I. INTRODUCTION

7.1 Chapter 5 has discussed the principle of restitution and its application to compensation for loss of earning capacity. It was suggested there, in general terms, that the Transport Accidents Scheme should provide compensation for:

• loss or impairment of earning capacity sustained by persons injured in transport accidents who have an attachment to the workforce (injured earners); and
• loss or impairment of earning capacity sustained by persons injured in transport accidents who do not have such workforce attachment (injured non-earners), provided that the loss or impairment is long-term.

This Chapter puts forward general principles which govern the assessment of compensation for earners and non-earners. Chapter 8 discusses the form and payment of compensation the commencement and termination of benefits and assessment of permanent incapacity.

II. EARNERS

A. General Principles

7.2 The Scheme should provide compensation for loss (or impairment) of earning capacity assessed broadly in accordance with the principle of restitution. Accordingly, we recommend that earners who are incapacitated as the result of a transport accident should receive compensation in respect of their loss (including impairment) of capacity. The definition of “earner” should include people who have an attachment to the workforce at the time of the accident (paragraphs 7.6-7.11). The definition should also include both employed and self-employed people.

1. The Yardstick

7.3 A basic question is how the loss should be measured. One approach would be to attempt to assess precisely what the incapacitated person would have earned during each week of incapacity had the accident not occurred. The practicalities of administering a scheme make this approach impossible to apply to every claim. In the case of short-term incapacity, pre-accident earnings provide a reasonably reliable (although not necessarily perfect) indicator of what the incapacitated person would have earned but for the accident. ¹ Some account should be taken of specific situations in which the standard of pre-accident earnings is likely to cause difficulties, for example when the injured person is engaged in seasonal employment (paragraphs 7.27-7.32). Moreover, people suffering long-term incapacity (that is, lasting for more than 104 weeks) should be entitled to have their potential for advancement specifically considered in the assessment of compensation (paragraph 7.64ff.). Provided this is done, pre-accident earnings constitutes a reasonable standard for the assessment of compensation and minimises claims processing delays and administrative costs. If, for example, the incapacitated claimant is employed, any information provided in a claim form concerning earnings can usually be readily verified by the employer. Accordingly, we recommend that in general the earning capacity of an earner should be determined by reference to the amount that fairly and reasonably represents his or her normal weekly earnings at the date of the accident. This approach is generally adopted by no-fault accident compensation schemes operating in Australia, ² as well as the New Zealand accident compensation scheme. ³

2. Measurement of Loss

7.4 The loss or impairment of earning capacity sustained by an incapacitated person is measured by the difference between his or her earning capacity at the date of the accident and his or her post-accident earning capacity. An injured person may be partially incapacitated, for example when he or she can physically manage only part-time work instead of full-time work. In these circumstances the loss is normally the difference between the earning capacity at the date of the accident (generally measured by normal weekly earnings) and post accident earnings. Special difficulties may arise in assessing the loss of earning capacity of a person fit for certain kinds of work but unable to find employment. This issue is discussed in Part III of this Chapter.

3. Definition of Earner

7.5 The Appendix to this Report indicates that the composition of the Australian labour force has altered considerably over the past few decades. The relevant changes include:

• an increase in the rate of unemployment particularly among the younger age groups; ⁴
• an increased duration of unemployment, which is significantly longer for those aged 35 or over; ⁵
• an increase in the percentage of part-time workers, which is particularly marked in the case of women; ⁶ and
• an increase in the participation of married women in the labour force. ⁷

The fact that a person happens to be unemployed at the date of the accident has never been a reliable indication of the economic consequences of injury to that person. This is even more so in recent times. The Scheme must be responsive to patterns of workforce attachment.

7.6 The Scheme should recognise the diversity of employment patterns within the Australian community. Nonetheless, it is appropriate to distinguish between earners and non-earners in compensating for loss or impairment of earning capacity. The basic distinction is between those who have a recent attachment to the workforce and those who do not. The latter should be compensated only in respect of long-term loss of earning capacity, while the former should be compensated for both short-term and long-term incapacity. The definition of earner should not be so broad as to embrace injured people who would have been unlikely, in the short-term, to undertake remunerative work had the accident not occurred. An overly generous definition might also create undesirable opportunities for injured people to claim compensation at levels substantially higher than the earnings they could have expected to derive had the accident not occurred. Yet the approach should be to recognise the emergence of high and apparently endemic unemployment in Australia.

7.7 The Working Paper suggested that the term “earner” should include a person who, although unemployed at the date of the accident was actively seeking work and had been employed during the previous 26 weeks. The Paper proposed that the Corporation should have a discretion to classify as earners people who had been unemployed for a longer period but were still actively seeking employment. ⁸ People who were not in employment, but had a firm commitment to enter or re-enter the workforce were entitled to be treated as earners. ⁹ This approach to the definition of earner was more generous than that taken in any of the limited no-fault motor vehicle accident compensation schemes in Australia. None of these schemes make specific and detailed provision for unemployed people, who generally receive no compensation for loss of earning capacity. ¹⁰ The Papers approach also compared favourably with that of the New Zealand Accident Compensation Act 1982, which allows people who were earners up to 13 weeks before the accident to be classified as earners for the purpose of assessment of earnings-related compensation. ¹¹ Despite this, a number of submissions contended that the definition was too narrow and in particular did not take sufficient account of the problems associated with high rates of unemployment. For example, the submission of the New South Wales Society of Labor Lawyers commented on the fact that long-term unemployment was a feature of the job market and suggested that the period selected should reflect the average period of unemployment. ¹²

7.8 We accept that the Working Papers approach was not sufficiently responsive to the problems posed by continuing high unemployment. The definition suggested could have a harsh impact on people who have been unemployed for lengthy periods, but are actively seeking work at the date of the accident. The definition of earner should include not only people in employment at the time of or shortly before the accident, but those who were in employment for a significant proportion of the time during a period of up to two years before the accident. We recommend that a person who is incapacitated as the result of a transport accident should be regarded as an earner if he or she was in full-time or part-time employment (whether as an employed or self-employed person)

(a) at any time during the eight weeks preceding the date of the accident;

(b) over a period or periods totalling at least 13 weeks during the 52 weeks preceding the date of the accident; or

(c) over a period or periods totalling at least 26 weeks during the 104 weeks preceding the date of the accident.

However, a person who had left the workforce permanently at the date of the accident should not be regarded as an earner.

7.9 This recommendation extends both to employed and self-employed people and also covers people who have regular periods of part-time work. For example, a person who works two days per week in the eight weeks before the accident, or for two days per week over a period of at least 13 weeks during the 52 weeks preceding the accident would be regarded as an earner.

7.10 The periods selected in clauses (b) and (c) of the recommendation are designed to allow most people who have endured relatively lengthy periods of unemployment, yet have not left the workforce permanently, to qualify as earners. The periods take into account the average duration of unemployment in recent times, although this will vary as economic conditions change. The choice of 13 weeks in the 52 week period before the accident should cover a substantial majority of people who, although not in employment at the date of the accident, worked within the previous year. In the year ending 1 February 1983, approximately 94 per cent of those who had worked in the past 12 months had done so for 13 weeks or more. ¹³ In addition, the recommended definition includes those actually working at the time of or shortly before the accident, even if that employment has been relatively short.

