The ‘Fair Balance’ Test Is Required For A Penalty

A new Appellate Court case has taken the case of SCIF v. WCAB (Stuart), (1998) 18 Cal 4th. 1209 a step further. There is a wealth of information in this case and it needs to be read in its entirety.

The applicant had an injury in 1973.  He was awarded 100% permanent disability and future medical care in 1981. In 1991 the applicant was awarded a 10 percent penalty on all medical benefits. This included future medical benefits and the parties agreed that a check would issue each quarter after medical expenses paid in the previous quarter were calculated.

A penalty payment of $97.87 was delayed to the applicant. The applicant sought a penalty of $40,000.00 under labor code section 5814 for the delay.

The appellate court stated that the burden is on the employer to establish that a delay is reasonable in the payment of benefits. The court referred to the Stuart case to determine whether a delay is unreasonable. You must look to the “totality of the circumstances”. To do this you must look at (1) the size of the late payment, (2) the length of the delay, and (3) the defendant’s history of payment. There must be a “balancing” of the interests of the employer and the employee. This was the “fair balance “ test enunciated in Stuart.

The court, citing Stuart, indicated mat a reasonably short delay caused by human error cannot be considered unreasonable in and of itself. You need to look to see if the solitary instance of human error was corrected upon discovery. The penalty is not determined solely by the number of days payment was delayed. The mere existence of a delay does not give rise to a penalty. Delays of 22 days have been found reasonable.

In this case the court determined that the applicant contributed to the delay by not notifying the employer that the check had not arrived timely. “Failure of the employee to give notice of delayed receipt of a benefit payment is relevant in determining the reasonableness of the delay.” The court referred to Gleason v. WCAB (2000) 65CCC 579, a writ denied case that indicated mat a two-month delay was not unreasonable where the defendant’s first notice of the delay was in a petition for penalties and the defendant promptly paid. This case would seem to now put the burden on the applicant to notify defendant of an untimely payment. If the defendant men promptly responds, men no penalty should be owing.

The court further indicated that imposing such a grossly disproportionate penalty for the inadvertent delay would not serve the purposes of section 5814. This would upset the “balance of fairness”. 11 would create a windfall to the applicant out of proportion to the employers conduct.

Case: City of San Luis Obispo V. WCAB (Barnes)

Harvey Brown
3501 Jamboree Rd. Suite 602
Newport Beach, CA 92660

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