The Loss of Earnings Guide
A person who is injured by the careless, negligent or otherwise wrongful act of another in Los Angeles and anywhere in California may be entitled to recover for all loss of time and money from work caused by a car collision or other incident.
Proving loss of earnings may be simple or quite involved and complex, sometimes requiring the services of forensic accounting experts in addition to a good personal injury lawyer with a background in accounting and taxes.
Injured folks making such wage loss claims for money damages are usually referred to as the claimant or plaintiff. The persons or entities against whom the claim is made are usually referred to as the defendant or respondent.
When the responsible party carried applicable liability insurance at the time of the incident then such claims are usually settled by negotiation with the adjuster working for the insurance company which insures the defendant(s) without requiring a more formal resolution process such as a formal trial, but some claims or cases are contested, disputed or otherwise more difficult and decided by mediation, arbitration or trial.
Such trials may be handled entirely by a judge without a jury (commonly called a “bench trial”) or by both a judge who “conducts” or “orchestrates” the trial with a jury (usually consisting of 12 adults from the local area or community) who consider the facts and applicable law then issues a verdict deciding the case (commonly referred to as a “jury trial”).
When there is applicable liability insurance covering the defendant(s), the insurance company usually will provide at no charge both the claims adjusters and attorneys for the defendant(s) to both defend the case and pay money to settle or otherwise resolve any negotiated amount or any verdict, judgment or award for money issued by the court or by an agreed upon arbitrator against the defendant(s). The payment of funds by an insurance company for the benefit of its insured(s) [aka the defendant(s)] is called “indemnification”. That is, the insurance company indemnifies its insureds by paying the amount of money owed by its insured(s)/the defendant(s) to the plaintiff(s) and this process is called “indemnification”.
While the insurance company works for and protects the interests of the defendant(s)/insured(s), who works for and protects the interests of the injured parties, aka the plaintiff(s)?
It is the responsibility of the injured party or parties, who we shall refer to as the claimant, to find and hire the best personal injury lawyer the claimant can find.
Once found and retained, the claimant’s lawyer will work with the claimant and also as needed with others (such as the claimant’s employer, CPA, accountant, bookkeeper, doctors and other health care providers) as appropriate to gather needed evidence to prove-up the claimant’s loss of earnings and wages, loss of income, loss of profits, loss of earning capacity and other future work losses.
For purposes of this Loss of Earnings Guide we shall assume the defendant is 100% or completely responsible for causing the claimant’s injuries and damages. As such, if the plaintiff can prove plaintiff’s loss of earnings was $10,000.00, then the defendant would be responsible to pay or compensate the plaintiff for this full amount. Although not the topic of this Loss of Earnings Guide and offered simply for clarification purposes California is a comparative fault state which means if a judge or jury found the plaintiff 20% at fault for causing this incident, then the claimant/plaintiff would receive 20% less (that is, $2,000.00 less as $2,000.00 is 20% of $10,000.00) or $8,000.00 for the loss of earnings part of this claim.
In addition, while it is common to call a car collision or other injury claim a car “accident” or injury “accident”, when someone is careless or negligent causing an injury incident we do NOT consider it an “accident” (an event that happens by chance or without apparent cause) but an “incident” caused by the carelessness or negligence of the responsible party.THINGS TO KNOW AND TO DO TO PREPARE YOUR LOSS OF EARNINGS CLAIM
- The claimant should discuss all injuries and any disability, inability to work, restrictions and or lost time with the claimant’s doctor and all other health care professionals (herein collectively referred to as doctor) so the claims of the claimant are clearly and accurately supported in the medical records by claimant’s doctor and all the claimant’s records are consistent and supportive of each other. This should include a supporting statement by the doctor in claimant’s medical records stating the claimant is unable to work because of or due to the subject incident and also for how long. This is called “CAUSATON”, that is the subject incident CAUSED this claimant to be injured and miss this time from work. Causation is an essential element in proving and winning personal injuring claims and should never be overlooked or taken for granted. This lost time from work can include full days off work, part days off work and restrictions on work activities. It should include all time seeking medical care, including exams, treatments, travel time and waiting time. It should also include the entire period of time the claimant misses time from work because of this incident, whether it is just a few days, a few weeks, a few months or longer. It is very important the claimant’s medical records document and confirm the need for claimant to miss work because of and caused by this incident.
- The claimant also should discuss claimant’s need to miss time due to this incident with claimant’s employer and supervisor, HR department if any or other appropriate persons who will be needed later to document the actual time missed from work and or money lost from work because of this incident. The last thing a claimant wants – or the claimant’s lawyer wants -- is claimant’s employer to state it knows nothing about the incident or the reason claimant missed time from work for the time period the claimant claims claimant could not work due to this incident. Therefore, it is very important the claimant discusses this injury incident with claimant’s employer at the very beginning of this claim and the employer keeps accurate and clear records of all time missed and all money and benefits lost.