7.11 In February 1984 the average duration of unemployment over all age groups was 41 weeks, while the median duration was 19 weeks. ¹⁴ An injured person who has been unemployed for the average period, and for an additional period of up to 37 weeks, could satisfy the definition of earner contained in clause (c) of the recommended definition if he or she had worked full-time or part-time for the 26 weeks preceding the onset of unemployment. While any cut-off point must be arbitrary to some extent, the periods incorporated in the recommendation are likely to cover the vast majority of people who could be said to have a substantial workforce attachment. To extend the period further would result in the inclusion of people who have not suffered a genuine short-term loss of earning capacity as a result of the transport accident. Moreover, since assessment of loss of earning capacity becomes increasingly difficult the longer the person has been outside the workforce, extension of the period would increase the administrative burden on the Scheme, although this, of itself, is not a decisive consideration.

7.12 The recommendation in paragraph 7.8 does not cover an accident victim who was not in the workforce for the requisite period within two years of the accident, but had made arrangements to enter the workforce at a future date. Examples include the student or school leaver who has accepted a position but not commenced duties at the time of the accident, the homemaker who has been caring for children for some years but has arranged to return to work with a former employer, and the person who has taken steps to establish himself or herself in business or a profession, for example by purchasing stock or leasing office space. It would be unjust if people who had made firm arrangements to enter or re-enter the workforce were not entitled to compensation for loss of earning capacity, simply because the accident occurred before they had actually commenced work. Hence we recommend that a person incapacitated in a transport accident should be regarded as an earner if, at the date of the accident he or she had made firm arrangements (whether or not contractually enforceable) with a particular employer to undertake employment or to commence business at a particular time and place.

7.13 Two points should be noted about this recommendation. First the proposed employment may be as an employee or as a self-employed person. Secondly, the recommendation is not limited by requiring a contractual right to take up employment nor by specifying a period within which employment would have commenced had the accident not occurred. In view of the infinite variety of arrangements that can be made to undertake employment, restrictions of this kind could lead to unfair exclusions. Where an injured person argues that he or she should be treated as an earner because of arrangements to enter or re-enter the workforce, it will be necessary for the Corporation to scrutinise the claim with care. If the employment is said to have been arranged to commence at a distant date, and the alleged arrangements lack precision the Corporation is likely to conclude that the requirements have not been satisfied.

7.14 The definition of earner proposed so far leaves open the possibility that a person might be excluded even though he or she is very likely to have entered the workforce during the period designated as short-term incapacity (lasting for less than 104 weeks). A typical example would be a student nearing the successful completion of a tertiary course with good employment prospects. Provision should be made for such a case when the incapacity continues for at least six months. We recommend that a person incapacitated in a transport accident should be regarded as an earner if he or she, having been incapacitated for a period of not less than six months, would, in the opinion of the Corporation, have undertaken employment before the expiration of 104 weeks from the date of the accident.

7.15 If a person is regarded as an earner because of the previous recommendation or because of firm arrangements to enter the workforce at the date of the accident the Corporation should assess that person’s earning capacity, for compensation purposes, as from the date he or she would have taken up employment. A recommendation to this effect is made in paragraph 8.46.

B. Assessment of Earning Capacity: Employees

7.16 This section discusses the assessment of earning capacity for injured people who are employed at the date of the accident or within the preceding two years. The assessment of earning capacity for self-employed people is discussed in the next section.

1. Definition of Earnings

7.17 In addition to a regular salary or wage, employees may receive a variety of allowances including

• overtime;
• shift loadings;
• danger money and dirt money;
• site allowances; and
• entertainment allowances.

Moreover, not all benefits are provided in monetary form. For example, a farm employee or housekeeper may receive board and lodging, while a person employed in a trade or business may enjoy the use of a car fully maintained by his or her employer.

7.18 In Australia non-wage benefits are enjoyed by a large proportion of employees: in 1979 some 4.3 million employees received non-wage benefits associated with their employment. ¹⁵ The definition of earnings should generally be wide enough to include benefits, either in cash or in kind, which the injured person received as a consequence of employment On the other hand, a person who is incapacitated for work is not necessarily thereby deprived of all income. For example, investment income and rental income derived by an employee will normally continue despite the incapacity and should be excluded from the definition of earnings. This can be achieved by defining earnings to include that part of the injured person’s income which is derived from personal exertion in his or her capacity as employee.

7.19 Some employees receive allowances designed to meet expenses incurred in the course of work, such as travelling and entertainment allowances. Since a person unable to work because of the injury no longer incurs work-related expenses these allowances should be excluded from the definition of earnings. In some cases an allowance may be made partly to cover work-related expenses, and partly to confer (or have the effect of conferring) a fringe benefit on the employee. An example would include a car allowance which covers both work and private transport costs. To the extent that the allowance concerns work-related expenses, it should be excluded from earnings in assessing compensation for loss of earning capacity.

7.20 Two further limitations should be placed on the definition of earnings for the purpose of assessing compensation. First, earnings should include some, but not all non-cash benefits. Such benefits take a wide variety of forms and in some cases their valuation would present great administrative difficulties. An example of benefits of this kind would be the use of a holiday home or other recreational facilities. Perhaps the most common benefits in kind which are of financial value to employees, are board and lodging and the value of a motor vehicle and its running expenses. The Corporation should be able to value the financial advantages derived by employees from these benefits without undue difficulty and their inclusion in the definition of earnings would lead to a more accurate estimate of the loss suffered by incapacitated employees. It is, however, neither necessary nor feasible for the Scheme to attempt to compensate for other benefits in kind. By way of comparison, the National Rehabilitation and Compensation Bill 1977, included the value of board and lodging, but not the value of a motor vehicle. ¹⁶

7.21 Secondly, superannuation contributions which an employer makes on behalf of an employee to a superannuation fund have not been included. While superannuation is a very significant non-wage benefit for many Australian employees, ¹⁷ the inclusion of employer contributions in the definition of earnings could lead to serious difficulties and anomalies.

• Superannuation schemes take a wide variety of forms. Not all provide for an employer contribution throughout the employee’s period of employment. Even where they do, ascertaining the amount of the employer contribution and apportioning it over a period of incapacity, which could be relatively short, would be extremely difficult and time consuming.
• Many superannuation schemes provide for payment to an employee suffering from an incapacity prior to the retirement date. It is later recommended that the payment of benefits under a superannuation scheme should not reduce the entitlement to compensation for loss of earning capacity. Where an employee is incapacitated and becomes entitled to a disability payment under a superannuation scheme, as well as compensation for loss of earning capacity, it is difficult to justify including, as an element in compensation the employer s contribution to superannuation.
• Provision of compensation for loss of earning capacity will often enable an employee to maintain membership of the superannuation scheme (or an equivalent arrangement), especially where the incapacity is short-term.

7.22 We recommend that the earnings of an employee should include income derived from personal exertion in his or her capacity as an employee. This should include allowances provided by the employer to the employee, which are not provided f or the purpose of meeting expenses associated with employment. Earnings should be limited to benefits in the form of monetary payments except for

(a) the value of living accommodation, board and lodging or food provided by the employer without charge or at a reduced charge; and

(b) the value of a car (including running expenses) provided by the employer, to the extent that the car is used by the employee for private purposes.

