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and technical correction prior to official publication in the North Carolina
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NO. COA06-1407
NORTH CAROLINA COURT OF APPEALS
Filed: 6 November 2007
CURRY SHAW,
Employee,
Plaintiff,
v. North Carolina Industrial Commission
I.C.
File No. 053767
U.S. AIRWAYS, INC.,
Employer,
AMERICAN PROTECTION
INSURANCE COMPANY,
Carrier,
Defendants.
Appeal by plaintiff from opinion and award entered 13
September 2006 by the North Carolina Industrial Commission. Heard in the Court of Appeals 9 May 2007.
The
Sumwalt Law Firm, by Vernon Sumwalt and Mark T. Sumwalt, for
plaintiff-appellant.
Littler
Mendelson P.C., by Kimberly A. Zabroski, for defendants-appellees.
GEER, Judge.
Plaintiff Curry Shaw appeals from an opinion and award of
the North Carolina Industrial
Commission in which the Commission concluded that employer-funded contributions
to plaintiff’s two retirement accounts should not be included in the
calculation of plaintiff’s “average weekly wage,” a term defined under N.C.
Gen. Stat. §97-2(5) (2005). Whether
retirement contributions ought to be considered as part of an injured worker’s
average weekly wage is a question not previously considered by the North
Carolina appellate courts. Because we
have concluded that not all fringe benefits are required to be excluded from an
average weekly wage calculation and because the Commission did not apply the
proper analysis in determining whether the contributions at issue in this case
should be excluded, we reverse and remand the matter to the Commission so that
it may undertake the proper inquiry.
Contrary to the suggestion in the dissenting opinion,
nothing in this opinion holds that the benefits at issue in this case should be
included in calculating plaintiff’s average weekly wage. We leave that question for the Commission to
decide after applying the test mandated by Kirk v. N.C. Dep’t of Corr.,
121 N.C. App. 129, 465 S.E.2d 301 (1995), disc. review improvidently allowed,
344 N.C. 624, 476 S.E.2d 105 (1996), and Morrison-Knudsen Constr. Co. v.
Dir., Office of Workers’ Comp. Programs, 461 U.S. 624, 76 L. Ed. 2d 194,
103 S. Ct. 2045 (1983).
Plaintiff, a fleet service worker for defendant-employer
U.S. Airways, suffered a compensable back injury on 12 July 2000 while
attempting to lift a piece of heavy luggage from a baggage belt. Following the injury, plaintiff had a disc
laminectomy and a fusion with hardware implantation. Because of his injury-related pain, plaintiff has received nerve
root injections, undergone radio-frequency nerve obliteration procedures, and
taken medication. At the time of the
hearing before the deputy commissioner on 25 May 2005, plaintiff was still
receiving temporary total disability due to the 12 July 2000 injury.
The terms of plaintiff’s employment were set out in the
“1999 Agreement Between U.S. Airways, Inc. and The International Association of
Machinists and Aerospace Workers” (the “Agreement”). Under the Agreement, plaintiff was entitled to participate in two
separate retirement programs: an “Employee Savings Plan” and an “Employee
Pension Plan.”
The Savings Plan is a 401(k) plan that allows employees to
defer a certain percentage of their eligible income for retirement. Defendant-employer, in turn, will match 50%
of the employee’s personal contribution, up to 4% of the employee’s eligible
income, and will deposit the “matching” sum into the employee’s savings
account. In other words, the amount that
defendant-employer is obligated to deposit into the savings account could vary
between 0% and 2% depending on whether and how much the employee personally
contributed.
The Pension Plan, unlike the Savings Plan, is funded
entirely by contributions from defendant-employer. Because fleet service workers such as plaintiff are eligible for
the Pension Plan, defendant-employer automatically made the obligatory
contributions into plaintiff’s pension account. The amount contributed to each employee’s account is calculated
based on the employee’s income and age.
Despite their differences, the Savings and Pension Plans
have some common features. Fidelity
Investment Services administers the accounts in each plan. Fidelity offers a mix of pre-selected
investment options, including mutual funds, stocks, and bonds, in which the
employees can invest their personal contributions as well as
defendant-employer’s contributions.
Although the investment options available to employees are the same
under both the Savings and the Pension Plan, Fidelity maintains the accounts
for each plan separately.
Shortly after plaintiff’s injury, defendants filed a Form 22
that reported plaintiff’s average weekly wage as $825.55, a sum omitting
defendant-employer’s contributions to plaintiff’s Savings Plan account and to
plaintiff’s Pension Plan account. In
the 52 weeks preceding plaintiff’s injury, defendant-employer had contributed
$1,798.33 to plaintiff’s Pension Plan account and an additional $899.17 to
plaintiff’s Savings Plan account.
Inclusion of these contributions would have increased plaintiff’s
average weekly wage by $51.87 or the total amount of defendant-employer’s
retirement contributions divided by 52.
On 23 November 2004, plaintiff requested a hearing because
the parties were unable to agree on whether defendant-employer’s retirement
contributions were part of his average weekly wage. Following a 25 May 2005 hearing, Deputy Commissioner Phillip A.
Holmes entered an opinion and award concluding that defendant-employer’s contributions
to the retirement accounts should not be included in the calculation of
plaintiff’s average weekly wage.
Plaintiff appealed to the Full Commission, which entered an
opinion and award agreeing with the deputy commissioner. The Commission held that the retirement
contributions represented a “fringe benefit . . . that should not be included
in the calculation of [plaintiff’s] average weekly wage” and further determined
that “[p]laintiff’s correct average weekly wage is $825.55,” the amount
originally reported by defendants.
Plaintiff timely appealed to this Court from the Commission’s opinion
and award.
The only question arising in this appeal is whether
defendant-employer’s contributions to plaintiff’s two retirement accounts
(Savings and Pension) should be included in his “average weekly wage.” The calculation of an injured worker’s
compensation under our Workers’ Compensation Act is based on his or her
“average weekly wage” as defined by N.C. Gen. Stat. §97-2(5).[Note 1]
N.C. Gen. Stat. §97-2(5) “sets forth in priority sequence
five methods by which an injured employee’s average weekly wages are to be
computed, and in its opening lines, this statute defines or states the meaning
of ‘average weekly wages.’“ McAninch
v. Buncombe County Sch., 347 N.C.