- The claimant also should keep claimant’s own separate detailed records of all time missed from work and all money lost from work because of this incident (as well as any other money lost due to this incident such as medical expenses, prescriptions, transportation and parking expenses, which are very important but not the subject of this Loss of Earnings Guide). The claimant should be informed by claimant’s attorney what records to keep and how to keep such records, such as a daily log or record of all time missed from work (whether this missed time is paid for by the employer or this missed time is not paid for by the employer--which is another interesting issue that we shall go into later in more detail) and to save all time records and other receipts proving time missed and other money losses due to being unable to work because of this incident.
- The claimant/employee is entitled to recover and be compensated for the reasonable value of all time missed from work caused by the subject incident. This amount includes all wages, earnings, overtime missed, commissions, bonuses, and fringe benefits such as paid sick leave, paid vacation time, profit sharing plans and social security benefits (for example, if earnings are substantially reduced then retirement plans and or social security which is based on past earnings also may be reduced, causing a greater loss to claimant). [See the California Supreme Court case supporting this, Seely v. White Motor Co., 63 Cal.2d 9, 22 (1907); and California Civil Jury Instruction cited as CACI 3903C]
- If the claimant is an employee of a business and receives a regular paycheck every week, every other week, twice per month or otherwise, then the claimant/employee’s claim for loss of earnings is usually the difference between the claimant’s regular pay check and the lower post injury pay check. For example, if a claimant/employee usually works 40 hours per week and makes $20.00 per hour or $800.00 per week, and after the incident the employee/claimant can only work 30 hours in the week post incident, then the employee/claimant’s loss of earnings is $200.00 [that is, ten (10) hours missed multiplied by the employees rate of pay of $20.00 per hour]. The loss is based on gross pay and not after tax net pay. [See the California Supreme Court case of Rodriguez v. McDonnell Douglas Corp., 87 Cal. 4th 480 (2012)].
- The claimant/employee is also entitled to be compensated for all work missed even if the claimant/employee was paid for this missed time by the employer. For example, using the above example, if the claimant/employee missed ten (10) hours of work and the employer paid the employee for all this missed time, such as by using the employee’s earned vacation time, sick time or just goodwill built up with the employer, the employee can still make a claim against the responsible party for these ten (10) hours. Some might think this constitutes a double recovery but it does NOT. Here the claimant/employee used-up earned vacation time, sick time or some other benefit with the employer. This earned time is NO longer available to the employee. It was used-up by the claimant/employee so the defendant is responsible to compensate the claimant/employee for this LOST benefit. Looking at this another way, if the employer compensates the injured employee claimant for part of claimant’s missed hours, who should get the benefit of this money—the defendant or the injured employee? California law recognizes the principle of “collateral source”, that is not giving the defendant the benefit of other coverages the claimant has paid for, earned or may be entitled to. So it is important for both the claimant and employer to keep track of such benefits paid out to the claimant/employee because of this incident and missed time from work.
- If the claimant is a commissioned sales person or an employee who earns significant commissions and or bonuses that are affected by this incident, then more preparation will probably be required to compute this loss. If a claimant/employee regularly makes the same commission and bonuses, then misses a few months from work, it may be relatively easy to make charts of all time worked and money earned before the incident and another chart showing the time worked and money earned post incident. The difference would be the loss of earnings. However, since most commissions and bonuses are not consistent, it may be necessary to make detailed charts covering a few years before the incident and the time post incident to see trends, compare to other data for the same type of job, etc.
- If the claimant is the owner of a business or partner in a business that suffers a loss of profits, then significantly more preparation will probably be required to prove this loss of profits. The loss suffered by a going business is often any reduction in income/profits, the extra expenses incurred to replace the injured owner’s services, or some combination of the two. Depending on the business and what occurred post incident, there are several different approaches to compute any loss of income. For example, if a claimant owned a business where claimant’s services were the key element in producing revenue (for example, a dentist or tailor), claimant could not work for one year, and the business made nothing that year, but before the incident the business earned income of $100,000.00 in 2017, $120,000.00 in 2018, $140,000.00 in 2019, then nothing in 2020 because claimant/owner was injured and unable to work (after growing the business $20,000.00 every year since 2017) , there would be a strong argument the loss of income for 2020 was $160,000.00 (that is, the prior year’s $140,000.00 plus this business’ proven customary $20,000.00 yearly growth, unless there were other factors such as the recession of 2008 or the pandemic of 2020-). In another example, the owner is unable to work for three (3) months and the business earns about the same gross amount in those three (3) months as it did before, but to keep the business going, the claimant/owner had to hire two (2) new employees to cover all the work the claimant/owner did and that cost was $3,000.00 per month for each new employee or $6,000.00 combined per month additional expenses, which additional expenses reduce the business profits, then the claimant owner would claim a loss of $18,000.00 [that is, $6,000.00 per month for three (3) months] because of these additional expenses reducing the profit of the business by $18,000.00. To prove-up these expenses the business will need to have substantiating records, such as ledgers, income statements and copies of payroll checks, and sometimes even tax returns. The CPA for the business should be consulted early on to coordinate the effort to maintain appropriate business records to verify and prove-up this loss of profits.
