Can an Employer Take Credit?
On March 19, 2021, Gov. Gavin Newsom signed Senate Bill 95 into law requiring most California employers to provide up to 80 hours of COVID-19 supplemental paid sick leave. The law went into effect on March 29, 2021 but the requirement applied retroactively to January 1st, 2021. So, if an employee was eligible, an employer retroactively must pay the COVID-19 supplemental leave when the employee requests it, either orally or in writing.
The mandate is nothing new — last year, 40 hours of supplemental paid sick was required. But SB 95 came late, and, unlike last year, application is retroactive. If temporary disability already was paid, may the employer assert credit?
No Double Payment
It’s clear that the law did not intend to permit double payment. SB 95 provides that an employee subject to a quarantine receives the supplemental paid sick leave (80 hours) if one of various conditions applies. One, for example, is if the employee is told by a doctor or otherwise required by law to stay home because of COVID-19 concerns. Of course, temporary disability is owed in the event of a work-related injury resulting in the employee’s inability to work. Obviously, there’s overlap.
Senate Bill 1159 — the presumption bill of 2020 — states that “If an employee has paid sick leave benefits specifically available in response to COVID-19, those benefits shall be used and exhausted before any temporary disability benefits, benefits. So, if COVID-19 supplemental paid sick leave is available for work-related COVID-19 claims, an employer must pay those benefits before temporary disability benefits are paid. If the paid leave is owed, temporary disability will not start until that ends.
Impact
The payment priority increases an employer’s exposure.
COVID-19 supplemental paid sick leave is paid up to the employee’s regular rate of pay, but capped at $511 per day to an aggregate of $5,110. Temporary disability benefits, in contrast, are paid at two-thirds of an employee’s average weekly earnings up to a statutory weekly maximum of $1,356.31 for injuries on or after Jan. 1, 2021. The beneficiary of this scheme is carriers, who will be relieved of responsibility for payment of temporary disability during the 80-hour period.
An injured worker with COVID-19 who is on doctor’s orders to stay home gets the 80 hours on request. Note that SB 95 specifically requires that a request by the worker be made for this benefit. If there is no request, presumably, the benefit is not owed.
If temporary disability was paid previous to a request for the SB 95 benefit, it seems that the employer would be entitled to a credit for the amount. But the situation manifests differently with insured employers and self-insureds, and there are some complications.
The Insured Employer
When temporary disability has been paid by an insurer, the employer might want to take credit. Can it? There is no definitive guidance. The statute is clear that duplicate payments may not be made, but there are no specific allowances for credit in the language. The employer is obligated to pay the injured worker. Failing to do so may subject it to a Labor Commissioner’s Office complaint and hearing. The employer might protest that it was clearly entitled to reduce the pay, but the response might be that there was a remedy in workers’ compensation.
On seeing the 80 hours paid out, the insurance company would conclude that temporary disability (its responsibility and liability), is not owed during the period in question. It might well seek credit against future benefits. The Labor Commissioner’s Office might see the credit as an entitlement of the insurance carrier, not the employer. The difficulty, of course, is that most COVID-19 cases result in no need for permanent disability, and the appeals board is loath to impose credit obligations on temporary disability or medical benefits. So the applicant indeed might end up with a double recovery. But the employer might decide that it would have had its liability anyway, and does not want to risk the myriad consequences if pay is not made properly
The Self-Insured Employer
Labor Code 4909 allows for the Workers’ Compensation Appeals Board to consider application of credit when other payments are made in lieu of temporary disability: “[A]ny such payment, allowance, or benefit may be taken into account by the appeals board in fixing the amount of compensation to be paid.” (Per Labor Code 4650, temporary disability is not allowed when there is a salary continuation plan. Also, credit may be allowed when there is overlap with long- or short-term disability payments, retirement plans, an employer’s benefit plan, etc. The law does not favor the unjust enrichment of a double award, and granting credit for overpayment of temporary disability is routine.
So, may the claims adjuster simply subtract the temporary disability payments from the supplemental sick leave, and pay the remainder? One complication in this regard is that granting credit is at the discretion of the appeals board. The California Code of Regulations, Title 8, section 10555 states that, when a dispute arises as to a credit for any payments or overpayments of benefits pursuant to LC 4909, a petition for credit must be filed. This is a new regulation, and it’s untested — it became effective Jan. 1, 2020.
For adjusters, the requirement is a fly in the ointment. It’s simply not feasible to file a petition in small cases. The majority of applicants are in pro per. Filing a petition requires first filing an application, which is essentially the employer suing itself. The employer is subjected to the possibility of the applicant “lawyering up,” and the expense and inconvenience might render the petition being heard and granted a viable option.
The regulation demands a petition when a “dispute arises.” Perhaps that means any time that the employer wants to take a credit, as it is assumed the employee would disagree. Perhaps it means that if the employee is notified of the credit but does not respond, it is reasonable to assume there is no dispute (Qui silentio consentire — He who is silent gives consent). Or perhaps it means that the applicant has to agree explicitly to the credit, or it will be considered a dispute. There is no way to tell for sure, but at the end of the day, if a claim for credit is made without explicit agreement, a dispute might well be found to exist.
With that said, many claims administrators routinely apply credit for overpayment of temporary disability without resorting to a Petition. There are many levels of awareness about this regulation. Although it is a procedural requirement, there seems to be little substantive harm if it is avoided. Penalties under Labor Code section 5814 are not allowable where the employer has a genuine doubt as to liability. It may indeed be said that genuine doubt exists here.
The real problem is the Audit Unit, which as we know, routinely reviews the claims of all TPAs. Asking around the industry we have confirmed that the Audit Unit does indeed take issue where no Petition is filed before credit is applied. Accordingly, many claims outfits justifiably shy away from a deliberate and systemic application of credit without a Petition. It may well be that many claims organizations should look beyond the issue discussed here and consider this regulation in their general practice.
One solution is to simply ask the applicant to apply the credit. If the applicant agrees, credit may be applied. For the more daring, the applicant may be sent notice of intention to take the credit with a reasonable time to object. Since the supplemental pay is due upon request after March 29th in the next payroll, there may not be time for this. If the applicant does not agree, the only safe course is to file a Petition, where the amounts in question justify the cost and risk.
Recommendations
When retroactive payments are being made and overlapping temporary disability exists:
- Recognize that a request must be made before the supplemental sick leave is owed.
- If the employer is insured, it might defer claiming credit in favor of its carrier seeking it.
- If the employer is self-insured or otherwise fully liable, it’s best to seek the applicant’s agreement to the credit, in writing, before applying it. If the applicant refuses, claim credit and exercise judgment about filing a petition.
