Title: Shaw v. U.S. Airways, Inc.

State: north-carolina

Issuer: North Carolina Supreme Court

Document:

CURRY SHAW, Employee v. U.S. AIRWAYS, INC., Employer, AMERICAN 
PROTECTION INSURANCE COMPANY, Carrier  
No. 580A07
FILED: 27 AUGUST 2008
Workers’ Compensation--average weekly wage--fringe benefits
An employer’s contributions to an employee’s retirement accounts are not included in the
calculation of “average weekly wage” under the Workers’ Compensation Act.  Under the
meaning of the Act, the inquiry is whether the employers’ contributions constitute earnings:
nothing in the Act specifically includes fringe benefits, and the legislature has not addressed
fringe benefits in subsequent revisions since the terms “earnings” was first used in 1929. 
Weighing the public policy considerations of including fringe benefits as earnings for workers’
compensation is the province of the General Assembly. 
Justice HUDSON dissenting.
Justice TIMMONS-GOODSON joins in this dissenting opinion. 
Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of
a divided panel of the Court of Appeals, ___ N.C. App. ___, 652
S.E.2d 22 (2007), reversing and remanding an opinion and award
filed on 13 September 2006 by the North Carolina Industrial
Commission.  Heard in the Supreme Court 19 March 2008.
The Sumwalt Law Firm, by Vernon Sumwalt, for plaintiff-
appellee.
Littler Mendelson, P.C., by Kimberly A. Zabroski and Brian
S. Clarke, for defendant-appellants.
NEWBY, Justice.
This case presents the issue of whether an employer’s
contributions to an employee’s retirement accounts are included
in the calculation of “average weekly wage” under our Workers’
Compensation Act.  While the Act is to be “liberally construed,”
such liberality is not to be extended “beyond [its] clearly
expressed language.”  See Deese v. Se. Lawn & Tree Expert Co.,
306 N.C. 275, 277, 293 S.E.2d 140, 142-43 (1982).  Because we do
not believe inclusion of fringe benefits to be “clearly
expressed,” we reverse the Court of Appeals.
Plaintiff Curry Shaw worked as a fleet service worker for
defendant-employer U.S. Airways.  As an employee, plaintiff
participated in two separate retirement programs.  The first
program was a 401(k) plan (the “Savings Plan”) that allowed
plaintiff to defer a certain percentage of his eligible income
into a retirement savings account.  Under the plan, defendant-
employer would match fifty percent of plaintiff’s contributions
up to two percent of plaintiff’s eligible compensation.  The
second retirement program (the “Pension Plan”) was funded
entirely by obligatory contributions made by defendant-employer
on behalf of plaintiff, based on his income and age.  The plans
were maintained in separate accounts by plan administrator
Fidelity Investment Services, which offered plaintiff investment
options for the money contributed by plaintiff and defendant-
employer.  These investment options were the same for both plans
and included a mix of pre-selected stocks, mutual funds, and
bonds.
On 12 July 2000, plaintiff injured his back while attempting
to lift luggage from a baggage belt at his workplace.  In a Form
60 filed on 24 August 2000, defendant-employer and its workers’
compensation carrier (collectively “defendants”) admitted
plaintiff’s right to compensation under the North Carolina
Workers’ Compensation Act for an injury by accident.  Defendants
reported plaintiff’s “average weekly wage” as $825.55.  This
amount omitted defendant-employer’s contributions in the 52 weeks
preceding plaintiff’s injury of $1,798.33 to plaintiff’s Pension
Plan and $899.17 to plaintiff’s Savings Plan.  Inclusion of these
amounts in the average weekly wage calculation would have
increased plaintiff’s average weekly wage by $51.87 (the sum of
defendant-employer’s contributions to both plans divided by 52).
On 23 November 2004, plaintiff filed a Form 33 requesting a
hearing because the parties were unable to agree whether
defendant-employer’s contributions to the Savings and Pension
Plans were part of plaintiff’s average weekly wage.  Following a
hearing on 25 May 2005, a Deputy Commissioner entered an opinion
and award concluding that the contributions were not included. 
Plaintiff appealed to the Full Commission, which entered an
opinion and award on 13 September 2006 affirming and modifying
the Deputy Commissioner’s decision.  The Commission concluded the
contributions “did not constitute earnings, but rather were a
fringe benefit of [plaintiff’s] employment with defendant-
employer that should not be included in the calculation of his
average weekly wage.”