2. Assessment of Earnings

Normal Weekly Earnings

7.23 Where an injured employee is in regular employment at the date of the accident and his or her earnings are not subject to fluctuation, the assessment of normal weekly earnings presents little difficulty. In this situation the Corporation would normally rely upon the claimants earnings over the week preceding the accident as the basis for assessing loss of earning capacity. In some cases, however, the earnings over the period immediately preceding the accident may not be a reliable indicator of the loss suffered by the injured person. For example, a person may have worked an unusual amount of overtime during that period or may have missed some time at work (and lost pay) for special reasons. In these circumstances average earnings over a previous two month period may provide a more reliable indicator of the injured person’s loss than the past week’s earnings. Difficulties may also occur where the injured person although within the definition of an earner, has been in the workforce only for a relatively short period before the accident. Here, too, it may be necessary for the Corporation to examine the injured person’s earnings pattern over a longer period for the purposes of determining his or her “normal” weekly earnings.

7.24 Just as it is necessary for the definition of earner to reflect the tendency of people to move in and out of employment, the process of assessing earnings must reflect variations in earning patterns. This involves conferring power on the Corporation to choose the most appropriate of a number of tests as a guide in assessing normal weekly earnings. We recommend that in calculating the normal weekly earnings of an employee at the date of the accident, the Corporation should have regard to the employee’s earnings before that date, his or her work history and other relevant f actors. In particular, the Corporation should take into account one of the following:

(a) the earnings of the employee for the week preceding the accident;

(b) the average weekly earnings of the employee during the eight weeks preceding the accident;

(c) the average weekly earnings of the employee during the 52 weeks preceding the accident; or

(d) the average weekly earnings of the employee during the 104 weeks preceding the accident.

Of these, the Corporation should take into account the shortest applicable earnings period unless to do so would cause under-or overcompensation.

7.25 Where the Corporation assesses the normal weekly earnings of an injured person by reference to earnings derived during a period some time before the accident, it will be necessary to adjust the amounts to take account of changes in the value of money in the intervening period.

Employment after the Accident

7.26 The recommendation relating to assessment of normal weekly earnings does not apply where the person has been out of the workforce for more than two years prior to the accident, but is deemed to be an earner because he or she has made firm arrangements to commence employment or because he or she has otherwise shown that employment would have been undertaken after the date of the accident. In these cases it is not possible to assess loss of earning capacity by reference to pre-accident earnings. Hence we recommend that where a person is regarded as an earner because of events which would have occurred after the date of the accident the Corporation should determine an amount that fairly represents that person’s earning capacity as from the date he or she would have taken up employment. Compensation for loss of earning capacity should be paid from the date when employment would have been commenced (paragraph 8.46).

Adjustment to Normal Weekly Earnings

7.27 The effect of the recommendation in paragraph 7.24 is to enable an injured person’s normal weekly earnings to be measured by reference to a period which gives the most accurate assessment of his or her loss or impairment of earning capacity. The recommendation assumes that pre-accident earnings should be the measure of earning capacity. However, reliance on pre-accident earnings to assess loss of earning capacity may be clearly inappropriate because of circumstances that are known at the date of the accident. For example, a claimant who is employed at the date may have made arrangements before the accident to begin a new job, or to change from part-time to full-time work. Similarly, a claimant may be able to demonstrate that he or she was entitled to a salary increment, which would have become payable shortly after the accident.

7.28 Conversely, it may be clear at the date of the accident that the claimant’s earnings were about to be reduced, or that the claimant would not have had any earnings over the period of incapacity. For example, a seasonal worker may be injured shortly before his or her seasonal employment was to end. If the seasonal worker did not intend to resume employment until the following season, it would be inappropriate to assess compensation by reference to normal weekly earnings at the date of the accident during the whole period of incapacity. Again if it were known at the date of the accident that the injured person intended to change from full-time to part-time employment for a specified period, that ought to be taken into account in assessing compensation. Similarly, if a person intended to retire in the period following the accident, this circumstance should be taken into account.

7.29 One way of dealing with this problem would be to confer a general discretion upon the Corporation to depart from the normal method of assessing loss of earning capacity. This approach is taken under the New Zealand legislation which enables the Corporation there to determine an amount which “fairly and reasonable” represents the normal average weekly earnings of the injured person when the usual method of assessment does not produce this result. ¹⁸ However, in our view, an unlimited discretion of this-kind would increase the opportunity for disputes and create an unnecessary administrative burden. The legislation should permit departures from the usual approach to assessment only in defined circumstances of the kind referred to earlier.

7.30 We recommend as follows:

(1) Where the Corporation is satisfied, by reason of any of the matters referred to in clause (2), that the employee’s normal weekly earnings are significantly more, or significantly less, than the employee’s earning capacity would have been during the period of incapacity but for the accident, it should use a different measure to assess earning capacity.

(2) The relevant matters are:

(a) the seasonal nature of the claimant’s employment;

(b) firm arrangements made by the claimant at the date of the accident to re-enter or leave the workforce, accept different responsibilities or new or different employment or vary the hours of paid employment; and

(c) the employee’s contractual entitlement to significant wage or salary variations (apart from indexation adjustments) arising out of his or her employment at the date of the accident.

(3) Where the Corporation is so satisfied it should determine the employee’s weekly earning capacity during the period of incapacity (or any relevant part of it), taking account of the relevant matters in clause (2). The amot—nt should be used in assessing compensation for loss of earning capacity in place of normal weekly earnings.

7.31 The Corporation’s power to depart from normal weekly earnings as the basis for assessing loss of earning capacity is restricted to cases where the Corporation is satisfied that the claimants earnings would have been significantly more or less than his or her normal weekly earnings. This provision is designed to discourage adjustments being sought or made in cases where the amount of over-or under-compensation is relatively small. The terms “significantly more” or “significantly less” should be taken as referring to variations of at least 10 per cent. Where a person has firm arrangements to leave the workforce, the result may be that he or she would receive no periodic compensation in respect of the first 104 weeks of incapacity. Such a person would be treated as a non-earner from the time he or she would have ceased employment. The recommendation is not intended to cover anticipated wage rises which result from changes in the value of money, in view of the later recommendation concerning indexation of benefits (paragraph 8.36).

7.32 The recommendation in paragraph 7.30 is confined to cases where it is clear at the time of the accident that the claimants earnings would have been increased or reduced had the accident had not occurred. It is not intended to cover the case where a person argues that he or she had a potential earning capacity, which was not being exercised, of had not been fully realized, at the time of the accident. The problem of loss of potential for advancement, which particularly concerns non-earners, young earners, and people who have recently commenced a career, is dealt with in Part IV of this Chapter.

C. Assessment of Earning Capacity: Self-Employed People

1. The Problem

7.33 In principle the assessment of compensation for loss of earning capacity sustained by a self-employed person can be approached on the same basis as the assessment of compensation for loss sustained by employees. That is, compensation should be based on the difference between the self-employed person’s earning capacity at the date of the accident and his or her post-accident earning capacity. There are practical problems in applying this concept to self-employed people. These problems are not confined to no-fault schemes, but al so apply to the common law in its attempts to compensate self-employed people. ¹⁹

7.34 The first problem relates to as certaining pre-accident earnings. Where an employee is incapacitated, it is usually a relatively simple task to ascertain his or her normal weekly earnings, since generally these will be paid in the form of a regular wage or salary. The earnings of a self-employed person usually cannot be assessed simply by reference to receipts over a period of a few weeks, since his or her gross income will not necessarily be received uniformly over the year. More fundamentally, the relevant standard is the net income of the injured person (that is, gross income less expenses). Even if there are no special difficulties in ascertaining net income, the information for the current year may not be available until after the close of the financial year when the accounts of the business or profession are completed. Moreover, self-employed people may experience substantial variations in that income from year to year. A farmer, for example, may experience losses during years of drought, but balance these with high returns during good years. A further complication is that a self-employed person’s income for taxation purposes may provide little guidance as to the “true” return from that person’s labour or expertise. Sometimes this may be so because of tax evasion, as where the proprietor of a business fails to declare all cash receipts. Sometimes it may be because of lawful tax minimisation techniques. It is common in Australia, for example, for the income derived from a family business to be split more or less equally among family members for taxation purposes even though their contributions are very different. This is a problem which cannot be resolved simply by examining the time spent in the business by each person. The value of a person’s contribution to the business may reflect variables other than the time devoted to it.

