California: Ogilvie Reversed – Confusion Reigns

The 1st District Court of Appeal has issued its decision in the combined cases of Ogilvie v W.C.A.B./ City and County of SF v WCAB reversing the W.C.A.B. en banc decision but upholding the concept of a rebuttable schedule. In its decision the Court specifically finds the W.C.A.B. exceeded its authority in creating the scheme for rebutting FEC factor in the PDRS adopted by the legislature in SB 899. However the Court may have created an even more complicated process for rebuttal with its holding than the W.C.A.B. had with its complicated formula.

The Appellate court reviewed the history of cases allowing rebuttal of the PDRS and concluded that the legislature had not altered the “prima fascia” nature of the schedule and therefore did not intend to change the rebuttable nature of the schedule:

“…A challenge to an employee’s presumptive disability rating thus appears to remain permissible on the basis that the schedule, or one of its component factors, was incorrectly calculated or applied. Nothing in Senate Bill No. 899 leads us to conclude the Legislature intended to alter the ways a party to a compensation proceeding may challenge a scheduled rating. As our Supreme Court recently remarked of Senate Bill No. 899, “ ‘[w]e do not presume that the Legislature intends, when it enacts a statute, to overthrow long-established principles of law unless such intention is clearly expressed or necessarily implied.’ ” (Brodie v. Workers’ Comp. Appeals Bd., supra, 40 Cal.4th at p. 1325.)”

The Court begins its inquiry by posing the issue as a question:

“The question posed here is whether, in light of the amendments to section 4660 enacted in Senate Bill No. 899, it is permissible to depart from a scheduled rating on the basis of vocational expert opinion that an employee has a greater loss of future earning capacity than reflected in a scheduled rating….”

The Court then appears to take an unusual tack in its approach to statutory interpretation. The Court separates the two references to diminished earnings capacity in Labor Code § 4660 as if they are separate issues, one relating to the adjustment of PD and the other to the measurement of PD:

“Senate Bill No. 899 amended section 4660 in two ways that affect the issue presented in this proceeding. The statute now provides that “an employee’s diminished future earning capacity shall be a numeric formula based upon empirical data and findings . . . prepared by the RAND Institute for Civil Justice.” (§ 4660, subd. (b)(2).) And a permanent disability award must now reflect consideration of an injured employee’s “diminished future earning capacity,” rather than the “ability of such injured employee to compete in an open labor market.” (Former § 4660, subd. (a).) This latter change is readily addressed…

Indeed, the terms “diminished future earning capacity” and “ability to compete in an open labor market” suggest to us no meaningful difference, and nothing in Senate Bill No. 899 suggests that the Legislature intended to alter the purpose of an award of permanent disability through this change of phrase. Nor does its use suggest that a party seeking to rebut a permanent disability rating must make any particular showing.”

The Courts analysis therefore completely separates the 2 references to Diminished Future Earnings Capacity in the statue essentially holding the language in Labor Code § 4660 (b)(2) bears no relationship to the reference in subdivision (a) of the same statute. Having arrived at the rather astonishing conclusion SB 899 did not change the meaning of PD, the Court discusses the multiple options for rebuttal:

“…First of all, the cases have always recognized the schedule to be rebutted when a party can show a factual error in the application of a formula or the preparation of the schedule….A challenge to an employee’s presumptive disability rating thus appears to remain permissible on the basis that the schedule, or one of its component factors, was incorrectly calculated or applied…”

So far so good – you can fix mistakes in the formula.

“Another way the cases have long recognized that a scheduled rating has been effectively rebutted is when the injury to the employee impairs his or her rehabilitation, and for that reason, the employee’s diminished future earning capacity is greater than reflected in the employee’s scheduled rating….An employee effectively rebuts the scheduled rating when the employee will have a greater loss of future earnings than reflected in a rating because, due to the industrial injury, the employee is not amenable to rehabilitation…”

The court further notes there appears, based on the arguments of the parties, to be an additional option for rebuttal:

“The briefs and arguments of the parties and amici also point out a third basis for rebuttal of a scheduled rating that is consistent with the statutory scheme. In certain rare cases, it appears the amalgamation of data used to arrive at a diminished future earning capacity adjustment may not capture the severity or all of the medical complications of an employee’s work-related injury. After all, the adjustment is a calculation based upon a summary of data that projects earning losses based upon wage information obtained from the California Employment Development Department for a finite period and comparing the earnings losses of certain disabled workers to the actual earnings of a control group of uninjured workers. (Working Paper at p. 3.) A scheduled rating may be rebutted when a claimant can demonstrate that the nature or severity of the claimant’s injury is not captured within the sampling of disabled workers that was used to compute the adjustment factor. For example, a claimant who sustains a compensable foot fracture with complications resulting from nerve damage may have greater permanent effects of the injury and thereby disprove the scheduled rating if the sampling used to arrive at the rating did not include any workers with similar complications”

In arriving at these methodologies to rebut the PDRS the court gives lip service to the concept the schedule is to promote consistency, uniformity and objectivity and then proceeds to destroy the concept in its analysis while at the same time muddying the waters over exactly what do to with such rebuttal information. Having ruled the W.C.A.B.’s plan for modifying the FEC factor in the schedule was in excess of its powers and also rejecting the applicant’s arguments the FEC factor should simply be substituted for the final rating, the court provides no guidance as to how one is to approach a final rating in the case or what kind of information is going to be adequate to provide rebuttal other than its conclusion the rebuttal is the same as under Labor Code § 4660 prior to SB 899.

