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The Impact of Illegal Activities and Working While Incarcerated On Suitable Alternate Employment and Section 8(j) Forfeiture

In the matter of Young v. Newport New Shipbuilding and Dry Dock Company, the Benefits Review Board (BRB) addressed the impact of the claimant’s illegal activity and incarceration upon suitable alternate employment and Section 8(j) forfeiture. The BRB also addressed issues of credibility, causation and appropriateness of the Administrative Law Judge’s finding for scheduled disability where permanent total disability was at issue.

This matter stems from a claim under the Longshore Harbor Workers Compensation Act.

The underlying facts are that the claimant initially injured the right knee on August 17, 1983 while working as a chipper. He also injured the left knee on November 87, 1983 while working. At the original hearing it was determined that the employer failed to establish the availability of suitable alternate employment and the claimant was awarded permanent total disability benefits. The employer sought Section 8(f) relief. A hearing was scheduled for July 24, 2000 but the claimant was incarcerated and could not participate in the hearing. The claimant’s benefits were stayed pending his release. The claimant was released on January 6, 2004.

The stay was lifted by the Administrative Law Judge (ALJ) at the October 14, 2009 hearing. The employer argued that the claimant was not credible based upon his conviction and inconsistent statements during his deposition and the criminal plea hearing. The ALJ found that while the claimant was not credible as to truthfulness of the criminal activities, this id not detract from his credibility regarding his complaints to the knees over the past 25 years. The ALJ also gave greater weight to the opinion of the treating doctor, Dr. Stiles, over that of the employer’s expert in finding the symptoms related to the work accidents and in finding the claimant permanently disabled.

The employer also argued that the claimant’s illegal activities, maintenance work while incarcerated and singing at funerals established suitable alternate employment. The ALJ rejected these activities as constituting suitable alternate employment as not available on the open job market. The ALJ did find that the employer established suitable alternate employment based upon 10 jobs produced by the employer’s labor market survey as of July 2, 2007. The ALJ found that the claimant failed to established diligence in searching for employment. He awarded permanent total disability benefits for the period of August 17, 2000 to July 1, 2007. The ALJ further determined as there was suitable alternate employment, the claimant had a 10% impairment of the right leg and 15% impairment of the left leg based upon the opinion of the shipyard physician in 1985.

The ALJ also addressed the Section 8(j) forfeiture argument by the employer. Section 8(j) states:

The employer may inform a disabled employee of his obligation to report to the employer not less than semiannually any earnings from employment or self-employment, on such forms as the Secretary shall specify in regulations.

(2) An employee who –

(A) fails to report the employee’s earnings under paragraph (1) when requested, or

B) knowingly and willfully omits or understates any part of such earnings, and who is determined by the deputy commissioner to have violated clause (A) or (B) of this paragraph, forfeits his right to compensation with respect to any period during which the employee was required to file such report.

(3) Compensation forfeited under this subsection, if already paid, shall be recovered by a deduction from the compensation payable to the employee in any amount and on such schedule as determined by the deputy commissioner.

The ALJ found the any “income” due to the claimant’s criminal activity was not required to be reported on the LS-200 “Report of Earnings” as such income is not “earnings from employment or self-employment.” He further found that there was no proof that the claimant was working as a maintenance worker during his incarceration for the period requested on the LS-200. He found no benefits subject to forfeiture.

The employer appealed the decision of the ALJ based upon the following: (1) the claimant was not credible; (2) causation issues of the continuing knee complaints and the ALJ’s improper reliance on the opinion of the treating doctor; (3) the availability of suitable alternate employment prior to 2007 and diligence by the claimant on the initial award; (4) award of scheduled disability; and (5) the ALJ’s finding that illegal activity need not be reported was in error.

The BRB affirmed the ALJ as to 1) finding the claimant credible; 2) causally relating the continuing complaints of the knees to the original accidents and giving greater reliance to the opinion of the treating doctor; and 3) the award of the scheduled disabilities. As to the credibility issues, the BRB noted:

Contrary to employer’s assertions, the fact of a criminal conviction does not negate a claimant’s right to benefits or require an administrative law judge to discredit the claimant’s testimony in its entirety. Rather, evidence of a conviction may be submitted, as it was here, to attack the credibility of a witness. 29 C.F.R. §18.609; see also Fed. R. Evid. Rule 609. The regulation does not mandate that the administrative law judge make any particular credibility finding. Therefore, as in all cases under the Act, the administrative law judge has the authority to make credibility determinations, and it is solely within his discretion to accept or reject all or any part of any testimony according to his judgment.