126, 129, 489 S.E.2d 375, 377
(1997). In this case, plaintiff
argues that defendant-employer’s retirement contributions should be included
when calculating his average weekly wage pursuant to the first method. Under the first method, “‘[a]verage weekly wages’ shall mean the earnings of the
injured employee in the employment in which he was working at the time of the
injury during the period of 52 weeks immediately preceding the date of the
injury . . . divided by 52.” N.C. Gen.
Stat. §97-2(5). See also McAninch,
347 N.C. at 129, 489 S.E.2d at 377 (noting “the primary method, set forth in
the first sentence, is to calculate the total wages of the employee for the
fifty-two weeks of the year prior to the date of injury and to divide that sum
by fifty-two”).
While the word “earnings” appears to be the key concept in
defining “average weekly wage,” the Workers’ Compensation Act does not specify
what is, or what is not, encompassed within the term “earnings.” Our task is to determine whether the
legislature intended to exclude from “earnings” defendant-employer’s
contributions to plaintiff’s retirement accounts. Morris v. Laughlin Chevrolet Co., 217 N.C. 428, 430, 8
S.E.2d 484, 485 (1940) (“‘The object of all interpretation of statutes is to
ascertain the meaning and intention of the Legislature, and to enforce it.’“
(quoting Kearney v. Vann, 154 N.C. 311, 315, 70 S.E. 747, 749 (1911))).
Unlike other jurisdictions, North Carolina has not, in
its Workers’ Compensation Act, chosen
to expressly exclude fringe benefits from an average weekly wage
calculation. See, e.g., 76 Del.
Laws ch. 1, §5 (2007) (amending Del. Code Ann. tit. 19, §2302) (“‘Average
weekly wage’ means the weekly wage earned by the employee at the time of the
employee’s injury at the job in which the employee was injured, including
overtime pay, gratuities and regularly paid bonuses . . . but excluding all
fringe or other in-kind employment benefits.”); N.M. Stat. Ann. §52-1-20 (2003)
(“‘average weekly wage’ means the weekly wage earned by the worker at the time
of the worker’s injury, including overtime pay and gratuities but excluding all
fringe or other employment benefits and bonuses”); 77 Pa. Stat. Ann. §582
(2001) (“The terms ‘average weekly wage’ and ‘total wages,’ . . . [shall not]
include fringe benefits, including, but not limited to, employer payments for
or contributions to a retirement, pension, health and welfare, life insurance,
social security or any other plan for the benefit of the employee or his
dependents . . . .”). The United States
Congress has also excluded fringe
benefits for purposes of calculating compensation under the federal Longshore
and Harbor Workers’ Compensation Act. See
33 U.S.C. §902(13) (2000) (“The term wages does not include fringe benefits,
including (but not limited to) employer payments for or contributions to a
retirement, pension, health and welfare, life insurance, training, social
security or other employee or dependent benefit plan . . . .”).
Although our General Assembly did not expressly address
fringe benefits in the Workers’ Compensation Act, it did so in the Employment
Security Act. The Employment Security
Act specifically excludes many fringe benefits from the definition of “wages”
set out in that Act: “The term ‘wages’ shall not include the amount of any
payment with respect to services to, or on behalf of, an individual in its
employ under a plan or system established by an employing unit . . . on account
of (i) retirement, or (ii) sickness or accident disability, or (iii) medical
and hospitalization expenses in connection with sickness or accident disability
or (iv) death.” N.C. Gen. Stat.
§96-8(13)(a) (2005). See also
N.C. Gen. Stat. §96-8(13)(b) (excluding other employee benefits from definition
of “wages” under Employment Security Act).
The Employment Security Act demonstrates that the General Assembly knows
that employee benefits are an issue with respect to the concept of wages and
knows how to specifically exclude them from a definition of wages when it
intends to do so. We, therefore,
cannot, with respect to the Workers’ Compensation Act, simply presume the
General Assembly intended to exclude all fringe benefits from the term
“earnings.” See Deese v.
Southeastern Lawn & Tree Expert Co., 306 N.C. 275, 278, 293 S.E.2d 140,
143 (1982) (“[I]t is not reasonable to assume that the legislature would leave
an important matter regarding the administration of the [Workers’ Compensation]
Act open to inference or speculation; consequently, the judiciary should avoid ‘ingrafting upon a law something that
has been omitted, which [it] believes ought to have been embraced.’“ (quoting Shealy
v. Associated Transport, Inc., 252 N.C. 738, 741, 114 S.E.2d 702, 705
(1960))).
Indeed, the statute itself indicates that at least some
fringe benefits may be encompassed within the average weekly wage
calculation. The statute provides that:
“Wherever allowances of any character made to an employee in lieu of wages are
specified part of the wage contract, they shall be deemed a part of his earnings.” N.C. Gen. Stat. §97-2(5).[Note 2]
The principal North Carolina case to consider whether an
employer-funded fringe benefit should be included within an average weekly wage
calculation is Kirk v. N.C. Dep’t of Corr., 121 N.C. App. 129, 465
S.E.2d 301 (1995), disc. review improvidently allowed, 344 N.C. 624, 476
S.E.2d 105 (1996). In Kirk, the
plaintiff — the next of kin of a deceased state worker — sought to include the
State’s contributions to the employee’s health insurance in the computation of
the average weekly wage. While this
Court concluded that the health insurance contributions should not be included
when calculating the employee’s average weekly wage, nothing in Kirk
suggests that all fringe benefits should be excluded from the average weekly
wage computation.
Accordingly, neither the statute nor this Court’s prior
opinions supports the Full Commission’s conclusion that defendant-employer’s
contributions to the two plans should not be included within the average weekly
wage calculation simply because they constituted fringe benefits. The question whether N.C. Gen. Stat.
§97-2(5) encompasses retirement contributions such as those in this case is one
of first impression. Other
jurisdictions have considered the question and reached conflicting
conclusions. See Seagraves v. Austin
Co. of Greensboro, 123 N.C. App. 228, 230, 472 S.E.2d 397, 399 (1996)
(consulting foreign case law to address question of first impression under
North Carolina Workers’ Compensation Act); South Carolina Ins. Co. v. Smith,
67 N.C. App. 632, 634, 313 S.E.2d 856, 858 (“As the particular question before
us has never been confronted by the courts of this State, in addition to
reviewing pertinent North Carolina authority, we have examined cases from other
jurisdictions . . . .”), disc. review denied, 311 N.C. 306, 317 S.E.2d
682 (1984).