On appeal, the Court of Appeals majority
reversed and remanded the case to the Commission after
“conclud[ing] that not all fringe benefits are required to be
excluded from an average weekly wage calculation and [that] the
Commission did not apply the proper analysis in determining
whether the contributions at issue in this case should be
excluded.”  Shaw v. U.S. Airways, Inc., ___ N.C. App. ___, ___,
652 S.E.2d 22, 23 (2007).  The dissenting judge would have
affirmed the Commission, disagreeing with the majority’s
interpretation of existing law and cautioning that “[a]ny more
detailed mandates on what may and may not be included in these
computations must come from our legislature, not from this
Court.”  Id. at ___, 652 S.E.2d at 32 (Hunter, J., dissenting).
The sole question before us is whether defendant-employer’s
contributions to plaintiff’s two retirement accounts should be
included in plaintiff’s “average weekly wage” as defined by
N.C.G.S. § 97-2(5).  We have observed that section 97-2(5) “sets
forth in priority sequence five methods by which an injured
employee’s average weekly wages are to be computed.”  McAninch v.
Buncombe Cty. Sch., 347 N.C. 126, 129, 489 S.E.2d 375, 377
(1997).  Plaintiff argues that defendant-employer’s contributions
to his retirement accounts should be included under the first
method of calculating average weekly wage, which in pertinent
part provides:  “‘Average weekly wages’ shall mean the earnings
of the injured employee in the employment in which he was working
at the time of the injury during the period of 52 weeks
immediately preceding the date of the injury . . . divided by 52
. . . .”  N.C.G.S. § 97-2(5) (2007).
Thus, the inquiry becomes whether defendant-employer’s
contributions constitute “earnings.”  Plaintiff contends that the
contributions are earnings because they represent economic gain
to him and valuable consideration for his employment.  Defendants
argue that the contributions are not earnings because nothing in
the plain language of section 97-2(5) specifically includes
fringe benefits.  We agree with defendants.
When interpreting a statute, we ascertain the intent of the
legislature, first by applying the statute’s language and, if
necessary, considering its legislative history and the
circumstances of its enactment.  See Burgess v. Your House of
Raleigh, Inc., 326 N.C. 205, 209, 388 S.E.2d 134, 136-37 (1990)
(citing State ex rel. N.C. Milk Comm’n v. Nat’l Food Stores,
Inc., 270 N.C. 323, 332, 154 S.E.2d 548, 555 (1967)).  Our
Workers’ Compensation Act does not define “earnings.”  Thus, we
review the historical context of the Act’s adoption in 1929.  At
that time, fringe benefits were rare.  See Morrison-Knudsen
Constr. Co. v. Dir., Office of Workers’ Comp. Programs, U.S.
Dep’t of Labor, 461 U.S. 624, 632, 103 S. Ct. 2045, 2050, 76 L.
Ed. 2d 194, 201 (1983) (noting that in 1927, when the federal
workers’ compensation statute at issue in that case was enacted,
“employer-funded fringe benefits were virtually unknown”). Since
its enactment, the original language used by the legislature in
setting out the first method of calculating average weekly wages
under section 97-2 has remained substantially unchanged.  See The
North Carolina Workmen’s Compensation Act, ch. 120, sec. 2(e),
1929 N.C. Sess. Laws 117, 118.  Moreover, the only substantive
addition to this language was a 1947 amendment to include in
average weekly wages subsistence allowances paid to war veteran
trainees by the United States government.  See Act of Apr. 2,
1947, ch. 627, sec. 1(1), 1947 N.C. Sess. Laws 929, 929.  At no
point has the General Assembly mentioned fringe benefits in their
revisions of other parts of section 97-2.  Given that fringe
benefits were uncommon when the legislature used the term
“earnings” in 1929 and the legislature’s subsequent failure to
address fringe benefits in the face of their proliferation, we
conclude the General Assembly did not intend to include fringe
benefits in the concept of earnings.  Thus, we reach a different
outcome from the Court of Appeals majority because its analysis
in the case below focused on whether the Act clearly excludes
fringe benefits, rather than answering the controlling question: 
whether the Act specifically includes them.
Our statutory construction in this case is similar to that
of the United States Supreme Court in Morrison-Knudsen, its
leading case on the issue of fringe benefits in the federal
workers’ compensation system.  In Morrison-Knudsen, the Court
emphasized Congress’s failure to include fringe benefits in
numerous revisions of the Longshoremen’s and Harbor Workers’
Compensation Act, which was enacted in 1927, 461 U.S. at 632-37,
103 S. Ct. at 2050-53, 76 L. Ed. 2d at 201-04, and ultimately
concluded that the employer’s contributions to the employee’s
health and welfare pensions were not part of the employee’s wages
when calculating benefits under the Act, id. at 637, 103 S. Ct.
at 2052-53, 76 L. Ed. 2d at 204.  Relying on Morrison-Knudsen,
the only North Carolina opinion to have addressed fringe benefits
in workers’ compensation cases held that it was not unfair under
the fourth method of section 97-2(5) to exclude employer-paid
health insurance premiums.  Kirk v. N.C. Dep’t of Corr., 121 N.C.
