Establishment of the Average Monthly Wage: “Injury” Means “Disability” in Arizona’s Workmen’s Compensation Statutes

By Harlan J. Crossman*

I. INTRODUCTION

The Arizona Constitution directed the enactment of a workmen's compensation law to compensate employees for injuries which arise out of and in the course of employment.[1] A finding of fault is not a requirement of workmen's compensation laws; the only requirement for compensation is that the injury bear a relationship to the employment.[2] By mandating all employers to provide insurance coverage for their employees[3] without cost to the employee,[4] Arizona's workmen's compensation law[5] is social legislation designed to shift the financial responsibility for work-related injuries or death to the industry as a whole.[6]

The workmen's compensation law determines a claimant's demand for benefits through relatively informal administrative procedures[7] which are not strictly adversarial in nature.[8] Arizona courts have held that the law should be liberally construed in favor of finding injuries compensable and that, when in doubt, courts should adopt a construction which will best effect the purpose of compensating the injured employee for his loss of earning capacity.[9]

The establishment of the average monthly wage is very important to all injured employees because it is the basis upon which they receive compensation. Injured employees are entitled to 66 2/3% of their average monthly wage during the period of temporary total disability,[10] 66 2/3% of the difference between what they are able to earn and their average monthly wage during the period of temporary partial disability,[11] and 55% of the difference between their earning capacity and their average monthly wage when they are on a permanent partial disability status.[12] Obviously, the higher a claimant's average monthly wage, the more compensation he will receive. Because the average monthly wage affects the benefits received by the injured employee throughout his period of disability, it is critical that the setting of the average monthly wage be in accordance with the law and the purposes of the workmen's compensation statutes.[13]

In applying the law to employees, the Industrial Commission of Arizona, charged with the administration and enforcement of Arizona's workmen's compensation statutes,[14] in some cases incorrectly sets the average monthly wage at the time of the accident rather than at the time when the injury becomes disabling for work. This is a result of the Commission's policy of establishing an average monthly wage based upon the employee's average monthly wage at the date of his accident regardless of when the condition becomes disabling for work.[15] Its policy is based upon its interpretation of sections 23-1041 and 23-1062 of the Arizona Revised Statutes. Section 23-1041(A) states that every injured employee shall receive compensation on the basis of his average monthly wage at the time of his injury.[16] Section 23-1062(B) provides that the first installment of compensation shall commence after the claimant has been disabled for work for more than seven days, but if the disability continues for one additional week, then the compensation shall be computed from the date of the injury.[17]

An example of the inequities under the current application of the statutory scheme is that of the person who injures his back but continues to work, not becoming disabled until a year later.[18] In the interim he has received a merit and cost of living raise so that his salary is not appreciably higher than at the time of the accident. Another situation occurs when an industrial accident causes the employee to miss work for fewer than the seven days required to trigger compensation.[19] The employee then reopens his case 10 years later because of a new, additional, or previously undiscovered and related disability.[20] In both situations, if the claimant was earning $600.00 per month at the date of injury, but $1,200.00 per month when the injury became disabling, his standard of living during the period of total disability could suffer severely depending on the interpretation of the statute. If the average monthly wage relates back to the earlier incident, he would receive $400.00 per month rather that the $800.00 per month he would receive were the average monthly wage determined at the time he began missing work.[21]

While the workmen's compensation law does not contemplate making the employee whole for his loss, it does intend to prevent him and his dependents from becoming public charges during the period of disability.[22] In a case where the claimant has a family, it would be possible , and even probable, that the family would become public charges because the benefits reflect such a lower wage and because the cost of living will have escalated during the period between the injury and the disability.

This article demonstrates that the law should provide for, and on close reading does in fact require, the establishment of the average monthly wage at the time the condition becomes disabling for work and not at the time of the accident or injury.