The one positive aspect of the court’s decision is to specifically hold factors unrelated to the injury (education, experience, education or lack thereof etc.) MAY not be considered based on the concept the employer is only responsible for that portion of the PD that is specifically related to the injury. The Court notes to hold otherwise would discourage employers from hiring employees whose handicaps might potentially be wrapped up in a PD rating for a work related injury resulting in increased costs and exposure for the employer. Therefore in analyzing an employee’s earnings loses non-industrial factors must be excluded from consideration.

OBSERVATIONS AND CONCLUSIONS

The old adage “be careful what you ask for – you may get it” appears to apply to this holding. While appearing as a victory because of the reversal of the W.C.A.B.’s holding and the specific rejection of the Rand Study formula process adopted by the W.C.A.B; the court’s holding in many respects seems to allow for a much broader basis for rebuttal.

The first basis for rebuttal is fairly benign and indeed does not really appear to involve “rebuttal” at all but the successful challenge showing an error in the PD formula. No problem there if the formula is wrong or includes factors unrelated to the injury, it is incorrect and should be corrected.

However the other two bases for rebuttal are very problematic. Rebuttal based on loss of earning capacity in excess of the schedule appears to open the concept to even more widespread litigation over loss of future earning capacity than did the W.C.A.B.’s decision. While the Court makes it clear we are only concerned with earning capacity related to the specific injury (or injuries) related to the industrial events, the court nevertheless seems to be creating a Le Beouf standard for loss of earning capacity as the measure of PD. This in spite of the Legislature’s clear instructions that Diminished Future Earning capacity “shall be” based on a numeric formula as adopted by the Administrative Director. It should also be pointed out the Court is ignoring well established rules of statutory interpretation in holding the Legislature, in exchanging Diminished Future Earnings Capacity for Diminished Ability to Compete in the Open Labor Market, affected no change in the meaning of the phrase. The traditional approach to statutory interpretation would suggest a change in the language of a statute is not merely cosmetic but must have some meaning. Here the Court attaches no meaning to the change, a key issue in its interpretation. Regardless we will be litigating for the next ten years over the meaning of “…the disability reflected in the rating schedule is inadequate in light of the effect of the employee’s industrial injury.

Similarly the Court’s suggestion “… the employee must demonstrate an error in the earning capacity formula, the data or the result derived from the data in formulating the earning capacity adjustment...” leaves cases subject to endless litigation over what kind of cases were included in the Rand study. It is unclear if the Rand study made the kind of distinctions suggested by the court (a foot injury with neurologic compromise as impairment) that it is possible to tell with any certainty a condition was or was not considered in the study.

In addition to issues with the methodology of rebuttal allowed by the court, the lack of instruction of what to do with any such rebuttal is very problematic. Even if an applicant attorney or a defense attorney is able to convince a WCJ the rating is inadequate in light of the effect of the employee’s industrial injury; what is a WCJ to do with the information. Since both the applicant attorney and the W.C.A.B.’s approach to how to apply rebuttal to the PDRS have been rejected; what is the model for rating PD under this decision after rebuttal.

Exactly what are we measuring? The court seems to suggest we are measuring future earning capacity which is the same as ability to compete in the open labor market and that is our standard for arriving at a PD number just as it was prior to SB 899. The one small measure of solace is the Court’s observation that in “…certain rare cases” the data upon which the PDRS was based does not reflect the reality of a specific injured worker. However we all know how often such “rare” cases seem to show up at the W.C.A.B. They are so rare that at least one physician used frequently as an AME tome me he applies Almaraz/Guzman in 50-60% of his reports.

This decision would appear to give applicant attorneys virtually everything that could be desired with the exception of the final answer to their efforts. There are tools galore for seeking to rebut the PDRS; just no idea what the ultimate impact of all that effort will be in terms of a final rating.

For defendants, arguably the decision provides some kind of a break in every case where the employee returns to their U & C since there will be little or no diminished future earnings in such cases. What is the likelihood such an approach will be acceptable to the W.C.A.B? One can certainly anticipate the concept of “rare application” applying much more where defendants seek relief than when applicant’s do.

In many respects this case presents many of the same issues the W.C.A.B. created in Almaraz/Guzman I with its decision that potentially eliminated the use of the AMA Guides in a large number of cases. As a result of the obvious problems with the first decision, the W.C.A.B.’s second decision was much more moderate and limited the rebuttal process much more severely. The W.C.A.B. recognized that our PDRS does not actually measure “work ability” and removed that language from Almaraz/Guzman. Unfortunately the Court does not seem to recognize that our PD schedule does not actually measure Diminished Future Earning Capacity. Since it does not measure it, and does not try to provide an overall rating that is reflective of Diminished Future Earnings Capacity, rebuttal should be relatively easy given the lack of relationship between the schedule and what the Court has decided we are measuring.

Did I mention this decision is also directly contrary to the holding in the Guzman Court of Appeal Case? In that case the Court allowed rebuttal of one of the individual factors to the rating. In this case the Court rebuffs the W.C.A.B.’s proposal for rebuttal of a factor (the FEC) and holds the rebuttal of that DFEC is rebuttal to the PD rating, not specific factors of the rating. Just an additional bit of chaos generated by the Court.

Given the Court’s lack of guidance on exactly how to use any rebuttal information generated based upon this decision, we can only hope the W.C.A.B. will find a rational approach to implementation of this potential disaster.

© Copyright 2011 Richard M. Jacobsmeyer. All rights reserved. Reprinted with permission.

Shaw Jacobsmeyer Crain Claffey LLP

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