How is past and future economic loss compensation calculated?
One of the major areas of compensation in a personal injury claim is the area of economic loss or loss of income. When a person's capacity to perform their work duties is impeded because of their injury, whether it is from a traffic accident, an injury at work, a slip and fall accident, or from medical malpractice you are looking at a substantial claim. And rightly so.
The right to proper injury compensation
If a person's ability to earn an income to support themselves or their family, is reduced due to an injury, then this is a very serious matter, which can have immense repercussions. Where this occurs, the injury victim deserves to receive proper compensation to ensure that they have adequate finances they can rely upon, if they cannot earn an income, or are struggling to do so, due to their injury.
When a person sustains injury in a car accident or in the workplace or in any other type of accident due wholly or partly to the fault of another, and they bring a personal injury claim seeking compensation and damages for their injury, what our legal system does is try to, as much as reasonably possible, place that person into the position they were prior to sustaining their injury, via a compensation payment.
The basis upon which calculation of past & future economic loss is made
How a Court compensates an injured person monetarily for their accident injuries, is by looking at what was the most likely future for that person if the accident had not occured, and then comparing it to what it has been since the accident, and what it is likely to continue being in the future, with their accident injuries. And the Court then tries to make a monetary award in an attempt to try to limit that loss as much as possible. They try to, as much as reasonably possible, put the injured worker, driver, pedestrian, cyclist, shopper etc, back into the position they most likely would have been in, but for the accident.
One head of damage where calculating such compensation can be quite difficult to assess, is in the area of economic loss or lost income. Under this head of damage you can claim for both past and future economic loss. This means you can claim for any wages or business profits that you most likely would have earned since the accident, but for your injuries, and if your injuries are going to continue to impair your earning capacity into the future, you can also claim for the loss of income you will most likely sustain over the period you would have continued to earn income into the future (e.g. retirement age).
Example of calculation of past & future loss of income
For example, Joe is a 37 year old bricklayer, who unfortunately sustained whiplash injuries to his neck and back in a motor car accident. His doctors tell him that he will not be able to work as a bricklayer anymore and he will now have to find alternate less strenuous work. Joe is out of work after the car accident for about 6 months until he finds a job in the sales area at the local Hardware Store called "Buntings". Unfortunately Joe finds the work at Buntings a little difficult because he has trouble standing on his feet for long periods, bending and reaching to pack the shelves of the store with products and helping customers carry purchases to their car, which is part of the Buntings service.
As a result Joe has to reduce his work hours and work only 3 days a week but his supervisor is not happy with this or with how slow Joe is with restocking the store shelves. Before the accident however, Joe was working 50 hours a week doing bricklaying and he had been doing this work for more than 20 years. He knows of little else but bricklaying. Joe brings a claim for compensation for his car accident injuries and in particular wants to recover his loss of income sustained because of the accident and his consequent injuries.
So what a Court will look at when considering the loss of income that Joe has suffered and will most likely suffer in the future is:
- The actual income Joe has lost in not being able to continue in his work as a bricklayer. This is an easy calculation, being the difference between the earnings he would have most likely received working in his bricklaying job less what he has actually earned at Buntings since the accident. Of course, if Joe was going to get a payrise or was in line for a supervisor or team leader role with increased wages, then he would also be entitled to claim for this loss but he would need to provide supportive evidence of this.
- When working out Joe's past economic loss, the Court will base its calculations on the usual net earnings Joe was receiving prior to the accident. The Court may also look at whether Joe was not always consistent with his earnings - it may be he worked overtime a great deal and therefore his loss should be increased for this. So Joe would have earned 100 weeks of $1200, less what Joe earned selling whipper snippers at Buntings of $5,000. calculating to $115,000. But Joe also would have had the opportunity to do overtime on 2 projects since the accident, and therefore he gets to also claim for this loss and the Court increases his past economic loss claim to $125,000.
- The Court then has to calculate what Joe is likely to lose income-wise in the future due to his injuries. Joe tells the Court that he was going to continue working as a bricklayer for as long as he could and hopefully to the age of retirement at 67 years. He had also hoped to move up into more advanced roles in his employment, until he climbed to the role of Project Manager which meant he would have earned much higher wages in the future but for his accident injuries. Joe has been earning around $400 a week at Buntings but is scared he will lose his job because his supervisor is not happy with him due to the work restrictions he has with his injuries. He does not know what he will be able to do if this happens as he has no experience in any other work but bricklaying and he has limited sales experience with Buntings. Joe is told by his doctors that he can work in more sedentary roles, but he may have to take breaks regularly so he can stretch and walk around, but he should be able to work at least 30 hours a week in such a role.