II. STATUTORY ANALYSIS

Section 23-1041(A) states that a claimant "shall receive the compensation fixed . . . on the basis of [his] average monthly wage at the time of injury."[23] The Industrial Commission thus determines the level of compensation as of the date of the injury.[24] Section 23-1062(B) sets out the scheme for compensation. It provides in relevant part:

Compensation shall not be paid for the first seven days after the injury. If the incapacity extends beyond the period of seven days, compensation shall begin on the eighth day after the injury, but if the disability continues for one week beyond such seven days, compensation shall be computed for the date of the injury.[25]

Section 23-1062(B) appears to use the terms injury, disability, and incapacity interchangeably.[26] This creates no problem as long as the injury is immediately disabling. In the case of an immediately disabled employee, the Industrial Commission, under section 23-1041(A), sets the level of compensation on the date of the injury.[27] As long as the disability continues for more than 14 days,[28]pursuant to section 23-1062(B), compensation is also commenced from the date of injury.[29] When, however, a claimant is injured but continues working until the injury becomes disabling, the level of compensation is still based on the injury date, but now compensation commences from the disability date.[30] The only way to rationalize this result is to argue that the date compensation begins is the date of disability, but that the date the average monthly wage is set is the date of the accident or injury. The language of section 23-1062(B), however, obviates this interpretation. Section 23-1062(B) provides in part: "Compensation shall not be paid for the first seven days after the injury."[31] This language clearly bases the commencement of compensation on the "date of injury," just as section 23-1041(A) fixes the level of compensation at the "time of injury."[32] Since the level and commencement of compensation are statutorily pegged to "injury," there is no logical basis to interpret the term differently in these two contexts. The question, therefore, is whether the courts and the Commission should interpret "date of injury" to mean date of the accident or date of the disability in order to achieve a consistent interpretation of the statutes.

Statutory language supports the position that "date of injury" means date of disability. For example, the third sentence of section 23-1062(B)[33] does not mean, as would appear from a literal reading, that compensation shall not be paid for the first seven days after the injury. The word injury here must mean incapacity or disability. This becomes obvious as one reads the next sentence which provides that compensation will commence on the eighth day if there remains an incapacity.[34] Unless the term injury in the third sentence means incapacity or disability, sentences three and four make little contextual sense when read together. Likewise, the concluding phrase in section 23-1062(B) which states that, if an employee is disabled for more than 14 days, compensation will be computed from the date of the injury,[35] must mean that compensation will be computed from the date of the disability.[36] Otherwise, absurd results could ensue. If, for example, a claimant did not miss work for the first three weeks after an injury, but then became disabled in excess of 14 days, the statute, if applied from the date of the injury, would entitle him to compensation for the first three weeks he continued to work. This result would be contrary to long-standing Arizona case law which established that it is only those injuries that produce financial loss to the injured party that entitle him to compensation.[37] Compensation is in lieu of lost wages[38] and entitles the employee to receive these benefits for loss of earning capacity during the entire period of his disability.[39] A claimant who continues to work until disabled, however, suffers no loss in earning capacity until he actually stops work. Therefore, the initial reference in the statute to the injury, the incapacity referred to after the seventh day, and the disability referred to after the fourteenth day are obviously synonymous, showing an intention to mean a "disability for work." With this interpretation, then, the statute becomes consistent and logical.

Imagine again the individual who injures his back but who does not become disabled for work until a year later after receiving merit and cost of living raises. If the average monthly wage relates back to the date of injury, the injured employee will not receive the benefits of his merit or cost of living raise in the computation of his average monthly wage. To establish the average monthly wage at the date of the injury would deny him the 66 2/3% of his average earnings to which he is entitled pursuant to section 23-1045[40] because the figure would be based upon the earning capacity of the previous year and would not take into account his cost of living and merit raises.[41] Because the law is intended to compensate the employee for his loss of earning capacity, the Commission should base a claimant's compensation upon his earnings when the injury became disabling. The disability date is the point at which the loss of earning capacity occurs, and the employee's salary at that date is the amount of money to which the employee is accustomed on which he relies.

In a second hypothetical, one finds another reason why the Commission should determine the average monthly wage when the injury becomes disabling for work rather than at the date of the injury. In this situation, the employee has continued to work for 10 years and has received numerous merit raises as well as general inflationary raises. If he then becomes disabled, the Commission's current policy would base his compensation on what his average monthly wage was 10 years before. In addition to the probable insufficiency of this 10-year-old wage to meet all of the employee's financial needs, it is also highly probable that the injured employee would be unable to obtain quickly the documentation necessary to show what his earning capacity was 10 years before. This would delay his receipt of compensation, since it would take longer for the carrier and the Industrial Commission to make the determination.

