WCAB Brings Sanity to Penalty Claims

Ramirez v. Drive Financial Services (2008) 73 Cal. Comp. Cases 1324 [en banc]: In a unanimous decision the WCAB has attempted to clarify the law governing penalty assessment in this post-AB749/SB899 world. The 16 page decision does address several key issues which have remained unanswered for several years. Whether the decision provides clear guidance depends on your perspective.

Calculation Of Penalty: Not Automatic Amount
The WCAB confirmed that “up to” means “up to.” Specifically, the WCAB determined that “discretion is now required in setting the amount of a penalty and that an applicant is not necessarily “entitled” to the maximum.” The WCAB then enumerated factors the WCALJ should consider in attempting “to accomplish a fair balance and substantial justice between the parties.” These factors include:
1. The amount delayed.
2. The length of delay.
3. Whether the delay was inadvertent and promptly corrected.
4. Whether there was a history of delayed payments.
5. Whether there was a specific time period for payment.
6. Business realities.
7. Institutional neglect.
8. Employee contribution to delay.
9. Effect of the delay on the injured worker.

Multiple And Successive: It Lives! – Sort Of
The applicant demanded multiple and successive penalties based on the fact the defendant had paid a 10% self-imposed penalty, but refused to pay 25%. The WCAB agreed “in principle” that multiple and successive penalties are still possible. However, the WCAB explained that there must be some separate and distinct act of misconduct after the same conduct has been found unreasonable or some other “analogous, legally significant event such as a stipulation of liability.”

The WCAB all but rejected the claim that a multiple and successive penalty was due. First, it explained that if the defendant had a “genuine doubt” from a legal or medical standpoint, it was not an unreasonable delay.

More importantly, the WCAB explained that imposing a multiple and successive penalty under such circumstances would mean the carrier who paid a voluntary penalty could get penalized twice, while one who did not would not. The WCAB remanded the issue for trial, but strongly implied that no second penalty was due.

Safe-Harbor?:
In a footnote that is sure to lead to more litigation the WCAB rejected the argument that the 10% self-imposed penalty paid by the carrier prior to the filing of a penalty petition, but after the threat of one, gave rise to the safe-harbor provision under Labor Code section 5814, subdivision (b). In doing so the WCAB concluded that “claiming” a penalty is not the same as filing a penalty petition. This means that simply threatening a penalty is enough to remove the carrier from its opportunity to avoid Labor Code section 5814.

Attorney’s Fees: Labor Code section 5814.5
The changes to Section 5814.5 at issue were part of AB 749 and provide for the award of attorney’s in securing Labor Code section 5814 penalties.

The WCAB started off by explaining that Labor Code section 5814.5’s award of applicant’s attorney’s fees for obtaining penalties applies all private employers.

Next, the WCAB held that the statute applies to all dates of injury, but only for delays occurring on or after January 1, 2003.

Moving onto actual computation of the attorney fee the WCAB determined the amount is “in addition to” the Labor Code section 5814 penalty. In other words, it comes out of the defendant’s pocket, not the injured worker’s. The WCAB further explained that the fee is to be at a reasonable hourly rate based on the “attorney’s time, effort, care, experience and results.”

The WCAB however then dealt a gigantic blow to applicant’s attorneys. It concluded that section 5814.5 fees may only be awarded where “there has been a prior award of benefits, the defendant has unreasonably delayed payment of some or all of that award, and the applicant has incurred attorney’s fees in enforce the prior award. If there is no prior award, or no unreasonable delay, section 5814.5 fees shall not be awarded. Moreover, section 5814.5 fees should be allowed only for legal services rendered in “enforcing” the unreasonably delayed prior award, and not for any other purpose.”

In other words, section 5814.5 attorney’s fees cannot be awarded for even an egregious delay of payment of benefits unless a prior award of the benefits issued and needed to be enforced.

Bottom Line:
This case appears to continue the recent trend of employer-friendly interpretation of recent legislative “reforms.” It requires a penalty award to be based on a consideration of all circumstances. It also removes any financial incentive for applicant’s attorneys to pursue nominal penalties in hopes obtaining a large hourly fee award. How it will play out in practice remains to be seen. Whether the Courts of Appeal will see the law the same as the WCAB also remains to be seen.

Stay tuned.

Opinion filed September 9, 2008.

Heggeness,Sweet, Simington & Patrico, A.P.C

WCAB Brings Sanity to Penalty Claims