Post SB 863 PDRS Rebuttal: The Return to Simplicity
By: Mark Gearheart Esq., CAAA Board Member
There has been a renewed discussion recently within the workers' compensation legal community regarding the contours of rebutting the PDRS in the post SB 863 era. While the Guzman (Milpitas Unified School District v. WCAB (Guzman) (2010) 187 Cal. App. 4th 808) approach of analogizing within the four corners of the Guides to some alternative WPI rating scheme obviously remains intact, there are those who again question the extent to which the parties may use expert vocational and labor market evidence to prove a more accurate rating than the one estimated by the PDRS. Some have even gone as far as suggesting that there is no rebuttal for post January 1, 2013 cases. [1]
However, as with SB899, the foes of rating accuracy have once again misinterpreted the clear language of the statutory changes. In fact, as discussed below, the injured workers right to obtain an accurate rating has never been clearer.
It has long been the case, and remains the case today, that the Permanent Disability Rating Schedule promulgated by the Administrative Director is prima facie evidence of the percentage of permanent disability to be attributed to each injury covered by this schedule - nothing more, and nothing less. (Labor Code Section 4660 (c), Labor Code Section 4660.1 (d).) Since the schedule is prima facie evidence, it has been and remains rebuttable. Ogilvie v. WCAB (2011) 197 Cal. App. 4th 2262, 76 Cal. Comp. Cases 624; LeBoeuf v. WCAB(1983) 34 cal. 3d 234, 48 Cal. Comp. Cases 587.
To be sure, SB 863 has changed some elements of consideration for injuries that occur on and after January 1, 2013, but rebuttal was not one of those elements. Rather, the changes to Labor Code Section 4660 were as follows:
"Original" language (until April 2004):
(a) Labor Code Section 4660 (a). In determining the percentages of permanent disability, account shall be taken of the nature of the physical injury or disfigurement, the occupation of the injured employee, and his age at the time of such injury, consideration being given to the diminished ability of such injured employee to compete in an open labor market. (Emphasis added.)
Language after SB 899 (after April 2004):
(a) In determining the percentage of permanent disability, account shall be taken of the of nature of the physical injury or disfigurement, the occupation of the injured employee, and his or her age at the time of the injury, consideration being given to an employee's diminished future earning capacity. (Emphasis added.)
(b) (2) For purposes of this section an employee's diminished future earning capacity shall be a numeric formula based on empirical data and findings that aggregate the average percentage of long term loss of income resulting from each type of injury for similarly situated employees . . . (Emphasis added.)
Language after SB 863 (injuries on or after January 1, 2013):
Labor Code Section 4660.1 (a). In determining the percentages of permanent partial or permanent total disability, account shall be taken of the nature of the physical injury or disfigurement, the occupation of the injured employee, and his or her age at the time of the injury.
It should be noted that Labor Code Section 4662 addressing permanent total disability has not changed. It states:
"Any of the following permanent disabilities shall be conclusively presumed to be total in character:
(a) Loss of both eyes or the sight thereof.
(b) Loss of both hands or the use thereof.
(c) An injury resulting in a practically total paralysis.
(d) An injury to the brain resulting in an incurable mental incapacity or insanity.In all other cases, permanent total disability shall be determined in accordance with the fact." (Emphasis added.)
To those who carefully study the evolution of these sections, there are several striking observations to be made.
First, Labor Code 4662 remained a constant despite the reforms. This demonstrates that no change was intended regarding permanent total disability, and it is still evaluated “according to the fact.” The evaluation of permanent total disability remains outside the PDRS.
Second, despite two reforms, the legislature has seen fit not to define what permanent partial or permanent total disability actually is. All we have are some examples of permanent total, and we are told about some factors to look at in determining permanent partial, but permanent disability is not defined by statute. This means we must look beyond the statute itself to determine what permanent disability is.
Finally, for injuries on or after January 1, 2013, the section does not reference diminished ability to compete in an open labor market nor diminished future earning capacity. For injuries on or after January 1, 2013, the Labor Code still requires the Board to determine permanent disability, but does not limit the factors to be considered when determining an accurate rating.
While it is often said that workers' compensation law is purely statutory, this is not entirely accurate. It is primarily statutory, but there are situations where one must resort to case law to resolve an issue. Since the statutes do not define permanent disability, we must turn to case law and other sources to define what it is we are determining and/or rebutting.