The leading treatise on workers’ compensation law makes
the following general observation: “In
computing actual earnings as the beginning point of wage-basis calculations,
there should be included not only wages and salary but any thing of value
received as consideration for the work, as, for example, tips, bonuses,
commissions and room and board, constituting real economic gain to the
employee.” 5 Arthur Larson and Lex
K. Larson, Larson’s Workers’ Compensation Law §93.01[2][a], at 93-19
(2005) (emphasis added). Nonetheless,
many jurisdictions have held that pension or retirement plan contributions do
not belong to the category of valuable “things” that form the basis of wages
for purposes of calculating workers’ compensation benefits. See, e.g., Luce v. United Techs. Corp.,
247 Conn. 126, 133-41, 717 A.2d 747, 752-55 (1998) (construing Connecticut’s
“average weekly wage” definition to exclude insurance and pension benefits); Barnett
v. Sara Lee Corp., 97 Md. App. 140, 148, 627 A.2d 86, 90-91 (holding that
“average weekly wage” does not include pension contributions and noting that
“[h]ad it so intended, the Maryland legislature could have specified fringe
benefits such as pension contributions within the ‘wages’ definition”), cert.
denied, 332 Md. 702, 632 A.2d 1207 (1993); Antillon v. N.M. State
Highway Dep’t, 113 N.M. 2, 5-6, 820 P.2d 436, 440 (1991) (holding that
contributions to state retirement plan “are not within the definition of
‘wages’“ under New Mexico’s workers’ compensation scheme).
The leading case espousing the view that the value of
“fringe benefits,” such as employer-funded pension or insurance benefits,
should not be factored into wage calculations is the United States Supreme
Court’s decision in Morrison-Knudsen Constr. Co. v. Dir., Office of Workers’
Comp. Programs, 461 U.S. 624, 76 L. Ed. 2d 194, 103 S. Ct. 2045
(1983). In that case, the Supreme Court
held that employer contributions to union trust funds for health and welfare,
pensions, and training were not encompassed by the then-existing definition of
“wages” in the Longshore and Harbor Workers’ Compensation Act, 33 U.S.C.
§902(13). Id. at 629-30, 76 L.
Ed. 2d at 199, 103 S. Ct. at 2048-49.
The statute defined “wages” as “‘the money rate at which the
service rendered is recompensed . . . including the reasonable value of board,
rent, housing, lodging, or similar advantage received from the employer . . .
.’“ Id. at 629, 76 L. Ed. 2d at
199, 103 S. Ct. at 2048 (quoting 33 U.S.C. §902(13)). Thus, the “narrow question” before the Court was whether such
employer “contributions are a ‘similar advantage’ to ‘board, rent, housing,
[or] lodging.’“ Id. at 630, 76
L. Ed. 2d at 199, 103 S. Ct. at 2048 (alteration original). Although the Court reviewed relevant
legislative history as well as statutory structure and underlying policy goals,
the Court primarily decided as a matter of plain meaning that the employer
contributions to the union trust funds were not “wages” because, unlike board
or lodging, these contributions did not have a “present value . . . readily
convert[ible] into a cash equivalent.” Id.,
103 S. Ct. at 2049.
According to Larson’s, “[t]he Supreme Court’s
examination of the ‘wages’ definition within the Longshore Act represents the
majority position on the treatment of fringe benefits.” Larson’s, §93.01[2][b], at
93-22. Larson’s itself generally
agrees with the Morrison-Knudsen ruling and cautions against judicial
interpretation of the concept of “wages” to indiscriminately include fringe
benefits:
Workers’
compensation has been in force in the United States for over eighty years, and
fringe benefits have been a common feature of American industrial life for most
of that period. Millions of
compensation benefits have been paid during this time. Whether paid voluntarily or in contested and
adjudicated cases, they have always begun with a wage basis calculation that
made “wage” mean the “wages” that the worker lives on and not miscellaneous
“values” that may or may not someday have a value to him or her depending on a
number of uncontrollable contingencies.
Before a single court takes it on itself to say, “We now tell you that,
although you didn’t know it, you have all been wrongly calculating wage basis
in these millions of cases, and so now, after eighty years, we are pleased to
announce that we have discovered the true meaning of ‘wage’ that somehow eluded
the rest of you for eight decades,” that court would do well to undertake a
much more penetrating analysis than is visible in the [D.C.] Circuit Court’s
opinion in [Morrison-Knudsen] [i.e., the opinion reversed by the Supreme
Court] of why this revelation was denied to everyone else for so long.
Id., §93.01[2][b],
at 93-21 to -22.
Contrary to the majority view, some jurisdictions have held
that fringe benefits should be included when calculating the amount of the
workers’ compensation benefit, at least where the worker’s right to such
benefits is vested or where the amount of benefits was based on the units of
time worked. See Ragland v.
Morrison-Knudsen Co., 724 P.2d 519, 520 (Alaska 1986) (holding “that the
readily identifiable and calculable value of fringe benefits,” in which worker
was indisputably vested and which were the product of a collective bargaining
agreement, “should be included in the wage determination”); Ashby v. Rust
Eng’g Co., 559 A.2d 774, 774-76 (Me. 1989) (where collective bargaining
agreement committed employer to pay a certain amount “to various
union-established funds for employee health benefits, pension benefits, etc.,”
and where such payments were based on “unit of employee time worked,” court
held that “such payments fall under the definition of ‘average weekly wages,
earnings or salary’ for purposes of calculating compensation benefits”), superceded
by statute as stated in Hincks v. Robert Mitchell Co., 1999 ME 172, _9, 740 A.2d
992, 995 (1999) (“shortly after our decision in Ashby, the Legislature
enacted P.L. 1991, ch. 615, §A-20, providing that fringe benefits may not be
included in an employee’s average weekly wage”).
