Page 1

To Reduce or Not to Reduce? Is Section 40 the Answer? A PAPER BY ROBBIE ELDER JULY 2010


To Reduce or Not to Reduce? Is Section 40 the Answer?

Summary A discussion of matters relevant to a determination of a partially incapacitated worker’ s entitlement to weekly benefits.

Who Does This Impact? Anyone responsible for assessing claims for weekly compensation.

What Action Should Be Taken? Consider carefully all factors,including discretionary matters,when determining a worker’s entitlements pursuant section 40.

Contents:

TURKSLEGAL

Overview

2

Section 40

2

Mitchell Case - The ‘5 Steps’

2

Conclusion

9

PAPER


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

Overview When a worker is partially incapacitated and has exhausted an entitlement, or become disentitled under Section 38 of the Workers Compensation Act 1987 (WCA), the worker will be entitled to compensation as defined by the application of Section 40 WCA. A Section 40 entitlement is calculated by determining the difference between the weekly amount the worker would be earning but for the injury (comparable earnings) and the average weekly amount that the worker is earning or would be able to earn in some suitable employment. The Section 40 entitlement can never exceed the statutory rate applicable to the worker for total incapacity and is limited by the maximums provided for in the Section. The calculation of a Section 40 entitlement must be based on evidence to demonstrate that the figure arrived at is soundly based. If payments are to be reduced by application of the section then all the evidence on which the decision is based must be provided to the worker at the time a Section 54 Notice is issued. If the worker disputes the calculation of the entitlement under Section 40 they may lodge a dispute in the Commission. The quality of the evidence relied upon by the insurer will often determine whether a reduction of entitlements is maintained in any proceedings before the Commission. This paper does not seek to provide an exhaustive discussion of entitlements for partially incapacitated workers but considers some of the more common applications of Section 40.

Section 40 The section has various components which are broken down and discussed throughout the commentary which follows. A full extract of the section is annexed to the paper. In summary, Section 40 provides that a partially incapacitated worker is entitled to be compensated for the reduction in their weekly earnings as a result of a work related injury.

Mitchell Case – The ‘5 Steps’ The leading case for the determination of Section 40 entitlements is Mitchell v Central West Area Health Service (1997) 14 NSWCA 526 (Mitchell ). In fact, the case is applied in the Commission as if it formed part of the section itself. The decision in Mitchell established the procedure which must be applied when determining the appropriate weekly entitlement under Section 40 WCA. The ‘5 step’ process is as follows: 1. Amount the worker would probably be earning – if they remained uninjured - s40(2)(a); 2. Amount the worker is able or would be able to earn in suitable employment - s40(2)(b); 3. Subtract 1 from 2; 4. Discretion to consider if the figure provided at ‘Step 3’ is an appropriate reflection of the worker’s entitlement – ‘appear proper in the circumstances of the case’ - s40(1); and

TURKSLEGAL

PAPER

2


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

5. Make award for figure in step 4. Steps 3 and 5 are self explanatory, but the procedures at Steps 1, 2 and 4 are open to interpretation and have varying applications.

STEP 1 – AMOUNT THE WORKER WOULD PROBABLY BE EARNING The best evidence of the amount the worker would probably be earning but for the injury is evidence of the earnings of comparable employees. An employee will be comparable to a worker if they were employed in a comparable grade and work as the worker: Section 43(2)(c). The earnings of the injured worker and the comparable employee should also be roughly equivalent for the period 6 to 12 months prior to the injury. If at the time of the injury there were no comparable employees, the following are examples of evidence which may be used to calculate probable earnings but for the injury: 1. The earnings of any employee who replaced the injured worker; 2. The pre-injury average weekly earnings, adjusted in accordance with increases to the Award rate since the date of injury; 3. A report from a Section 40 Report Provider assessing the amount paid for the pre-injury work on the open labour market; 4. The earnings at the date of injury together with evidence that earnings in the particular type of employment have not increased since the injury Ledingham v The Glen Cotton Company Pty Limited [2009] NSWWCCPD 15 (11 February 2009) – in this case it was determined that by itself a lapsing of time does not qualify the worker for an increase in the comparable rate of pay without evidence to support an increase; 5. The pre-injury average weekly earnings adjusted in accordance with increases in the CPI. Whittaker v Abacus Security and Surveillance Pty Limited [2006] NSWWCCPD 86 (12 May 2006) – this is generally not favoured as an appropriate basis for calculation, but has been applied in Cumming v Colin Sullivan and Dorothy Sullivan [2009] NSWWCCPD 80 (17 July 2009) and Miller v A & R Pearson Pty Limited [2007] NSWWCCPD 111. This is an issue of evidence similar to that in Ledingham. A decision maker must rely on evidence and cannot rely on ‘special knowledge’ or ‘judicial notice’ to apply a CPI calculation.