While the Labor Code does not define "permanent disability", the Court of Appeal observed in the Genlyte case: "Permanent disability is a term with historical meaning in workers' compensation jurisprudence." Genlyte Group, LLC v. WCAB (2008) 158 Cal. App. 4th705, 719, 73 Cal. Comp. Cases 6, 17. Thus, there is ample precedent for turning to case law, especially where the statutes do not define such a critical term as permanent disability. So the question becomes, what can the case law tell us about the definition of permanent disability?
What is Permanent Disability?
Before we examine what permanent disability is, we should be clear about what it is not.
Permanent impairment is not equivalent to permanent disability. This distinction is crucial and will be particularly relevant to some issues which will be discussed later in this article. The Guides define impairment ratings as "a loss, loss of use, or derangement of any body part, organ system, or organ function." (AMA Guides, 5th Edition, page 2). The Guides goes on to state: "Impairment percentages or ratings developed by medical specialists are consensus-derived estimates that reflect the severity of the medical condition and the degree to which the impairment decreases an individual's ability to perform common activities of daily living (ADL), excluding work. The whole person impairment percentages listed in the Guides estimate the impact of the impairment on the individual's overall ability to perform activities of daily living, excluding work, as listed in Table 1-2." (AMA Guides, 5th Edition, page 2). In fact, the Guides are quite clear that impairment and disability are completely different things. (AMA Guides, 5th Edition, page 5.) The following excerpt from the AMA Guides makes the point quite well:
The medical judgment used to determine the original impairment percentages could not account for the diversity or complexity of work but could account for daily activities common to most people. Work is not included in the clinical judgment for impairment percentages for several reasons: (1) Work involves many simple and complex activities; (2) work is highly individualized, making generalizations inaccurate; (3) impairment percentages are unchanged for stable conditions, but work and occupations change; and (4) impairments interact with such other factors as the worker's age, education, and prior work experience to determine the extent of work disability. For example, an individual who receives a 30% whole person impairment due to pericardial heart disease is considered from a clinical standpoint to have a 30% reduction in general functioning as represented by a decrease in the ability to perform activities of daily living. For individuals who work in sedentary jobs, there may be no decline in their ability although their overall functioning is decreased. Thus, a 30% impairment rating does not correspond to a 30% reduction in work capability. Similarly a manual laborer with this 30% impairment rating due to pericardial disease may be completely unable to do his or her regular job and, thus, may have a 100% work disability. AMA Guides, 5th Edition, page 5. (Emphasis added.)
Conversely, the Guides define disability as "an alteration of an individual's capacity to meet personal, social, or occupational demands or statutory or regulatory requirements because of an impairment." Therefore, a disability determination requires an analysis of the effects of an impairment upon a particular individual's ability to function in personal, social and/or occupational spheres of activity.
Case Law Defines what Permanent Disability Is
Decades of California case law define what permanent disability is. "A permanent disability is the irreversible residual of a work related injury that causes impairment in earning capacity, impairment in the normal use of a member or a handicap in the open labor market." Brodie v. WCAB (2007) 40 Cal. 4th 1313, 1320, 72 Cal. Comp. Cases 565. Payments for permanent disability are designed to compensate an injured employee both for physical loss and reduction in earning capacity (ibid).
The California Supreme Court wrote in Livitsanos v. Superior Court (1992) 2 Cal. 4th 744, 57 Cal. Comp. Cases 355 at 36 that: " . . . permanent disability payments are provided for permanent bodily impairment, to indemnity for impaired future earning capacity or decreased ability to complete in an open labor market (citations omitted.) The basic purpose of the Workers' Compensation Act is to compensate for the disabled worker's diminished ability to compete in the open labor market . . . ."
"For many years, determining the degree of permanent disability sustained due to an injury involved consideration of the opinions of vocational rehabilitation specialists concerning the employee's ability to compete in an open labor market." Ogilvie v. Workers' Compensation Appeals Board (2011) 197 Cal. App. 4th 1262, 76 Cal. Comp. Cases 624 at 629, citing Gill v. WCAB (1985) 167 Cal. App. 3d 306, 50 Cal. Comp. Cases 258.
We can conclude from these authorities that "permanent disability" is the permanent residual of an injury, either in the form of a physical or mental impairment per se or in its manifestations which affect a worker's ability to perform activities of daily living, ability to perform work activities, or impairs the ability to earn a living. As demonstrated above, the Labor Code has never defined “permanent disability;” rather, it has only specified certain minimum factors to be considered in determining permanent disability. Under SB 863, for injuries on or after
January 1, 2013, these factors are individualized assessment of impairment, occupation and age. As with the past configurations of Section 4660, as interpreted by the Courts, “permanent disability” does not exclude other relevant factors from consideration, such as vocational evidence and motivation. In some cases consideration of such factors may be required to determine disability, as distinguished from impairment.