We do not consider this issue on an entirely blank
slate. This Court in Kirk,
although not bound by Morrison-Knudsen in construing the North Carolina
Workers’ Compensation Act, found the United States Supreme Court’s analysis
relevant to the determination whether it would be “unfair” to exclude Kirk’s
health insurance benefits from the calculation of his average weekly wage. More specifically, the Kirk Court
relied on the “reasoning” in Morrison-Knudsen “that wage means ‘the
money rate at which service is recompensed under the contract of hiring’ and
not ‘fringe benefits that cannot be converted into a cash equivalent.’“ Kirk, 121 N.C. App. at 136, 465
S.E.2d at 306 (quoting Morrison-Knudsen, 461 U.S. at 629, 76 L. Ed. 2d
at 199, 103 S. Ct. at 2048). Applying
this reasoning, Kirk held:
A State
employee receives the benefits of the State Health Plan only when needed. The value of this benefit cannot be
quantified. After carefully considering
the evidence, we cannot say that the Commission’s failure to include such
allowance produced an unfair result for the plaintiff. Thus, absent a finding that method two
produces an unfair result, the Commission did not err by excluding the State’s
contributions to Kirk’s Health Plan in the calculation of Kirk’s average weekly
wages.
Id.
In Kirk, the plaintiff did not argue that the health
insurance contributions were “earnings” under N.C. Gen. Stat. §97-2(5), as
plaintiff has in this case. Rather, the
plaintiff in Kirk contended that these contributions should be included
pursuant to the “fourth method” for computing average weekly wage under
§97-2(5), arguing that it would be “unfair” to exclude them. Id. at 135, 465 S.E.2d at 305. The “fourth method,” which explicitly
incorporates a “fairness” component, provides: “where for exceptional reasons
the foregoing [methods] would be unfair, either to the employer or employee,
such other method of computing average weekly wages may be resorted to as will
most nearly approximate the amount which the injured employee would be earning
were it not for the injury.” N.C. Gen.
Stat. §97-2(5).[Note 3]
While Kirk did not directly analyze the term
“earnings” as used within N.C. Gen. Stat. §97-2(5), the decision may be fairly
read as holding that the State-provided health insurance contributions were not
“earnings” because they were “‘fringe benefits that cannot be converted into a
cash equivalent.’“ Kirk, 121
N.C. at 135, 465 S.E.2d at 305. Under Kirk,
therefore, employee benefits must be considered on a case-by-case basis to
determine whether they can be converted into a cash equivalent. If so, such benefits may be considered as
part of the worker’s average weekly wage.
Neither Kirk nor Morrison-Knudsen elaborated
on what it means to be capable of conversion into a cash equivalent. Although Morrison-Knudsen concluded
that the pension plans at issue in that case could not be “converted into a
cash equivalent on the basis of their market values,” 461 U.S. at 630, 76 L.
Ed. 2d at 199, 103 S. Ct. at 2049, the reasoning does not necessarily appear
applicable to the terms of the retirement accounts in this case. The Supreme Court in Morrison-Knudsen
rejected the respondent’s suggestion that the benefits could be converted into
a cash value “by reference to the employer’s cost of maintaining these funds or
to the value of the employee’s expectation interests in them . . . .” Id., 76 S.E.2d at 199-200, 103 S. Ct.
at 2049. The Court concluded that the
employer’s cost “measures neither the employee’s benefit nor his
compensation.” The Court explained:
It does not
measure the benefit to the employee because his family could not take the 68¢
per hour earned by Mr. Hilyer to the open market to purchase private policies
offering similar benefits to the group policies administered by the union’s trustees. It does not measure compensation because the
collective-bargaining agreement does not tie petitioner’s costs to its workers’
labors. . . . He derives benefit from the Pension and Disability Fund according
to the “pension credits” he earns. These
pension credits are not correlated to the amount of the employer’s
contribution; the employer pays benefits for every hour the employee works,
while the employee earns credits only for the first 1,600 hours of work in a
given year. Furthermore, although the
employer is never refunded money that has been contributed, the employee can
lose credit if he works less than 200 hours in a year or fails to earn credit
for four years. Significantly, the
employee loses all advantage if he leaves his employment before he attains age
40 and accumulates 10 credits.
Id. at 630-31, 76
L. Ed. 2d at 200, 103 S. Ct. at 2049.
By contrast, in this case, the record contains evidence from
which the Commission could find that the employer’s cost in at least the
Pension Plan measures the employee’s benefit and his compensation. Plaintiff offered evidence that the amount
paid was tied to his specific labors — in other words, the hours that he
worked. According to plaintiff, for
every hour that he worked, he received a specific amount of money. The amount of money he earned was then
deposited into plaintiff’s own, individual account and not an overall trust
fund. If he were given this amount
directly, he could invest it in a similar account, such as the 401(k) Savings
Plan in which plaintiff was already permitted to deposit a percentage of his
earnings or a private IRA account.
Contrary to the Pension and Disability Fund in Morrison-Knudsen,
plaintiff will not lose any of the amounts deposited in those accounts if he
leaves his employment. The Commission
did not consider the Supreme Court’s discussion of the “employer’s cost” and
whether that reasoning fits the evidence in this case regarding the plan.
In Morrison-Knudsen, the Supreme Court also rejected
the respondent’s alternative argument that the value of the trust funds could
be calculated based on the value of “the employee’s expectation interest” in
them, holding that the employee’s interest is “at best speculative,” because
employees have no voice in the administration of these plans and thus have no
control over the level of funding or the benefits provided and because “the
value of each fund depends on factors that are unpredictable.” Id. at 631, 76 L. Ed. 2d at 200, 103
S. Ct. at 2049. For the Pension and
Disability Fund at issue in that case, the Court observed that its value
“depends on whether [the employee’s] interest vested . . . .” Id.
The Commission, in this case, appears to have focused
entirely on this allusion to “speculative” benefit to the employee, a factor
also considered by this Court in Kirk.
Yet, the Commission did not address the fact that plaintiff’s interest
in the retirement benefits, in contrast to Morrison-Knudsen, was vested,
thus eliminating the sole concern of the Supreme Court with respect to pension
plans.
The speculative nature of any benefit was the primary
concern of this Court in Kirk.
Although Kirk found that the value of the benefits derived from
having state-funded health insurance “cannot be quantified,” such benefits were
deemed unquantifiable because the state employee would only benefit from the
insurance contributions if, and only if, he became sick and needed to visit a
doctor. Kirk, 121 N.C. App. at
136, 465 S.E.2d at 306 (“A State employee receives the benefits of the State
Health Plan only when needed.”).