STEP 2 – AMOUNT THE WORKER IS ABLE OR WOULD BE ABLE TO EARN IN SUITABLE EMPLOYMENT Able to Earn Often a Section 40 reduction includes a dispute about capacity, whereby the worker’s treating doctor’s assessment of capacity conflicts with the assessment of a medico-legal doctor and/or the Section 40 Assessment report. In such cases, all evidence relating to the worker’s capacity should be reviewed and a decision made as to which assessment is the more reliable. The evidence must be served with the Section 54 Notice and a clear statement of the basis for the insurer’s assessment of the worker’s capacity, upon which the Section 40 calculation is based, should be provided in the Notice. An example of a paragraph to include in the Section 54 Notice is as follows: Although your GP considers that you are only fit for 20 hours per week, Dr Fairplay stated in his report dated 1 January 2009 that you were fit for full hours in suitable employment. We are of the view that Dr Fairplay’s opinion is more reliable. We consider you fit for full time suitable employment.

TURKSLEGAL

PAPER

3


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

Evidence of capacity can be provided in the following documents and reports: 1.

WorkCover certificates;

2.

Functional Capacity Assessments;

3.

Medico-Legal Reports;

4.

Treating Doctor Reports; and

5.

Section 40A Assessment Reports.

The amount that the worker would be able to earn in some suitable employment can be assessed under Section 40A WCA, in a report which addresses the worker’s capacity and suitable employment options available. It is important to consider the following aspects of the report when assessing the quality of the evidence: (a) The factors addressed under Section 43A WCA which defines suitable employment are discussed in Ric Developments t/as Lane Cove Pool Mart v Muir (2008) NSW CA155. The case concluded that there must be a realistic prospect of the worker securing the job on the general labour market reasonably accessible to the worker; (b) Other factors relevant to a determination of suitable employment under Section 43A are: (i) (ii) (iii) (iv)

The worker’s age, education, work experience; Place of residence; Section 53 training received; and Duration of unemployment.

(c) The report must be an expert evaluation – has the report provider included a professional resume with the report? (d) The information provided in the report must be properly referenced – i.e. the sources of average weekly earnings figures for the suitable employment positions identified. The statistical information included in the report should be properly referenced so that a decision maker can be satisfied of its accuracy. (e) Ensure that actual employment data is collected from within the ‘labour market reasonably accessible to the worker’. This can be done by the report provider cold calling employers and following up on job advertisements. (f ) Use a common sense approach to the positions identified. Challenge the report provider to amend the assessment if inconsistent information is included – e.g. if the worker’s functional tolerances are clearly not appropriate for an employment option identified. This will avoid problems with issues raised by workers’ solicitors questioning the veracity of the report if the matter is litigated in the Commission. (g) Ensure that the Functional Capacity Assessor has provided meaningful analysis of the suitable employment positions identified in the Vocational Assessment. If the report appears to have been prepared by two assessors, then the two opinions must coincide.