- So when the Court looks at calculating Joe's future lost income, they look at all of the things Joe says he was going to do in his work, and then consider if the evidence supports that this was, on the balance of probabilities, likely to have been the case if not for Joe's accident. The Court then calculates Joe's future economic loss on this basis. So Joe's future economic loss would be the $800 per week he is presently losing in weekly wage payments into the future to age 67 years. This is calculated using the Litigation Tables. These are actuarial tables which provide multipliers that reduce losses down to present day values. These tables are used because Joe would not have received his future earnings all in one lump sum now. He would have earned it over a long period of time into the future - so it needs to be brought down to a value that if received now and invested conservatively, he will most likely achieve the equal amount over the period of his employment to age 67 years. So Joe's loss of wages to age 67 years under the Litigation Tables is $800 x 822 (actuarial multiplier over the period to Joe's retirement at age 67 years)= $657,000.
- Now because it cannot be assured that Joe would have worked consistently into the future in his employment as a bricklayer but for his injuries, or he may not have suffered some other injury or medical condition that limited his earning capacity, or he may not have been able to do such heavy work to age 67 years, the Court will reduce Joe's damages to take these contingencies of life into account. In Joe's case they reduce it by 20% to around $526,000. They then however, decide to increase this to some extent to allow for the loss of opportunity to advance in his career as he had planned prior to the accident, to work overtime regularly as he said he would have, and for the risk that he may be put off from Buntings in the near future and find it difficult to locate work with his injuries and limited employability. And when taking all of these things into account, the Court increases Joe's claim to $750,000. So this is then Joe's future economic loss
Every case is different
Every case is different as injuries affect people in different ways, and there are so many varying occupations, varying earning capacities and opportunities for advancement and increased wages etc. Some injuries may not impact on a person's employment as much as another's, whereas, some injuries, although considered minor injuries, may impact more on an occupation that one would think would be the least impacted. So the circumstances of each claimant has to be looked at carefully when assessing past and future economic loss.
For example, a person in the more sedentary, light role of a secretary, who sits at a desk, typing on a computer for long periods may suffer greater difficulty from a whiplash injury to the neck, then someone in retail sales who can move about more easily and frequently and regulate their posture. But just because the loss of income may not be as evident as Joe's loss of income, where he had to change employment completely, it does not mean they are not entitled to substantial awards for future economic loss. And where there is an injury that causes a worker impairment, and may interfere with their work capacity, or mean they may have more days off on sick leave or have difficulty later on in their work as they grow older and their injury deteriorates over time, the Court may award them a "global lump sum amount" for future economic loss to account for this.
For example, the Court may decide that a global sum of $100,000 is appropriate to be awarded to the secretary referred to above, who has continued in her work performing all her duties, but:
- Has had to take intermittent days off with flare ups of her injury;
- Requires to take regular breaks in her work;
- Is at risk of being prejudiced by her injuries if her sympathetic employer should decide to put her off, onto the open labour market;
- Is at risk of losing advancement opportunities due to the impact of her injuries on her work;
- Is at risk of having to retire at an earlier time due to her injury deteriorating into the future.
Global awards for economic loss
Global awards for future economic loss are usually awarded where the loss is not able to be readily calculated as in Joe's case, but it is more probable than not, that there is going to be a loss of income sustained, and the greater the likely extent of that loss, the greater the global award will be. For instance, a worker who, although he suffers impairment due to his accident injury, is able to keep working in his usual occupation, however it is likely he will suffer prejudice when looking for work in the future due to his injury, or has been limited in his employment opportunities generally due to his injury, may receive a global award of $50,000 for future economic loss to compensate for this, even though it seems he is not losing any income since sustaining his injury.
Global awards in economic loss claims, can also happen as a type of "top up" to cater for some likely contingency in the future causing further loss of income which cannot be calculated with accuracy, such as in Joe's case. And often this will be applied generally to allow for a loss of employability caused by the injury. In today's economic climate, a worker cannot afford to be injured or impaired by an injury. The open labour market is a very competitive market, and demanding of able bodied workers. An employer has the option to choose and more often than not, the chips are stacked against a worker with an injury when up against a worker without. There is no doubt that an injury, compromises a person's employability in the open labour market.
And the same thing can also be said of an injured worker's employability within employment. An employee with an injury, who needs assistance with certain tasks, requires increased days off work, cannot work increased hours and is less efficient because they have to take regular work breaks, or they are distracted with pain, due to their injury, is undoubtedly going to have more difficulty achieving a promotion within their employment because of this.
What is loss of employability?
This is what is called "loss of employability" or "reduced employability" - where your injury makes you less employable in the eyes of an employer. Another aspect of injury that causes a loss of, or reduced, employability is of course the general reduction in your employment capacity - where your injury reduces the type of work you can now take on and therefore your work options, as well as your capacity for work.
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