Rebuttal under SB 863
The question then becomes how does the latest version of Labor Code Section 4660/4660.1 change the factors to be considered and the nature of rebuttal to the PDRS for injuries on or after January 1, 2013?
Newly enacted Labor Code Section 4660.1 by its plain terms acknowledges that the concepts of permanent disability and impairment are not the same. When assessing percentages of permanent partial or permanent total disability, it calls upon the Board to consider, at a minimum, the unique nature of the physical injury or disfigurement, the occupation of the injured worker, and his or her age.
Newly enacted Labor Code Section 4660.1 maintains the prior Labor Code Section 4660 language about incorporating the whole person impairments from the AMA Guides. According to the Court of Appeal in Milpitas Unified School District v. WCAB (Guzman) (2010) 187 Cal. App. 4th 808, this language expressly incorporates the entire Guides including its instructions for proper application of the chapters. (See Guzman 75 Cal. Comp. Cases at 853 - 854.) [2]
This is important in understanding the new statutory language because the disability/impairment distinction is fundamental to the AMA Guides themselves. By the express terms of both the statute and the court's opinion in Guzman, all of the material from Chapters 1 and 2 of the Guides remain part of California state law. Thus, in order to determine disability (as distinct from impairment), we necessarily individualize the assessment of impairment and determine if the generic Guides accurately reflect the actual percentage of impairment. Similarly, the Board is required to consider, at a minimum, the factors of occupation and age, and determine if the PDRS accurately reflects disability. By this method, rating accuracy is achieved.
When a statute has been construed by judicial decision, and that construction is not altered by subsequent legislation, it must be presumed that the Legislature is aware of the judicial construction and approves of it. Milpitas Unified School District v. WCAB (Guzman) (2010), supra, 75 Cal. Comp. Cases 837 at 852-853 citing Stavropulous v. Superior Court (2006) 141 Cal. App. 4th 190, 196; White v. Ultramar Inc. (1999) 21 Cal. 4th 563, 572. Nothing in the new Labor Code Section 4660.1 alters the judicial decisions regarding the purpose of permanent disability nor the fact that it involves an evaluation of the effect of the injury on a person's ability to make a living. The AMA Guides themselves recognize that determining the effect of an individual’s impairment on their work ability is complex and in some cases may require vocational expertise to assure accuracy. AMA Guides, 5th Edition, page 14. The only reason to include consideration of age and occupation together with impairment in determining permanent disability is to determine the alteration in ability to perform work functions, diminished ability to compete or diminished future earning capacity; that is, permanent disability.
To be sure, rebuttal of the PDRS for injuries on or after January 1, 2013 has changed - most would say for the better. Under SB863, the applicant is no longer called upon to analyze the impact of an injury on a theoretical "similarly situated worker" based on "aggregate data". Rather, a more individual approach comparing the injured workers’ pre-injury and post-injury earning capacity or labor market is called for. However, the legislature clearly understood that the PDRS result will not always be accurate when it continued to permit rebuttal in the proper case.
There is a lot to like about the changes brought by SB863 for defendants as well, that were previously unavailable. For example, individual motivation was probably not relevant in a "similarly situated" worker analysis. Under SB863, the so called "Montana factors" [3] may be back in play.
Any further doubt that the Legislature anticipated that the parties would continue to use vocational experts to evaluate permanent disability (and rebut the schedule) should be further satisfied by the fact that the bill itself anticipates vocational evaluations. In fact, new Labor Code Section 139.32 (a) (3) (A) (ii) refers to evaluations of the employee's future earning capacity resulting from an occupational injury or illness. New Labor Code Section 4660.1 (i) actually mandates a study comparing average loss of earnings to permanent disability ratings under the schedule, further underlining the important relationship between earning capacity (the ability to make a living) and ratings. The language of the bill recognizes the correlation.
Furthermore, SB 863 created new Labor Code Section 5703 (j) which says that reports of vocational experts are admissible but that the Board prefers that evidence come in by report, not live testimony. The Legislature could have, but did not, restrict that provision to pre-January 1, 2013 injuries leading to an inference that they fully expected some cases to require vocational evidence even though the injury was on or after January 1, 2013. In addition, the Legislature modified Labor Code Section 5307.7 (a) requiring the Administrative Director to adopt a fee schedule for vocational experts. Although they slightly changed the language of that section, they did not limit it to injuries before January 1, 2013. Again, this could create an inference that it was expected that we would continue to have expert vocational evidence in some cases.