App. 129, 135-36, 465 S.E.2d 301, 305-06 (1995), disc. rev.
improvidently allowed, 344 N.C. 624, 476 S.E.2d 105 (1996). 
While neither Morrison-Knudsen nor Kirk controls the outcome in
this case, it is also true that neither gives us a compelling
reason judicially to include fringe benefits as part of
“earnings” under the statute. 
A leading treatise on workers’ compensation law provides
additional guidance:  “In computing actual earnings as the
beginning point of wage-basis calculations, there should be
included not only wages and salary but any thing of value
received as consideration for the work, as, for example, tips,
bonuses, commissions and room and board, constituting real
economic gain to the employee.”  5 Arthur Larson & Lex K. Larson,
Larson’s Workers’ Compensation Law § 93.01[2][a], at 93-19 (Nov.
2005) (footnotes omitted).  While fringe benefits could be
considered broadly as “[a] thing of value received as
consideration for the work” or as “constituting real economic
gain to the employee,” the Larson text treats fringe benefits
separately from its enumerated examples of earnings and cautions
against including fringe benefits in calculations of the average
weekly wage:
Workers’ compensation has been in force in the United
States for over eighty years, and fringe benefits have
been a common feature of American industrial life for
most of that period.  Millions of compensation benefits
have been paid during this time.  Whether paid
voluntarily or in contested and adjudicated cases, they
have always begun with a wage basis calculation that
made “wage” mean the “wages” that the worker lives on
and not miscellaneous “values” that may or may not
someday have a value to him or her depending on a
number of uncontrollable contingencies.  Before a
single court takes it on itself to say, “We now tell
you that, although you didn’t know it, you have all
been wrongly calculating wage basis in these millions
of cases, and so now, after eighty years, we are
pleased to announce that we have discovered the true
meaning of ‘wage’ that somehow eluded the rest of you
for eight decades,” that court would do well to
undertake a much more penetrating analysis than is
visible in the Circuit Court’s opinion [which was
reversed by the Supreme Court in Morrison-Knudsen] of
why this revelation was denied to everyone else for so
long.
 
Id. § 93.01[2][b], at 93-21 to -22.
Further support for our analysis is found in a basic
understanding of “taxable income” under the Internal Revenue
Code.  Defendant-employer reported plaintiff’s average weekly
wage as $825.55, which includes plaintiff’s contributions to the
Savings Plan while excluding defendant-employer’s matching
contributions.  This is consistent with the tax implications of
each contribution.  Plaintiff’s contributions were simply the
portion of his gross wages that he chose to place in the Savings
Plan.  While plaintiff’s contributions were not subject to
federal income tax at the time they were “earned” by plaintiff,
they remained subject to federal Medicare and Social Security
taxes.  Internal Revenue Serv., U.S. Dep’t of the Treasury,
Publ’n No. 525, Taxable and Nontaxable Income 8 (2007).  However,
defendant-employer’s contributions are subject to neither federal
income tax nor Medicare and Social Security taxes.  See id. 
Thus, the gross amount of plaintiff’s earnings, including his
retirement contributions, are treated as taxable income to some
extent, whereas defendant-employer’s contributions are not.
Noting the foregoing persuasive authorities, we acknowledge
that fringe benefits are prevalent today, thus making their
inclusion in the computation of benefits under the Workers’
Compensation Act a significant issue.  As we have stated before:
This Court has interpreted the statutory
provisions of North Carolina’s workers’ compensation
law on many occasions.  In every instance, we have been
wisely guided by several sound rules of statutory
construction which bear repeating at the outset here.
First, the Workers’ Compensation Act should be
liberally construed, whenever appropriate, so that
benefits will not be denied upon mere technicalities or
strained and narrow interpretations of its provisions. 
Second, such liberality should not, however, extend
beyond the clearly expressed language of those
provisions, and our courts may not enlarge the ordinary
meaning of the terms used by the legislature or engage
in any method of “judicial legislation.”  Third, it is
not reasonable to assume that the legislature would
leave an important matter regarding the administration
of the Act open to inference or speculation;
consequently, the judiciary should avoid “ingrafting
upon a law something that has been omitted, which [it]
believes ought to have been embraced.”
