Cockle: Importing Health Benefits Into Wages-an Invitation for Legislative Review of the Wage Definition Under Washington's Industrial Insurance Act

• Publication year: 2001

SEATTLE UNIVERSITY LAW REVIEWVolume 25, No. 3WINTER 2002

NOTES

Cockle: Importing Health Benefits Into Wages-An Invitation for Legislative Review of the Wage Definition Under Washington's Industrial Insurance Act

Matthew H. Adams(fn*)

It might very well be that it would be wiser to provide by legislation for the result contended for by respondent workman. We may not, however, under the guise of construction substitute our view for that of the legislature. We are not a super legislature.(fn1)

Introduction

Every day workers suffer work-related injuries or illnesses. Since the early twentieth century, society has compensated injured workers through the workers' compensation system.(fn2) As part of their compensation, workers receive wage-replacement benefits for disabilities, medical expenses, and vocational rehabilitation.(fn3) The amount of benefits received by a worker is based upon the worker's wages at the time of injury.(fn4)

Like most states, Washington has a complicated workers' compensation statute, the Industrial Insurance Act (IIA),(fn5) which sets forth a formula for calculating wages. IIA defines "wages" as monetary payment in addition to the value of "board, housing, fuel, or consideration of like nature" to those items.(fn6) The phrase "other consideration of like nature" has been the subject of much litigation regarding the intent of Washington's Legislature (Legislature). The Washington Supreme Court recently interpreted this phrase in Cockle v. Department of Labor and Industries,(fn7) holding for the first time that IIA's definition of "wages" includes the reasonable value of employer-provided health insurance.

Cockle represents a sea change in Washington's industrial insurance law because fringe benefits have never been included in the definition of "wages" under Revised Code of Washington (RCW) 51.08.178. Including health insurance as wages conflicts with common wage definitions.(fn8) Therefore, the Cockle decision creates the impetus for a bitter struggle over the calculation of workers' compensation under IIA.(fn9) This struggle will have long-term effects on stakeholders, particularly self-insured employers and state agencies that administer and adjudicate injured workers' claims.

By including employer-provided health insurance in IIA's definition of "wages," the Cockle majority stated that its decision continues "serving the goal of swift and certain relief for injured workers."(fn10) However, while attempting to advance an objective of Washington's workers' compensation system, the majority improperly substituted its view of wages for that of the Legislature. The majority's decision will result in significant policy changes to industrial insurance law, changes best left to the legislative process. The Legislature should narrow the scope of this "judicial legislation in the guise of statutory construction" (fn11) because the decision offers little guidance to the stakeholders and no principled limitation on the scope of benefits.

This Note addresses the efficacy of construing the term "wages" in RCW 51.08.178 to include employer-provided health insurance, hoping to serve as a resource for the Legislature to reevaluate IIA's wage definition in light of Cockle. First, this Note gives a general background of IIA and the Act's time-loss compensation scheme. Next, this Note discusses how Washington and other jurisdictions treat fringe benefits in defining "wages." This Note then examines the Washington Supreme Court's ground-breaking decision in Cockle, in which the court held that the value of employer-provided medical and dental benefits are part of the basis used to calculate workers' compensation payments. Finally, this Note analyzes the implications of Cockle and argues that the Legislature should narrow the Cockle court's interpretation of wages.

I. Washington's Industrial Insurance Act

Enacted in 1911,(fn12) IIA is the result of careful balancing between business and labor interests.(fn13) Workers receive guaranteed limited compensation for work-related injuries on a "no-fault" basis, while employers provide statutorily prescribed benefits in order to be released from civil liability under the "exclusive remedy" doctrine.(fn14) IIA is liberally construed to give effect to its remedial purpose of minimizing work-related suffering and economic loss.(fn15)