The following will summarize some basic laws, rules and case decisions pertaining to loss of earnings claims in California:
- What types of compensation may be recovered in a loss of earnings claim? As stated earlier, the claimant is legally entitled to be compensated for the reasonable value of all time missed from work caused by the subject incident. This amount of money or compensation includes all wages, earnings, commissions, bonuses, overtime missed, and fringe benefits such as earned sick leave, earned vacation time, retirement plans, social security benefits (for example, when earnings are substantially reduced then retirement plans, social security and similar programs based on actual earnings may be diminished). [See: Seely v. White Motor Co., 63 Cal.2d 9, 22 (1907); also California Jury Instruction, CACI 3903C]
- Does a claimant need to be employed at the time of the incident to recover compensation for loss of earnings? No. A claimant may claim damages for loss of earnings even if the claimant was not employed at the time of the incident, especially when the claimant can prove the claimant was looking for employment, had a reasonable expectation of finding employment and what the compensation would be. The claimant may seek damages based on loss of earning capacity without any actual proof of earnings either before or after the incident causing injury. [Connolly v. Pre-Mixed Concrete Co,. 49 Cal 2d483, 489 (1957); and Hilliard v. A. H. Robins Co., 148 CA3d 374, 412 (1983)].
- Gross v. net pay? Is loss of earnings computed on the gross pay or net pay of the claimant/employee? A loss of earnings claim is based on gross pay and not after tax net pay. [Rodriguez v. McDonnell Douglas Corp., 87 Cal. 4th 480 (2012)].
- Can a claimant recover for future loss of earnings or loss of earning capacity? Yes. Wages, earnings and other income the claimant would have received in the future but for this incident causing injury and loss of time from work (that is, referred to as loss of earning capacity) are compensable to the injured claimant/employee. These amounts of earnings include not only wages and time missed attending medical appointments, but also other types of payments for retirement plans, social security and similar benefits. [See Fein v. Permanente Medical Group (1985) 38Cal. 3d 137].
- Can an undocumented alien receive compensation for loss of earnings, both past and in the future? The answers are yes and no. The undocumented alien may recover for actual earnings lost that can be proven, but since an undocumented alien is subject to deportation and not lawfully available for future work in the United States, any future earnings would be speculative and cannot be used as the basis for a recovery of future loss of earnings. Otherwise, the undocumented alien might recover compensation for loss of earning damages that may never be incurred. Of course, there is an argument the undocumented alien could seek any future loss of income based only on the value of such work in the undocumented claimant’s country of citizenship. [Alonso v. State of California (1975) 50 CA3d 242].
- Are lump sum damages for future loss of earnings or loss of earning capacity reduced for present value? Yes. When a claimant makes a claim for future loss of earnings/loss of earning capacity, is the entire amount paid to the claimant at the time of settlement or recovery post trial? No. Let’s consider an employee/claimant who will suffer a loss of income over the next twenty (20) years of two million ($2,000,000.00). Since it would have taken the employee 20 years to earn this amount, if the employee/claimant receives it all now, it must be reduced to its present value, that is the value of $2 million received now instead of waiting 20 years to collect it. Put another way, if the claimant receives $2 million now and invests it all, the claimant may have more than $2 million in 20 years. But since the claimant was entitled to only $2 million total over 20 years, then the $2 million must be reduced to its present value. However, keep in mind in calculating the initial $2 million over these 20 years, the claimant/employee is receiving allowances for raises based upon performance, averages with the employer and industry, and or cost of living. So if an employee is starting with a salary of $75,000.00 per year, the computation for total loss over the 20 years is not $75,000.00 multiplied by 20 years but rather starting with $75,000.00, then every year adding on the projected reasonable raises. In other words, often the reduction for present value may equal or be offset by allowances for yearly raises. The reduction to present value of future lump sum damages for future loss of earnings or loss of earning capacity (as well as other damages that occur in a serious personal injury claim including future medical expenses is provided for in the case of Scognamillo v. Herick (2003) 106 CA4th 1139, 1151; and California Civil Jury Instruction, CACI 3904.
