By Eugene F. Keefe


Synopsis: We keep getting asked — we feel there is only one effective system-wide "defense" to Section 8(d-1) wage loss differential claims in this state.

Editor's comment: We have several clients who are struggling and struggling with wage loss differential claims and their relative indefensibility in this state. We have already advised our readers to reconsider and update job descriptions to try to accommodate Illinois workers with permanent restrictions wherever possible and avoid wage loss differential exposures.

The claim costs from wage loss benefits are spiraling and, in this rotten economy, everyone is trying to cash in. Section 8(d-1) allows a petitioner, at his or her option, to elect to receive, in lieu of all other permanency benefits, 2/3 of the difference between what he would be earning in the job he was working when injured and what he can currently make, usually due to permanent and some times life-changing work restrictions.

From a plain reading of the act, one would think this benefit would continue until petitioner would retire from the work force. The words of the statute are: "for the duration of ... disability." We ask everyone how one can be disabled from work and require benefits for that disability when you retire from the work force, never to work again. We assure all of you the word "disability" has been stretched and strung out like a rubber band.

In its ruling in Cassens Transport, our highest court used what we feel is an artificial definition of "disability" to rule that, if a worker had lower income at the time of the 8(d-1) hearing and then made double or triple or more what they were making prior to injury, if their "disability" didn't change, the employer still owed them wage loss differential benefits. For example, if a truck driver with an operated shoulder was making $1,220.00 per week at the time of injury and then made minimum wage or $320 per week after the injury, their wage loss differential benefit would be $1,220.00 minus $320 or $900.00. They would be entitled to 2/3 of the $900 gross wage loss or $600 per week for life. If they then started a business and were making $2,500 per week but their "disability" didn't change, they would still be entitled to the $600 per week from the former employer. We think it is an abuse of the language of the act to require an employer to continue to keep making wage loss benefit payments to such a worker but we don't define the law, our courts and legislature does.

One major problem is everyone in the insurance industry wants to "lump out" such benefits to avoid having to pay them on a weekly basis for decades. Almost all lump sum wage loss differential benefit settlements are in the range between $100,000 to $600,000. While we have not seen one yet, it is possible to have a wage loss differential present value in the seven-figure range. Trust us; it is coming to a claim near you. The problem this creates in some settings is similar to throwing gasoline on a fire. Everyone who has a permanent restrictions arising from a simple injury, like an operated shoulder or knee is thrilled to seek more money than what Illinois would pay for 100% loss of use of the affected limb, if it were amputated.

The claims industry is struggling to slow the tide of such claims. The problem is what to do when there is no question about the loss, the permanent restrictions and the giant claim that arises from all of it. Other than keeping the permanently restricted worker in your workforce at the same pay in a permanent light duty position, in our view, there is one effective "defense" to this concept — don't have high wage workers. Whenever and wherever possible, restrict everyone in high wage but low education positions to 20-hour weeks. If you don't already know it, companies like 24-Hour Fitness®, CVS® drug stores, United Parcel Service® and Wal-Mart® already do this as a routine course of business.

We understand there are many industries where it might be problematic to hire such workers but we are telling every Illinois employer who will listen that having more part-time workers makes WC sense in this state. Having more part-timers in high wage jobs will start to affect underwriting of workers' compensation losses and concomitant premium dollars. We are surprised more risk managers, insurance carriers and brokers aren't sitting up and taking notice.

How would it work? Well, if you have someone who is making $30 per hour in a heavy job and they work full time or 40 hours each week, their pre-injury wage is $1,200 per week. If they suffer in an injury with permanent restrictions and then get a minimum wage job, the wage loss calculation is $1,200 less $320 (the income from the minimum wage job after injury) or $880.00. They would be entitled to a weekly benefit of 2/3 of that amount or $586.67 on a weekly basis for life or just over $30,000 per year. For a 40-year-old with a 40 year life expectancy, the full undiscounted value is over $1,200,000!! Present values depend on the discount factor but it would be in the range of $500,000 to $800,000.

In contrast, if the same worker is only working 20 hours a week at $30 per hour, they are making $600 per week. If they suffer an injury with permanent restrictions and then get a minimum wage job, the wage loss calculation is $600 less $320, creating a gross wage loss of $280 per week. Two-thirds of that difference is $186.67. On an annual basis, the value is less than $10,000 per year. For the same 40-year-old, the full undiscounted value is about $400,000. The present value is no more than $100,000 to $200,000. While that is still a boatload of money for an arm strain with surgery, it isn't close to the values we can expect to see in the coming years.

We assure all of our readers these numbers are immutable. If the wage loss sets up, it is truly difficult to defend under this administration. And please also understand the arbitrators and commissioners aren't doing anything technically wrong — they are applying Illinois law to the facts before them. If Illinois business wants to change this system, we have to take it to the legislature when the time is right.