7.35 If attention is focused on the period after the accident similar problems arise. Just as it may be difficult to ascertain the pre-accident earnings of the injured person, it may be equally difficult to ascertain post-accident earnings. Moreover, the difference between pre-and post-accident earnings may not necessarily be appropriate as a measure of the loss sustained. For example, if a business is being built up, the net income of the proprietor at about the time the accident occurs may be very low. However, the loss of his or her services may prevent the business achieving a high rate of profitability. Again, the loss of services of the proprietor or manager of a business, even for a short period, might effectively destroy that business. This consequence might be avoided if a replacement manager were made available during the period of incapacity.

7.36 These problems have been recognised elsewhere. The Minogue Report on the Victorian no-fault scheme stated that

[o]ne of the most formidable administrative problems is that of rapid and accurate assessment of loss of income to enable payments to a self-employed person to begin. Considerable delay is frequently experienced because proof of pre-accident income upon which the assessment is to be based is difficult. This is not a problem which is peculiar to the Motor Accidents Board. The administrators of both the New Zealand and Tasmanian schemes report similar difficulties. ²⁰

In New Zealand, the problems of assessing the earnings of the self-employed have been overcome by a Minimum Relevant Earnings Scheme. ²¹ Under this scheme a self-employed person chooses a level of coverage which is consistent with his or her taxable income and contributes to the scheme by reference to the level of coverage chosen. A proposal to allow a self-employed person to select the level of his or her coverage is only feasible where the government responsible for the compensation scheme also controls the income tax system, so that contributions from self-employed people can be related to their earnings. Since the Australian States effectively have no control over income tax, which in practice is a Commonwealth responsibility, it is not practicable to recommend such an approach under a State scheme.

2. The Basis for Assessment of Loss

7.37 The Working Paper noted the problem posed by the conflicting objectives of administrative simplicity (including rapid compensation) and accurate assessment of loss. ²² There are three workable approaches to compensating the self-employed. The loss could be assessed by reference to:

• the difference between pre-accident and post-accident earnings (the “earnings approach”);
• the cost of replacing the services of the incapacitated self-employed person for the whole or part of the period of incapacity (the “replacement services approach”; or
• the wage or salary the self-employed person would have earned as an employee performing work similar to that he or she previously performed as a self-employed person (the “equivalent employee approach”).

It should be open to the Corporation to choose the most appropriate of these approaches (or combination of them). The circumstances of self-employed people will vary greatly and no single approach will be satisfactory in all cases.

7.38 We recommend that the Corporation should have power to assess compensation in respect of the loss of earning capacity sustained by a self-employed person on one or more of the following bases.

(a) The difference between that person’s earning capacity at the date of the accident (generally measured by normal weekly earnings) and his or her earning capacity (if any) during the period of incapacity.

(b) The cost of providing services to replace that person in his or her business, trade or profession during the period of incapacity.

(c) The earnings that person could have derived as an employee exercising similar skills and responsibilities to those exercised in his or her business, trade or profession.

As explained in paragraph 7.47 the replacement services approach should generally be preferred in cases where the incapacity is likely to continue for no more than 13 weeks.

3. The Earnings Approach

7.39 The earnings approach may be appropriate, for example, where the injured person’s level of income is readily ascertainable and has been reasonably stable over a substantial period. If that person is totally and permanently incapacitated, compensation could be assessed without difficulty by reference to the difference between pre-accident and post-accident earnings. The earnings approach is also often likely to be appropriate as the means of assessing compensation for self-employed people sustaining long-term incapacity.

7.40 If the earnings approach is to be used, it is necessary to define the concept of “earnings”. In accordance with the recommendations made in relation to employees (paragraph 7.22) we recommend that the earnings of a self-employed person should include income derived by that person for his or her own benefit, as the result of personal exertion. By “income” is meant net income after expenses, but before income tax. Thus dividends, interest on loans and rent from investment properties would normally not be “earnings”, although they could be so classified if, for example, the injured person’s business was that of share trader or property investor.

7.41 The earnings approach requires the normal weekly earnings of the self-employed person to be assessed. Broadly the same approach can be taken as has been suggested for employees, although it will usually be necessary to take a longer period as the basis for assessment. Moreover, reliance may have to be placed on taxation returns and these will be available only in respect of completed financial years. Where the income of the self-employed person has varied substantially, it may be appropriate to take a period of up to four years before the accident in order to make a fair assessment of his or her normal weekly earnings. We recommend that in calculating the normal weekly earnings of a self-employed person at the date of the accident, the Corporation should have regard to that person’s earnings before that date, his or her work history and other relevant factors. In particular, the Corporation should take into account the more appropriate of the following:

(a) the average weekly earnings of the self-employed person during the 52 weeks preceding the accident, or any part of that period; or

(b) the average weekly earnings of the self-employed person during any or all of the f our completed financial years immediately preceding the date of the accident.

7.42 Paragraphs 7.27-7.32 explain that in some circumstances it is necessary to depart from the standard of normal weekly earnings in assessing an injured employee’s earning capacity. Broadly the same considerations apply to the self-employed. Accordingly, we recommend that where the Corporation is satisfied that, by reason of any of the matters below, the self-employed person’s normal weekly earnings are significantly more, or significantly less, than that person’s earning capacity would have been during the period of incapacity but for the accident, it should use a different measure to assess earning capacity. The relevant matters are:

(a) the seasonal nature of the self-employed person’s employment;

(b) firm arrangements made by the self-employed person to re-enter or leave the work force, accept new or different employment or vary the hours of employment; and

(c) contractual arrangements in force at the date of the accident which would have led to significant variations in earnings.

Where the Corporation is so satisfied, it should determine the claimant’s weekly earning capacity during the period of incapacity (or any part of it) taking account of the matters listed. This should be used, to the extent appropriate, in assessing compensation for loss of earning capacity in place of normal weekly earnings.

7.43 The Working Paper stated a preference for an initial assessment based on the income tax returns of the injured self-employed person with provision for review after a period. In some cases income tax returns will permit a speedy assessment of compensation at least on an interim basis, thus avoiding delays in processing claims. But there should be no requirement that income tax returns be used, as the Corporation may wish to rely on other information in making its initial assessment. If, for example, the replacement services approach is used, the claimant’s tax returns may be less important than evidence of the cost of securing a substitute for the claimant. Again, it may be convenient and helpful to claimants, if the Corporation adopts a practice of paying interim compensation at standard rates pending receipt of information required to make a full assessment of claims by self-employed people. Certainly the Corporation should have power to pay compensation on an interim basis without necessarily requiring the production of income tax returns, even though these would normally be needed for the full assessment.

