Addressing the Economic Loss Rule

By The Workers' Compensation Practice Group

The simple fact that a partially-disabled claimant has lost his job through no fault of his own does not mean the claimant is automatically entitled to disability benefits. As a general principle, “loss of employment should not be deemed due to disability if a worker without the disability would lose employment or suffer a reduction in earnings under the same economic conditions.” King William County v. Jones, No. 0576-15-2, 2015 Va. App. LEXIS 353, at *20 (Dec. 1, 2015). Instead, in order to receive benefits upon the loss of employment, the partially-disabled claimant must demonstrate “the wage loss is causally related to the partial incapacity.” Id. at 23.

Historically, this principle has been addressed in the context of employee furloughs. In Utility Trailer Mfg. Co. v. Testerman, 58 Va. App. 474, 475-76 (2011), the claimant suffered a compensable injury while working on a manufacturing line and returned to work in a light-duty capacity. When the employer furloughed all employees for four days, the claimant sought wage benefits for the days he was out of work. The Court of Appeals determined that, while a claimant restricted to light duty could be entitled to benefits under that scenario, he nevertheless must “demonstrate the causal relationship between his loss of wages and his injury.” Id. at 482.

In assessing this inquiry, the Court of Appeals identified five factors to be considered:

(1) The length of any furlough from work; (2) whether that furlough included all employees, restricted or not, of the same class; (3) the reason for the furlough; (4) whether the term of the furlough was pre-determined by the employer; and (5) whether employees were offered employment at the termination of the furlough.

Id. at 481-82. Importantly, however, the Court of Appeals explicitly limited the above analysis to cases where the partially incapacitated employee was furloughed.

However, in King William County v. Jones, the Court of Appeals clarified that “furlough refers to a loss of employment that affects a class of employees as opposed to an individual, and therefore, the rationale also applies in cases of a permanent elimination of positions.” King William County, at *10 (emphasis added). The court found “[t]o hold otherwise would eliminate the requirement that a claimant demonstrate that partial disability caused an economic loss, place a partially disabled claimant in a superior position to the able-bodied workers who were also laid off, and essentially convert workers’ compensation benefits into unemployment benefits[.]” Id.

In King William County, the claimant worked for the employer’s custodial staff when she fell off a ladder while washing windows in a court house lobby on April 13, 2011. Id. at 2-3. The claimant returned to work in a light duty capacity following her accident, but her employment ceased on June 30, 2011, based on the employer’s decision to outsource all of its janitorial services to an outside contractor. Id. at 3-4. Although the claimant’s position was not eliminated until after her accident, the decision to outsource the janitorial services was made prior to the claimant’s injury. Id. Among other defenses to the claimant’s claim for indemnity benefits, the employer contended the claim was barred by the economic loss rule.

Applying the Utility Trailer factors, the Court of Appeals found “the length of the layoff was definite; employer had eliminated permanently the custodial positions, and thus, claimant’s potential marketing activities were not affected by her possible recall to work” Id. at 24-25. Additionally, all of the employees of the claimant’s class lost their jobs, regardless of work restrictions. Id. at 25. The layoff resulted from a business decision of the employer and its length, permanent, was predetermined. Id. Finally, no laid off employee was offered employment with the employer going forward. Id.

The Court of Appeals found application of the factors “strongly suggest[ed] the claimant’s partial disability was not the cause of her wage loss.” Id. at 26. Because the claimant failed to show that her subsequent failure to find work after her layoff was causally related to her partial disability, the Court of Appeals held the claimant was not entitled to disability benefits. Id. at 26-29.

Adjuster Tips for Successfully Defending Based on the Economic Loss Rule:

1. Determine the extent of disability at issue. Importantly, the economic loss rule applies only to cases of partial incapacity. Where the incapacity is total, the worker will likely be entitled to disability benefits, as courts have determined that total incapacity necessarily removes the claimant from the labor market due to the loss of earning capacity.
2. Analyze the length of the furlough/layoff in question. With a short furlough of defined duration, claimants have little reason to seek other employment. Therefore, it is less likely they can successfully demonstrate their disability placed them at a disadvantage in seeking alternative employment. In contrast, with recurring furloughs of undefined duration, the claimant will be more likely to demonstrate wage loss causally related to his or her disability.
3. Determine the basis of the layoff/furlough and the class of employees affected. If only the claimant was let go, but other employees of the same class continued employment, it is far more likely the Commission and courts would determine the lost wages were causally related to the claimant’s disability. The same considerations occur when applying the fifth factor, whether any employees were offered employment at the termination of the furlough.

For more information on the ruling referenced above, please see:
King William County and Virginia Association of Counties Group v. Linda Jones (Record No. 0576-15-2, 2015 Va. App.)