Calculating The Average Weekly Wage On A Defense Base Act Claim

One of the most difficult and annoying problems under the Defense Base Act is calculating an Average Weekly Wage.  Not that it is exactly easy under the Longshore and Harbor Workers' Compensation Act, whose benefits are incorporated into it.  The Longshore and Harbor Workers' Compensation Act, originally passed in 1927, in section 10, provides for three methods of doing the sums.  The first two deal with five day a week and six day a week workers.  These need not detain us here.  The methods work well in a factory with a hierarchical structure.  For seven day a week or casual workers, not so much.  So the Act provides a third way, in section 10(c):

“If either [subsection 10(a) or 10(b)] cannot reasonably and fairly be applied, such average annual earnings shall be such sum as, having regard to the previous earnings of the injured employee and the employment in which he was working at the time of his injury, and of other employees of the same or most similar class working in the same or most similar employment in the same or neighboring locality, or other employment of such employee, including the reasonable value of the services of the employee if engaged in self-employment, shall reasonably represent the annual earning capacity of the injured employee.”

Which translated into English, means roughly “do the best you can”.   The difficulty with a Defense Base Act claim is that workers overseas, especially in war zones, are paid a much higher wage than equivalent workers in the U.S.  So, if someone who earns about $40,000 a year as a truck driver in the U.S. goes to Kuwait at a salary of $70,000 for a one year contract, what is his average weekly wage? 

One answer, of course, is $70,000 divided by 52.  Its what he is earning, and what all the other drivers are earing.  When he is injured, that’s what he is losing.  And if we are only talking about temporary disability, then probably there’s no real objection.  

But what if it isn’t just temporary?  Here we need to recall the rules of the Longshore and Harbor Workers' Compensation Act, extended to the Defense Base Act as they apply to loss of wage claims.  If a worker has a residual wage loss, then the employer pays two thirds of the difference between the average weekly wage and the residual wage.  So if the worker with the $70,000 annual wage (i) recovers from the injury, (ii) is precluded from returning to his overseas posting, but (iii) is able to work as a truck driver in the U.S earning $40,000 a year, then he is entitled to ($70,000 - $40,000) /(2/3) = $20,000 annual compensation.

However, since the $40,000 he is currently earning is in today’s dollars, that amount needs to be reduced to its level or value at the date of the injury.  This is done using the percentage increase in the National Average Weekly Wage, in reverse.  So, if there were two years between the two numbers, and the combined total increase was 5%, then (roughly, for we are demonstrating a point, not calculating an exact result,) his earnings of $40,000 will reduce to $38,000.  This means that the wage is loss is compared “like for like”, and the employer will have to pay $21,333.33 annually.  To someone earning exactly the same wages as they were before they went on their overseas adventure.  And, given the reduction in U.S. presence, the job, which was a one-year contract, might not have been extended, so the employee wouldn’t have gone back to his old job anyway.  Since these benefits are for as long as the disability lasts, the worker will likely be paid for life.  Some might find this an undesirable result.

Therefore, some have suggested, and some courts have accepted, that the “average weekly wage” should be a “blend” of the contract wage and the “previous earnings of the employee”, so avoid a possible “windfall” for the employee.

In February 27, 2014 Administrative Law Judge Lee Romero issued his Decision and Order in the case of Lopez v Dyncorp, Case 2012 LDA 00613.  One of the issues was the calculation of the average weekly wage.  There was no permanent disability, so there is little startling fuss to be made.  But since the case sets a precedent, and it is a matter of principle, it is worth at least examining it.

Lopez had worked in the U.S. in the same sort of job as the one he took with Dyncorp.  He started working for them on April 9, 2011, and was injured 30.14 weeks later, on November 5.  During that time his average weekly was $1,797.73.  The Judge decided it would be correct to use the blended approach, so he calculated the average annual wage for the four years before the accident, ($45,155.24, giving an average weekly wage of $868.37,) then added the current average of $1797.73, and divided by two.  He found the average week wage was $1, 333.05.

Of course, what we immediately notice is that the Judge did not increase each of the four years’ wages by the percentage increase in the National Average Weekly Wage.  This seems to be a flaw in the calculations.  Calculating from the numbers provided in the Decision, but without any claim to precision, (lacking exact dates,) an “increased average annual wage” would be $47,203.93, an average weekly wage of $ 907.81, and a blended rate of $1,352.77.

If the four years wages are not increased, there should be a good explicit reason why not, and why the procedure should differ that of the loss of wage calculation.  The blended rate already ensures a reduced AWW; not to recognize annual increases is to reduce it further.  There is no policy reason to do that.