Unfortunately, the drafters of Arizona's workmen's compensation statutes did not take into account the situation of an injured employee who does not stop work until a later date. This is apparent from the statute, which assumes that any injury is immediately disabling. Section 23-1062(B) initially provides that compensation will be paid on the twenty-first day after the insurance carrier receives notification from the Industrial Commission, unless the carrier denies that the claimant is entitled to compensation.[42] The purpose of this provision is to expedite the processing of workmen's compensation claims and the payment of compensation.[43] The section further provides that the carrier will pay compensation every two weeks during the period of total disability and at least once a month thereafter.[44] This contemplates that the physical injury and disability have become manifest immediately and that the employee is initially in a temporary total disability status, entitling him to payment every two weeks. the claimant later is placed in a temporary partial disability status, and finally a permanent disability status, consistent with the three disability phases of workmen's compensation.[45]

If the injury and disability occur simultaneously, as the legislature apparently contemplated, no difficulties arise in computing compensation form the date of the injury. If however, as is often the case, an injury is not immediately disabling, a computation based on the date of injury produces severe hardships. But if the term "injury" in the statutes means the time at which the injury becomes disabling, the current application of the workmen's compensation law would change in only one respect - the injured but not immediately disabled employee would receive compensation commensurate with his employment history.

III. ANALOGIES TO OTHER AREAS

Use of the date of disability rather than the date of the accident or injury to determine the average monthly wage is not unique or unusual in Arizona. Gradual injury cases, for example, reflect such an approach.[46] Cases also provide that a cause of action accrues, and the statute of limitations begins to run, at the time an injury becomes disabling.[47] Furthermore, in the treatment of compensation for injured minors, the law looks to a minor's earning capacity as an adult, rather than to his earnings as of the date of the injury.[48]

1. Gradual Injuries

Arizona courts have held that work-related injuries which develop gradually and which create a definite though unexpected injury or disease are "accidents" within the meaning of the workmen's compensation statutes.[49] In Marquez v. Industrial Commission,[50] the Arizona Supreme Court, addressing gradual injury by inhalation, stated that each impact or inhalation of dust was a miniature accident leading to ultimate disability.[51]

The courts do not restrict the gradual injury concept to inhalation exposure or diseases but also apply it to certain back injuries. In Inglis v. Industrial Commission,[52]the claimant contended that he had hurt his back by a series of minimal traumas which occurred over 17 years.[53] The court recognized that this could constitute a gradual injury but nonetheless affirmed the Industrial Commission's denial of compensation on the ground that the medical testimony conflicted on the causal relationship of the injury to the employment.[54]

In gradual injury cases, the date of the injury for compensation purposes is the date when the condition becomes a disability or incapacity.[55] Establishing the average monthly wage in this manner fulfills the purse of the workmen's compensation statutes to compensate for loss of earning capacity.[56] Because it is impossible, in gradual injury situations, to fix a point at which the "accident" occurred, use of the date of disability is the only fair method by which to determine compensation. In the case of an employee who is injured on a fixed, identifiable date, but who continues working until disabled, reasons for using the disability date, rather than the accident date, as a basis for compensation are not as compelling. Nevertheless, similar considerations of fairness apply. An employee who contracts a gradually developing disease receives compensation from the date of his disability. Likewise, an employee who is immediately disabled receives compensation calculated form the date he becomes disabled. Yet an employee who continues working after an accident until he is disabled receives compensation based on his wages at the time of the accident.[57] The fortuitous nature of the particular injury should not govern the rate of compensation.

B. Statute of Limitations

Courts also look to the date of disability rather than to the date of the injury or accident when determining the time at which a cause of action accrues and the statute of limitations begins to run. Section 23-1061(A) of the Arizona Revised Statutes specifically provides than no claim for compensation shall be valid or enforceable unless it has been filed with the Industrial Commission in writing within one year after the injury occurred or the right accrued.[58]

In English v. Industrial Commission,[59] the Supreme Court of Arizona stated that if an injury which is initially slight or trivial later develops unexpected results, the statute of limitations runs, not from the date of the accident, but from the date the results of the injury become manifest and compensable.[60] Courts have followed this reasoning more recently in Bird v. Industrial Commission[61]and Freig v. Industrials Commission.[62] Even though section 23-1061(A) specifically provides that an injured employee must file a claim within one year after the injury occurred, Arizona courts have now firmly established that the injury occurred when the results of the injury became manifest and compensable, in other words, disabling, for statute of limitations purposes. Again , the main concern appears to be fairness to the employee who cannot reasonably make a correct diagnosis of his injury within the prescribed statutory time limit.