The BRB also affirmed in finding that the illegal activities and maintenance work during the claimant’s incarceration did not constitute suitable alternate employment. However the BRB reversed the ALJ’s decision that earnings from illegal activities need not be reported on the LS-200.

In affirming that the illegal activities did not constitute suitable alternate employment, the BRB referenced Licor v. Washington Metropolitan Area Transit Authority, 879 F.2d 901, 22 BRBS 90(CRT) (D.C. Cir. 1989). The ALJ also relied on this decision.

In Licor v. Washington Metropolitan Area Transit Authority, the claimant injured his back and was awarded temporary total disability benefits until December 1980, at which time a wage-earning capacity evidenced. The ALJ concluded that the claimant had no loss of wage-earning capacity and denied further benefits. Licor had been incarcerated from 1979 to 1980 and had lied that he was making $21,000 on a loan application. The United States Court of Appeals for the D.C. Circuit vacated the denial of benefits and remanded the case. The court held:

The court stated that the administrative law judge erred by not addressing the claimant’s wage-earning capacity based on jobs he could have obtained on the open market, holding that any illegal income the claimant may have earned is not an appropriate basis for determining wage-earning capacity.

The BRB in Young determined that the ALJ properly found that the employer failed to establish suitable alternative employment prior to 2007. The BRB held:

In light of Licor, it was proper for the administrative law judge to determine that any illegal income claimant earned is not indicative of suitable alternate employment available on the open labor market. Further, employer has not established that the maintenance work claimant performed in prison was available on the open market prior to July 2007, or that the singing jobs are sufficiently regular and continuous to establish a wage-earning capacity.

As to the reporting of earnings from illegal activity on the LS-200 the BRB diverged from the ALJ’s reasoning. The BRB looked to 20 C.F.R. §702.285(b) for the definition of earnings. 20 C.F.R. §702.285(b) states in pertinent part, “’earnings’ is defined as all monies received from any employment and includes but is not limited to wages, salaries, tips, sales commissions, fees for services provided, piecework and all revenue received from self-employment.” The BRB noted that the definition was not all inclusive and did not exclude illegal earnings. Based upon the plain language of the regulation, the BRB determined illegal earnings are required to be reported for Section 8(j) purposes. If not reported, benefits are then subject to forfeiture.

Based upon Young, engaging in criminal activity does not satisfy suitable alternate employment as this is clearly outside the open labor market. However, it does allow for the forfeiture of benefits should the claimant not report same upon a Section 8(j) request. Requesting a LS-200 form routinely from disabled claimants is an important tool.

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Benefits Review Board Vacates ALJ’s Decision For Nominal Award Based Upon Stateside Wages Opposed To Average Weekly Wage As Strictly Set Forth By Section 8(c)

In the matter of Daniel S. Raymond v. Blackwater Security Consulting, LLC., the claimant was injured on May 30, 2007, while working in security for the United States Ambassador in Afghanistan. He injured his back during physical training.

The claimant completed his one-year contract in Afghanistan and returned to the United States in August 2007. The claimant filed a claim for benefits under the Longshore and Harbor Workers’ Compensation Act as extended by the Defense Base Act.

The Administrative Law Judge (ALJ) determined that the claimant’s average weekly wage was $2897.95 entitling the claimant to the maximum temporary total disability rate of $1144.44 The ALJ found that temporary total disability benefits were due from August 29, 2007 to November 28, 2007. The ALJ further ordered permanent total disability benefits for the period November 29, 2007 to January 6, 2008. It was stipulated that the claimant returned to post-injury alternate work on January 7, 2008. In 2008, his wage-earning capacity was $798.83 per week. In 2009, the wage-earning capacity was $985.51 per week. The claimant testified that he would have continued to renew his contract overseas but would have returned to the United States by August 2011. The issue in dispute stems from the calculation of the permanent partial disability benefit.

Permanent partial disability benefits are calculated pursuant to 33 USCS § 908(c)(21) which states:

“the compensation shall be 66 2/3 % of the difference between the average weekly wages of the employee and the employee’s wage-earning capacity thereafter in the same employment or otherwise, payable during the continuance of partial disability.”

In 2009, the difference between his average weekly wage of $2897.95 and wage earning capacity of $985.51 was $1912.44. Two thirds of $1912.44 equals $1,274.96 but this is subject to the maximum rate of $1144.44. The ALJ did not follow the strict dictates of Section 8(c)(21). The employer argued that the claimant should not have the advantage of the higher overseas wage on an indefinite basis when the claimant intended to return stateside where he earned a lower pre-accident wage that was consistent with his post-accident wage once stateside. The ALJ was persuaded by this argument. He noted that the claimants work overseas was for a limited duration and determined that the pre and post accident state-side wages were similar. Based upon this reasoning, he found that post-accident wage earning capacity was minimal upon his return to the states. He ordered a nominal award of $1 per week from September 1, 2011 forward for payment of permanent partial disability benefits.

