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Reconstructing Wages in New Jersey

“Wages” of hourly or part-time workers are determined by “multiplying the hourly rate by the customary number of working hours constituting an ordinary day in the character of the work involved” ( New Jersey Workers’ Compensation Act N.J.S.A. 34:15-37). What this means is that if an employee earned $10 per hour, and worked 20 hours per week, her ‘average weekly wage’ would be $200, if the ‘ordinary’ employee doing that job was part-time worker.

In practice, claims adjusters should obtain “26-week wage statements” from insured/employers so that an average wage can be computed. Why 26 weeks? The Workers’ Compensation Act (N.J.S.A. 34:15-37) uses “six months” as the appropriate look-back period for wages.

Wages of a part-time employee may be reconstructed for purposes of fixing the rate for permanent partial disability in accordance with N.J.S.A. 34:15-37 based upon “diminished future earning capacity.” An important case, Katsoris v. S. Jersey Publishing Co., 131 N.J. 535 (1993) established the precedent: disability benefits should be adjusted ‘up’ (reconstructed) when the employee can demonstrate that the disability ‘adversely affected’ his earning capacity for future temporary or full-time employment.

In a case recently decided by a judge of compensation, there was a significant dispute about the employee’s wages. The employer argued that the employee’s wages should be based on his actual earnings (as evidenced by tax records) and commission statements (Case: Sormaz v. Alpha Moving and Storage, A-3482-08T3 (App. Div., decided February 18, 2010). The employer argued that the claimant’s weekly earnings for the period immediately preceding the accident should be used to establish his benefit rates. The employee argued that the period just before the accident was a “slow time” and that the business (a moving company) did less business in the winter months.

The Judge of compensation, without any controverting evidence presented by the employer, accepted the claims of the petitioner that the claimant’s wages were artificially low because the accident happened during a ‘slow period’ and set benefits rates base don a forty-hour workweek. The Judge did not make any findings or hear any evidence regarding the customary number of hours and days worked int he moving industry. Instead, the judge ruled that the claimant’s hours “fluctuated” depending on the time of year and ruled that the claimant’s benefit rates should be based on an ‘ordinary’ 40-hour work week.

The Judge of Compensation was upheld. Reviewing the decision of the Appellate Division, it seems clear that the reviewing panel sidestepped the real issue – that of ‘reconstructing’ wages for claimants who can show an impact on future earnings – and allowed the Judge of Compensation to base the benefits rates on an ‘ordinary’ work week. By declaring that the claimant’s work week “fluctuated” and then selecting a period of time (the busy summer months) to base earnings on, the Judge of Compensation clearly did ‘reconstruct’ a fictitious wage.

This (unreported) case must be kept in mind when assessing benefit rate challenges. In this case (Sormaz) the claimant did not show that his future earning capacity was affected by is disability, and got a benefit rate that exceeded his weekly earnings at the time of the accident. Mindful defense counsel should have presented evidence regarding the customary number of hours and days worked in the moving industry, and forced the claimant to demonstrate reduced current earnings at the time of trial.

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