1. Minors

The legislature and the courts have authorized alterations in the average monthly wage for injured minor employees. Section 23-1042 of the Arizona Revised Statutes provides that when a minor claimant has suffered a permanent disability, the Commission will determine his average monthly wage upon the basis of what he would have expected to make at the time he reached 18 years of age in his particular occupation or in some other occupation to which he might have been promoted had he not been injured.[63]

The Supreme Court of Arizona in Beasley v. Industrial Commission[64] interpreted this statute to mean that not only does the minor claimant get the higher average monthly wage for permanent benefits but also that the higher wage is applicable retroactively to the "date of the injury."[65] The term "date of injury" in this case must refer to the date of disability since the minor could not receive compensation if he continued to work after the injury but before the disability. The supreme court has further held that a claimant may reopen his case to change his average monthly wage pursuant to section 23-1042.[66] The liberal application of the law in cases involving injured minors is another example of the courts' willingness to pursue the statutory goal of fairly compensating an employee for loss of earning capacity.

The above analogies show that using the specific fixed date when an accident occurs is not sacrosanct in the field of workmen's compensation. It is the date of the entitlement to compensation, i.e., the disability for work, which must be the controlling factor if an equitable and just result is to prevail.

IV. OTHER JURISDICTIONS

Workmen's compensation is a statutory creation of each state.[67] One should therefore look to the laws of one's own state to determine the extent and limitations of the compensation scheme. Nevertheless, it is instructive to look at other states to see how they have resolved the issue presented in this article.

In Michna v. Collins Co.[68], the Supreme Court of Connecticut dealt with an employee of the Collins Company who worked from 1913 to 1924, first as a wet grinder and later as a dry grinder.[69] He left the company to work for other employers as a laborer doing heavy work until 1930.[70] In that year, as a result of his work, he was diagnosed as suffering from pneumoconiosis, a condition that rendered him totally disabled.[71] Nothing in his employment after 1924 contributed in any way to this condition.[72] The statute provided that a claimant's average weekly wage would be based upon the 26 weeks immediately preceding the month in which he was injured.[73] Accordingly, the hearing officer based the average weekly wage upon the last 26 weeks of employment as a dry grinder which were the last 26 weeks claimant worked for the defendant.[74] The claimant contended, however, that the statute entitled him to an average weekly wage based on the last 26 weeks of his employment as a wet grinder with the defendant.[75] The defendant, on the other hand, contended that the court should determine the average weekly wage at the date when the claimant first suffered his seven days' disability in August of 1930, while working for a subsequent employer.[76] Michna, the employee, was earning less as a laborer at the time of the incapacity than he had as a wet or dry grinder with the Collins Company some seven years before.[77]

The court held that the basis of the claimant's compensation should be his average weekly wage at the time when the incapacity occurred - August of 1930.[78] The court then reaffirmed an earlier case which held that "injury," as employed in the average weekly wage section, did not mean the action or occurrence which caused the original physical injury but the state of facts which first entitled the plaintiff to compensation - that of the incapacity.[79]

The rationale of Michna departs from the typical gradual injury case. The reason for fixing the compensation level at the date of disability in gradual injury situations is that it is impossible to determine precisely when an "injury" first occurred.[80] In Michna, however, the disease resulted solely from the claimant's employment with the defendant Collins Company.[81]

The court, therefore, could have fixed the date of injury as of the final date of employment with the defendant company, had it felt compelled to construe strictly the term "injury."

The Georgia courts have adopted a similar approach. In U.S. Asbestos v. Hammock,[82] an employee had worked for the defendant employer for eight years in a dusty environment, common to the asbestos industry.[83] He left that employment in 1966 and began working at other jobs.[84] In 1970, he became unable to work due to a condition resulting from exposure to the dusty environment in his prior job.[85] The court held that the employee had suffered an accident in 1970 which arose out of and in the course of employment,[86] and was thus entitled to benefits under the law as it existed in 1970 rather than the law prevailing at the time of his employment in 1966.[87] Although the employer argued that for an injury to arise in the course of employment it must occur during the employment period,[88] the court held that the controlling date was the date the disability manifested itself.[89]

