RODGERS v. WORKERS COMPENSATION APPEALS BOARD TRANSCON LINES INC (1983)

This case calls for the resolution of yet another conflict created by the application of comparative negligence principles to our system of workers' compensation.   At issue is whether the Workers' Compensation Appeals Board (hereinafter “Board”) may apply notions of comparative fault in determining an employer credit under Labor Code section 3861 ¹ with the effect of reducing an injured employee's benefit recovery by an amount attributable, in part, to the employee's own negligence.

 According to the underlying principles of workers' compensation, and in recognition of our Supreme Court's application of comparative fault concepts to the employer credit provision in Associated Construction & Engineering Co. v. Workers' Comp. Appeals Bd. (1978) 22 Cal.3d 829, 150 Cal.Rptr. 888, 587 P.2d 684, we conclude that the Board may not apply comparative negligence principles in such a way as to reduce an employee's benefit recovery by amounts attributed to his own negligence.   Although the court clearly sanctioned the use of comparative negligence principles in Associated Construction, such use must be limited to protect the fundamental “no-fault” nature of workers' compensation.

 With this protection in mind, we now hold that in cases where a partially negligent employer claims a credit against the civil damages recovered by a partially negligent employee from a partially negligent third party tortfeasor, a credit will only be allowed to the extent that the civil damages recovered exceed the proportional amounts of the total civil damages attributed to both the employer and the employee.

On March 4, 1974 petitioner Arthur Rodgers sustained an injury, arising out of and occurring in the course of his employment with Transcon Lines, Inc., when he fell from a loading dock owned and operated by the Melvin Sosnick Company.   Petitioner sought and received workers' compensation benefits for temporary disability in the amount of $2,760.   He also filed a civil action against the Sosnick Company and was awarded a total judgment of $25,500.   Negligence was attributed 25 percent to petitioner, 5 percent to Transcon Lines and 70 percent to Sosnick.   Judgment was entered and petitioner received a net recovery of $7,734.²

On November 19, 1979 the case was submitted to the workers' compensation judge on the issues of permanent disability benefits, lifetime medical care and credit.   The judge issued his findings and award on December 14, 1979 and awarded petitioner $5,022 of permanent disability.   At the same time the judge granted Transcon a credit of $6,778 against future benefit payments after an initial payment of $956.³  Petitioner sought and was granted a Board reconsideration hearing.   An order modifying the December 14, 1979 award was issued April 28, 1981 finding the initial payment due petitioner to be $1,275 and fixing the credit due Transcon at $7,734.

The Board concluded that the amount attributed to the employer's negligence should be based on total damages (here, $25,500 x 5% = $1,275) and that after this amount is paid by the employer, it is entitled to a credit equalling the total amount of the employee's recovery from the third party (here, $7,734).

Petitioner challenges the Board's order after reconsideration on the grounds that the Board acted without or in excess of its powers.   Petitioner contends that by allowing Transcon a credit of all amounts recovered from Sosnick after an initial payment of an amount attributable to only Transcon's negligence, the employer is, in effect, allowed to use the employee's negligence as a defense to future payments, contrary to traditional notions of no-fault workers' compensation.

The basic tenet of the California compensation program is that the employer is held liable for employee injuries irrespective of fault.  (Cal. Const., art. XIV, § 4.)   The term “irrespective of fault” was intended by the Legislature to mean “irrespective of negligence,” allowing benefits to be denied on a showing of “wilful wrongdoing” by the injured worker.  (Matthews v. WCAB (1972) 6 Cal.3d 719, 728, 100 Cal.Rptr. 301, 493 P.2d 1165.)   The economic philosophy which supports a no-fault workers' compensation system places the economic burden of on-the-job injuries on the employer as a cost of doing business.   The damage to or wearing out of human “machinery” is viewed as another cost of production which should be borne by the industry.  (See 1 Herlick, California Workers' Compensation Law Handbook (2d ed. 1978) § 1.1, p. 13.)   Such a system places the burden of industrial accidents on the party who has the greatest control over workplace safety.   In exchange for carrying the responsibility for injury compensation, the employer avoids the cost, delay and risk of greater liability of court proceedings.   The employee receives guaranteed compensation in exchange for giving up the right to sue the employer.