Similarly, in parsing Congress’ exclusion of fringe benefits
from “wages” under the Longshore Act, the Fourth Circuit in Universal
Maritime Serv. Corp. v. Wright, 155 F.3d 311, 324 (4th Cir. 1998) (emphasis
added), explained that “[t]he value that an employee derives from employer
contributions to retirement, pension, life insurance, and similar benefit plans
is too speculative to be readily converted into a cash equivalent because
the employee’s right to obtain tangible benefits is contingent on fulfilling
conditions that might never be satisfied.”
The Fourth Circuit ultimately concluded: “When an employee’s right to a
tangible benefit does not depend on contingent factors . . ., the value of the
benefit is not too speculative to be readily converted into a cash equivalent
under the [Longshore] Act. As long
as the employee earns an unconditional entitlement to a tangible benefit (even
though the benefit may not be received until sometime in the future), the value
of the benefit can be identified and calculated as a part of the employee’s
wages.” Id. at 324 n.14
(emphasis added).
The Commission, however, in determining that the value of
the benefit was speculative considered only the feasibility of estimating how
much plaintiff could actually withdraw from his retirement accounts at any
given time in the future, as reflected in the following findings of fact:
10. There was a period
of 30 days between a participant’s termination date and when employees could
actually gain access to the funds in their retirement account. This period allowed defendant-employer’s
payroll department time to make any necessary adjustments before the employee’s
account was withdrawn. Also, if an
employee terminated employment before the age of 55 and chose to cash out his
retirement account, he had 20% of the value withheld for taxes and was subject
to an additional 10% early withdrawal penalty.
11. Although it would be possible to add up all of the various contributions and deferrals made into an employee’s retirement fund over the course of his employment, the Commission finds that estimating how much an employee could actually withdraw at any given time would be virtually impossible because the amount could be higher or lower based upon the employee’s investment gains and losses. In addition, any amount plaintiff has in his retirement account is subject to applicable state and federal taxes, as well as a 10% early withdrawal penalty if he cashed out prior to the age of 55, further complicating the quantification of his actual benefit.
In
focusing on the question of quantification at some point in time in the future,
the Commission lost sight of the more important question: plaintiff’s actual
earning capacity. See Derebery
v. Pitt County Fire Marshall, 318 N.C. 192, 197, 347 S.E.2d 814, 817 (1986)
(explaining that “the purpose of the average weekly wage basis” is to serve “as
a measure of the injured employee’s earning capacity”). The issue whether the employer’s
contributions will be subject to “investment gains and losses” in the future
cannot be the determinative factor.
For example, there is no dispute here that the portion of
plaintiff’s wages that he chose to contribute to the Savings Plan should be
included in his average weekly wage. Yet,
the Commission’s analysis would apply equally to those contributions. Just like defendant-employer’s
contributions, plaintiff’s personal contributions will be subject to the
vicissitudes of the stock market and would be subject to taxes and penalties if
withdrawn early. Under the Commission’s
rationale, plaintiff’s personal contributions to his Savings Plan account would
have to be excluded from his “earnings” because intervening market fluctuations
might result in “investment gains and losses.”
Nevertheless, we of course include as part of an employee’s earnings the
portion of his wages that he seeks to contribute to a 401(k) plan, such as the
Savings Plan in this case.
The relevant point in time for “valuation” of those wages
voluntarily contributed to the Savings Plan is the amount paid by the employer
to the employee on payday. Logically,
therefore, the question whether a benefit paid by the employer is convertible
into a cash equivalent should be considered as of the date the employer made
the contribution and not some unspecified date in the future. See Morrison-Knudsen, 461 U.S.
at 630, 76 L. Ed. 2d at 199, 103 S. Ct. at 2049 (focusing on whether “[t]he
present value” of the employee benefits is “readily converted into a cash
equivalent”).
We believe the Universal Maritime test is an
appropriate first step in determining whether an employee benefit can meet the
standard set out in Morrison-Knudsen and adopted in Kirk: Did the employee earn “an unconditional
entitlement to a tangible benefit (even though the benefit [might] not be
received until sometime in the future)?”
Universal Maritime, 155 F.3d at 324 n.14. If so, then Morrison-Knudsen’s and Kirk’s
concern about the speculative nature of a benefit will have been
addressed. In determining further
whether the present value of the benefit is readily converted into a cash
equivalent, the Commission should apply the reasoning in Morrison-Knudsen
to see whether the proposed valuation “measures . . . the employee’s benefit
[or] his compensation.” 461 U.S. at
630, 76 L. Ed. 2d at 200, 103 S. Ct. at 2049.
Such an analysis upholds the basic purpose of N.C. Gen.
Stat. §97-2(5), which is to ensure that, in determining the amount of
compensation due, the result achieved is fair and just to both the injured
worker and the employer. See
McAninch, 347 N.C. at 130, 489 S.E.2d at 378 (“Ultimately, the primary
intent of this statute is that results are reached which are fair and just to
both parties.”); Loch v. Entm’t Partners, 148 N.C. App. 106, 110, 557
S.E.2d 182, 185 (2001) (“The primary intent of the N.C. Gen. Stat. §97-2(5) is
to make certain that the results reached are fair and just to both parties.”).
The exclusion of tangible, unconditional benefits from an
employee’s pre-injury “earnings” could, in our view, unfairly hurt workers
whose employment contracts call for greater amounts of so-called “fringe”
benefits and lesser amounts of cash remuneration. Such an average weekly wage would not necessarily provide an
accurate measure of earning capacity. On the other hand, by limiting inclusion to benefits that meet the
concerns set forth in Morrison-Knudsen and Kirk, employers are
protected from an unreasonable expansion of the concept of “earnings.”
We hold, in short, that the Commission acted under a misapprehension
of the law when it concluded that defendant-employer’s contributions to
plaintiff’s two retirement accounts should not be included in the calculation
of plaintiff’s average weekly wage. To
the extent that the Commission believed that no fringe benefits should be
included, that conclusion is not supported by the statute or prior case
law. Further, the Commission did not
consider proper factors in determining that the retirement contributions could
not be readily converted into a cash equivalent. In this case, like the respondent in Morrison-Knudsen,
plaintiff argues that the amount paid by the employer is a proper measure of
value. After determining whether
plaintiff was entitled to an unconditional tangible benefit, the Commission
should have followed the reasoning in Morrison-Knudsen in assessing
whether the employer’s contributions measure plaintiff’s benefit or his
compensation.
