HOW THE WAGE DEFICIT APPROACH (WDA) CAN BE USED TO ASSESS ECONOMIC LOSS DAMAGES BASED ON GUIDANCE FROM BRITISH COLUMBIA CASE LAW.

• Author: Brown, Cara L.

1. INTRODUCTION

   In many personal injury cases, a quantum expert will be hired to quantify the impactof permanent and substantial (1) disability on an individual's earning capacity. The most common approach to this task is to establish the plaintiff's "without-incident" (2) and "with-incident" (3) income profiles. These two profiles are then compared and if the former exceeds the latter, there may be an ongoing loss of income attributable, in part or entirely, to the incident in question. This standard method is known as the "career A" versus "career B" comparison.

   In this paper, we propose an alternative method for assessing potential income losses in situations where the standard "career A" versus "career B" comparison cannotbe undertaken for various reasons, many of them typically dependent on the fact situation surrounding the plaintiff. The standard approach has been typically referred to in British Columbia jurisprudence as the loss of earnings/loss of earning capacity (4) or "real possibility" approach (5) in contrast to the "loss of opportunity" or "loss of capital asset" approach reflected in Pallos v Insurance Corp. of British Columbia (6) and subsequent case law following the decision in Pallos.

   Below are examples in which the standard "career A" versus "career B" comparison cannot be used to quantify the claimant's potential income loss, and an alternate approach is required:

   * In cases involving children or young adults whose impairment on career or future working capacity is not yet fully known or manifesting itself (because there is no career or working capacity established yet)

   * In cases where the plaintiff resumed working in the same job (or type of job), is earning a similar salary to the one paid before the incident, but is fulfilling their job duties by virtue of an accommodating workplace or employer and/or is expected to experience future deficits (the Pallos (7) fact situation)

   * In cases where the plaintiff resumed working in the same profession but is not able to work as productively, work as many clinic hours, or "bill" the same hours or fees

   * In cases where the plaintiff can resume working full-time, but is unable to sign up for night or weekend shifts (accompanied by "shift differential" extra pay) or overtime work

   * In cases where the plaintiff might have kept working, but an economic 'boom' in the plaintiff's industry (whether it be oil & gas, construction, technology, etc.) obscures the plaintiff's reduced earning capacity since the incident

   * In cases where the plaintiff has become less "marketable" or less "competitive" in the job market (like in situations where an incident has resulted in facial or bodily disfigurement (8) )

   * For small business owners whose hours or productivity (or both) have impacted their business

   * In cases where the plaintiff will experience a shortened working life expectancy because of the incident, causing them to retire earlier than they would have done (9)

   Veit, J also observed in Dabrowski v Robertson (10) that there are instances--especially when the pre-trial period (11) is longer than five years--where the plaintiff may be earning a higher income at the date of settlement or trial than they earned in the year of the incident, but it is attributable to wage inflation and productivity in those five years, (12) not necessarily a recovery of earning capacity. In these cases, it does not necessarily follow that the plaintiff has not or will not suffer a loss of income. This can be especially true if the plaintiff's wage decline is obscured by an uptake in economic activity in the industry sector where the plaintiff was or is employed. This specific issue was addressed in Podiluk v Bunz (13) where the judge permitted an income loss award despite the fact that the plaintiff's income atthe date of trial exceeded their income in the year the incident occurred.

   The situations above have two things in common:

   1. the impact on the with-incident career is obscured either by circumstance or changes in economic activity related to the plaintiff's occupation or industry; and/or b) the impact on the with-incident career may not be observable or easily quantified at time of trial or settlement, but medical and/or vocational professionals have concluded the claimant has suffered a permanent disability, the effects of which will fully emerge over time.