Unlike civil damages, compensation benefits are not intended to make whole, persons who have suffered “detriment from the unlawful act or omission of another.”  (Civ.Code, § 3281.)   Unrelated to concepts of “fault” or “wrong,” benefits paid under the compensation system are ultimately tied to the notion that injured workers are to be compensated for their loss of competitive status in the labor market.   The purpose of workers' compensation is to rehabilitate, not to indemnify.  (Solari v. Atlas-Universal Service, Inc. (1963) 215 Cal.App.2d 587, 600, 30 Cal.Rptr. 407.)   In this regard, compensation benefits are fundamentally different from civil damages.⁴

Under the California program, injured workers are provided benefits for medical treatment (§ 3209.5), for temporary disability (§ 4650), for permanent disability (§ 4650), and for death benefits (§ 4701).   Medical benefits are required to be furnished for all treatment necessary to cure or relieve the effects of an industrial injury.  (1 Herlick, supra, at § 4.1, p. 90.)   Temporary disability benefits, measured as a percentage of earnings at the time of the injury, are intended to provide a means of subsistence during the period of medical treatment and recuperation.  (Id., at § 6.1, p. 156.)   Permanent disability benefits are intended to assist in the rehabilitation of the worker so that he or she may return to the labor market.  (Id., at § 7.1, p. 205.)

All benefits, other than medical expenses, are determined according to the worker's earnings.   Under the Labor Code provisions, temporary and permanent benefits are calculated against two-thirds of a worker's actual weekly earnings.⁵  In light of these statutory limitations, an injured worker does not recover all costs attributable to the injury;  less than total actual lost wages are recovered and nothing is paid the worker by way of pain and suffering.

Even though a worker has given up the right to pursue a civil action against his or her employer under workers' compensation, the fact that a worker sustains an on-the-job injury does not preclude the commencement of a civil suit against a negligent third party for damages attributable to that party's contribution to the injury.  (§ 3852.)   Such actions are typically brought by the employee against subcontractors (see, e.g., Morehouse v. Wanzo (1968) 266 Cal.App.2d 846, 72 Cal.Rptr. 607), and equipment manufacturers (see, e.g., Daly v. General Motors Corp. (1978) 20 Cal.3d 725, 144 Cal.Rptr. 380, 575 P.2d 1162).

When an injured employee brings a third party action, the employer has the statutory right to be reimbursed for the compensation benefits it has paid from the amount of civil damages recovered from the third party.  (§ 3860.)   In addition, the employer is entitled to claim a credit against future payment of benefits based upon the third party recovery by the injured employee.  (§ 3861.)

The reimbursement and credit provisions of sections 3860 and 3861 create a unique triangular relationship in workers' compensation/third party actions.   In a third party action the worker stands in relation to the third party defendant on the basis of ordinary comparative negligence theory.   The doctrines of comparative negligence also govern the relationship between the employer and the third party defendant on a reimbursement claim.   At the same time, the worker stands in relation to the employer according to the no-fault concept of workers' compensation.

As is evidenced by the case now considered, the difficulty arises because the methodologies for calculating the employer credit and reimbursement entitlements have been considered as identical (see Associated Construction & Engineering Co. v. Workers' Comp. Appeals Bd. (1978) 22 Cal.3d 829, 842, 150 Cal.Rptr. 888, 587 P.2d 684), and yet the relationships involved in the two remedies are fundamentally different.   An employer's right to a credit is distinguished from its right to reimbursement by reference to both the time and the forum in which the remedy is sought.   A reimbursement claim is brought by the employer against the third party defendant in civil proceedings to recover benefits already paid.   A credit claim is adjudicated directly by the Board and is a claim by the employer for credit against the future payment of benefits to the employee.   In a reimbursement claim, adjudicated according to comparative negligence theory, the interests of the employee are unaffected.   In a credit action before the Board, the application of comparative fault concepts would directly affect the interests of the employee and would run contrary to the no-fault nature of workers' compensation.

The decision of Associated Construction & Engineering Co. v. Workers' Comp. Appeals Bd., supra, 22 Cal.3d 829, 150 Cal.Rptr. 888, 587 P.2d 684, represents the Supreme Court's most recent consideration of the employer credit provision of section 3861.   Unlike the case at bar, the primary issue considered in Associated Construction was not the method of calculating a credit between a negligent employer and a negligent employee, but whether the credit right of an employer even existed after legislative amendments to the code in 1971 and in light of the California adoption of comparative negligence theory by Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 119 Cal.Rptr. 858, 532 P.2d 1226.