It is well established that where “the conclusions of the
Commission are based upon a . . . misapprehension of the law, the case should
be remanded so ‘that the evidence [may] be considered in its true legal
light.’“ Clark v. Wal-Mart, 360
N.C. 41, 43, 619 S.E.2d 491, 492 (2005) (quoting McGill v. Town of Lumberton,
215 N.C. 752, 754, 3 S.E.2d 324, 326 (1939)).
Accordingly, we reverse the Commission’s opinion and award and remand
this matter so that the Commission may consider the evidence anew under the
proper legal standard.
We note that, in some of its findings, the Commission did
not consider each of the retirement plans individually. On remand, the Commission should make
specific findings of fact relating to each plan and make a separate
determination as to whether the employer contribution for that plan should be
included in calculating the average weekly wage. We leave to the discretion of the Commission whether to accept
additional evidence relating to this issue.
As a final matter, we urge the General Assembly to review
N.C. Gen. Stat. §97-2(5). Our Workers’
Compensation Act is a comprehensive statutory “compromise between the
employer’s and employee’s interests.” Whitley
v. Columbia Lumber Mfg. Co., 318 N.C. 89, 98, 348 S.E.2d 336, 341
(1986). The definition of “average
weekly wage” in N.C. Gen. Stat. §97-2(5) is a central element of this
compromise. In other states, the
legislature has clarified its intent after their states’ appellate courts have
struggled to decide how to treat fringe benefits. Because of the prevalence of benefits such as those in this case,
we believe guidance by the General Assembly in this area is critical.
Reversed and remanded with instructions.
Judge ELMORE concurs.
Judge HUNTER dissents in a separate opinion.
NO. COA06-1407
NORTH CAROLINA COURT OF APPEALS
Filed: 6 November 2007
CURRY SHAW,
Employee,
Plaintiff,
v. North Carolina Industrial Commission
I.C.
File No. 053767
U.S. AIRWAYS, INC.,
Employer,
AMERICAN PROTECTION
INSURANCE COMPANY,
Carrier,
Defendants.
HUNTER, Judge, dissenting.
Because I would affirm the Full Commission’s holding in this
case, I respectfully dissent.
I believe the majority opinion is based on
misinterpretations of the relevant statute and case law, expanding the meaning
of each to an impermissible and illogical extent. Any more detailed mandates on what may and may not be included in
these computations must come from our legislature, not from this Court, and as
such remand to the Commission is inappropriate.
I. N.C. Gen. Stat.
§97-2(5)
Here, with irrelevant portions removed, is the statute at
issue:
(5) Average
Weekly Wages. -- [First method:] “Average weekly wages” shall mean the earnings
of the injured employee in the employment in which he was working at the time
of the injury during the period of 52 weeks immediately preceding the date of
the injury . . . . [Second method:]
Where the employment prior to the injury extended over a period of fewer than
52 weeks, the method of dividing the earnings during that period by the number
of weeks and parts thereof during which the employee earned wages shall be
followed; provided, results fair and just to both parties will be thereby
obtained. [Third method:] Where, by reason of a shortness of time during
which the employee has been in the employment of his employer or the casual
nature or terms of his employment, it is impractical to compute the average
weekly wages as above defined, regard shall be had to the average weekly amount
which during the 52 weeks previous to the injury was being earned by a person
of the same grade and character employed in the same class of employment in the
same locality or community.
[Fourth method:] But where for exceptional reasons the
foregoing would be unfair, either to the employer or employee, such other
method of computing average weekly wages may be resorted to as will most nearly
approximate the amount which the injured employee would be earning were it not
for the injury.
Wherever allowances of any character made to an employee in
lieu of wages are specified part of the wage contract, they shall be deemed a
part of his earnings.
N.C.
Gen. Stat. §97-2(5) (2005) (emphasis added).[Note 4]
A. “Unfairness”
The majority opinion makes much of the fact that the statute
authorizes the modification of the statutory methods of calculation where
unfairness would result. This is a
misinterpretation of the plain language of the statute.
The italicized portions of the statute above are the only
sections in which “fairness” is discussed.
As our Supreme Court has noted, the statute provides an “order of
preference” for which method of calculation is to be used, and “the primary
method, set forth in the first sentence, is to calculate the total wages of the
employee for the fifty-two weeks of the year prior to the date of injury and to
divide that sum by fifty-two.”
McAninch v. Buncombe County Schools, 347 N.C. 126, 129, 489 S.E.2d
375, 377 (1997). “The final method, as
set forth [as the fourth method above], clearly may not be used unless there
has been a finding that unjust results would occur by using the previously
enumerated methods.” Id. at 130,
489 S.E.2d at 378. Thus, the fourth
method -- that authorizing modification to prevent an unfair result -- is a
failsafe option to remedy those exceptional cases where the wage as
calculated by one of the first three methods produced a result unfair to either
party. That is, it is not a fourth
alternative, equal to the others; it is a provision to resort to when to do
otherwise would create injustice. It is
also not a method for evaluating individual benefits for inclusion in this
calculation.
B. Plain language
North Carolina General Statute 97-2(5) does not cover the
types of benefits at issue in this case.
As defendants note, in 1929, when the North Carolina Workers’
Compensation Act was enacted, the type of pension plans at issue here were
almost nonexistent, and none of the ensuing amendments in the many years since
have held that employer contributions to such plans should be considered
“wages” for the purpose of the Act, even though such contributions have been
addressed in other statutes. See,
e.g., N.C. Gen. Stat. §96-8(13)(b)(1) (2005) (stating “‘[w]ages’ shall not include: 1.
Any payment made to, or on behalf of, an employee . . . from
or to a trust that qualifies under the conditions set forth in sections
401(a)(1) and (2) of the Internal Revenue Code”). There is nothing in either the statute itself or the case law that
supports such an expansion of the law.