4. The Replacement Services Approach

7.44 One means of preserving an incapacitated self-employed person’s income is to continue his or her business or professional practice. This can often be done by engaging the services of another person with the requisite skills to work as a substitute for the incapacitated self-employed person. For example, if a self-employed electrician is incapacitated, the Corporation could pay for the cost of a replacement with equivalent qualifications to carry out the work of the injured contractor. Similarly, if a doctor in general practice is incapacitated for a short period, the most satisfactory form of compensation may be the cost of a qualified locum to carry on the practice.

7.45 The Tasmanian no-fault scheme has selected this method of assessment for its self-employed person’s allowance. The scheme pays 80 per cent of “any remuneration gratuity, or reward” paid to a person to carry on a self employed person’s business. ²³ The injured person must have been working as a self-employed person at the time of the accident and be

... disabled from conducting that business as a result of the injury and to ensure that his business is carried on during the period in which he is so disabled arrangements are made for another person for remuneration gratuity, or reward to conduct that business. ²⁴

The allowance is payable for 104 weeks after the accident where the person is totally incapacitated from carrying out the business he or she was conducting at the time of the accident. ²⁵ Thereafter, it is payable only if the person is wholly disabled from carrying out any employment or occupation for which he or she would otherwise be suited. ²⁶

7.46 No specific statutory restrictions should be placed on the period for which replacement services can be provided although the approach is more likely to be appropriate in cases of short-term incapacity. We recommend that, where the replacement services approach is considered appropriate, the Corporation should pay 80 per cent of the remuneration (including incidental costs of employment) provided to a person performing services to replace those of the incapacitated person in his or her business, trade or profession. The maximum payment of 80 per cent of the cost of remuneration is consistent with the general approach to the proportion of loss of earning capacity that should be compensated (paragraph 8.22). The payment should also be subject to the general ceiling on compensation for loss of earning capacity.

7.47 The replacement services approach is not appropriate in all circumstances. Sometimes a self-employed person, such as a concert pianist or author, has unique skills which simply cannot be supplied by another person. In some professions or businesses it is not feasible to provide replacement services; this would be true, for example, where the profession or business required special skill or relied on personal contacts. However, we think that this approach to compensation will often have many advantages for both the incapacitated person and the Corporation, particularly in the case of short-term incapacity. A preference should be expressed for the replacement services approach in cases where self-employed people suffer short-term incapacity. Accordingly, we recommend that where a self-employed person is incapacitated for a period which does not or, at the date of the assessment, is not likely to exceed 13 weeks, the Corporation should use the replacement services approach to the assessment of compensation, unless there are good reasons for choosing another approach.

5. The Equivalent Employee Approach

7.48 The equivalent employee approach requires the Corporation to examine the level of earnings which the self-employed person could fairly be expected to derive as an employee, exercising similar skills and responsibilities to those required in his or her business, trade or profession. This approach may be useful for example, where a person has just commenced a business and his or her earnings are low and would perhaps have been likely to remain low during the period of incapacity. In these circumstances, the earnings approach may yield a low figure for compensation purposes which fails to take account of the fact that the accident victim has been denied the opportunity to build up the business. Moreover, it may not be feasible to provide replacement services, perhaps because the business requires special skills or relies heavily on personal contacts. The fairest approach may be to assess what the incapacitated person could reasonably have expected to earn as an employee and pay compensation accordingly. We recommend that where the equivalent employee approach is considered appropriate, the Corporation should pay 80 per cent of the wage or salary the incapacitated person could reasonably have expected to earn as an employee performing work similar to that which he or she performed as a self-employed person.

6. Earnings Both as an Employed and Self-Employed Person

7.49 Some people may derive part of their earnings as an employee and part as a self-employed person. For example, a person may be employed full-time in the Public Service but run a weekend lawn-mowing business, or an elected parliamentarian may continue to practise his or her profession. In such cases, a true assessment of loss of earning capacity requires an examination of both sources of income. For simplicity, some schemes, such as the Tasmanian no-fault scheme, require a person to elect to be treated as either an employed or self-employed person. ²⁷ We do not think such an election should be required, but that the Corporation should make an assessment in each case using the principles already laid down. We recommend that where a person incapacitated in a transport accident derived earnings within a period of two years preceding the accident, both as an employee and as a self-employed person, the Corporation should assess his or her normal weekly earnings or earning capacity by such means, consistent with earlier recommendations, as are appropriate.

D. Long-Term Incapacity: The Floor

7.50 An incapacitated earner will be compensated for loss of earning capacity, assessed usually by reference to his or her normal weekly earnings. In some cases the level of compensation will be quite low, for example because the person was working part-time before the accident, or because the period over which normal weekly earnings were assessed included a proportion of time outside the workforce or a period of unemployment. In the short term the compensation may reflect a fairly accurate assessment of his or her loss of earning capacity. However, in the long term, the incapacitated person may have increased the hours of work or have continued in employment uninterrupted by periods of unemployment until retirement. If nothing else, in the long term, the person will have lost the opportunity of further exercising his or her earning capacity.

7.51 The problem of assessment of compensation for long-term incapacity is approached in two major ways. Part IV of this Chapter deals with the loss of potential for advancement as an element in compensating for loss of earning capacity in the long term. Part V introduces the concept of “notional earning capacity” for non-earners sustaining long-term incapacity. This is a minimum value which should be attributed to a person’s earning capacity unless there is evidence of a higher value. This minimum, or floor, should be applied to both earners and non-earners who suffer long-term incapacity. We therefore recommend that an earner who sustains long-term incapacity as the result of a transport accident should be deemed to have an earning capacity no less than the “notional earning capacity” attributed to non-earners (paragraphs 7.87-7.90). Notional earning capacity for a person who has attained the age of 21 should be set at 50 per cent of AWE (approximately $210 at June 1984). “Long-term incapacity” means incapacity which continues for a period or periods totalling at least 104 weeks. The effect of this recommendation is that a person who is totally incapacitated should, in respect of the period of incapacity in excess of 104 weeks, be deemed to have sustained a loss of earning equivalent to at least 50 per cent of AWE Compensation would be paid at the rate of 80 per cent of the notional loss-that is, 40 per cent of AWE (approximately $168 at June 1984).

III. POST-ACCIDENT EARNING CAPACITY

A. The Issue

7.52 Compensation for loss of earning capacity will generally be assessed by reference, among other things, to the post-accident earning capacity of the injured person. A physical disability, such as that sustained in a transport accident, may or may not have an effect on the disabled person’s earning capacity. The same disability may have a totally different impact on the earning capacity of different people. Indeed the impact of a disability on a particular individual is likely to vary over time, as the individual progresses from the acute stage to recovery. For example two people, such as a labourer and a clerk, earning an identical wage - may each sustain a badly broken leg in a transport accident. During the period of hospitalisation each is totally incapacitated for his or her normal work. During the recovery period, while the leg is in a cast, the labourer remains totally incapacitated for his or her usual work, since a high degree of mobility is required. On the other hand the clerk may be able to resume employment immediately, perhaps on a part-time basis, because his or her work is sedentary.

7.53 Should the broken leg cause a permanent limp, the labourer (assuming he or she has no other skills) is likely to be substantially disadvantaged in the labour market and may be unable to find employment This person may require retraining in order to acquire the skills for a more sedentary occupation. However the clerk with a residual limp may be at no disadvantage in finding a job. If economic circumstances are very difficult even an apparently minor disability may prejudice the clerk’s chances of gaining employment. Should the labourer happen to be qualified to work as a clerk, and should such work be available, he or she is likely to sustain no post-accident loss of earning capacity.