In Associated Construction the court was called upon to reconcile the conflict between its holdings in Witt v. Jackson (1961) 57 Cal.2d 57, 17 Cal.Rptr. 369, 366 P.2d 641 and Roe v. Workmen's Comp. Appeals Bd. (1974) 12 Cal.3d 884, 117 Cal.Rptr. 683, 528 P.2d 771, and the adoption of comparative negligence in Li.   In Witt the court considered a reimbursement claim in a third party action wherein a partially negligent employer sought reimbursement for benefits it had paid to its injured employee.   The plaintiff was a Los Angeles police officer who was injured on the job when his car was struck by the third party defendant.   The negligence of the plaintiff's partner, who had negligently stopped their car, was imputed to the city who claimed a reimbursement entitlement from the defendant.   The defendant argued that under the doctrines of contributory negligence, the city was precluded from claiming any reimbursement.   The court agreed holding that where the negligence of the employer contributes to the worker's injury, the reimbursement claim must be denied.  (57 Cal.2d at 73, 17 Cal.Rptr. 369, 366 P.2d 641.)   The court reasoned that allowing the employer reimbursement would amount to “allow[ing] him to profit from his own wrong.”  (Id.)

In Roe v. Workmen's Comp. Appeals Bd., supra, decided within the year preceding Li, the court considered the credit claim of a partially negligent employer.   The plaintiff in Roe recovered $16,000 by way of settlement in an action brought against a negligent third party.   Roe's employer had paid out temporary benefits under the statute and then sought a statutory credit from the Board against future benefit payments, the requested credit equalling the amount of Roe's settlement award.   Under the holding of Witt, Roe asserted that the employer's partial negligence barred its credit claim.   The Board declined to accept this argument finding that since actual negligence had not been litigated the issue of employer negligence was not before the Board.   The Supreme Court reversed holding that in cases where employer negligence had not been determined the Board was directed to make the necessary factual determinations and in the presence of employer fault, the credit claim would be denied.  (12 Cal.3d at p. 892, 117 Cal.Rptr. 683, 528 P.2d 771.)

With the adoption of comparative negligence in Li, the court was faced with determining the impact of the doctrine on the holdings of Witt and Roe.   In Associated Construction, a partially negligent employer sought a credit against future benefit payments to its non-negligent employee to the extent that the employee's settlement award from a negligent third party exceeded the amount of damages attributed to the employee's negligence.   The employee argued that under both Witt and Roe a negligent employer is barred from recovery of either credit or reimbursement.   The court, in recognition of Li and citing the second district holding in Arbaugh v. Proctor & Gamble Mfg. Co. (1978) 80 Cal.App.3d 500, 145 Cal.Rptr. 608, rejected the Witt argument and modified both Roe and Witt to make them consistent with the concepts of comparative fault.   Where in Roe and Witt the doctrine of contributory negligence formed the basis of the court's bar against a negligent employer's recovery, the court in Associated Construction applied comparative negligence and held that “the concurrently negligent employer should receive either credit or reimbursement for the amount by which his compensation liability exceeds his proportional share of the injured employee's recovery.”  (22 Cal.3d at p. 842, 150 Cal.Rptr. 888, 587 P.2d 684.)   With this holding, the doctrine of comparative negligence was introduced to workers' compensation system's proceedings.⁶

However unequivocal the adoption of comparative negligence for use in the Board's credit determinations appears in Associated Construction, the court nevertheless left undecided the extent of the doctrine's application when both the employer and employee are negligent.⁷  The subsequent cases which have interpreted the court's holding in the context of reimbursement claims are enlightening but not determinative.

In Kramer v. Cedu Foundation, Inc. (1979) 93 Cal.App.3d 1, 155 Cal.Rptr. 552, the appellate court applied Associated Construction to reverse a lower court judgment which limited an employer's reimbursement claim to the amount of benefits previously paid, less the percentage amount of the total third party suit award attributable to both the employer and the employee.   The employee in Kramer was injured when he fell from a scaffold while working under the direction of his employer, a drywall contractor on a job supervised by a general contractor who was hired by the defendant Cedu Foundation.   The employee was found by the jury to have been 19 percent negligent.   His employer was found to have been 19 percent negligent and Cedu and the general contractor were found to have been 38 and 24 percent negligent respectively.