As the majority notes, many jurisdictions that have considered this question
have held that general language in workers’ compensation statutes should not be
read to include pension contributions as part of “wages.” See, e.g., Barnett v. Sara Lee
Corp., 97 Md. App. 140, 148-50, 627 A.2d 86, 90-91 (holding that “[h]ad it
so intended, the Maryland legislature could have specified fringe benefits such
as pension contributions within the ‘wages’ definition” and, since it did not,
the Court would not expand the definition to include it) cert. denied,
332 Md. 702, 632 A.2d 1207 (1993); Luce v. United Techs. Corp., 247
Conn. 126, 717 A.2d 747 (1998); Antillon v. N.M. State Highway Dep’t,
820 P.2d 436, 440 (N.M. Ct. App. 1991).
The portion of Larson’s Workers’ Compensation Law
quoted by the majority bears repeating here:
Workers’
compensation has been in force in the United States for over eighty years, and
fringe benefits have been a common feature of American industrial life for most
of that period. Millions of
compensation benefits have been paid during this time. Whether paid voluntarily or in contested and
adjudicated cases, they have always begun with a wage basis calculation that
made “wage” mean the “wages” that the worker lives on and not miscellaneous
“values” that may or may not someday have a value to him or her depending on a
number of uncontrollable contingencies.
Before a single court takes it on itself to say, “We now tell you that,
although you didn’t know it, you have all been wrongly calculating wage basis
in these millions of cases, and so now, after eighty years, we are pleased to
announce that we have discovered the true meaning of ‘wage’ that somehow eluded
the rest of you for eight decades,” that court would do well to undertake a
much more penetrating analysis than is visible in the [Circuit Court opinion in
Morrison-Knudsen, reversed by the Supreme Court,] of why this revelation
was denied to everyone else for so long.
5
Arthur Larson and Lex K. Larson, Larson’s Workers’ Compensation Law
§93.01[2][b], at 93-21 to -22 (2005).
Even as it cites to this treatise, the majority opinion runs afoul of
its warning.
C.
Guiding principles
The majority cites to Deese v. Lawn and Tree Expert Co.,
306 N.C. 275, 293 S.E.2d 140 (1982), as support for its statement that this
Court cannot presume that our legislature intended to exclude all fringe
benefits, including those at issue in the case at hand, from the definition of
“wages.” This conclusion, however, goes
against Deese’s statement of this Court’s guiding principles in this
type of interpretation:
This Court has interpreted the statutory provisions of North
Carolina’s workers’ compensation law on many occasions. In every instance, we have been wisely
guided by several sound rules of statutory construction which bear repeating at
the outset here. First, the Workers’
Compensation Act should be liberally construed, whenever appropriate, so that benefits
will not be denied upon mere technicalities or strained and narrow
interpretations of its provisions.
Second, such liberality should not, however, extend beyond the clearly
expressed language of those provisions, and our courts may not enlarge the
ordinary meaning of the terms used by the legislature or engage in any method
of “judicial legislation.” Third, it is
not reasonable to assume that the legislature would leave an important matter
regarding the administration of the Act open to inference or speculation;
consequently, the judiciary should avoid “ingrafting upon a law something
that has been omitted, which [it] believes ought to have been embraced.”
Id. at 277-78,
293 S.E.2d at 142-43 (citations omitted; alteration in original; emphasis added). The majority’s opinion engages in precisely
the type of judicial legislation and “ingrafting upon [the] law” that these
principles forbid. The Workers’
Compensation statute makes no mention of the types of benefits at issue here,
and it is not the place of this Court to impose on the statute a concept or
language that it believes the legislature should have included. As can be seen from the quote above, the
only alternative to a basic wage calculation is when certain benefits have been
offered “in lieu of wages,” and that portion of the statute has not been put in
issue in this case. N.C. Gen. Stat.
§97-2(5). For this Court to hold that
the statute does in fact cover a range of other benefits is tantamount to
imposing our own language onto the statute.
II. Kirk and Morrison-Knudsen
Essentially, here, the majority has taken two cases that
exclude fringe benefits -- Morrison-Knudsen and Kirk -- and
cobbled them together to support a holding that the benefits at issue here
should not be excluded. An in-depth
look at these two cases shows that they do not support the majority’s holding.
A. Morrison-Knudsen
Kirk mentions Morrison-Knudsen
briefly, and the majority opinion in this case treats Morrison-Knuden as
part of the foundation on which its opinion is built. However, that case dealt with a specific federal statute -- the
Longshoremen’s and Harbor Workers’ Compensation Act, 33 U.S.C. _ 902(13) -- and
the language that the Court closely analyzed was substantially different than
that at issue here:
“‘Wages’ means the money rate at which the service rendered
is recompensed under the contract of hiring in force at the time of the injury,
including the reasonable value of board, rent, housing, lodging, or similar
advantage received from the employer, and gratuities received in the course of
employment from others than the employer.”
Morrison-Knudsen
Constr. Co. v. Director, OWCP, 461 U.S. 624, 629, 76 L. Ed. 2d 194, 199
(1983) (quoting 33 U.S.C. §902(13)).
The essence of the Court’s holding was that only benefits similar to
“‘board, rent, housing, [or] lodging’” would be considered part of “‘wages’”
under the statute, and the important quality that those benefits shared were
their “present value that can be readily converted into a cash equivalent on the
basis of their market values.” Id.
at 630, 76 L. Ed. 2d at 199. The
Court’s subsequent analysis and elaboration on this point show that this
statement does not mean that if a benefit can be easily quantified it should be included; rather, it means that
only benefits with some ascertainable present value -- as opposed to a future,
theoretical value -- may be included in this calculation. That is, the types of benefits --
compensation for rent or housing, for example -- that may be (and frequently
are) translated into simple cash payments added on to an employee’s
paycheck. These are the kinds of
benefits that an employee could in all likelihood choose to have provided to
him as a cash payment.
This is not true of the types of benefits at issue in Kirk
or in the case at hand. In Kirk,
the benefit was the employer’s contribution to a trust fund for the employee’s
health insurance; in Morrison-Knudsen, it was a union trust fund for a
variety of health-related costs, including insurance and disability; here, it
is the contribution to pension funds.
In neither case could the employee go to the employer and demand that
the benefits be ceased and, instead, that the employee begin receiving the
benefits’ cash equivalent.
