Brady, Connolly & Masuda, P.C. Sixth Annual Spring Seminar Thursday, May 3, 2007, 1:00 p.m. - 4:30 p.m. 4:30 p.m. - 7:30 p.m. - Reception (Cocktails and Hors d’oeuvres) DoubleTree Guest Suites 2111 Butterfield Road, Downers Grove, Illinois 60515 REDUCING YOUR WAGE DIFFERENTIAL AND PENALTIES EXPOSURE BEFORE THE ILLINOIS WORKERS’ COMPENSATION COMMISSION 1:00 p.m. - 1:30 p.m. Registration 1:30 p.m. - 1:35 p.m. Opening Remarks Francis M. Brady, Esq. 1:35 p.m. - 1:55 p.m. Calculating and Assessing Your Wage Differential Exposure: The New §8(d)1 Maximum Rates Peter J. Stavropoulos, Esq., Valerie J. Peiler, Esq. 1:55 p.m. - 2:20 p.m. Utilization of Vocational Rehabilitation to Reduce Wage Differential Exposure Susan Rosenberg, MS, CRC, LCPC, Susan Rosenberg & Associates, Inc. 2:20 p.m. - 2:45 p.m. Wage Differential Claims and Vocational Rehabilitation: An Arbitrator’s Perspective Arbitrator Kurt Carlson, Illinois Workers’ Compensation Commission 2:45 p.m. - 3:00 p.m. Effective Use of Vocational Rehabilitation Before the Illinois Workers’ Compensation Commission John P. Connolly, Esq. 3:00 p.m. - 3:15 p.m. Break 3:15 p.m. - 3:30 p.m. Managing Concurrent Exposures: Workers’ Compensation and Civil Andrew R. Makauskas, Esq. 3:30 p.m. - 3:45 p.m. Avoiding Awards of Penalties and Attorney’s Fees: A Defense Perspective Julia B. McCarthy, Esq. 3:45 p.m. - 4:25 p.m. Panel Discussion/Questions Arbitrator Kurt Carlson, Susan Rosenberg, MS, CRC, LCPC, John P. Connolly, Esq., Valerie J. Peiler, Esq. 4:25 p.m. - 4:30 p.m. Closing Remarks Beverly N. Masuda, Esq. 4:30 p.m. - 7:30 p.m. Reception RSVP on or before April 27, 2007, to: Ms. Linda M. Barker / [email protected] (312) 425-3131 / (312) 425-0110 (FAX) ** If you are unable to attend the Seminar, please feel free to join us at the Reception. *** If you are unable to attend the Seminar and would like to receive the seminar materials, please e-mail our office at [email protected]. CALCULATING AND ASSESSING YOUR WAGE DIFFERENTIAL EXPOSURE: THE NEW §8(d)1 MAXIMUM RATES Peter J. Stavropoulos, Esq., Valerie J. Peiler, Esq. BRADY, CONNOLLY & MASUDA, P.C. One North LaSalle Street Suite 1000 Chicago, Illinois 60602 (312) 425-3131 (312) 425-0110 - FAX www.bcm-law.com May 3, 2007 6th Annual Spring Seminar CALCULATING AND ASSESSING YOUR WAGE DIFFERENTIAL EXPOSURE: THE NEW §8(d)1 MAXIMUM RATES Introduction The 2005 Amendments to the Illinois Worker’s Compensation Act altered the law governing both vocational rehabilitation and the value of a wage differential award under Section 8(d)1 of the Workers’ Compensation Act. The changes to the maximum possible wage differential award have the potential to significantly increase the cost of such claims for high wage individuals, such as skilled construction workers; supervisory personnel in construction and other manual labor positions; and skilled individuals whose jobs entail some physical demands. The purpose of this presentation is to demonstrate the differing values associated with permanent partial disability that result from changes to one sole factor: the type of employment to which the injured worker can return. The value of the permanent disability associated with a restricted return to work varies dramatically depending upon the type of work to which the injured employee can return. Obviously, a critical factor in returning the employee to the best possible employment within work restrictions is the quality of the vocational rehabilitation program. However, the vocational rehabilitation process has costs to both the employer and employee, including the simple passage of time with no resolution of the workers’ compensation claim. In order to determine whether a vocational rehabilitation plan is cost effective, it is necessary to value the permanency liability under the various statutory schemes. We will explore the value of permanent disability associated with a debilitating injury under Section 8(e), governing specific losses; Section 8(d)2, governing man as a whole; and Section 8(d)1, providing for wage differential awards, under both the OLD and NEW systems. By assessing the value of the permanent disability of a claim under each statutory scenario, and weighing that value against the cost of the vocational rehabilitation program proposed, the parties can determine the best possible outcome, from each party’s perspective, for conclusion of the claim. The Law Governing Wage Differentials Notably, the change to the wage differential maximum liability is not found in Section 8(d)1 of the Act. Instead, the new maximum is set out in Section 8(b)2 of the Act. A copy of the language of both