7.54 It is possible to argue that the only relevant criterion in assessing loss of earning capacity is the victim’s physical ability to undertake work of a kind which is generally available in the community. On this view, if a partially disabled labourer is physically capable of working as a clerk, regardless of whether he or she has the experience or skills to do so or whether any such employment is open, that person could be said not to be incapacitated for work. Such an approach would be harsh and unjust to the victim, and quite unacceptable. In determining loss of earning capacity it is essential to consider realistically the impact of the disability on the person concerned, taking into account his or her personal characteristics. These include the person’s level of education and training, language skills, work experience, place of residence and capacity to respond to rehabilitation and retraining programs.

7.55 A much more difficult question is how the Scheme should deal with the impact of general economic conditions on people disabled in transport accidents. This question arises because post-accident earning capacity can be affected by factors other than the disability or the personal characteristics of the victim. These include high levels of unemployment particularly among young people; technological development, which reduces the number of certain types of jobs or eliminates them completely, and the changing long-term structure of the economy from one largely based on primary industry and manufacturing to one based on service industries. ²⁸ For example, a partially disabled accident victim may be physically capable of performing certain work, and have the requisite skills to do so, yet be unable to find employment. The Working Paper pointed out that the question of unemployment looms large as a problem for any contemporary compensation scheme, since chronic unemployment makes it more difficult for disabled people to realise their full earning potential. ²⁹ The question has not previously been regarded as serious because most schemes have operated (or been proposed) in times of relatively full employment. The basic problem is how to distinguish consequences that can fairly be attributed to the transport accident as opposed to those which are attributable to general economic conditions.

7.56 Existing compensation schemes take different approaches to this problem. In New South Wales, the Workers’ Compensation Act, 1926 obliges the employer or insurer of a partially incapacitated worker to provide suitable light duties for the worker. If the employer fails to do so, the worker is deemed to be totally incapacitated. ³⁰ There are historical reasons for this approach which is not only designed to protect workers but to promote rehabilitation. ³¹ Its effect is to require the workers’ compensation system to meet the burden of compensating unemployed workers, even where their continuing unemployment cannot be fairly attributed to the disability sustained in the accident, but to prevailing economic conditions. Whatever its merits in the context of workers’ compensation this approach should not be applied to a transport accidents scheme. As a matter of principle and in the interests of incentives to rehabilitation, a distinction should be drawn between unemployment attributable to the transport accident and unemployment flowing from general economic conditions.

7.57 The New Zealand scheme has taken a very much less generous approach than the workers’ compensation system. The Accident Compensation Act 1982, in effect confers a discretion on the Corporation there to fix the injured post-accident earning capacity where that person is

not working or earning in paid employment to the extent to which he would be able to do so if the only factor affecting his ability to work or earn in paid employment were his incapacity for work due to the injury. ³²

This allows the Corporation to ignore the effect of economic conditions on job opportunities for partially disabled people. Notwithstanding some recent modifications in the practice of the Corporation, ³³ this provision is capable of being applied harshly. The Corporation is able to ignore the real prospects of employment for a partially disabled worker, once a person is certified by a doctor as fit for light duties. The Managing Director of the Corporation states that compensation will be maintained where the injured person is unemployed only if

... a finding can be made on the evidence that the real cause of the claimant s inability to obtain work is his disability caused by the accident, and that it is the accident injury which is the only factor affecting his ability to work. ³⁴

The application of this provision has been rightly criticised in the strongest terms in submissions made to the Commission by a New Zealand lawyer and trade unionist ³⁵ and by the Law Society of New South Wales No-Fault Liability Committee. ³⁶

B. The Suggested Approach

7.58 The appropriate starting point in assessing post-accident earning capacity for compensation purposes is the income (if any) actually derived by the injured person. We recommend that in general

(a) where an injured person is employed, whether on a full-time or part-time basis, his or her post-accident earning capacity is equivalent to the earnings derived from that employment; and

(b) where an injured person is not employed, his or her post-accident earning capacity is nil.

7.59 Where however, the Corporation is satisfied that the injured person’s reduced earning capacity is fairly attributable to general economic conditions, rather than to the consequences of the transport accident, the general rule should be displaced. It should be open to the Corporation to be satisfied of this only if the injured person is capable of undertaking work of a kind reasonably available, taking into account that person’s personal characteristics and circumstances, and that he or she can compete in the relevant labour market at no disadvantage, by reason of the disability, when compared with other people. If, for example, an injured person has sustained a minor residual disability in a transport accident, but the disability in no way affects his or her capacity for work of a kind that is generally available and for which he or she is qualified, it would usually be fair to conclude that that person’s continuing unemployment is due to general economic conditions rather than the disability. The key is whether the disabled person is capable of competing in the labour market at no disadvantage when compared with non-disabled people. If a partially disabled person is prejudiced in seeking employment because of the disability (whether or not the prospective employer has any reasonable grounds for taking the disability into account) it would not be right to relieve the Scheme of the burden of compensating for the loss of earning capacity. If, however, the disabled person is at no disadvantage, it is appropriate that that person’s continuing loss of earning capacity be attributed to general economic conditions rather than the disability.

7.60 For these reasons, we recommend that the general rule should not apply if the Corporation is satisfied

(a) that the person is capable of undertaking employment of a kind for which he or she can reasonably be expected to apply or which is reasonably available taking into account

(i) the nature and extent of the disability caused by the transport accident;

(ii) his or her age, level of education, training and language skills;

(iii) his or her work experience;

(iv) his or her place of residence; and

(v) other relevant factors; and


(b) that the person is capable of competing in the labour market for this kind of employment at no significant disadvantage by reason of the disability when compared with non-disabled members of the community.

In such a case, the Corporation should determine the post-accident earning capacity of the injured person, taking account of earnings that could be derived from the employment reasonably available to him or her. Some of the “other relevant factors” for this assessment could include limitations on the hours of work arising from necessary child-care responsibilities and disabilities unrelated to the transport accident.

7.61 Under this recommendation, the Corporation must be satisfied of the relevant-facts before departing from the general rules outlined in paragraph 7.58. This is consistent with the role of the Corporation in rehabilitating accident victims. Chapter 9 proposes that the Corporation should be responsible for actively fostering the employment of disabled transport accident victims. The fact that the Corporation (or appeals tribunal) must be satisfied that accident victims are capable of competing in the labour market at no disadvantage should create an incentive for it to create employment opportunities for those victims. Unlike the New Zealand test, the Corporation should not conclude that a person has an earning capacity greater than actual earnings unless it is satisfied

• the person is suited to the work;
• the work is generally available; and
• the person’s disability does not disadvantage him or her in applying for the job.

7.62 The general rule should also be displaced if the Corporation is satisfied that the disabled transport accident victim has unjustifiably failed to exercise or realise all or part of his or her post-accident earning capacity. We recommend that the general rule should not apply if the Corporation is satisfied that the injured person has, without sufficient reason,

(a) refused an offer of suitable employment;

(b) made himself or herself unavailable for vocational training, rehabilitation or assessment of employment prospects;

(c) failed to take reasonable steps to secure suitable employment; or

(d) given up suitable employment.

If the Corporation is satisfied, it must assess the post-accident earning capacity using all relevant information-Clearly, if the person has unreasonably refused an offer of suitable employment, post-accident earning capacity should be measured by reference to the wages that would have been derived from the refused position. Where the person has failed to take reasonable steps to secure suitable employment, the Corporation would have to examine which jobs would have been available had the person taken such steps. If the person has unreasonably refused to undertake training or rehabilitation, the Corporation would have to assess his or her likely level of earning capacity had the relevant program been completed.