Standards for the Rebuttal under SB863
Before SB 899 was passed in 2004, the standard was the percentage of the open labor market from which the employee was precluded. If you could prove that percentage and it exceeded, or was less than, the scheduled result, rebuttal was successful. Chevron USA v. WCAB (Arnold) (2000) 65 Cal. Comp. Cases 922. For injuries between April, 2004 and January 1, 2013, the standard is diminished future earning capacity: If you can show the employee's diminished future earning capacity (based on the "similarly situated" worker standard) is a percentage that is greater than the percentage rating, you have rebutted the schedule, and the percentage DFEC is the new rating. Dahl v. Contra Costa County (2012) 40 CWCR 17. You could also use a LeBouef diminished ability to compete approach. The Court of Appeal has explained that there is "no meaningful difference" in terms of rebuttal methodology for these two closely related standards. Ogilvie, supra.
If the statute itself does not expressly refer to the open labor market or diminished future earning capacity, what is being rebutted? Again, we turn to the AMA Guides, 5th Edition, which has been incorporated in its entirety by the statutory language. (Guzman, supra.) According to the example set forth at page 5, if someone is unable to return to the specific job they were doing, they may well have a 100% work disability. This distinction between impairment and work disability, which permeates the Guides, must mean that we are evaluating the individual’s ability to perform their occupation or related occupations, their earning capacity, or their ability to compete in the open labor market. It is difficult to postulate any other possible meaning. If the employee has been precluded from returning to their regular work or similar occupations by the injury, they have a work disability that is something different from a simple impairment.
Conversely, if the injured worker could return to work at their pre-injury wages, the injured worker may only be entitled to compensation for the physical impairment rather than lost earning capacity, since the Supreme Court in Brodie confirmed that payments for permanent disability are designed to compensate an injured employee both for physical loss and reduction in earning capacity, Brodie v. Workers' Compensation Appeals Board (2007) 40 Cal. 4th 1313, 1320).
Defense Theories About SB863 and Permanent Disability
As the above analysis demonstrates, rebuttal of the PDRS using vocational and other similar evidence is alive and well for post January 1, 2013 injuries. However, some have argued that such rebuttal is either limited or even eliminated by SB 863. These contentions are addressed below.
Some have asserted that SB 863 replaced the requirement that consideration be given to the employee's loss of earnings. That statement is not accurate. SB 863 replaced the requirement that consideration be given to diminished future earning capacity. Capacity is different than actual earnings.
Some commentators have pointed out that we now have a standard 40% adjustment factor applicable to all PD which is to account for diminished future earning capacity. (This is the provision that requires use of the 1.4 multiplier in place of the old FEC adjustment for all injuries and all parts of the body unless and until a new schedule is promulgated.) The problem with this argument is that nothing in the statute says what the 1.4 multiplier is supposed to be taking account of or why it’s there. In other words, it is not specifically defined. Of course, if it is in fact supposed to represent diminished future earning capacity, then it is a one size fits all approach, and since it is an element of the schedule, it is rebuttable.
Some attorneys have confused the Labor Code Section 139.48 Return to Work Fund program with permanent disability. These are apples and oranges. Permanent disability analysis goes to the percentage rating which is to reflect the percentage of permanent disability. The Return to Work Fund is to compensate individuals who have disproportionate losses to assist them in returning to work. It compares the permanent disability award money to lost wages, which is a totally different equation. It is not a substitute for obtaining an accurate rating.
In an earlier article in the Quarterly on this topic the argument is made that the actual percentages of permanent disability represent only points on a relative scale and have no real world significance. The author cites the Supreme Court in Brodie for this proposition (see Brodie v. WCAB (2007) 40 Cal. 4th 1313, 1321 footnote 4). However, that statement by the Supreme Court in Brodie is dicta. The Brodie case involved apportionment, and the sentence referred to is in a preliminary discussion of the history of workers' compensation. It is not necessary to the decision. Furthermore, the only authority cited by the Court is the Hanna treatise. If you look at the Hanna treatise, it cites no authority for its conclusion; it simply makes the assertion that permanent disability has no real world significance. So this contention has no legal support and is contradicted by numerous other cases including Supreme Court cases such as Livitsanos, supra. Furthermore, such a contention would lead to utter chaos: If the points on the scale have no real world significance, then how is a defendant to respond to a rebuttal argument that the rating should be higher? If there are no standards, no connection to the real world, then it is simply "Alice in Wonderland" and the Red Queen can arbitrarily and capriciously award whatever she wants because there are no standards. This is the opposite of an empirically based system and would lead to an unpredictable litigation free-for-all.