TURKSLEGAL

PAPER

4


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

(h) Request a comment on the positions identified in the report from the treating doctor and/or a medico-legal doctor. Voluntary Redundancy is an issue, depending on the circumstances of the case, which may be relevant to Step 2 ‘ability to earn’ or Step 4 ‘discretion to reduce’. If the voluntary redundancy is argued as a ‘self diminution of earning capacity’ it is relevant to Step 2. In Mitchell the Court of Appeal stated ‘… self induced diminution of earning capacity lies squarely within the exercise required to be carried out at the second stage (Step 2).’ If the circumstances of the voluntary redundancy raise factors relevant to the exercise of discretion, then this can be addressed in Step 4 as per Luland v MPA Energy Services Pty Limited [2006] NSWWCCPD 74, which is discussed later in the paper. However, ADP Tydd in Galal v Department of Lands [2006] NSWWCCPD 279 (24 October 2006) stated that the issues should not be ‘doubled up’ in both steps. Is Earning It is a long held principle that when a worker is currently employed, the rate of pay of that employment will be taken at first instance as being the rate to be applied when calculating the worker’s ability to earn in suitable employment. The onus to prove that the actual earnings are not a proper reflection of the ability to earn rests with the insurer: Aitkin v Goodyear Tyre & Rubber Company (Aust) Ltd (1945) 46 SR (NSW) 20. Circumstances where the actual earnings may not be considered a ‘proper reflection’ of the worker’s earning capacity are: 1. Where the worker is self employed and business earnings do not reflect the actual value of his work. Office of the Director of Public Prosecutions v Olsen [2009] NSWWCCPD 26 (11 March 2009) which refers to two earlier decisions J & H Timbers v Nelson [1972] HCA 12 and Cage Developments Pty Ltd v Schubert [1983] HCA 37. The calculation of a self employed worker’s earnings is based on the ‘value of the worker’s labour’ either supported by an examination of the complete business accounts and the remuneration that the worker obtains, or by assessing the cost of employing another person to do the labour the worker performs; 2. Where the worker undertakes an apprenticeship or further training at a wage loss; 3. Where the worker is capable of performing more hours of work, but is limiting his hours of work voluntarily; 4. Any other factual scenario in which it is apparent that the worker could be earning more than his actual earnings. If the worker is employed, the evidence which is required to demonstrate the actual earnings includes: 1. Payslips and Group Certificates; 2. A statutory declaration of earnings; 3. Income Tax Assessments.

STEP 4 – DISCRETION ‘THE CIRCUMSTANCES OF THE CASE’ The discretion under Section 40(1) WCA is very broad and enables the decision maker to incorporate factors which properly reflect the ‘circumstances of the case’ into the determination.

TURKSLEGAL

PAPER

5


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

Where it is arguable that the circumstances of the case are such that the benefit calculated at Step 3 does not reflect a ‘proper’ amount, evidence may be served to reduce the worker’s entitlement further, to properly reflect the amount the worker should be entitled to. When discussing the operation of the Section 40 discretion, McHugh JA in Australian Wire Industries Pty Ltd v Nicholson (1985) 1 NSWCCR 50 explained that: It is at this stage that the Compensation Court can and must examine all the facts. The matters which can be examined include such matters as retirement, other supervening illnesses or injuries, the personal employment history of the worker, and so on... Compensation for lost earnings as the result of work injuries remains the primary purpose of the statute. Money which was not likely to be earned cannot be regarded as lost earnings for that purpose (at 56- 57).

(a) Maternity Leave In Hirst v Illawarra Area Health Service (2001) 21 NSWCCR 82 it was held that pregnancy and subsequent motherhood do not in themselves disentitle a worker to compensation for partial incapacity. The fact that the worker intended to take maternity leave regardless of whether she was injured or not, was deemed irrelevant to her primary entitlement under Section 40. However, the Court found that maternity leave should be taken into account when exercising discretion under Section 40 because giving birth, breast feeding etc were inconsistent with the employment. Therefore the Section 40 discretion was applied because the decision to take maternity leave was incompatible with the worker’s employment. Furthermore, it was also held impermissible to award no compensation. I note that Hirst and subsequent cases dealing with maternity leave and weekly benefits compensation have not drawn a distinction between paid or unpaid leave. In Tracey McDonald v Director General of Education & Training (WCC 14543 – 2004) Arbitrator Thompson determined that the applicant was partially incapacitated over the maternity leave period as a result of the 2 workplace injuries, and therefore was entitled to be compensated during her period of maternity leave. However, the rate of compensation was reduced to the equivalent of 1 day’s pay per week, whereas the applicant would have been entitled to a higher rate of 2 – 3 days pay per week had she not been on maternity leave during this period. (b) Incarceration In Strunland v Mid Coast Meat Co Pty Ltd [1999] NSWCC 9 it was held that a heavy discount should be applied to the amounts that a worker is entitled to for the period in which he or she is imprisoned and is unable to sell their labour on the open labour market. However, the reduction cannot result in a nil entitlement. Examples of the Section 40 discretion applied during a period of imprisonment: •

$400/week reduced to $25/week during the period of imprisonment: Strunland v Mid Coast Meat Co Pty Ltd [1999] NSWCC 9.

$300/week reduced to $100/week during a period of imprisonment: State Rail Authority of NSW v Davies (1995) 11 NSWCCR 314.

