Fifth Circuit: Per Diem Payments Part of Wages Under Longshore Act

Holding:

In this petition for review, the U.S. Court of Appeals for the Fifth Circuit held that "wages" under the Longshore and Harbor Workers' Compensation Act ("LHWCA") are not limited to taxable compensation. The Fifth Circuit reasoned that the plain text of § 2(13) defines wages as the "money rate at which the employee is compensated" plus any taxable advantages The Fifth Circuit added that money clause does not require taxability. Rather, taxability is just one of several indicia of a wage. Here, the Administrative Law Judge ("ALJ") and the Benefits Review Board ("BRB") properly classified employer's per diem payments to claimant Otis Pearley as "wages" for purposes of calculating benefits under the LHWCA. Although the per diem payments were not subject to tax withholding, they played the role of money wages, in that they were calculated based on the number of hours worked. On the basis of the foregoing, the Fifth Circuit affirmed the award of disability benefits to Pearley.

Detailed Summary:

Petitioners B & D Contracting (“B&D”) and Zurich American Insurance Company (“Zurich”) petitioned the Fifth Circuit for review of the BRB’s order affirming an ALJ’s award of disability benefits to Pearley pursuant to the LHWCA, 33 U.S.C. §§ 901-950.

The issue in this appeal was whether the ALJ and the BRB properly classified B&D’s per diem payments to Pearley as “wages” for the purpose of calculating benefits under the LHWCA. Opinion, p. 1.

By way of background, Pearley began work as a shipfitter for B&D in July 1999, earning $16.50 per hour. When he filed his first tax return, approximately six months after starting work, he discovered that B&D had divided his paycheck into an hourly taxable rate of $8.50 and an untaxed hourly “per diem” rate of $8.00. In July 2000, Pearley received a raise to $9.50 per hour in wages and $9.00 per hour in per diem payments.

On June 10, 2002, Pearley injured his back in the course of his employment. B&D paid Pearley $241.52 per week in temporary disability benefits from June 2002 through January 2006. It specifically excluded its per diem payments to Pearley in the calculation of his benefits rate. Pearley challenged the amount of these payments before a Department of Labor ALJ.

The ALJ concluded that B&D should include Pearley’s per diem payments as wages for the purpose of calculating his average weekly wage. Accordingly, the ALJ calcuated Pearley’s average weekly wage as $761.98, with a corresponding benefits rate of $507.98.

The ALJ denied B&D’s motion for reconsideration. The BRB affirmed the ALJ’s decision, and B&D filed this timely petition for review. Id., p. 2.

In affirming the BRB’s decision, the Fifth Circuit wrote that the purpose of the LHWCA is to compensate employees for the loss of wage-earning capacity resulting from work-related injuries. Id., p. 3, citing Metro. Stevedore Co. v. Rambo, 515 U.S. 291, 298 (1995). The LHWCA defines the types of compensation that qualify as wages for the purpose of determining an employee’s pre-injury average weekly wage, which is then used to calculate the amount of disability benefits.

The Fifth Circuit held that “wages” under the LHWCA are not limited to taxable compensation. The Fifth Circuit reasoned that the plain text of § 2(13) defines wages as the “money rate at which the employee is compensated” plus any taxable advantages, and the money clause does not require taxability. Id., p. 5, citing Custom Ship Interiors v. Roberts, 300 F.3d 510 (4th Cir. 2002). Rather, taxability is one of several indicia of a wage.

The Fifth Circuit observed that the definition of “wages” under § 2(13) does not include “fringe benefits” and noted that this term “refers only to a class of fringe benefits whose value is too speculative to be readily converted into a cash equivalent.” Id., pp. 4-5, citing James J. Flanagan Stevedores, Inc. v. Gallagher, 219 F.3d 426, 431-432 (5th Cir. 2000).

Here, the ALJ and the BRB properly classified employer’s per diem payments to Pearley as “wages” for purposes of calculating benefits under the LHWCA. Although the per diem payments were not subject to tax withholding, they played the role of money wages, in that they were calculated based on the number of hours worked; they were paid in the same paycheck as Pearley’s normal wages; the per diem was an unrestricted payment, unrelated to actual costs of meals, lodging, or travel; the same per diem was paid to all employees regardless of where they lived; and the per diem constituted almost half of claimant’s gross pay.

In view of the foregoing, the Fifth Circuit concluded that the BRB properly considered the per diem payments in this case to be “wages” for purposes of the LHWCA. Accordingly, the Fifth Circuit denied the petition for review.

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