In a significant decision for California public employers and claims professionals, the California Supreme Court in Department of Corrections and Rehabilitation v. Workers’ Compensation Appeals Board (Ayala) has clarified that Industrial Disability Leave (IDL) benefits paid under the Government Code do not qualify as “compensation” under the Workers’ Compensation Act. This means that when an employer is found liable for a Serious and Willful (S&W) misconduct penalty, the 50% increase applies only to the injured worker’s temporary disability (TD) benefits (or other statutory workers’ compensation benefits)—not the higher IDL payments.
Below we summarize the court’s opinion and its impact on claims handling, particularly for claims examiners and carriers dealing with public employees.
Background: The Dispute Over IDL and “Compensation”
- IDL vs. TD
- TD Benefits: Under the Labor Code, injured employees are entitled to temporary disability payments (usually at two-thirds of average weekly wages, subject to statutory maximums).
- IDL Benefits: Certain public employees (including some working in law enforcement, firefighting, or corrections) receive Industrial Disability Leave under the Government Code, which can fully replace lost wages (or replace a greater portion of wages than standard TD).
- Serious & Willful Misconduct (Lab. Code §4553)
- Labor Code § 4553 imposes a 50% penalty on “compensation otherwise recoverable” for injuries caused by an employer’s Serious and Willful misconduct.
- The core question in Ayala was whether IDL benefits—being greater than standard TD benefits—should be included in the calculation of that 50% penalty.
- WCAB’s Approach vs. the Employer’s Argument
- The Workers’ Compensation Appeals Board (WCAB) ruled that IDL counts as “compensation,” implying the 50% penalty would apply to the larger IDL amounts.
- The California Department of Corrections and Rehabilitation (CDCR) argued IDL is not “compensation” under the Labor Code’s definition. Instead, it is a Government Code benefit, so the penalty should be based only on TD rates.
Supreme Court’s Holding: IDL Is Not “Compensation Under” the Workers’ Compensation Law
Justice Kruger, writing for a unanimous Court, affirmed the Court of Appeal’s conclusion that IDL is not part of “compensation otherwise recoverable” under section 4553.
1. Statutory Definition of “Compensation” Controls
- Labor Code § 3207: The term “compensation” in the Workers’ Compensation Act applies only to benefits payable under Division 4 of the Labor Code.
- Government Code IDL: IDL arises exclusively from Government Code statutes, not from Division 4 of the Labor Code. Thus, IDL is outside the core definition of “compensation” in section 3207.
2. Other Arguments Rejected
- Penalty Calculations: The Court rejected the notion that including IDL for penalty calculations was necessary or implied by other Labor Code provisions (like sections 4650 or 4909).
- Consistent Precedent: The Court distinguished prior cases such as Ellison that dealt with different penalty provisions and did not squarely address whether IDL qualifies as “compensation” under the Labor Code.
3. Public Employees Still Receive the S&W Increase—But Only on TD
- Public employees who receive IDL will still be entitled to a 50% increase on the statutory TD amounts owed under the Labor Code if there is S&W misconduct.
- However, they will not receive a 50% increase on the higher IDL payouts.
4. Legislative Prerogative
- The Supreme Court acknowledged it was simply applying the existing statutory definitions. If the Legislature intends IDL benefits to be included for penalty purposes, it can amend the statute accordingly.
Practical Takeaways for Claims Adjusters and Carriers
- Penalty Exposure Is Lower
- When handling a claim for a public employee who receives IDL, the Serious & Willful penalty (if ultimately found) will be calculated only on the standard TD rate—not the higher IDL amounts. This is a significant limitation on potential penalty exposure.
- Confirm Benefit Type
- Always confirm which statutes entitle the injured employee to benefits. If the benefits come purely from the Government Code (like IDL) rather than the Labor Code, those amounts fall outside the “compensation” definition in section 3207.
- Coordination of Benefits
- Public agencies often have multiple benefit programs that might interact with workers’ compensation. Ensure you correctly identify which benefits qualify as statutory “compensation” and which do not, especially when calculating penalties or credits.
- Clear Record-Keeping
- In disputed S&W claims, accurately documenting the break-down of IDL versus TD will streamline penalty calculations and avoid confusion over which amounts are subject to the 50% penalty.
- Watch for Future Legislative Changes
- The Court suggested the Legislature could revise the Labor Code if it wants IDL included in S&W penalty calculations. Claims professionals should remain alert for any legislative developments.
Conclusion
The California Supreme Court’s decision in Department of Corrections and Rehabilitation v. Workers’ Compensation Appeals Board (Ayala) confirms that IDL benefits provided under the Government Code do not constitute “compensation” under the Workers’ Compensation Act. For claims professionals and public employers, this ruling limits the scope of S&W penalties for employees who receive IDL, reducing penalty exposure to the standard TD rate. As always, if questions arise on how best to apply Ayala to a particular claim, consult with experienced California workers’ compensation counsel.
Need More Guidance?
If you have questions about how this decision may affect your existing claims or need advice on handling Serious & Willful allegations against public employers, our team at Yrulegui & Roberts is here to help. Please reach out to any of our attorneys for more information on this important ruling.
Disclaimer: This blog post is provided for informational purposes only and does not constitute legal advice.
