labor Code Section 5814(b) that the discovery of the delay in payment of benefits be made by defendant in order to invoke the protection of that section from the full 5814 penalty (25%). A penalty under Labor Code Section 5814 of 25% of the delayed benefit, less credit for the previously self-imposed 10% was awarded and also attorneys fees under 5814.5.

Defendant appealed the award of penalty and the award of attorney fees. The WCAB adopted and incorporated the workers' compensation judge's Report and Recommendation on Reconsideration. Defendant then appealed further and the Petition for Writ of Review was accepted by the Appellate Court.

The Court of Appeals firmly rejected the WCAB's logic that Labor Code Section 5814(b) requires the defendant discover any delay on their own in order to take advantage of that section and avoid imposition of the fuller penalty. The court noted that there is certainly nothing in the language of 5814(b) that expressly or even impliedly requires that the discovery of the delay be solely the result of the employer's investigation.

"We reject the WCAB's conclusion. Section 5814, subdivision (b), in plain and unambiguous terms, permits employers to pay a 10% self-imposed penalty 'in lieu of the penalty in subdivision (a)' if: (1) 'a potential violation of [section 5814] is discovered by the employer prior to an employee claiming a penalty under this section,' and (2) the penalty is paid 'within 90 days of the date of the [employer's] discovery.'

"By its terms, the statute thus does not limit its application to the event where the employer discovers a potential violation before the employee. Rather, the statute limits its application to the event where, as here, the employer discovers a potential violation before the employee claims a penalty. Had the Legislature intended another limitation to apply, it could have drafted it into the statute. It did not."

The court further rejected the argument by applicant that requiring the employer to discover any such errors in order to utilize the safe harbor provisions of 5814 would encourage employers to be diligent in monitoring their own conduct. The court noted:

"While that certainly is a laudable policy objective, we find nothing in the case law or section 5814's legislative history to support it. Moreover, the legal definition of the term "discovery" is "[t]he act or process of finding or learning something that was previously unknown." (Black's Law Dict. (Pocket Edition 1996) p. 193.) The definition thus focuses on the fact that the discoverer becomes aware of new information. It does not focus on, or even refer to, how or through what source the discoverer becomes aware of it."

The court pointed out that the injured worker only gets one check at a time while the employer may have to send out hundreds or even thousands of checks at the same time and therefore it would not be unexpected for the employee to be first aware that his/her check was late. If the Legislature wanted to imposed a requirement that the employer, not the employee be the one to discover the delay, it would have been logical that they would have done so.

The court also reversed the award of attorney fees remanding back to the WCAB. to reconsider the issue but not because of the reversal the 5814 award. The court did not hold that the reversal of the 5814 penalty rendered the 5814.5 issue moot, but remanded back to the WCAB. to consider the issue and whether attorney fees could appropriately be awarded.

While one would ordinarily think that the reversal of the 5814 award would end the issue, the court certainly leaves the door open for the WCAB to decide that even if the only benefit paid is the 5814(b) self-imposed penalty, there is still a basis to obtain a fee under 5814.5. Presumably such a fee would be limited to the efforts to obtain payment of the actual original award.

The name of the case is NUMMI v W.C.A.B.

--By attorney Richard "Jake" Jacobsmeyer. Jake is a partner in the firm Shaw, Jacobsmeyer, Crain & Claffey and can be reached at jakejacobsmeyer@shawlaw.org.

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