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Penalties Assessed Under Labor Code Section 5814
By Nicole L. Christy
Labor Code section 5814 provides for the application of penalties in the event that an employer unreasonably delays or fails to provide compensation to an injured employee.1 After a virtual overhaul of the law in 2004, by way of Senate Bill 899, the amount of penalties levied against the employer/insurer—within the statutory range of “up to 25 percent” of the delayed amount—was left to the discretion of the workers’ compensation judge.2
However, in Dee Anne Ramirez v. Drive Financial Services, the appeals board, en banc, addressed what they deemed “important legal issues regarding penalties under Labor Code section 5814 . . . to secure uniformity of decision in the future.”3 The underlying case involved an applicant who made a claim of cumulative injury to various body parts. The claim was resolved by way of compromise and release. Pursuant to the order approving the settlement, the employer’s insurer was to pay the applicant $57,000, and an additional $3,000 to settle vocational rehabilitation services, with payment to be made within 30 days of service of the order.
Defendant was five days late in issuing payment under the order. The applicant’s attorney made several written attempts to notify the defendant of untimely payment. Defendant paid the applicant penalties of $5,700 and $300 on its own accord, without any penalty award. Thereafter, the applicant filed a petition for penalties asserting that defendant should have paid the maximum penalties available under section 5814 for each of the delays.4 A Findings and Order were issued by the WCJ on the issue of penalties. The WCJ ordered an additional $600 be paid for the applicant’s attorney’s fee, but held that no further penalties were warranted. The WCJ based the holding on Labor Code section 5814(a), only providing that the statute “affords discretion to award a lesser amount” than 25 percent.
The WCAB effectively held that while the amount of the 5814 penalty is discretionary, the decision requires that judicial discretion be employed to “accomplish a fair balance and substantial justice between the parties.”5 To achieve this goal, the WCAB urged that the principal consideration in determining the amount of the penalty should be whether or not the penalty assessed would further the legislative intent of the statute’s enactment—both penal (incentivizing prompt payment of benefits by employers and insurers) and remedial (restoring the injured worker from the economic hardship incurred from the delayed receipt of benefits). Additionally, the following factors should form the basis underlying that determination:
Today, Ramirez remains the “gold standard” in the determination of whether or not the amount of a section 5814 penalty is reasonable.
What the Ramirez Decision Means
In the cases that followed Ramirez, the determination as to whether or not the amount of penalties assessed by the WCJ was reasonable or not ran the gamut from looking at the ratio of unpaid to paid monies owed, to whether or not the fact that an insurance adjuster “overloaded with work” was a sufficient excuse for a late payment.7
In theory, Ramirez made the issuance of 5814 penalties more difficult, in that the WCJ is required to articulate the reasoning behind the amount of penalties issued, and cannot arbitrarily choose any monetary amount to penalize an employer/insurer at a whim. Of course, the detrimental effect of the Ramirez decision is that even though the WCJ must outline the reasoning for the amount of the penalty issued, the factors the WCJ must weigh are subjective.
Are Corrective Measures Available to Employers/Insurers Who Discover Delayed Payments?
Upon discovery of a potential violation of Labor Code section 5814, the employer or insurer may pay a self-imposed penalty in the amount of 10 percent of the amount of the payment unreasonably delayed or refused, along with the amount of that payment.8 Of course, this remedy is only available where the self-imposed penalty is discovered by the employer/insurer before the affected employee makes a claim under the statute, and if such self-imposed penalty is paid within 90 days of the date of the discovery.9
The self-imposed penalty would be made prophylactically, in lieu of any potential Section 5814 penalty assessed by the WCJ.10 The court of appeal has held that the employer may undertake payment of the self-imposed penalty regardless of whether the employee discovered the potential violation of Labor Code section 5814 before the employer.11 Moreover, the court held that the provision’s application is not limited to situations in which the employer learns of the potential violation through its own investigation rather than through an employee’s or a third person’s investigation.12
How Does This Impact Settlement?
On the approval of settlement or disposition of the case in chief (whether that be compromise and release, stipulations and orders, or findings and awards by the WCAB), it is presumed that outstanding claims for penalty have been resolved, unless expressly excluded from the settlement by the terms of the order or award (Lab. Code, § 5814(c)).
Likewise, where an issue is submitted for determination by the WCJ, it is presumed that any claim for penalty related to the matter submitted, is resolved, unless expressly reserved in the statement submitted. (Ibid.). (fn applicable only to the approval of compromise and releases, the issuance of findings and awards, stipulations, and orders, and the submission of any issues at trial on or after June 1, 2004.)
Who Pays When the Employer Fails to Notify the Insurer of Injury?
If an employer fails to inform its insurer of a workplace injury, causing an unreasonable delay or failure to provide compensation to an injured employee, the insurer is liable for any penalty assessed as a result thereof. A miscalculation of the injured worker’s earning capacity at the time of injury may also constitute an unreasonable delay or failure to provide benefits pursuant to Labor Code section 5814.13
The Bottom Line
Prompt payment of benefits to the injured worker is imperative. As evidenced in the case underlying the Ramirez opinion, even a five day delay in payment of benefits will cause the employer/insurer to incur significant penalties under Labor Code section 5814. Although Ramirez helps to “balance” the scales as far as determining the amount of the penalty assessed by the WCJ, it is always in the employer/insurer’s best interest to make payment as outlined in the disposition/award so that Section 5814 penalties may be avoided altogether.
1 Penalties are calculated as follows: the amount of the payment unreasonably delayed or refused shall be increased up to 25 percent or up to ten thousand dollars ($10,000), whichever is less.
2 Labor Code section 5814.
3 Dee Anne Ramirez v. Drive Financial Services (2008) 73 CCC 1324.
4 Applicant claimed that pursuant to Labor Code section 5814, they were entitled to $10,000 against the $57,000 payment, and $750 against the $3,000 payment; and that additionally, because the penalties were “underpaid,” that defendant owed additional 25 percent penalties, with interest, against those amounts.
5 Labor Code section 5814.
7 Kandis Mutter v. Pearson, Inc. (2013) Cal. Work Comp. P.D. LEXIS 443 (unpub.); Arturo Escober v. Henry Wine Group dba Zephyr Express (2012) Cal. Wrk. Comp. P.D. LEXIS 176 (unpub.); see also Marco Cubillas v. Steelscpe A Blue Scope Steel Company (2014) Cal. Wrk. Comp. P.D. LEXIS 14 (writ denied) holding that defendant not liable for penalty where delay in benefits payments owed to applicant pursuant to OACR was the result of standard state and federal banking regulations, and not due to unavailability of funds from defendant.
8 Lab. Code § 5814(b).
9 New United Motors Manufacturing v. WCAB (2006) 71 Cal. Comp. Cases 1037.
10 Lab. Code § 5814(b).
11 New United, supra, 71 Cal. Comp. Cases 1037.
12 (Ibid; citing Black's Law Dict. (1996 pocket ed.) p. 193; Debro v. Los Angeles Raiders (2001) 92 Cal.App.4th 940, 951; Green v. WCAB (2005)127 Cal.App.4th 1426, 1435; DuBois v. WCAB (1993) 5 Cal.4th 382, 387-388.)
13 Argonaut Ins. Co. v. Industrial Acc. Com. (1962) 210 Cal. App. 2d 267.
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