B. Kirk
The majority opinion misconstrues in several ways the
holding of Kirk v. State of N.C. Dept. of Correction, 121 N.C. App. 129,
465 S.E.2d 301 (1995), disc. review improvidently allowed, 344 N.C. 624,
476 S.E.2d 105 (1996). Kirk is
not, as the majority suggests, a mandate to analyze various benefits on a
case-by-case basis to determine whether they can be converted into a cash
equivalent, nor does it provide authority for this Court to do so.
In Kirk, this Court was presented with several issues
related to a workers’ compensation holding by the Industrial Commission. The last such issue related to whether it
was error for the Commission not to include in the weekly wage calculation the
amount paid by the State, Kirk’s employer, for his health insurance. Kirk, 121 N.C. App. at 134, 465 S.E.2d
at 305. Kirk argued that the Commission
erred by making the calculation based on the method outlined by this portion of
the statute, which the Court refers to as “method two”:
Where the
employment prior to the injury extended over a period of fewer[Note 5]
than 52 weeks, the method of dividing the earnings during that period by the
number of weeks and parts thereof during which the employee earned wages shall
be followed; provided, results fair and just to both parties will be thereby
obtained.
N.C.
Gen. Stat. §97-2(5). Kirk contended
that the Commission should have instead made its calculations based on this
provision: “But where for exceptional
reasons the foregoing would be unfair, either to the employer or employee, such
other method of computing average weekly wages may be resorted to as will most
nearly approximate the amount which the injured employee would be earning were
it not for the injury.” Id.
This Court held that the latter method “should not be used
unless the result under method two would be unjust.” Kirk, 121 N.C. App. at 135, 465 S.E.2d at 305. As such, the Court concluded, “absent a
finding that method two produces an unfair result, the Commission did not err
by excluding the State’s contributions to Kirk’s Health Plan in the calculation
of Kirk’s average weekly wages.” Id.
at 136, 465 S.E.2d at 306.
In Kirk, the Court cited to the United States Supreme
Court’s holding in Morrison-Knudsen, 461 U.S. 624, 76 L. Ed. 2d 194, for
its reasoning that “wage means ‘the money rate at which service is recompensed
under the contract of hiring’ and not ‘fringe benefits that cannot be converted
into a cash equivalent.’” Kirk,
121 N.C. App. at 136, 465 S.E.2d at 306.
The Court then stated “[t]he same reasoning applies in the present
case[,]” followed by a holding that no case law
support[s]
plaintiff’s position that an unfair result is reached by not including the
employer’s contribution to Kirk’s health care.
A State employee receives the benefits of the State Health Plan only
when needed. The value of this benefit
cannot be quantified. After carefully
considering the evidence, we cannot say that the Commission’s failure to
include such allowance produced an unfair result for the plaintiff.
Id.
This portion of the opinion makes it clear that the ease
with which a benefit may be quantified is not the dispositive factor in this
issue. The Court did not hold in Kirk
that if a court can quantify or value a benefit, it must be included;
rather, it says if you cannot quantify the benefit, that is one factor
to consider in excluding the benefit from this calculation.
The majority’s statement that “nothing in Kirk
suggests that all fringe benefits should be excluded from the average weekly
wage computation” is a very misleading summary of that case’s holding. The Court does not consider the question of
inclusion for all fringe benefits for the calculation of weekly wages in Kirk. Instead, the Court briefly considers whether
the exclusion of a certain type of fringe benefit renders an unfair result under
one of the primary statutory methods of calculating wages.
III. Practical
Effect
This Court’s engaging in this type of judicial expansion,
without the benefit of debate in the legislature as to benefits and drawbacks,
will harm those employees not receiving workers’ compensation: Employers will be encouraged to abandon
their pension plans due to the unanticipated increase in costs this holding
would allow. Any general expansion of
the types of compensation to be covered by this statute must come from our
legislature. At any time, employers and
employees as private parties are free to contract for more than what is
required by the statute; that is, if the legislature were to clarify that
certain benefits are not covered by the statutory term “wages,” private
parties may certainly execute an employment contract providing that, in this
employee’s case, such benefits will be considered part of the employee’s
wages for purposes of calculating wages under the workers’ compensation
statute.
IV. Conclusion
I believe the majority opinion misconstrues the existing law
in an attempt to extend it to cover benefits the statute itself does not
contemplate. Any further clarification
on this issue must come from our legislature, not from this Court ingrafting
language upon the statute. Action on
our part in the absence of the debate of merits and drawbacks inherent to the
legislature will result in an inappropriate and uneven interpretation of this
statute. As such, I respectfully
dissent.
NOTES
1. Curiously, defendants, in their
brief, only defend the Commission’s decision with respect to the exclusion of
the Savings Plan matching contributions, even though plaintiff has challenged
the omission of contributions to both the Savings and Pension Plan accounts.
2. In its first conclusion of law, the
Commission noted that plaintiff presented no evidence and did not argue that
the Savings and Pension Plan contributions were allowances “in lieu of wages.”
Plaintiff also did not include any assignment of error on appeal purporting to
argue that defendant-employer’s contributions were allowances in lieu of
wages. Accordingly, we have no occasion
in this case to consider whether the contributions might qualify as such
allowances. Cf. Greene v. Conlon
Constr. Co., __ N.C. App. __, __, 646 S.E.2d 652, 655 (2007) (holding that
weekly payment of $320.00 to employee for meals and lodging was an allowance in
lieu of wages).
3. Although Kirk, 121 N.C. App.
at 136, 465 S.E.2d at 306, also held that “contributions by the State to insure
an employee under a health plan is not an allowance made ‘in lieu of wages’
within the meaning of this statute,” the allowance-in-lieu-of-wages provision,
for reasons discussed above, is not at issue here.
4. As is clear from the language
quoted, the statute provides two types of compensation that may be included in
a computation of “weekly wages”: (1)
wages and (2) compensation received “in lieu of wages.” As the majority notes, plaintiff does not
argue to this Court that the benefits at issue should be considered
compensation “in lieu of wages,” and as such, the only way the benefits could
be included in this calculation is if we were to consider them included in the
term “wages.”
5. Kirk was decided based on the
1994 version of this statute; the only difference between that version and the
2005 version at issue in the case here is that the later version uses “fewer”
where the earlier version used “less.”