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Home / Washington Business - November/December 2005 / Legal Matters: Court Stops Workers' Comp Hemorrhage |
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Legal Matters: Court Stops Workers' Comp Hemorrhage |
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Written On: November/December 2005 |
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Written By: by Kris Tefft and Amber Carter |
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On September 29th, the Washington Supreme Court released its long-anticipated decision in Gallo v. Department of Labor and Industries. This case represented the Supreme Court’s opportunity to revisit and contain some of the damage it brought to our state’s costly workers’ compensation system in 2001 when it handed down Cockle v. Department of Labor and Industries. Cockle, as AWB members know, is the decision that held, contrary to longstanding practice, that time-loss benefits under workers’ compensation includes certain fringe benefits such as health and dental insurance. Under Cockle, a fringe benefit is included in wages if it is "critical to basic health and survival".
Cockle added a $50 million-a-year cost to the benefits side of the workers’ compensation system which, according to the Washington Alliance for a Competitive Economy Redbook, already has the fourth highest benefits level in the nation. The increased cost played a significant role in the double-digit increases in workers’ comp premiums in the years immediately following Cockle, and the issue of wage simplification has been one of the more contentious issues in an already polarized legislative debate over workers’ comp reform.
Cockle also engendered over 1,400 follow-up cases in which claimants asserted fringe benefits — ranging from employer-provided cell phones to vacation to union dues — were critical to basic health and survival and thus should be included in the benefit calculation. The Gallo case was the tip of that spear, bringing the issue back to the Supreme Court. The five consolidated claims in Gallo sought to include union dues, apprenticeship training benefits, disability and life insurance, and retirement contributions as wages to boost the claimants’ benefits.
AWB filed an amicus curiae (friend of the court) brief before the Supreme Court, which was joined by the Washington State Farm Bureau and the Associated General Contractors of Washington. AWB also took part in oral argument at the Supreme Court alongside counsel for L&I, representing the AWB coalition as well as the Washington Self-Insurers Association. Our principal contention was that Cockle was wrongly decided, has wreaked havoc on the workers’ comp system, and should be overturned. Short of that, we argued, it was critical for the health of the workers’ comp system and the overall business climate that the Supreme Court limit Cockle and reject the claimants’ invitation to extend its holding to even more fringe benefits.
Although the Washington Supreme Court missed the opportunity to overturn Cockle, the court unanimously agreed with AWB that Cockle did not extend to the fringe benefits sought in Gallo. Writing for the court, Justice Barbara Madsen stated, "The Legislature did not intend that all forms of consideration, in cash or in kind, be included for purposes of time-loss compensation calculations. Rather, the Legislature intended to include in wages only those items of in-kind consideration that a worker must replace while disabled and that are critical to the workers’ health or survival." Analyzing each of the fringe benefits sought by the Gallo claimants, Justice Madsen held that the fringe benefits do not rise to the level of affecting critical health and survival needs.
Gallo should therefore stand as authority for the Department of Labor and Industries and the Board of Industrial Insurance Appeals, as well as lower courts, to easily and quickly dispose of the many Cockle-related challenges pending before it. If the typical benefits package raised in Gallo — training, retirement, life insurance, disability — does not satisfy the Cockle test for wages, then many other truly fringe benefits can safely be excluded from the wage replacement. Gallo should stand for the proposition that Cockle limited the workers’ comp wage statute to actual cash wages plus health care benefits, and precious little, if anything, else.
Indeed, according to Cal Dickinson, the employer representative to the BIIA, the Gallo decision gave the Board comprehensive guidance on adjudicating wage claims. According to Dickinson, Gallo presented a straightforward three-part test. To be included in the calculation of time-loss wages, a benefit must be (1) Of like kind to food, fuel, and shelter; (2) Necessary for basic health and survival; and (3) Applicable during the workers’ period of disability. Although the third prong of the test is a slight extension or clarification of Cockle, it is guidance that should allow the hundreds of cases in the system to be resolved quickly.
Stability and predictability is a key value for employers who pay different taxes from year to year on workers’ compensation due to fluctuations in the overall performance of the system. Reforms to establish rate stability have been a centerpiece of AWB legislative efforts in recent years. While overturning the court’s central mistake in Cockle would be the optimal outcome for workers’ compensation predictability, Gallo built a necessary fence around Cockle and helped, for now, stop some of the bleeding in a system that all to frequently hemorrhages benefits while raising costs.
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