The claimant appealed to the Benefits Review Board (Board) arguing that the permanent partial disability award did not adhere to Section 8(c)21. The claimant argued that the ALJ was bound by the law as to the rate and period of disability. In a decision of April 28, 2011, the Board reversed the ALJ’s finding of a nominal award. The Board looked to the plain language of the statute and found that the ALJ improperly considered “speculative future factors” in determining benefits.

The Board noted, “the date claimant planned to leave his overseas work is not a factor in awarding benefits under the Act. See 33 U.S.C. § 908. In the first instance, the administrative law judge’s two-tiered award is premised on the occurrence of a presumed future event that does not take the claimant’s injured status into account.” The Board cited to Keenan v. Director, OWCP, 392 F.3d 1041, 38 BRBS 90(CRT) (9th Cir. 2004) in further support that the ALJ improperly calculated the permanent partial disability benefit. In Keenan, the claimant sought a modification for a higher rate based upon an anticipated promotion had he not been injured. This was rejected:

“The Ninth Circuit distinguished tort law where a “theoretical” wage may be relevant and held that the statutory formula under Section 8(c)(21) is straightforward: it contemplates wages at the time of the injury as the baseline for comparison with actual post-injury earning capacity.” Id. at 1045-1046.

The Board further explained that a nominal award is appropriate in cases where the work-related injury has not diminished the claimant’s current earning capacity but that there is a significant potential for the injury to result in a future reduced wage-earning capacity. The nominal award in such cases maintains the claimant’s right to seek a modification in the future pursuant to Section 22.

The Board held that the nominal award of $1 per week was improper and vacated this determination by the ALJ. The Board modified the determination for permanent partial disability benefits pursuant to Section 8(c) based upon actual loss of wage-earning capacity subsequent to August 31, 2011. As such, the claimant was entitled to the maximum rate of $1144.44 under the Board decision.

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The Fourth Circuit Court Rejects Argument to Trigger Statute of Limitation Period under Section 22 Based Upon Medical Payments

In Wheeler v. Newport News Shipbuilding & Dry Dock Co., 637 F.3d 280 (4th Cir. 2011), the claimant’s request for modification pursuant to 33 U.S.C. § 922 was held untimely where the filing was within one year of the last medical payment by the employer but more than one year after her claim for permanent total disability was rejected and more than one year since the last disability payment. Section 22 provides in pertinent part:

Upon his own initiative, or upon the application of any party in interest , on the ground of a change in conditions or because of a mistake in a determination of fact by the deputy commissioner, the deputy commissioner may, at any time prior to one year after the date of the last payment of compensation, whether or not a compensation order has been issued, or at any time prior to one year after the rejection of a claim, review a compensation case … and in accordance with such section issue a new compensation order which may terminate, continue, reinstate, increase, or decrease such compensation, or award compensation.

The claimant initially injured her knees on May 26, 1992. She received medical treatment and was compensated for temporary total disability benefits, as well as a scheduled award. She subsequently sought total permanent disability benefits which was rejected by the Administrative Law Judge (ALJ) on August 14, 2002. The Benefits Review Board (Board) affirmed the decision on September 12, 2003. No further appeal was taken.

Following the denial of her claim for total permanent disability, the claimant continued to receive medical treatment authorized by the employer pursuant to Section 7. Section 7 requires the employer to provide medical treatment “for such period as the nature of the injury or the process of recovery may require.” There is no statute of limitations in Section 7. The claimant underwent a right knee replacement surgery in 2006 and a left knee surgery in 2008. On September 13, 2007, the claimant filed a second application to modify the scheduled permanent partial disability award. She was seeking payment of temporary total disability benefits. This was denied as untimely by the ALJ and Board as more than one year had elapsed since the rejection of her claim on September 12, 2003. The claimant appealed to the United States Court Of Appeals for the Fourth Circuit.

The issue before the court was whether medical payments issued to medical providers were compensation under 33 U.S.C. § 922 in determining the one-year statute of limitations applicable to a modification of an award. The claimant argued that the term “compensation” included voluntary medical payments by an employer for purposes of filing a request for modification of an order pursuant to Section 22. The Director of the Office of Workers’ Compensation Programs supported the claimant’s position.

