Indiana Court of Appeals Broadens the Definition of Earnings in Calculating the AWW
It is well settled in Indiana that worker’s compensation is meant to benefit employees and that the Indiana Worker’s Compensation Act should be construed liberally. According to a recent opinion issued by the Indiana Court of Appeals, in Midwest Equipment & Supply, Co. v. Garwood, this liberal construction appears to be especially true as it relates to calculating average weekly wages in Indiana.
The main issue in the Garwood case was whether bonuses should be considered earnings for purposes of calculating the employee’s average weekly wage, a calculation that is critical in determining the amount of benefits an employee receives. It was undisputed that the employee received two bonuses totaling $21,750. The first bonus, in the amount of $1,750, was an individual performance-based bonus. The employee also received a $20,000 profit sharing bonus that had nothing to do with the employee’s individual performance. The Indiana Worker’s Compensation Board and the Court of Appeals agreed that both bonuses should be included as earnings in the average weekly wage calculation.
According to Section 22-3-6-1(d) of the Act, an employee’s “average weekly wage” is defined as “the earnings of the injured employee in the employment in which the employee was working at the time of the injury during the period of fifty-two (52) weeks immediately preceding the date of injury, divided by fifty-two (52).” The Act does not define earnings, nor does it specifically address whether bonuses constitute earnings pursuant to the Act. Since the Act is silent on this issue, the Court of Appeals liberally construed the Act in favor of the employee in this case.
In its analysis, the Court of Appeals rejected the employers’ argument that the bonuses should be excluded because they were not regulated by any formal agreement, they were entirely discretionary, and the profit sharing bonus was not based on the employee’s output or performance. While these statements may have been accurate, the Court of Appeals rejected the employer’s arguments and found that both bonuses constituted earnings, even the $20,000 bonus that had nothing to do with the employee’s individual job performance.
Given that the Act was ambiguous on the issue of including bonuses as earnings, it is not surprising that the Court of Appeals resolved this issue in favor of the employee. Unfortunately for the employer, had this injury occurred only a few months later, beyond the fifty-two week period, the bonus would not have been included in the employee’s average weekly wage.
Thanks to attorney Dane Kurth for this important case law update. Dane represents employers in both Illinois and Indiana on behalf of the firm.