Sections of the Act is provided in these materials. Another critical point to note in assessing the value of a wage differential is that the differential is NOT based on the average weekly. Instead, a wage differential is measured as the difference between what the employee COULD be earning in his prior occupation and what he is CAPABLE of earning in his post-accident condition. Under this language, the wage a union employee could be earning is measured by the hourly wage set out in the contract on the date of trial before an Arbitrator of the Commission. If an employee was earning $31.50 per hour under his union contract when he was injured on May 3, 2001, and he would now be earning $35.65 per hour under that union contract, his wage differential will be measured using the $35.65 per hour wage. The last significant legal principle raised in this discussion is that the law basically awards this permanency benefit for the natural life of the employee. The only basis on which to terminate payment of the wage differential benefit is if the employee’s PHYSICAL condition changes so as to allow him to pursue a higher paying occupation. The fact the employee is earning as much money as he did at the time of the accident is not a sufficient legal basis for terminating wage differential benefits. Hypothetical Example For purposes of illustrating the impact of the ability to return to work, let’s assume a construction worker belonging to the ironworker’s union sustains a tri-malleolar fracture to the right foot on May 3, 2005. As his accident date is before February 1, 2006, the prior law applies. His union contract reflects that he currently would be able to earn $38.25 per hour, or $1,530.00 per week. He is released to work with restrictions, primarily no walking on uneven ground. Because of this specific restriction, he is unable to return to his prior occupation of ironworking. If his employer takes him back to work and makes him a supervisor with no construction responsibilities working under the union contract, the value of his permanent disability could be measured as a percentage loss of use of the foot. With a May 3, 2005, accident date the maximum permanent partial disability rate was $567.87 and a foot was worth 155 weeks. Therefore, a permanency award of 45 percent loss of use of the right foot would be valued at $39,608.93. If the employer chose to provide the employee with a position as an inside estimator, earning the same wage as he would have earned as a union worker, the permanent partial disability value could be measured as a percentage loss of use of the man as a whole, because the employee is partially incapacitated from his prior employment. If such a loss were valued at 30 percent loss of use of the man as a whole, the value of the permanent partial disability, again utilizing the maximum permanent partial disability value of $567.87, would be $85,180.50. If the employer would or could not accommodate the employee’s restrictions, and the employee was only able to locate work as a security guard earning $8.50 per hour, the value of the permanency would be measured under Section 8(d)1 of the Act, because the employee has clearly suffered a loss of earning capacity. For the May 3, 2005, accident date, the employee’s weekly wage differential benefit is capped at $567.87 per week, the maximum permanent partial disability rate for that date of accident. This weekly benefit yields a yearly cost of $29,529.24. Given the employee’s life expectancy of 40 years, and utilizing a present cash value discount of 6 percent, the present cash value of this wage differential would be $444,305.80. New Law This hypothetical example utilized a May 3, 2005, date of accident. However, for all accidents occurring on or after February 1, 2006, the computation of the wage differential has changed significantly for high wage earners. In the example above, the wage differential was capped at the maximum permanent partial disability rate of $567.87 per week. Under the new law, the wage differential is capped at the State of Illinois’ average weekly wage. Therefore, for an accident occurring on May 3, 2007, instead of 8(d)1 claims being capped at the maximum permanent partial disability rate of $619.99 per week, they are now capped by the State’s average weekly wage of $861.38. As of May 3, 2007, the maximum wage differential under Section 8(d)1 has increased by almost $250.00 per week. The maximum present cash value under the “old” law and the “new” law is quite significant, with an increase of $229,644.45 for the identical scenario occurring two years apart, as illustrated below.