Calculating economic loss compensation - An example
To break this down for you further, we’ve created the following scenario:
Mike is a 42-year-old carpenter who has suffered lower back spinal injuries after a serious motorcycle accident. After seeking medical attention, Mike was informed he could not return to work as a carpenter as a result of his injuries and needed to find a less strenuous occupation to pursue. After a three-month recovery period, Mike began working in a supermarket stacking shelves.
Unfortunately, Mike’s injuries made his role at the supermarket difficult to carry out, as he cannot stand for long periods of time, bend down to pick up boxes or reach up to the higher shelves. Mike was originally contracted to work 5 days a week for 6 hours, however, due to his injuries and the pain they caused him during work, he had to reduce his shifts to 3 days a week. Not only did this affect Mike’s income, but it was also a problem with Mike’s supervisor, who was already unhappy with the time it took Mike to stock the shelves.
After two months, Mike lost his regular hours and now works on call, filling in for other workers when they are on leave or absent. During these past two months, Mike has only worked 4 hours a week and is now experiencing significant financial hardship.
Mike’s skills in the workforce apply mostly to carpentry, where he started as an apprentice at the age of 16. Before the accident, he didn’t work in any other field, and all additional training he had undertaken was related to his occupation as a carpenter.
As a result, Mike decides to lodge a motorcycle accident compensation claim to recover the loss of income he has suffered as a result of his injuries. When calculating Mike’s past and future economic loss, the court will consider:
- The income lost from being unable to continue Mike’s carpentry career: The court will calculate Mike’s difference in earnings from what he would have received as a carpenter and what he has been earning at the supermarket. Mike was actually set to be promoted to supervisor shortly after the accident occurred and will have to provide evidence to support this.
- Mike’s usual net earnings before the accident: Any overtime Mike worked as a carpenter will also be taken into account, as the court considers consistency of earnings. It was found that Mike worked 10 hours of overtime on average a week, which will likely be awarded in addition to his regular salary.
- Any future economic loss as a result of Mike’s injuries: Mike states that he would have most likely worked as a carpenter until the age of 65 and that being promoted to site supervisor would have allowed him to continue to advance within his company. This means there is a possibility that Mike could have continued to earn higher wages than he had at the time of the accident.
- Mike’s current income and earning capacity: As Mike is currently working an average of just 4 hours per week and is struggling to find a less strenuous role that can provide him with more hours and higher wages, the court will look for evidence that supports this claim and calculate his future economic loss on the basis of this evidence.
So, how do you calculate lost wages? When calculating Mike’s economic loss, the court will use Litigation Tables – actuarial tables that provide multipliers that reduce losses to present-day values. After using these, the court will take into account any life contingencies (such as Mike not working until retirement age or suffering a medical condition preventing him from working until the age of 65) and most likely reduce them. However, the court may increase this to allow for his loss of advancement opportunities and loss of future income.
Taking into all of the above, the final number the court arrives on is the amount that Mike will receive for past and future economic loss.