If you have any further thoughts on wage loss differential claims and how to save money, please let us know. We appreciate your thoughts and comments on these issues.

 

Synopsis: Liens and related claims against workers' compensation benefits in Illinois .

Editor's comment Issues you may face in managing an Illinois workers' compensation claim is what to do when you receive a notice of claim for a lien or order for withholding against pending workers' compensation benefits or lump sum settlements. In looking at our Workers' Compensation Act, Section 21 addresses the issue of lien, assignment, attachment or garnishment. The act states:

 

In reviewing the case law interpreting this section of the Illinois Act, the court in Mentzer v. Van Scyoc held workers' compensation benefits cannot generally be applied to debts of claimant, even when reduced to judgment, unless some specific statutory provision so provides. Therefore, the specific statute which authorizes or provides for enforcement of the lien must be examined to determine whether there is a specific provision which would require enforcement of the lien against workers' compensation benefits. If not, that specific lien is not enforceable against workers' compensation benefits.

If you receive an order or claim for lien which is unenforceable against workers' compensation benefits, we suggest you contact us or your selected defense counsel for updated advice. There are five common liens or other claims you may encounter.


 

The Illinois Wage Garnishment Act permits a judgment creditor to obtain an order requiring a judgment debtor's employer to pay a portion of the employee's income directly to the creditor. There is no specific statutory provision indicating that workers' compensation benefits are subject to wage deduction orders.
In addition, the case of East Moline Works Credit Union v. Linn held exemption from garnishment attaches to workers' compensation benefits that have been paid as well as compensation that may be due or become due. Therefore, wage deduction orders are not enforceable against workers' compensation benefits.
 
 
Withholding of income for payment of child support and/or maintenance of a spouse is addressed in both the Illinois Marriage and Dissolution of Marriage Act and the Non-support of Spouse and Children Act. Both acts contain identical provisions for withholding of income to secure payment of support.
The act specifically provides that "Income" includes workers' compensation payments. In addition, the act also contains a provision specifically stating any other state or local laws which limit or exempt income or the percentage of income that can be withheld shall not apply. Therefore, any order for child support or spousal maintenance is enforceable against workers' compensation benefits. These orders may include withholding for current support payments as well as including additional dollar amounts or percentage of income amounts for delinquent payments.
Both acts specifically provide penalties for noncompliance. If an employer willfully fails to withhold or pay income pursuant to a properly served order, then the obligee (individual to whom the support payment is owed), public office or employee may file a complaint against the employer. The Circuit Court would then notify the employer of the time and place for hearing on the complaint. If the court finds in favor of the complaining party, the court enters a judgment directing the employer to pay the total amount which it willfully failed to withhold.
 
There is an additional provision which indicates that an employer, who knowingly fails to pay any amount withheld within 10 calendar days of the date income is paid to the employee, is subject to a penalty of $100.00 for each day the amount withheld is late after the expiration of 10 calendar days. Therefore, it is important that funds withheld from workers' compensation payments due to a child support order or spousal maintenance support order are paid promptly.
 
 
The Illinois Physicians Lien Act provides that physicians practicing in Illinois who provide services by way of treatment to injured persons have a lien upon all claims and causes of action for the amount of reasonable charges up to the date of payment of damages. The act specifically makes an exception so it does not cover services rendered under the provisions of the Workers' Compensation Act.
Therefore, like wage deduction orders, physicians liens are not enforceable against workers' compensation benefits.
           

The Department of Public Aid has a right of subrogation to any right of recovery the recipient of that aid may have under terms of any private or public health care coverage or casualty coverage. The Public Aid Code specifically includes coverage under the Workers' Compensation Act. In order to enforce its rights, the department may either intervene or initiate proceedings for the cost of services provided by the department.
 
If Public Aid paid medical expenses as a result of injuries later deemed to be compensable under workers' compensation, you may receive a subrogation notice. Medical expenses must be reimbursed from funds owed petitioner in settlement of the workers' compensation claim.
 
 
The Internal Revenue Service, pursuant to Section 6321 of Tax Code, has advised that federal tax liens attach to all property. With such broad power, the Internal Revenue Service may issue a tax lien which would be enforceable against workers' compensation benefits. This lien would attach to any benefits, settlement or permanency award.

 


We suggest that, upon receiving notice of a lien claim involving workers' compensation benefits, you contact us or your selected defense counsel for updated advice. You probably should notify both claimant and his attorney in writing to confirm both receipt of the claim and your course of action with regard to same.

 
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Eugene F. Keefe is a partner in the Chicago law firm of Keefe, Campbell & Associates.
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