The court looked to the definition of “compensation” and use of the term in the Act. Compensation is defined as the “money allowance payable to an employee or to his dependents as provided for in this Act, and includes funeral benefits provided therein.” However, the court questioned if this could be interpreted to include medical payments to the medical providers. The court noted that certain sections of the Act included medical within the use of the term “compensation” but in other sections medical was not included within the term. For example, Section 13 regarding the one-year statute of limitation for filing a claim references compensation but does not encompass medical payments. However under Section 4 which addresses liability for compensation, it clearly references medical within the meaning of compensation.

The court looked to the legislative history of Section 22. Section 22 initially allowed modification during the period of the term of the award only. The legislature considered no time limitation but this was rejected. The statute was amended to reflect the one-year period after the entry of the order for the award. The court explained:

Thus, Congress explicitly rejected the recommendation that modification be permitted with no time limitation, instead restricting modifications to a one-year time period after certain events. This legislative history further shows that Congress’s inclusion of the one-year limitations period was not accidental, and bolsters the conclusion that the Section 22 limitations period must not be construed in a way that strips it of much of its force.

In consideration of the legislative history, the court found that the modification provision applied to the disability payments only, not medical. To hold otherwise would thwart the one-year statute of limitations given the lack of any time limitation on medical. As such, each time medical was requested and provided, the modification time period would be activated. As noted by the employer, this could result in a hindrance of the provision of medical benefits.

The court further noted to hold medical within meaning of compensation may result in the opposite effect of putting a one-year statute of limitation on the provision of medical benefits. The court found that it would be inconsistent with Section 7 to encompass medical within the meaning of “compensation” for purposes of Section 22. The court also highlighted that the claimant’s position conflicted with the Supreme Court’s decision in Marshall v. Pletz, 317 U.S. 383, 390-91, 63 S. Ct. 284, 87 L. Ed. 348 (1943) that a claim for medical benefits is not subject to the one-year statute pertaining to a claim for disability benefits under Section 13.

The Director and claimant argued that the exclusion of medical under Section 22 would result in claimants with worsening conditions that result in further treatment being precluded from seeking further disability benefits if more than one year passed since the last disability payment.

The court responded to this argument stating, “it is the nature of limitations periods to sometimes work seemingly harsh results.” The court could not “interpret Section 22 solely to ensure justice under the Act by effectively writing the limitations period out of the statute.”

The court affirmed the decision of the Benefits Review Board that the claimant’s modification was untimely.

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Ninth Circuit Rejects The Situs-Of-Injury Test Adopted By The BRB In Addressing Eligibility For Benefits Under OCSLA

In Valladolid v. Pac. Operations Offshore, LLP, 2010 U.S. App. LEXIS 9820, 35-36 (9th Cir. May 13, 2010), the Ninth Circuit considered whether an employee must be on a site within the outer continental shelf in order to collect benefits under the Outer Continental Shelf Lands Act. The court rejected the situs of injury test and found that the claimant must prove a substantial nexus between the injury and extractive operations on the shelf.

In this case, the employee died when he was crushed by a forklift on the grounds of Pacific Operation’s onshore oil-processing facility. The employee’s duties were primarily on an oil rig owned by Pacific that was more than three miles off the California coast. His duties on the rig included picking up litter, emptying trash cans, washing decks, painting, fixing equipment, and helping load and unload the platform crane. At the onshore facility, one of his duties included consolidating scrap metal for third parties to pick up. This consolidation process occurred about once every two years.

The employee’s widow claimed workers’ compensation benefits under the Outer Continental Shelf Lands Act (“OCSLA”) and the Longshore and Harbor Workers’ Compensation Act (“LHWCA”), which were denied by the Administrative Law Judge (ALJ). Under OCSLA, the ALJ denied benefits under the situs of injury test finding that the accident did not occur within the geographic situs of the outer continental shelf. LHWCA benefits were denied as the employee was not engaged in maritime employment and was not injured on a maritime situs. The Benefits Review Board (BRB) upheld both denials.

The Ninth Circuit considered the “But For Test” adopted by the Third Circuit and the Situs of Injury Test adopted by the Fifth Circuit as well as the statutory language of Section 1333(b). Section 1333(b) states:

(b) Longshoremen’s and Harbor Workers’ Compensation Act applicable; definitions. With respect to disability or death of an employee resulting from any injury occurring as the result of operations conducted on the outer Continental Shelf for the purpose of exploring for, developing, removing, or transporting by pipeline the natural resources, or involving rights to the natural resources, of the subsoil and seabed of the Outer Continental Shelf compensation shall be payable under the provisions of the Longshoremen’s and Harbor Workers’ Compensation Act.