C. Notice

7.63 One of the central themes of the Scheme is the principle of entitlement. This principle leads us to recommend that, if the Corporation assesses the injured person’s post-accident earning capacity at a higher amount than suggested by the general rule, notice of the assessment should be given to that person. This notice should set out the basis of the assessment and in general should allow a period of grace before the periodic compensation ceases. This would allow the person to prepare to re-enter the workforce, to apply for social security benefits if eligible or to seek review of the Corporation’s decision. However, in limited circumstances, it might be appropriate that compensation should cease from the date of the notice being given. This would be the case, for example, if the injured person has unreasonably refused to accept an offer of suitable employment. We therefore recommend that, unless there are special circumstances, the assessment should not take effect until the expiration of a period of eight weeks. This recommendation should not however, apply when the injured person has wholly recovered from his or her disability. Chapter 16 discusses the effects of lodging of an appeal, including the continuation of benefits past such a cut-off point.

IV. POTENTIAL FOR ADVANCEMENT

A. Eligibility to Claim

7.64 Any assessment of an incapacitated person’s earning capacity, including his or her potential for career advancement, requires speculation as to events that might have occurred but for the accident causing the incapacity. The body undertaking the assessment is required to predict the future career and earnings of an individual whose attachment to the workforce has been interrupted or perhaps ended. This process necessarily entails considerable uncertainty and difficulty. It is impossible to be sure whether the likely career path would have been followed or whether genuine intentions would have been realised. The “vicissitudes of life”, to use the expression employed by courts, have to be taken into account. Even if broad predictions about a person’s future work patterns are assumed to be correct, the difficulty remains of assessing precisely how much would have been earned during any given future period. These problems of course affect the common law assessment of damages for future economic loss.

7.65 The recommendations thus far provide, to a limited extent, for increases in earning capacity likely to occur after the date of the accident to be taken into account in assessing compensation for loss of earning capacity. There are cases in which events known at the date of the accident make it clear that pre-accident earnings are not a reliable guide to what the injured person could have earned at the date of the incapacity. Paragraph 7.30 for example, proposes that account should be taken of increased earnings that would have resulted from firm arrangements for new or changed employment made by the claimant at the date of the accident. However, the recommendations have not allowed or required the Corporation to consider all likely increases in earning capacity occurring after the date of the accident. These right arise, for example, because of additional training, promotion, seniority, the expansion of a business or professional practice or re-entry into the workforce after a prolonged absence. The question is how far potential for advancement in this sense should be considered in assessing loss of earning capacity.

7.66 The Working Paper suggested that potential for advancement should be considered in relation to specific classes of accident victims, Such as young people and students in training. Those were selected because, generally speaking, their potential for advancement and thus their earning capacity often would be substantially greater than their earnings at or about the time of the accident might have suggested. This approach was influenced by the need to restrict the opportunity for speculative assessment of loss under the Scheme. Accordingly, it was suggested that the Corporation should consider potential for advancement only in particular classes of cases in which reliance on pre-accident earnings was likely to produce an inadequate assessment of the loss fairly attributable to the accident.

7.67 While some submissions favoured the approach of the Working Paper,³⁷ others commented on what they saw as the arbitrariness of the proposals and the lack of opportunity for an individual assessment of an incapacitated person’s loss of earning capacity taking account of the potential for advancement. ³⁸ The critics, both in submissions and general community discussion often expressed support for retention of the common law negligence action on the ground that it permitted the courts to take account of likely increases in the earning capacity of the injured person had the accident not occurred. The assumption was usually made that a no-fault scheme was inherently incapable of taking into account potential for advancement, because it would be tied to pre-accident earnings as the basis for assessment of compensation.

7.68 The restitution principle suggests that provision should be made in the Scheme for transport accident victims to receive compensation for loss of earning capacity, including the potential for advancement. We accept that this provision should notobe confined to particular classes of incapacitated people (except by reference to the length of incapacity). To do so would be unfair, in that people sustaining the same losses would be treated quite differently and this would lead to serious anomalies among various classes of incapacitated people.

7.69 In reaching this conclusion, careful consideration has been given to the administrative difficulties that arise in individually assessing claims for compensation which require predictions as to future events. It is one thing to provide for specific cases in which events at the date of the accident make it clear that earnings are not a reliable guide to earning capacity. It is another to provide a mechanism to recognise a potential for advancement which might not have been realised for some time after the accident.

7.70 In our view, it is not feasible for compensation for loss of earning capacity to take account of all likely developments after the accident for transport accident victims not suffering long-term incapacity. It is necessary to limit the numbers of people eligible to seek compensation on this basis in order to ensure that the Scheme can cope adequately with the inevitable administrative difficulties of assessing the likely future earnings of individual claimants. This can be done by confining the general entitlement to have loss of earning capacity assessed on the basis of potential for advancement to those incapacitated for a period of at least two years. Limiting the entitlement in this way will permit workable and manageable assessment procedures to be devised bearing in mind that the usual approach to compensation for loss of earning capacity, outlined earlier in this Chapter, is very likely to prove reasonably accurate in cases of short-to medium-term incapacity. Thus, we recommend that an earner who has sustained long-term incapacity as the result of a transport accident should be eligible to apply for compensation to be assessed on the basis of potential for advancement. Potential for advancement means the earnings the person could have reasonably been expected to earn over the likely period of incapacity had the accident not occurred.

7.71 An incapacitated transport accident victim applying for compensation for loss of earning capacity on this basis should be required to meet certain conditions before such an application can be considered. We recommend that an incapacitated earner should be eligible to apply for assessment on the basis of potential for advancement if and only if he or she

(a) has been incapacitated for a period or periods exceeding 104 weeks, but not exceeding 156 weeks;

(b) has a disability arising from the transport accident, which is likely to have a continuing effect on his or her earning capacity; and

(c) has participated as far as is reasonably practicable in vocational training or rehabilitation programs provided by or through the Corporation.

7.72 The second and third requirements in this recommendation are self-explanatory. The first requirement is designed to restrict applications for compensation on the basis of potential for advancement to people who have sustained long-term incapacity. The limitation of 156 weeks (or three years) is an attempt to ensure that the assessment is made within one year after the period marking the onset of long-term incapacity. During the first two years of incapacity the acute phase of medical treatment should be complete and the rehabilitation program either complete or well advanced. There is no advantage to the incapacitated person in delaying the assessment beyond that period. The process requires judgments to be made about what that person would have earned had the accident not occurred. In essence this involves predictions on the basis of circumstances existing at the date of the accident. Evidence of post-accident events may have some relevance, for example, adaptability within a rehabilitation program may demonstrate that the person had the intelligence and flexibility to follow the career path he or she had previously chosen. In general, however, developments more than two years after the onset of incapacity are unlikely to be of assistance in determining the application. Moreover, delays have disadvantages for the incapacitated person. The assessment should operate prospectively only, so that any increase in compensation will apply only from the date of the assessment. Delays may also add to the anxiety experienced by the incapacitated person. Nonetheless, we recognise that there may be exceptional circumstances justifying an extension of the 156 week period. Accordingly, we recommend that the Corporation should have power, in special circumstances, to accept an application after the expiration of 156 weeks.