Deese, 306 N.C. at 277-78, 293 S.E.2d at 142-43 (alteration in
original) (citations omitted).  Without further guidance from our
legislature, we will not issue an opinion requiring the
Industrial Commission to consider whether “earnings” includes
fringe benefits.  We do not know what practical effect such a
holding would have on employee benefits.  On the one hand, a more
modern and fair notion of “earnings” might logically include the
cash value of fringe benefits, which are strong incentives for
many employees in choosing one employer over another.  However,
inclusion of fringe benefits as part of “earnings” in calculating
workers’ compensation benefits might deter employers from
offering those benefits in the first place.  Weighing these and
other public policy considerations is the province of our General
Assembly, not this Court.
Based on the plain language of section 97-2(5), we hold that
employer contributions to an employee’s retirement accounts are
not included in the calculation of the employee’s average weekly
wage.  Accordingly, we reverse the Court of Appeals.
REVERSED.
Justice HUDSON dissenting.
Plaintiff Shaw argued, and the Court of Appeals agreed, that
in his narrow circumstances, when the employer’s contributions to
his pension and 401(k) plan are fully paid, vested, and
quantifiable, they should have been included in the calculation
of his average weekly wages under N.C.G.S. § 97-2(5).  Since I
believe that existing legal authority from this Court supports
the Court of Appeals majority and the plaintiff’s position, I
respectfully dissent.
Most fundamentally, prior language from this Court directly
contradicts the majority’s holding today.  The issue here is
whether the amounts contributed by the employer to plaintiff’s
pension and 401(k) plan should have been considered as earnings
for purposes of determining the average weekly wage under this
section.  The Commission found as fact, and the parties do not
dispute, that the total of the employer contributions in the year
at issue is $1,798.33 (to pension) plus $899.17, which, if
divided by 52, would increase plaintiff’s average weekly wage by
$51.87.  The pivotal point is simply whether the employer’s
contributions to the pension plan constitute “earnings” within
the context of N.C.G.S. § 97-2(5).  In the government context, we
have already held that: “‘“A pension paid . . . is a deferred
portion of the compensation earned for services rendered.”’  If a
pension is but deferred compensation, already in effect earned,
merely transubstantiated over time into a retirement allowance,
then an employee has contractual rights to it. . . .  Fundamental
fairness also dictates this result.”  Bailey v. State, 348 N.C.
130, 141, 500 S.E.2d 54, 60 (1998) (quoting Simpson v. N.C. Local
Gov’t Employees’ Ret. Sys., 88 N.C. App. 218, 223-24, 363 S.E.2d
90, 94 (1987) (quoting Great Am. Ins. Co. v. Johnson, 257 N.C.
367, 370, 126 S.E.2d 92, 94 (1962)), aff’d per curiam, 323 N.C.
362, 372 S.E.2d 559 (1988)).  With language so precisely on
point, our inquiry should stop there.  Having already held that
retirement accounts for state employees are sufficiently
sacrosanct to invoke the Contracts Clause of the state and
federal constitutions, and even to pierce sovereign immunity, I
cannot agree with a holding that consigns similar rights for an
injured worker to some ephemeral realm not encompassed in the
universe of “earnings.”
Beyond Bailey, few rules are better established than that
the Workers’ Compensation Act must be liberally construed, to the
end that benefits for injured workers not be limited or denied
based on narrow or strained technical interpretations of the Act.
 E.g. Adams v. AVX Corp., 349 N.C. 676, 680, 509 S.E.2d 411, 413
(1998); Hollman v. City of Raleigh, 273 N.C. 240, 252, 159 S.E.2d
874, 882 (1968); Johnson v. Asheville Hosiery Co., 199 N.C. 38,
40, 153 S.E. 591, 593 (1930).  The section of the Act at issue
here reads in pertinent part:  “‘Average Weekly wages’ shall mean
the earnings of the injured employee in the employment in which
he was working at the time of the injury during the period of 52
weeks immediately preceding the date of the injury . . .
.”N.C.G.S. § 97-2(5) (2007).  Defendants contend that these
amounts, while earned by plaintiff, are not “earnings” within the
meaning of the statute because these types of payments are not
specifically mentioned in the Act.  For several reasons in
addition to Bailey, I conclude that this interpretation is not
consistent with the well-established requirement of liberal
construction, but represents the opposite.  The plain language of
N.C.G.S. § 97-2(5) appears to contemplate that amounts beyond
basic wages should be included in the statutory term “average
weekly wages,” by the use of the word “earnings.”  The General
Assembly clearly knew how to use the word “wages” if that is what
it intended; in this section, it used the broader term
“earnings.” 