In Ranger v. New Hampshire Youth Development Center,[90] an employer sustained an eye injury in 1966 which caused total loss of sight in 1975.[91] In April of 1976, the Workmen's Compensation Review Commission computed a scheduled benefits award based upon the employee's 1966 average weekly wage.[92] The New Hampshire Supreme Court reversed the Commission's decision, holding that for purposes of determining the scheduled award, the average weekly wage must be based on the employee's wages as of the date of his eyesight loss.[93]

Although two New Hampshire cases prior to Ranger had held that the average weekly wage for disability benefits should be set at the date of the original accident,[94] the court distinguished these cases on the ground that the issue in Ranger involved "scheduled" benefits which derived from a different statutory section.[95] The court's distinction, however, is questionable. Although disability benefits compensate for loss of earning capacity, while scheduled benefits compensate for loss of a bodily member, the loss in each case is measured by reference to the employee's wages.[96] Additionally, the reasons the Ranger court gave in support of using the disability date for scheduled benefits apply with equal force to disability benefits. The court noted that it would be inequitable to grant different compensation to "two employees who sustain injuries years apart but who go blind on the same day . . . even though at the time they lose their vision their wages are equal.[97] The court further stated that it made little sense to base an award on what an employee had earned years before any loss occurred.[98] If the compensation level for scheduled injuries is to be determined on the date when the injury becomes scheduled, then the level of compensation for disability benefits should be established when the injury becomes disabling and there is an entitlement to disability benefits.

In Pepsi Cola Bottling Co. v. Long,[99]the Mississippi Supreme Court held that the date of disability should govern determination of the average weekly wage in latent injury cases.[100] In 1972, the employee in Pepsi Cola injured his neck in a work-related accident, but did not become disabled until 1974.[101] The court noted that the employee was not eligible for compensation until the onset of his incapacity.[102] The court further stated: "The measure of the earning power of an employee and his correlative wage loss relates, in our opinion, more to his earnings at the time the loss occurred when he was unable to work rather than at the earlier time of the accident when he was able to continue work, thereby receiving his earnings."[103] The court thus held that the statutory "date of injury" meant the date of the resulting disability and not the date of the accident.[104]

An Arizona case, Hartford Accident & Indemnity Co. v. Industrial Commission,[105]although dealing with the statute of limitations, sheds some light on the problem presented in this article. Claimant punctured his lower lip on April 29, 1931, and received medical treatment on this occasion.[106] In 1932, a doctor removed a sebaceous cyst from the same area.[107] In March of 1933, a carcinoma developed at the site of the cyst and required surgery.[108] The surgeon then performed a radical dissection which left a permanent scar.[109] Because of the operation, the claimant missed work from March 13 to April 30, 1933.[110] The court held that the operation in 1933 was the date from which the statute of limitations against the claimant began to run.[111] The court cited with approval Stolp v. Department of Labor & Industries,[112]for the proposition that the word "injury" meant an accidental injury which occurred when the effect of the accident produced the entitlement to compensation and not at the time of the accident.[113] The Arizona court also stated that there was no reason to file for compensation before the employee was incapacitated for work or permanently disfigured, as he would not have been entitled to any compensation benefits.[114] The court's statement indicated that a person is not entitled to compensation until the injury becomes incapacitating and that, for compensation purposes, the "injury" occurs when the effect of the accident has created an incapacitating condition.

The above cases thus demonstrate that the term "injury" within the various workmen's compensation statutes may logically refer to the date of disability rather than to the date of the accident. Such an interpretation would certainly result in more equitable treatment of injured employees under Arizona law.

V. CONCLUSION

One of the purposes of Arizona's workmen's compensation law is to compensate an injured employee for loss of earning capacity.[115] In cases involving gradual injuries and immediately incapacitating injuries, the Industrial Commission's current computation of benefits reflects this purpose. In each of these situations, the loss of earning capacity arises and compensation is based on the date the disability manifests itself.[116] There is no sound reason, therefore, to treat employees who continue to work after accidents any differently simply because their disabilities occur at later dates. Compensation in these cases should also accurately reflect the loss of earning capacity.

Logical statutory analysis and considerations of policy clearly support such a result. If compensation is to be just and humane, as envisioned by the Arizona Constitution,[117] the average monthly wage in all cases must be based on the date of disability.

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