$200/week reduced to $25/week during the period of imprisonment: Hadchiti v Llandilo Staircases Pty Ltd & Another [2002] NSWCC 10.

$125/week reduced to $10/week during the period of imprisonment: Velko Kostovski v Australian Traineeship System (Host

TURKSLEGAL

PAPER

6


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

Employer Timber and Building Materials Association) (WCC 004567/2008, determined 27 August 2008). (c) Supervening illness/medical condition A supervening illness will not affect the application of Section 40, where the incapacity from a workplace injury would have continued irrespective of the supervening illness. Jayson Edward O’Cass v Grafton City Council (WCC 10518-2004) concerned a worker who injured his back in the course of his employment as a cleaner with Grafton City Council. He was partially incapacitated for work as a result of injuries to his back and had he continued to be employed in the same, or some comparable employment, his earnings would have been $511.00 per week. The worker later developed a brain tumour. Arbitrator Jennifer Scott considered the worker’s work-related skills in the general labour market and held that but for his supervening brain tumour he would have been able to earn $408.80. Accordingly, the worker’s loss was determined as being $102.20 per week, which would have been identical to the loss determined without the supervening illness. This issue is distinguished from maternity and incarceration matters by the fact that the non-work related incapacity is not a ‘self imposed disability’. (d) Migrant Workers In Singh v TAJ (Sydney) Pty Limited (2006) NSWCA 330 a worker was injured whilst working under a valid visa, which then expired while the worker was in receipt of weekly compensation. Previously, the view of the Compensation Court was that this disentitled the worker to compensation. However, Singh radically changed the previous attitude regarding a migrant worker’s entitlements to weekly benefits and is now the leading case on this issue. The Court of Appeal held that the visa status of a migrant worker was not to be taken into account when determining an entitlement under Section 40. A worker’s visa status should not be considered when calculating the worker’s post-injury earning capacity because this step is meant to be a theoretical exercise. Furthermore, a worker will not be disentitled to weekly benefits when there is a change in visa status which then makes it illegal for the worker to work in Australia. (e) Non-compliance with Rehabilitation In Formosa v Express Transport & Packaging Pty Ltd [2009] NSWWCCPD 21 (27 February 2009) Handley ADP determined that an Arbitrator would be correct in considering the worker’s non-compliance with rehabilitation as a discretionary factor under Step 4. However, it was incorrect to use this issue under Step 2, namely in determining the worker’s ability to earn. (f ) Voluntary redundancy If a worker accepts a voluntary redundancy there are a number of factors to be addressed in assessing the weekly entitlement under Section 40. The acceptance of voluntary redundancy may give rise to the application of Section 40(2A) WCA (unreasonable rejection of suitable employment), Step 2 of the Mitchell test (application of ability to earn at the pre-redundancy rate) and Step 4 (discretion to consider factors relating to the voluntary redundancy which impact on the ‘circumstances of the case’). The circumstances of each situation must be examined on their individual merits. Zinc Corporation Limited v Robbins [1999] NSWCA 194 held that a voluntary redundancy may be relevant to the exercise of discretion under Section 40. If the worker’s position prior to the voluntary redundancy was readily available on the open labour market, then acceptance of a voluntary redundancy will be viewed as the worker removing him or herself from a position of suitable employment which was and would have continued to be available.