Most defense analysis of this issue fails to address the fact that the Labor Code adopts the AMA Guides 5th Edition in its entirety and that the Guzman Court said that you can use anything in the Guides to rebut the schedule. The Guides in Chapter 1 contain a definition of permanent disability (an alteration of the ability to perform work functions) and endorse the use of vocational experts. Given that, how can one possibly conclude that you can no longer use vocational experts to rebut the PDRS?
Finally, a comment should be offered regarding the legislative history. Some defendants cite two points from an assembly floor analysis of SB 863 in support of the contention that rebuttal is gone. The first quote asserts that SB 863 limits the definition of permanent disability. The problem with this statement is that the bill does not define permanent disability, and permanent disability remains undefined by statute as discussed above. The second quote asserts that the bill moves in the direction of limiting individualized proof but also notes that the bill retains key rights for individual proof. While some excerpts from the legislative history could be interpreted in isolation to support various arguments, the statement that the bill defines permanent disability is simply wrong. Furthermore, the actual legislative history is internally contradictory. For example, the legislative counsel's summary in the Senate said among other things: "Permanent disability: (1) increases aggregate permanent disability (PD) benefits by approximately $740,000,000 per year phased in over a two year period and adjusts the formula for calculating the benefit amount so that compensation amounts more accurately reflect loss of future earnings, and to insure that no class of injured workers receive a lower award than under the present system." [4] The first statement indicates that the rating is somehow supposed to reflect loss of future earnings thus expressly inserting consideration of the injury’s effect on future earnings into the analysis. The second statement tells us that no worker should receive a lower award than he or she did under the old system. This suggests that rebuttal remains alive and well: The worker could rebut the old schedule, and they should not get anything less than what they would have gotten under the old system according to the legislative counsel's analysis.
Conclusion
Permanent disability has always been a concept that encompasses physical disfigurement and loss of use or function as well as diminished earning capacity or diminished ability to compete in the labor market. Permanent disability includes physical injury or impairment but is a broader concept. Decades of case law sets forth this principle and nothing in SB 863 contradicts it. On the contrary, SB 863 maintains the prior statutes' incorporation of the entire AMA Guides, 5th Edition, including Chapters 1 and 2. The AMA Guides themselves are consistent with California's decades of case law in the sense that they state impairment is different than disability, and disability includes the concept of impairment as well as other more complex things that often require non-medical experts such as vocational specialists to fully evaluate. SB 863 itself refers to vocational expert reports and mandates a study of the relationship between scheduled permanent disability ratings and lost earnings. The pre-SB 863 rebuttal methodologies of having a vocational expert analyze the impact of an injury on a person's ability to return to work and earn a living remain intact, however, the so-called "similarly situated worker" analysis required by the awkward definition of diminished future earning capacity adopted in 2004 (Labor Code Section 4660 (b) (2)) is gone. SB 863 represents a return to a more individualized analysis to analyze permanent disability.
1. (see "Proving Permanent Disability Post SB 863: Closing the Door on LeBoeuf, Skaggs, Workers' Compensation Quarterly, Volume 26, No. 3, page 6-10.)
2. Note also that newly enacted Labor Code Section 4660.1 (h) expressly states that the Legislature did not intend to overrule the holding in Milpitas Unified School District v. WCAB (Guzman).
3. See Argonaut Insurance Company v. Industrial Accident Commission (Montana) (1962) 27 Cal. Comp. Cases 130. Although the Montana case dealt with the question of earnings for purposes of determining the weekly rate for temporary or permanent disability payments, it has become shorthand for a host of factors separate from the industrial injury that may affect earning capacity such as motivation, education, language and general economic conditions.)
4. Senate Committee on Labor and Industrial Relations, Analysis of Senate Bill 863(8/31/2012) pages 5-6 at
http://leginfo.legislative.ca.gov/pub/1112/bill/sen/sb_0851_0900_/5b_863_cfa_20120901_013451_sen_comm_html
Here is the latest CAAA News Release. Per CAAA’s Terms of Use “We encourage you to reproduce, redistribute and repost our public communications with credit to CAAA as the source, and include a link to www.caaa.org that will send those interested in our messages to our website."
News Releases 2015 | 2014 | 2013 | 2012 | 2011
