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Case Update: The Importance of Correctly Calculating Average Weekly Wage

Howe HS New - Med 5-6-14

A recent decision from the North Carolina Court of Appeals has illustrated the importance of correctly calculating average weekly wages in workers’ compensation cases.  In Miller v. Carolinas Medical Center-Northeast,  the claimant sustained a compensable back injury. Following appropriate medical treatment, the claimant reached maximum medical improvement (MMI) and received a five-percent permanent partial disability (PPD) rating. The parties subsequently signed a Form 21  agreement in which the adjuster calculated the PPD award based on an average weekly wage of $689.21 and a corresponding compensation rate of $459.50. The Form 21 specifically stated that the average weekly wage was “subject to verification.” The claimant later filed an amended Form 18, alleging there had been a “change in condition” since she entered into the Form 21 agreement. The claimant also requested that her claim be assigned for hearing alleging that she had been underpaid with respect to her PPD benefits “based on [a] miscalculation of [her] average weekly wage” in the Form 21 agreement.  Because the claim regarding a change in condition was asserted over two years after the employer issued its last payment for medical compensation, the employer argued the claim was barred under the applicable statute of limitations.

Among other issues determined, an opinion and award allowed the Form 21 agreement to be reformed by the Commission to reflect a correct average weekly wage of $691.11, instead of the $689.21, to which the parties had agreed on the Form 21. Additionally, the employer was ordered to pay the plaintiff $18.90, representing the deficiency in payment due to the average weekly wage miscalculation. The Full Commission affirmed, and the employer appealed, arguing that the “Full Commission erred in reforming the amount contained in the Form 21 agreement.”  While the Court of Appeals ultimately agreed with the employer and found the Commission erred in reforming the Form 21 agreement, several important considerations with respect to determining a claimant’s average weekly wage emerged:

  1. The calculation of average weekly wage is an issue of law, not of fact, and as such mutual mistake with respect to the miscalculation of the average weekly wage is not a ground for invalidating a Form 21 agreement. Relying on Swain v. C & N Evans Trucking Co., the Court of Appeals held that the calculation of average weekly wage is an issue of law because its determination requires an interpretation of the definition set forth in the Workers’ Compensation Act.  While the Industrial Commission has the authority to set aside a Form 21 agreement due to a mutual mistake of fact, a mistake of law may not negate a contractual agreement unless accompanied by fraud, misrepresentation, undue influence, or abuse of a confidential relationship. Consequently, the Industrial Commission lacks authority to reform the agreement.
  2. In determining average weekly wage for a claimant employed for at least one year, an adjuster or employer MUST divide the claimant’s total earnings for the 52 weeks prior to the date of injury by 52, rather than dividing by 365 and multiplying by 7. While the two methods may seem identical, the Miller court instructed otherwise and found that pursuant to N.C.G.S. § 97-2(5), the average weekly wage had been miscalculated by $18.90 when the employer divided the plaintiff’s earnings by 365 and multiplied the quotient by 7, rather than dividing by 52.
  3. Finally, correctly determining a claimant’s average weekly wage at the outset saves employers and adjusters the uncertainty of a possible recalculation brought about by a claimant’s assertion that additional benefits are owed. Additionally, if an employer or adjuster fails to timely raise an overpayment issue, they may waive their right to contest the average weekly wage after the passage of a “reasonable time.” The Miller court acknowledged that while the parties’ included the standard “subject to verification” language typical in Form 21 agreements, they failed to provide a more specific time period to verify the claimant’s final award.  Accordingly, the Miller court found “a reasonable time will be implied as a matter of law.” Based on this interpretation, the Miller court concluded that the claimant, in seeking a modification of her average weekly wages more than three years after her initial benefits had been tendered, had waited an “unreasonable amount of time” to seek verification.  While the current Form 26A, which has replaced the Form 21 in most instances involving the payment of a rating, does not include the “subject to verification” language, it is possible that Miller can be understood to apply the concept of “reasonable time” beyond a Form 21. Given this possibility, it is a better practice for employers and adjusters to correctly calculate the average weekly wage from the claim’s initiation period to avoid any underpayment, overpayment, or perhaps worse, the uncertainty of what “reasonable time” actually means. If you have any questions about the calculation of average weekly wage, please feel free to contact our office.