When you sustain an injury caused by the careless actions of another party, business, or entity, they should be financially responsible for your losses. When filing a personal injury claim, you have the legal right to recover compensation for the money you can no longer earn.
This is especially true if you cannot work while recovering or have a long-term disability. While similar, loss of income and loss of earning capacity are separate issues, which will be addressed below. Simply put, loss of earning capacity covers future economic loss, while loss of wages already covers what has been lost.
Lost income is more straightforward to calculate accurately because it looks backward. The loss of earning capacity is more difficult because it requires estimating what you would have earned if not for someone's wrongdoing.
However, both types of compensation can be recovered in a personal injury lawsuit, where a plaintiff may be awarded different damages, including lost wages. While lost wages and loss of earning capacity may sound similar, they cover different time frames.
As noted, lost wages are for the past and are calculated based on identifiable numbers and amounts. Loss of earning capacity is for the future and can be more challenging.
What is Lost Wages?
Lost wages, or loss of income, is what a plaintiff misses due to an accident. The defendant's negligence that caused the accident must be the proximate cause, or reason, for why the plaintiff missed work.
Any lost income may count as lost wages. Whether an individual is a full-time, salaried employee or a freelancer, any lost income may count towards damages. Lost wages are not just a salary but also include Hourly or salary wages, overtime pay, sick time, vacation time, etc.
Any benefit an individual receives from their employment may count towards lost wages. Simply put, loss of income is the cost of missing work while recovering from an accident.
Our injury lawyers can total your sources of income and determine how much earning potential you have before sustaining injuries. Damages for lost wages can include past, present, and future loss of income.
Bob trips Pam on the street. Pam breaks her ankle. Pam works as a museum guide and cannot work until she can walk and be on her feet for extended periods. As a result of the trip, Pam misses five weeks of work. Her employer also pays $100 into Pam's retirement fund for every 40 hours worked.
If found guilty of negligence, Bob may be required to pay both Pam's missed wages and her missed retirement fund contributions, or $500.
How Can You Document Lost Income?
To claim damages, a plaintiff must document their lost income, including proof of how the loss relates to the accident. Simply saying they missed work because of the injury is insufficient.
Often, a manager or a company's HR department member will write a letter detailing the missed work and other benefits. For example, if a worker is part-time, a letter should include the average hours worked.
Missed or delayed raises might also fall under the category of lost wages. If a plaintiff's injury delayed an increased salary by weeks or months, the defendant may be liable for that difference even if the plaintiff had returned to work.
To return to the Bob and Pam example, Pam's employer guarantees a 3 percent raise every sixty weeks. As a result of the accident, Pam's employer delayed her raise by five weeks. By submitting documentation from her employer verifying she missed out on five weeks of higher income, Pam could add that raise to her lost wages.
What is Loss of Earning Capacity?
Loss of earning capacity is income that was likely to be earned but for the accident. It is what you could reasonably have looked forward to. However, it was taken away by the injuries caused by the accident.
Calculating future missed wages is usually more difficult. These damages rely on estimates and assumptions about a person's future. Experts will often be required to provide insight into a plaintiff's loss of earning capacity. Some examples of lost earning capacity include the following:
- Hourly or salary wages;
- Business income;
- Extra pay benefits;
- Work benefits;
- Sick time;
- Vacation time;
- Bonuses and commissions;
- Stock options.
Loss of earning capacity includes multiple factors. Common considerations include:
- Age of plaintiff
- Plaintiff's life expectancy
- Plaintiff's health before the accident or injury
- Plaintiff's education
- Plaintiff's current employment
- Plaintiff's industry of employment
- Industry practices regarding wages, bonuses, and other employment
- Plaintiff's long-term career goals
Loss of earning capacity is classified as general damage and typically for victims with severe injuries and disabilities, such as paralysis, spinal cord injuries, and slow recovery injuries. General damage is subjective, but special damage has a clear monetary value.
Ian attended medical school to become a surgeon. After completing his residency, he started a job at a prestigious hospital. A month after Ian begins work, a defendant's negligence causes an accident that injures Ian's dominant hand. Even after he recovers, Ian will no longer have the necessary control of his hand to perform surgery.
When determining his lost earning capacity, a jury will consider that he is young and healthy. They will consider his current salary and benefits and the salary he could have earned as a surgeon. Statistics such as those from the Department of Labor that show the median salary for a surgeon may be used.
How Are They Different?
The primary difference between loss of income and lost earning capacity is when they occur. For example, loss of income covers the time before the lawsuit was filed, but the lost earning capacity covers the time after it was filed.
This creates other differences, such as the level of speculation. Lost income from the past is easy to prove and calculate. Income that could likely be earned is more challenging to establish with certainty.
Simply put, loss of income refers to past income, while lost earning capacity refers to future, unearned income. Other differences refer to your ability to return to life in the same capacity as before the accident.
What is Comparative Negligence?
California is a pure comparative negligence state. This means that a plaintiff may collect damages even if they are 99 percent at fault. A damages award will be reduced by the percentage the plaintiff is at fault. This includes lost wages and loss of earning capacity.
If a plaintiff is found to be 40 percent at fault, their damages award will be reduced by that same amount. If a plaintiff had damages that included $ 1,000 in lost wages and $10,000 in loss of earning capacity, they would receive $600 and $6,000.
Lost wages and loss of earning capacity deal with a reduced income due to an accident. One deals with what can be identified, and the other is an estimate determined by various factors. Contact our personal injury lawyers for a free case evaluation. The Injury Justice Law Firm has offices in Los Angeles, California.