As part of its wage-replacement scheme, IIA grants "time-loss benefits" to a worker who suffers temporary total disability due to an industrial injury.(fn16) The amount of payment for time-loss benefits depends upon the worker's marital status, number of dependents, and monthly wages.(fn17) Payments continue until a physician releases the temporarily disabled worker for any kind of gainful employment, or until the worker's claim is closed.(fn18) If the worker's earning capacity is only partially restored after returning to gainful employment, the worker becomes eligible for "loss of earning power benefits."(fn19) Time-loss and loss of earning power benefits are intended to reflect a worker's "lost earning capacity,"(fn20) and monthly payments are capped at the applicable percentage of the state's average monthly wage.(fn21)

Although funding sources are different, every employer has a duty to secure time-loss benefits payment.(fn22) Those not self-insured employers(fn23) pay premiums into the State Industrial Insurance Fund(fn24) (State Fund) based upon the degree of hazard involved in their occupation.(fn25) The Department of Labor and Industries (Department) then makes the appropriate amount of payment to the injured worker. In comparison, "self-insured" employers pay for benefits out of their own assets and may reinsure up to 80% of their liability.(fn26)

II. Approaches to Defining Wages

The definition of "wages" is an important component of workers' compensation statutes because the amount of benefits received by a worker is based upon the worker's wages at the time of injury. There is a variety of wage definitions. Most statutes define "wages" to refleet a worker's "actual earnings."(fn27) However, there is a split of authority regarding whether wages encompass fringe benefits such as employer-provided health insurance.(fn28)

A. The Federal Approach: Morrison-Knudsen

The leading federal case is the decision of the United States Supreme Court in Morrison-Knudsen Construction Co. v. Director, Office of Workers' Compensation Programs. (fn29) Morrison-Knudsen involves the calculation of compensation for the family of James Hilyer, who was struck and killed by a cement truck while helping to build the District of Columbia Metrorail System. At issue was whether the decedent's wage basis should include 68 cents consisting of per-hour value paid into the union health and welfare fund, pension fund, and training fund.(fn30) The Court construed the following "wages" clause in the 1927 Longshore and Harbor Workers' Compensation Act (LHWCA):"Wages" means the money rate at which the service rendered is recompensed under the contract of hiring in force at the time of the injury, including the reasonable value of board, rent, housing, lodging, or similar advantage received from the employer, and gratuities received in the course of employment from others than the employer.(fn31)

Based upon its interpretation of the "wages" clause, the Court held that employer contributions to union trust funds for health and welfare, pensions, and training were not wages for the purpose of calculating compensation benefits under LHWCA.(fn32)

The Morrison-Knudsen Court stated that the value of the employer's contributions was too difficult to ascertain and was therefore not of "similar advantage" to board, rent, housing, or lodging, which have a present value readily converted into a cash equivalent.(fn33) In deciding that the contributions could not be so converted, the Court found that the employer's cost of maintaining the trust funds was irrelevant because there was no direct relation between the size of the contributions and the size of the decedent's benefits or pension credits.(fn34) The Court emphasized that Hilyer was too far removed from the benefits because his interest in them was speculative.(fn35)

The Morrison-Knudsen Court then consulted legislative history, finding no evidence indicating that Congress intended wages to include employer contributions to benefits plans.(fn36) The Court recognized that fringe benefits were a common feature in America, but found that Congress's exclusion of these benefits in the originally enacted and revised versions of LHWCA was illustrative of Congressional intent to exclude such benefits from the Act's wage definition.(fn37) In contrast, Congress added fringe benefits to the definition of "wages" in other statutory schemes.(fn38)

The Court further noted that LHWCA uses the concept of "wages" in several ways.(fn39) Therefore, to maintain consistency throughout LHWCA, the expanded concept of "wages" would have to be adopted in calculating the "national average weekly wage," which forms the basis for arriving at the overall maximum weekly benefit figure.(fn40) The Court, however, found that this calculation would be extremely difficult.(fn41)

Finally, the Morrison-Knudsen Court noted that the Department of Labor consistently excluded fringe benefits from wages.(fn42) Although the agency's interpretation was not...