The appellate court reversed the lower court reimbursement award and refused to impute the employee's negligence to the employer.   The court relied upon the principle enunciated in Arbaugh, as approved in Associated Construction, that the employer should receive a reimbursement “for the amount by which his compensation liability exceeds his proportional share of the injured employee's recovery.”  (93 Cal.App.3d at p. 7, 155 Cal.Rptr. 552.)   Although perhaps reaching the correct result for a reimbursement case,⁸ the Kramer court applied the Arbaugh Associated Construction principle to a tri-part liability situation without addressing the very important fact that in neither Arbaugh nor Associated Construction was the employee negligent.   As suggested, this distinction may have less impact in the reimbursement area, where the employee's interests are unaffected.   However, to adopt the Kramer position in a credit claim situation, where the employee's interests are directly at stake, is to extend the Arbaugh Associated Construction principle beyond the factual situation considered in those cases.

In Kemerer v. Challenge Milk Co. (1980) 105 Cal.App.3d 334, 164 Cal.Rptr. 397 the reviewing court again refused to impute the negligence attributable to the employee to the employer in calculating the latter's reimbursement entitlement.   In the lower court verdict the jury found both the employee and the third party defendant partially negligent and the employer free of fault.   The third party defendant attempted to reduce the amount of reimbursement due the employer by the 30 percent negligence of the employee.   The appellate court refused to adopt the formula suggested by the third party finding such a calculation would allow the damages assessed the third party to be reduced twice, once from the original assignment of damages and again in calculating the reimbursement.  (105 Cal.App.3d at p. 338, 164 Cal.Rptr. 397.)   As in Kramer, the question of computing reimbursement did not affect the amount of recovery to be realized by the employee.   The court was faced with a conflict between the interests of the employer and a third party, a relationship governed by the principles of comparative negligence.   Had it accepted the lower court's determination, the liability of a negligent third party would have been reduced twice to the detriment of an otherwise non-negligent employer.

The Supreme Court applied the Associated Construction rule in applying comparative negligence to the verdict in Aceves v. Regal Pale Brewing Co. (1979) 24 Cal.3d 502, 156 Cal.Rptr. 41, 595 P.2d 619.   In Aceves all three parties were found partially negligent by the jury.   The jury awarded total damages of $22,140 and set the employee's negligence at 5 percent, the employer's negligence at 75 percent and the third party defendants at 20 percent.   Contrary to the formula adopted by Associated Construction, the lower court subtracted from the employee's third party recovery an amount attributable to the employer's negligence.   The case was neither a reimbursement nor a credit case and the Supreme Court simply reversed the lower court's verdict and reiterated the formula it has prescribed in Associated Construction.  (Id., at pp. 512–513, 156 Cal.Rptr. 41, 595 P.2d 619.)

In light of the above discussion, both Associated Construction and the subsequent cases which rely upon it can be distinguished from the present case either because the factual situation considered did not involve a negligent employee or because the case involved a reimbursement claim in which the employee's interests were not affected by the application of comparative negligence.⁹  To the extent that our present holding can be restricted to credit claims wherein both the employer and the employee are partially negligent, the present holding is not inconsistent with any of the cited decisions.

The language of Associated Construction which dictates that “the concurrently negligent employer should receive either credit or reimbursement for the amount by which his compensation liability exceeds his proportional share of the injured employee's recovery” (22 Cal.3d at p. 842, 150 Cal.Rptr. 888, 587 P.2d 684) is herein interpreted to hold the employer, in all credit claims, responsible for all “employment” negligence ¹⁰ as “his proportional share.”

It is our conclusion that holding the employer responsible for the payment of future benefits proportional to all employment negligence before it is entitled to a credit is most consistent with the theory of no-fault compensation.   To accept the position promoted by the Board would constitute an undesirable penalty to the partially negligent employee.   If the employer were allowed a credit against all future payments related to the employee's proportional fault, in addition to a statutory reimbursement from the third party recovery, the employer would often be absolved of much of its statutory liability.   To the extent strict statutory liability promotes greater employer concern for workplace safety, the relief of the employer's liability would run counter to the intent and origin of the workers' compensation idea.