Defendants and the dissent in the Court of Appeals argue
that because the kinds of benefits at issue here did not exist
when the Act was first written in 1929 and the statute was not
amended over the years specifically to include them, they must be
excluded.  I disagree, since I conclude that the language of the
section is broad enough to include them, and other language in
the Act supports that this was the legislature’s intent.  For
example, although this language is not at issue here, this
section provides elsewhere that “[w]herever allowances of any
character made to an employee in lieu of wages are specified part
of the wage contract, they shall be deemed a part of his
earnings.”  Id. (emphasis added).  This part of the section
indicates clearly that the legislature intended that additional
payments of any kind should be included in the computation of
average weekly wage.  
Defendants and the dissent refer to the amounts at issue
here as “fringe benefits,” not intended for inclusion.  I
conclude otherwise, in that such benefits are no longer
considered “fringe” (if they ever were), but are actually a
critical part of the package of recompense, and a central part of
the employment contract.  It is undisputed that plaintiff left a
higher-paying job to join defendant precisely because of the
employer contribution at stake here.  Common sense dictates that
being the impetus for switching jobs, the contributions
represented something of value – the linchpin of determining
whether a particular benefit should be included as the basis of
wage-benefit calculations.  See 5 Arthur Larson & Lex K. Larson,
Larson’s Workers’ Compensation Law § 93.01[2][a] (Nov. 2005).  It
is not realistic, in my view, to require the legislature to amend
this section of the Act whenever a new form of benefit comes into
existence, in light of the broad language of the existing
statute.
Moreover, I do not believe that the cases relied upon by
defendants, especially Morrison-Knudsen and Kirk, compel the
conclusion argued.  Morrison-Knudsen Constr. Co. v. Dir., Office
of Workers' Comp. Programs, U.S. Dep't of Labor, 461 U.S. 624, 76
L. Ed. 2d 194 (1983); Kirk v. N.C. Dep’t of Corr., 121 N.C. App.
129, 465 S.E.2d 301 (1995), disc. rev. improvidently allowed, 344
N.C. 624, 476 S.E.2d 105 (1996). 
In Morrison-Knudsen, a case brought under the federal
Longshoremen’s and Harbor Workers’ Compensation Act, the issue
concerned whether employer contributions to the union trust fund
should be considered as “wages.”  461 U.S. at 626, 76 L. Ed. 2d
at 197.  In that case, not brought under our statute, the
benefits in question were not quantifiable and it was unclear
from the record whether they were vested as they are here.  Id.
at 627-28, 76 L. Ed. 2d at 198.  Thus, the analysis is
inapposite.  Further, in Kirk, the Court was asked to include
health insurance premiums in average weekly wages.  121 N.C. App.
at 134, 465 S.E.2d at 305.  Again, these benefits were not
vested, quantifiable, or paid to the plaintiff in cash
equivalent.  Id. at 136, 465 S.E.2d at 306. 
Here, the contributions to plaintiff were vested,
quantifiable (and quantified above), and available to plaintiff,
in that he could have withdrawn them at any time, albeit at risk
of penalty and tax consequences.  The majority’s assertion that
“defendant-employer’s contributions are subject to neither
federal income tax nor Medicare and Social Security taxes” is
simply incorrect; they are taxed as income at the time they are
withdrawn, with penalties if withdrawn early.
The majority also relies on selected excerpts from a federal
income tax guide.  The publication provides persuasive, not
binding, authority in yet another context–federal income tax. 
However, a study of the Internal Revenue Code itself shows that
the payments at issue here are treated as regular income upon
withdrawal–a position that runs directly contrary to the
majority’s holding today.  See, e.g., I.R.C. § 402(h)(3) (2000)
(providing that contributions to retirement accounts are subject
to tax upon withdrawal:  “Any amount paid or distributed out of
an individual retirement plan pursuant to a simplified employee
pension shall be included in gross income by the payee or
distributee, as the case may be . . . .”).  Therefore, the
majority’s reliance on an Internal Revenue Service guide is
misplaced at best.
Plaintiff has argued persuasively that in his limited
circumstances, when the employer’s contributions are fully
vested, quantifiable, and available to him personally as cash
equivalent, such benefits should be included in the calculation
of his average weekly wage pursuant to N.C.G.S. § 97-2(5).  I
conclude that the long-standing tradition and mandate of liberal
construction of the Workers’ Compensation Act require that we
include, rather than exclude, these amounts from plaintiff’s
average weekly wage.  While it is not for us to expand the
benefits the legislature has prescribed under the Workers’
Compensation Act, it is equally inappropriate for us to shrink
them in the absence of a statutory mandate to do so.  For these
reasons, I would affirm the Court of Appeals.
Justice TIMMONS-GOODSON joins in this dissenting opinion.