The Fifth Circuit held that as the operations must occur on the outer continental shelf, so must the injury in Mills v. Director, Office of Workers’ Compensation Programs, 877 F.2d 356 (5th Cir. 1989) The Ninth Circuit disagreed explaining that the statute did not have an on-site requirement but used the language “as the result of.” The Ninth Circuit noted that an accident off the outer continental shelf may still be covered if the accident happened due to an activity related to operations conducted on the outer continental shelf.

The Ninth Circuit also considered the “But For Test” applied by the Third Circuit. In Curtis v. Schlumberger Offshore Service, Inc., 849 F.2d 805, the employee worked as a well-logging operator off the coast of New Jersey on an oil rig. He had returned to his employer’s headquarters in Rhode Island but was then ordered back to the rig. While driving back to the rig, the company car was struck head on by another vehicle. The ALJ found that the accident was covered under OCSLA. The BRB reversed finding while Curtis was in the scope of his employment, the accident did not occur in the geographic location within the outer continental shelf. The Third Circuit reversed the BRB and noted that Section 1333(b) did “not place any nexus, situs or geographic restrictions on claims for injuries in connection with outer continental shelf operations.” The Third Circuit applied the “But For Test” and found his injuries compensable as but for his traveling back to the rig to conduct operations, his injuries would not have occurred.

The Ninth Circuit did not find that a simple “But For Test” was appropriate but adopted the following test consistent with pre Mills case law:

the claimant must establish a substantial nexus between the injury and extractive operations on the shelf. To meet the standard, the claimant must show that the work performed directly furthers outer continental shelf operations and is in the regular course of such operations. An injury sustained during employment on the outer continental shelf itself would, by definition, meet this standard.

The Ninth Circuit remanded the matter to the BRB for further consideration in light of the above test. The Circuit Court affirmed the dismissal of the LHWCA claim as the onshore facility was not a maritime situs or “adjoining area” within the meaning of § 903(a).

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BRB Reversed ALJ’s Dismissal Of Claim Based Upon Horseplay And Unauthorized Break Severing The Employment Nexus

In Phillips v. PMB Safety & Regulatory Inc., the Benefits Review Board reversed the denial of benefits under horseplay, unauthorized break and intentional injury defenses.

The claimant worked as a galley hand on an oil rig. He was on break when attacked by Mr. Fruge, a co-worker. Fruge was under the mistaken impression that the claimant had previously thrown water on him. The claimant sustained injuries to the shoulder and ankle. He sought benefits under the Outer Continental Shelf Lands Act (OCSLA). The Administrative Law Judge (ALJ) denied benefits finding that the claimant was not credible, the injuries occurred during non-work-related conduct on break and the third-party’s intentional or negligent conduct was an intervening cause.

The Benefits Review Board (BRB) found that the ALJ’s denial based upon the taking of a break, be it authorized or not, did not remove the claimant from the course of his employment. The BRB noted that the incident occurred in a place that he would reasonably be expected to be in the course of his employment and not in an “unanticipated path of new risks not inherent in this employment situation,” citing to Durrah.

The BRB next addressed whether horseplay severed the employment nexus. The ALJ associated horseplay with the claimant’s conduct being outside the scope of employment in denying benefits. The BRB noted that the attack was unprovoked and the employer’s disapproval was post incident. The BRB noted that fight-related injuries between co-workers are compensable “where employer presents no evidence that the injured employee had any personal or social contacts with the assailant outside of work.” The BRB found that there was no evidence of non-work-related contact between the claimant and Fruge. It concluded that horseplay was not a basis to deny benefits.

The BRB considered the ALJ’s denial based upon the act of a third-party’s intentional or negligent conduct. The BRB explained that, “The inquiry into ‘intentional or negligent’ conduct arises only when an employer alleges that a subsequent event constitutes an intervening cause of claimant’s injury. It does not apply to whether the original injury is compensable, as the Act provides that benefits are payable “irrespective of fault as cause for the injury.” 33 U.S.C. §904(b). Accordingly as no subsequent event was involved in Phillips, this defense was not applicable.

The BRB further highlighted that Fruge was not a third party but a co-worker despite being employed by separate subcontractors. Both the claimant and Fruge worked in the oil rig for the same company, Chevron. Chevron had the right to fire both claimant and Fruge. Moreover they were both fired by Chevron following this incident.

The BRB concluded that there was no basis for the benefits to be denied and that the employer failed to produce evidence sufficient to rebut the Section 20(a) presumption that the injury arose in the course of employment. The BRB vacated the denial of benefits and remanded the case.