- Is loss of earnings and income limited to loss of wages or may an injured business owner recover for past and future loss of profits? Loss of earnings and income are also available to the injured business owner claimant and are called loss of profits. In general, the injured business owner may recover both past loss of profits and prospective loss of profits so long as the claimant can show it is reasonably certain such future losses will occur and what will be the extent of such losses. [See Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 907]. The claimant may not recover for both loss of earnings and loss of profits when this recovery would cause a double recovery. [See Hollander v. Wilson Estate Co. (1932) 214 Cal. 582, 586-587.
- While loss of profits is recoverable for a going business with provable loss of profits, may a claimant recover damages for loss of profits for a NEW business? The general answer is no but there are exceptions. The reason why the general answer is no is because such damages for loss of profits for a new business may be considered too uncertain and too speculative when they cannot be calculated with reasonable certainty. [See S. Jon Kreedman & Co v. Meyers Bros. Parking-Western Corp (1976) 58 CA3d 173, 184-185]. However, if there has been any operating experience by the claimant sufficient to allow a reasonable estimate of probable income and expenses, then anticipated future profits may be allowed if there is evidence to show reasonable reliability of the estimate. [Maggio, Inc. v. United Farm Workers (1991) 227 CA3d 847, 870]. Further, courts have allowed compensation for loss profits for a new business if the owners have experience in the business they are seeking to establish and when the business is in an established market for that business. [Resort Video, Ltd. V. Laser Video, Inc. (1995) 35 CA4th 1679, 1698]. Perhaps another useful way to look at this new business situation is if an injured person with no business experience decided to leave his job to open a brand new ice cream parlor in a residential/business neighborhood, but in an area without any prior successful ice cream shops, it would be extremely difficult to prove loss of profits. But if an injured person was about to open a McDonald’s franchise restaurant, and this person had successfully operated three (3) other such restaurants and there was data showing studies this to be an established business market area and why the chosen area should be successful, courts would probably allow this claimant to pursue this claim because the claimant had experience with this exact same type of business and because it was being opened in an established market.
- How does the claimant prove loss of profits? Evidence of loss of profits may be shown with reasonable certainty with the assistance of an experienced personal injury lawyer and retained expert witness testimony, such as from forensic accountants, and the company CPA, current economic and financial data (for example, showing growth of a particular industry in an area), and the business records of claimant’s company and similar companies in the area.
- Do the damages for loss of earnings or loss profits need be calculated with absolute certainty? No. When it is certain there were damages, such as when the owner of a business is unable to work for an extended period of time and the business’ profits declined with no other reasonable explanation for this decline, there must only be a reasonable basis to compute the damages even if the result is only an approximation. In other words, the computation need not be absolutely certain so long as it is a reasonable approximation. [GHK Associates v. Mayer Group, Inc. (1990) 224 CA3d 856, 873.
Our personal injury and wrongful death law offices have been handling these cases for over 40 years and based upon the above guide here are two interesting cases (the facts have been edited):
- Years ago we represented a client who was an officer of a major company, the name of which you would recognize. Although the client suffered painful disabling injuries preventing the client from working for about two (2) months, the client only required about two (2) medical appointments. Accordingly, while his medical bills were small, his loss of earnings was quite high as he earned about $50,000.00 per month—or about $100,000.00 combined for these two (2) months. Because the client was an officer of the company, the company continued to pay his salary. Because of the collateral source rule discussed earlier in this Loss of Earnings Guide, the defendant did not receive any credit for the payments made by the claimant’s employer to the claimant. Further, since the client’s yearly bonus was partially based on performance, and performance obviously was diminished due to missing two (2) months from work, we were able to recover additional compensation for the client’s bonus reduction. Thus, with only about two (2) medical appointments, the client was able to recover over $100,000.00.
- More recently we represented a young entrepreneur who was starting a new business at the time of his catastrophic injury. The defendants argued it was a new business so the damages were too uncertain and too speculative. Because our client had a history of success in starting new businesses and succeeding, and because the subject new business involved a licensing agreement with an established well known business, by using data and records from other similar businesses we were able to create a compelling case for loss of profits from this new business and settled this case for the full policy limits prior to trial.
Should you have any questions about loss of earnings, loss of wages, loss of income and or loss of profits, please call 1 866 INJURY 2 or 818.222.3400 or click on contact us. We provide FREE consultations and if you we take your case we work on a contingency fee which means we are not paid until we WIN and our compensation comes from the money we recover, usually paid by the responsible parties’ insurance company.
There are many time deadlines and procedural requirements which if not timely complied with could cause you to receive less or even lose your claim, so please do not wait.