   The alternative method described in this paper is called the wage deficit approach (WDA). Instead of comparing the without-and with-incident income profiles (the "career A" versus "career B" comparison), the wage deficit methodology requires the expert to determine the claimant's without-incident income, at which point a negative percentage is applied to reflect the plaintiff's severity or type of disability. (14) This negative percentage is derived based on the experiences of actual disabled Canadians. The court in Pallos affirmed that this approach could be used by economic experts:

   The cases to which we were referred suggest various means of assigning a dollar value to the loss of capacity to earn income.... Another [method] is to award the present value of some nominal percentage loss per annum applied against the plaintiff's expected annual income. (15) The research presented in this paper aims to provide reliable statistical evidence for "some nominal percentage" which reflects the labour market experiences of disabled Canadians. This is how quantum experts can assist the parties to the litigation and the trier of fact when there is not sufficient information to perform a "career A" versus "career B" comparison or provides further context in conjunction with another scenario.

   The wage deficit approach (WDA) relies on Statistics Canada's disability survey data, which tells us what has happened to Canadians in the labour market when they have a permanent or partial disability. (16) Regression analysis, a form of economic measurement, permits us to tailor the wage deficits to the plaintiff in terms of severity of disability (mild, moderate, severe, or very severe) or by type of disability. (17)

   First, however, we review the guidelines set out by British Columbia's appeal court and various trial courts as to how the claimant's potential loss of earning capacity should be assessed using the "loss of capital asset" or "loss of opportunity" approaches.

2. GUIDANCE FOR QUANTUM EXPERTS FROM BRITISH COLUMBIA CASE LAW

   1. THE TESTS ESTABLISHED IN BROWN V GOLAIY FOR THE "CAPITAL ASSET" APPROACH

      The British Columbia decision of Brown v Golaiy (18) provides precedent for the notion that even though an injured plaintiff may return to work after an accident and earns the same amount of or more money than in the pre-accident period, the plaintiff can still be compensated for their loss of earning capacity, if it can be shown that they have suffered or will suffer some sort of permanent impairment because of the incident. Justice Finch set out the following guidelines in Brown to assess the plaintiff's potential loss of earning capacity:

      9. Has the plaintiff been rendered less capable overall from earning income from all types of employment?

         ii) Is the plaintiff less marketable or attractive as an employee to potential employers?

         iii) Has the plaintiff lost the ability to take advantage of all job opportunities that might otherwise have been open to them, had they not been injured?

         iv) Is the plaintiff less valuable to themself as a person capable of earning income in a competitive labour market?

         What is interesting about the four components above is that they are qualitative in nature and do not easily translate to economic loss calculations. In fact, all four components typically fall within the purview of a vocational expert and/or occupational therapist, who both produce qualitative reports describing the impact of the incident. The difficulties in translating the four components above into quantitative losses include:

      9. "Less capable"--while a permanent partial disability can be described in percentage terms by medical experts, these percentages cannot be applied to a claimant's earning capacity which depend exclusively on hours of work, capacity to perform the specific job requirements, and rate of pay. Additionally, the quantum expert is unable to compare the claimant's income from "all types of employment" because there are more than 35,000 job titles (19) included in this category.

         ii) Assessing the description of "less marketable or attractive" is not performed in quantitative terms because these qualities are intangible and resistantto measurement Also, the value to potential employers can only be assessed by potential employers, and no quantum expert is able to consult with these potential employers to determine value other than observe the wage paid by such employers. But the description of component (ii) is similar to component (i): presumably it means all possible employers, which are unlikely to have been identified (even by a vocational expert), so the quantum expert cannot possibly hope to achieve an assessment of 35,000 career paths, a task which is obviously time and cost prohibitive.

         iii) Assessing whether the plaintiff has lost the ability to "take advantage of job opportunities otherwise available to him/her" is under the purview of vocational experts. Economists must take guidance from a vocational expert for the answer to this question.

         iv) The quantum expert has no expertise to assess the plaintiff's own value of their earning capacity. Rather, the quantum expert must depend on the value assigned in the labour market, which is demonstrated through evaluation of salary sources which publish wages paid in the labour market.

         What this means is that even if the quantum expert has the benefit of vocational or occupational therapists' expert opinions aboutthe impacts identified according to Brown for the specific plaintiff, the quantum expert must still find a way to translate these impacts...