Court Ruling on Cost-of-Living Adjustments Is Workers’ Comp Victory for Employers

(September 8, 2011) California employers and insurers scored a victory in a recent California Supreme Court decision on annual cost-of-living adjustments for certain workers' compensation claimants.

In the case of Christine Baker v. Workers' Compensation Appeals Board and X.S., the court looked at how the Legislature intended cost-of-living adjustments to be calculated for total permanent disability and life pension payments.

The question before the court was whether a 2002 law required the total permanent disability and life pension payment cost-of-living adjustments to be calculated:

• prospectively from January 1 following the year in which the worker first becomes entitled to receive benefits;
• retroactively to January 1 following the year in which the worker is injured; or
• retroactively to January 1, 2004 for every case regardless of the date of injury or the date the first benefit payment becomes due.

Supreme Court Ruling

The Supreme Court ruling agreed with a friend-of-the-court brief filed by the California Chamber of Commerce that the Legislature intended that cost-of-living adjustments be calculated and applied prospectively beginning on the January 1 following the date on which the injured worker first becomes entitled to receive and actually begins receiving benefit payments.

Background

The case involved "X.S.," a shortened version of a fictitious name assigned by the presiding workers' compensation administrative law judge to protect the applicant’s medical privacy.

X.S. was injured in January 2004 while employed as an accountant/controller, and eventually was deemed eligible to receive $728 weekly for life.

A dispute arose when the applicant claimed the weekly payments that began on October 20, 2006 should be increased to reflect annual increases in the state’s average weekly wage by calculating retroactive cost-of-living adjustments from the January 1 following the date on which he was injured to the date on which his total permanent disability payments began.

The Workers' Compensation Appeals Board said the cost-of-living adjustment should apply on the January 1 following the date of injury, regardless of when the first payment was received.

The Court of Appeal, however, annulled the board’s decision and sided with the California Applicants’ Attorneys Association, finding that the cost-of-living adjustment begins to accrue January 1, 2004, without regard to the date of injury. The appeals court reasoned that otherwise a worker whose total permanent disability does not become permanent and stable for a number of years would see payments "exposed to the ravages of inflation over time, eroding the real value of the benefits."

Double Windfall Nixed

The Supreme Court overruled the Court of Appeal, finding the lower court’s interpretation to be at odds with the language of the law and could result in a “windfall ‘double escalator’” by applying the cost-of-living adjustment retroactively from January 1, 2004 until the date the worker was injured. Because the indemnity payments owed to the injured worker were already increased by statute, there was no reason for the Legislature to have further included a cost-of-living adjustment increase.

Pointing to the very same legislative records highlighted by the CalChamber during oral argument in May, the state high court also cited the language of the law in finding "no compelling reason" to conclude the Legislature intended the cost-of-living adjustments in the law to “broadly redress all the potentially erosive effects of inflation” in the two categories of disability benefits covered by the section of law in dispute.

This ruling results in the most favorable interpretation possible for California employers and insurers, representing potential savings of billions of dollars in these two categories.

Staff Contact: Erika Frank