The contention that the employer's payment of the future benefits attributable to that portion of the employee's disability caused by the employer's own negligence would constitute a “double recovery” to the employee is here, as in Roe, rejected.   Compensation benefits are by definition an incomplete recovery for the employee.   Amounts recovered by way of a third party action for pain and suffering are not reflected in compensation benefits.   To the extent that benefits are calculated on the basis of only two-thirds the employee's weekly earnings, any third party recovery of lost wages will constitute the balance of wages not compensated.   Amounts paid by the employer for medical treatment and temporary disability will still be deducted from the employee's third party recovery under the reimbursement provision of section 3860 to the extent the employer is entitled.   Apart from this, and as stated by the Supreme Court in Roe, the policy against double recovery is primarily concerned with the relationship between the third party and the employer.   If an arguably excessive recovery is to fall somewhere, the liberal construction of the workers' compensation statute dictates that it fall to the employee.  (See Associated Construction & Engineering Co. v. Workers' Comp. Appeals Bd., supra, 22 Cal.3d at pp. 834–835, 150 Cal.Rptr. 888, 587 P.2d 684 and Roe v. Workmen's Comp. Appeals Bd., supra, 12 Cal.3d at p. 891, 117 Cal.Rptr. 683, 528 P.2d 771.)

For these reasons, the order of the Board after reconsideration is reversed and remanded for consideration not inconsistent with this ruling.

FOOTNOTES

1.   Unless otherwise cited, all references are to the Labor Code.

2.   Net recovery was calculated by reducing the percentage of total damages attributed to Sosnick by court costs and attorneys' fees.   All dollar amounts have been rounded off to the nearest dollar amount unless otherwise indicated.

3.   Labor Code section 3861 allows as an employer credit, with certain limitations, the amount of any recovery by the employee from a third party action.   In calculating the above credit the judge considered petitioner's total damage award of $25,500.   He then subtracted the amount attributed to petitioner's own negligence (25% of $25,500) for a total of $19,125 non-employee negligence.   From this amount the judge determined that Transcon was responsible for $956 (5% of $19,125).

4.   For example, civil damages typically include amounts for pain and suffering, loss of consortium and lost earnings;  workers' compensation benefits typically do not.  (See 1 Herlick, supra, at § 12.14, p. 431 for a discussion of the limited consideration of pain and suffering in determining permanent disability.)

5.   (§§ 4653, 4658.)   Actual benefit entitlements are determined by rate tables which use the two-thirds actual earnings calculation as a basis.

6.   Under Associated Construction the Board is now required to make two factual determinations in credit cases:  1) the degree of fault attributable to the employer, and 2) the total amount of damages suffered by the employee.  (See Associated Construction, 22 Cal.3d at p. 845, 150 Cal.Rptr. 888, 587 P.2d 684.)   These determinations may either be based on the basis of a court or jury verdict or initially by the Board in the case of a third party settlement.

7.   In Associated Construction, and in Arbaugh upon which the court relied in Associated Construction, only the employer and the third party defendant were determined negligent.   In footnote 9 of the Associated Construction opinion, the court stated “As no allegations of employee negligence appear on the face of this record, we do not decide here how such negligence, if established, would affect the proportional contribution of the employer.”  (22 Cal.3d at p. 843, 150 Cal.Rptr. 888, 587 P.2d 684.)

8.   As discussed above, the reimbursement remedy is asserted by the employer against the third party, a relationship outside the workers' compensation system which is controlled by comparative negligence principles.   The interests involved in a credit claim are different in that they concern the employer in relation to the employee within the workers' compensation system.

9.   Aceves v. Regal Pale called for the simple application of the Associated Construction formula to the initial verdict and is distinguishable to the extent necessary, on this ground.

10.   See comment, Employer Subrogation:  The Effect of Injured Employee Negligence in Workers' Compensation Third Party Actions, 18 San Diego L.Rev. 301, 313.

MILLER, Associate Justice.

ROUSE, Acting P.J., and SMITH, J., concur.