TURKSLEGAL

PAPER

7


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

In Luland v MPA Energy Services Pty Limited [2006] NSWWCCPD 74 a worker’s Section 40 benefits were reduced to nil because he had created a situation whereby there would be no opportunity for suitable work with the employer, he did not look for any other work after being made redundant, and it was likely that his earnings would have been reduced following the workplace restructuring. However, where a worker is employed in a position which accommodates his or her physical restrictions, a normal application of the Section 40 calculation must take place. In Dive v Sutherland Shire Council and Linfox Australia Pty Ltd [2006] NSWCCPD 104 a worker who accepted a voluntary redundancy was not subjected to the discretion under Section 40 because his disability was quite severe and his actions in taking the redundancy were considered reasonable. If a worker’s acceptance of a voluntary redundancy is considered ‘unreasonable’, it will give rise to a sound basis for reduction under Section 40. However, the ‘reasonableness’ of a decision to accept voluntary redundancy has been broadly interpreted and appears to favour an injured worker’s decision in the majority of circumstances. President Keating discussed the definition of reasonable in McDonald v North Coast Area Health Service [2009] NSWWCCPD 50 (14 May 2009). The worker’s availability for employment was limited due to personal child care obligations, and he resigned his employment as a result of the employer’s inability to accommodate his limited availability. This was considered reasonable rejection of employment. In Galal v Department of Lands [2006] NSWWCCPD 279 (24 October 2006) the worker initiated the process of voluntary redundancy, whilst he was being provided with permanently modified duties by the employer and knowing that he would face difficulty obtaining employment in the general labour market. Acting Deputy President Tydd refused to exercise discretion at Step 4 of ‘Mitchell’ as she considered the impact of the voluntary redundancy was a Step 2 issue. However, she also accepted that the voluntary redundancy did not affect the calculation at Step 2, as the worker’s position was a permanently modified duties role not available on the open labour market. (g) Retirement In the Supreme Court of New South Wales (Court of Appeal) decision of Australian Wire Industries Pty Ltd v Nicholson (1985) 1 NSWCCR 50, McHugh JA stated that an intention to retire was a relevant factor to be considered when exercising discretion under Section 40. Accordingly: A worker who retires at 40, 50, 65 or 70, does not, as a matter of law, destroy his right to be compensated for partial incapacity. Retirement or intention to retire, however, is a factor to be considered in determining whether it is proper to award the whole or a part of the difference between the hypothetical earnings under the first step and the actual or potential earnings of the worker under the second step.

In this case the worker was being compensated at the rate of $171.90 per week from 1 April 1984 and continuing, notwithstanding that he turned 65 on 7 July 1983 and that he stated he had no intention of working after age 65. Furthermore, there was no evidence from the worker that after turning 65 he wished to continue working but was prevented from working because of his injury. In this case it was also noted that the worker had been receiving a full pension since November 1983. McHugh JA considered that: To give the worker the whole of the difference between the first and second step on the basis that he would have continued to work after 65 when he had said the opposite does not seem a proper exercise of discretion.

N.B. This was a case decided at the time that a worker was entitled to weekly benefits until the time of death. It may still be applicable to workers who take early retirement.

TURKSLEGAL

PAPER

8


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

Conclusion There are a clear set of rules to be applied when considering a worker’s entitlement pursuant to Section 40 WCA. However, the complexities created by the evidence and discretionary factors can make a Section 40 calculation a difficult operation. If there are aspects of the ‘circumstances of the case’ which suggest that a discretionary factor may be relevant when assessing Section 40 benefits it would be prudent to seek legal advice. Further, if you do not have sufficient evidence to support your determination or if there is additional evidence that will assist in determining the entitlement, that evidence should be obtained prior to the evaluation of the entitlement and the issuing of a Section 54 Notice.

TURKSLEGAL

PAPER

9


To Reduce or Not to Reduce? Is Section 40 the Answer? by Robbie Elder

For more information, please contact: Robbie Elder Lawyer T: 02 8257 5766 robbie.elder@turkslegal.com.au

Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Workers Compensation | Commercial Disputes | Insurance & Financial Services | Business & Property

www.turkslegal.com.au This Pap er is cur rent at i t s d ate o f p u b l i c at i o n . Wh i l e eve r y c a re h a s b e e n t a k e n i n t h e p re p a rat i o n o f t h i s Pa p e r i t d o es not constitute legal advice and should n o t b e re l i e d u p o n fo r t h i s p u r p o s e. Sp e c i f i c l e g a l a dv i ce s h o u l d b e s o u g ht o n p a r t i c u l a r m atters. Tur ksLegal do es not accept resp on s i b i l i t y fo r a ny e r ro r s i n o r o m i s s i o n s f ro m t h i s Pa p e r. Th i s Pa p e r i s co py r i g ht a n d n o p a r t m ay b e repro duced in any for m without th e p e r m i s s i o n o f Tu r k s Le g a l . Fo r a ny e n q u i r i e s, p l e a s e co nt a c t t h e a u t h o r o f t h i s Pa p e r. Š Tu r k s Le g a l 2 01 0

To Reduce or Not to Reduce? Is Section 40 the Answer?  

A discussion of matters relevant to a determination of a partially incapacitated worker’ s entitlement to weekly benefits.

To Reduce or Not to Reduce? Is Section 40 the Answer?  

A discussion of matters relevant to a determination of a partially incapacitated worker’ s entitlement to weekly benefits.

Advertisement