7.73 Compensation on the basis of potential for advancement should be awarded only where the assessment results in compensation significantly greater than that which would otherwise have been awarded. The procedure should not be used to effect minor adjustments; nor should it be invoked as a matter of course by all persons sustaining long-term incapacity. Accordingly, we recommend that the Corporation should assess compensation on the basis of potential for advancement if and only if compensation so assessed is significantly greater than that which otherwise would be awarded. We do not think it necessary or feasible to define “significant”, since the award may relate to a very considerable period of incapacity and the circumstances of each case will vary to such an extent that a percentage rule for example, might be difficult to apply. This is an area in which the Corporation and the appeals tribunals will develop working criteria.

B. Assessment of Potential for Advancement

1. The Criteria

7.74 The legislation should specify criteria to be taken into account by the Corporation in assessing the loss of earning capacity on the basis of potential for advancement The relevant criteria include factors personal to the individual, such as his or her training and skills, and factors which require reference to economic circumstances such as the opportunities for new employment or increased involvement in the workforce. We recommend that in assessing compensation on the basis of potential for advancement, the Corporation should take into account

(a) the person’s age, education, training, skills, abilities and work history at the date of the accident;

(b) the likelihood that, had the accident not occurred, the person would have undertaken training or education which would have increased his or her earning capacity;

(c) the prospects for promotion or other forms of career, business, or professional advancement, whether in the same or different employment as that undertaken by the person at the date of the accident;

(d) the likelihood that, had the accident not occurred, the person would have varied the nature of his or her employment or the extent of his or her involvement in the workforce whether temporarily or permanently; and

(e) other factors suggesting that, had the accident not occurred, the person’s earning capacity would have increased or decreased materially whether temporarily or permanently.

This recommendation is intended to be subject to the recommendation in paragraph 7.76, which limits the factors to be taken into account to those likely to occur within 10 years of the date of the accident.

7.75 The suggested criteria may lead to the conclusion that the applicants earnings in some years would actually be less than his or her earning capacity, as determined by the principles discussed earlier in this Chapter. For example, a young woman who is totally incapacitated in a transport accident may claim to have had firm and realistic plans to train as a psychologist, which when realised would lead to earnings of at least $500 per week. However, to achieve this objective, it may be clear that she would have had to study full-time for four years, commencing two years after the date of the accident, during which time her income would have been very low. If, at the date of the accident, she was working as a clerk earning $300 per week, she would receive, until assessed on the basis of potential for advancement, compensation by reference to her normal weekly earnings. Any assessment of the potential for advancement would be based on her likely actual earnings during the period of incapacity. In other words, after that assessment she could not choose to have her loss measured by reference to normal weekly earnings for the years of full-time study and then rely on compensation for loss of earning potential for the rest of her earning life. Thus the assessment of potential for advancement would have to embrace the years of low income, although the level of compensation would not be lower than the minimum that should apply in all cases of total incapacity (paragraph 7.51). Similarly, there may be evidence that an applicant would have moved in and out of the workforce over the relevant period had the accident not occurred. This factor would have to be taken into account in assessing potential for advancement even though it would not ordinarily be an element in the assessment of compensation for loss of earning capacity under the Scheme. Again, in making its assessment of potential for advancement the Corporation will have to consider “vicissitudes of life” and give these such weight as may be appropriate.

2. Limits on Speculation

7.76 Assessment of loss of earning capacity on the basis of potential for advancement necessarily involves speculation as to future events. It does not follow, however, that the Corporation should be obliged to speculate about possibilities for the indefinite future. The more distant the period to which a forecast relates, the greater the problems of speculation and the likelihood of disputation and the more arbitrary the result. A balance must be struck between taking into account all factors that bear on the potential for advancement of the incapacitated person perhaps over a lifetime, and avoiding speculation as to remote events. We think this balance should be struck by limiting the period for which the Corporation is obliged to make predictions. We recommend that, in assessing compensation on the basis of potential advancement, the Corporation should take account of factors or events affecting earning capacity only if they are likely to have an effect or to occur within 10 years of the accident. For example, if a person is injured while working as a tutor at a university, the Corporation might well accept evidence that he or she would have become a lecturer or senior lecturer during the 10 year period, but would not consider a claim that in 15 or 20 years he or she might have been appointed a professor or dean of a faculty. An apprentice electrician could have potential for advancement assessed on the basis that he or she would have obtained full-time employment as a qualified electrician and would have enjoyed the usual progression as an employee during the decade after the accident. However, it would not be open to the Corporation to assess compensation on the basis that the apprentice might have become a self-employed electrician after many years as an employee. The recommendation in this paragraph has an impact on children who might seek assessment of earning potential (paragraphs 7.92-7.93).

7.77 An assessment of compensation on the basis of potential for advancement should operate prospectively, from the date of the application. The assessment should cover the expected period of incapacity and should take account of variations in the earnings of the applicant during that period. We recommend that where the Corporation assesses compensation on the basis of potential for advancement, it should specify the incapacitated earner’s likely earnings from the date of the application for

(a) the remainder of the calendar year in which the application is made; and

(b) each succeeding calendar year for the expected period of incapacity,

and should assess compensation accordingly. This recommendation requires the Corporation to assess the likely earnings progression of the applicant over the expected period of incapacity. Of course this is subject to the restriction that earnings for the period beyond a decade after the accident can be assessed only by reference to developments likely to occur within a decade. Ordinarily, earning capacity for subsequent years would be determined by reference to circumstances assumed to exist in the tenth year of incapacity.

7.78 We have considered whether the Corporation should be required or empowered to reopen the assessment if subsequent circumstances show or seem to show that a prediction relating to the earning capacity of the person was inaccurate. For example, the assessment may have been based on projected demand for the applicants specialised skills as, say a computer programmer. Several years later the demand for these skills might increase or decrease substantially, suggesting that the initial prediction was inaccurate. Similarly, the assessment may have been based on the assumption that the applicant would remain out of the workforce for several years because of the need to care for a disabled child. If the child dies shortly after the assessment, should the matter be reopened?

7.79 While it is tempting to suggest that the area of speculation should be reduced by taking account of developments after the date of assessment, on balance, such a course is not warranted. The assessment of potential for advancement is necessarily a speculative venture. Subsequent events may appear to shake the foundation of the assessment, but what will not be clear is whether other equally important predictions, which cannot be tested, were accurate. Moreover, if such matters as economic conditions and labour force trends could allow the assessment to be reopened, the opportunities for repeated disputes and determinations would be maximised. We appreciate that the general provisions relating to compensation for loss of earning capacity require continuing assessment of the person’s post-accident capacity for work. However, this is a different undertaking from repeated assessments of what a person’s earning capacity would have been but for the accident. Accordingly, the assessment of compensation on the basis of potential for advancement should not be susceptible to subsequent review. Of course if the claimant recovers sooner than expected and thus suffers no continuing loss of earning capacity, compensation would no longer be payable. To this extent the assessment based on potential for advancement would be modified. In addition any assessment based on fraud should be capable of being set aside.

V. NON-EARNERS

A. Definition

7.80 The extended definition of “earner” put forward earlier in this Report is designed to take account of the realities of labour force participation and to ensure that many people not in employment at the date of the accident will be treated as earners for the purpose of assessing compensation for loss of earning capacity (paragraphs 7.8-7.15). Nonetheless, there will be many people who do not come within that definition. These include:

• children;
• full-time unpaid homemakers;
• long-term unemployed;
• discouraged jobseekers;
• students; and
• retired people.

These examples do not form distinct groups. For example, a discouraged jobseeker may be a full-time unpaid homemaker because no paid work is available. Similarly, a long-term unemployed person may be seeking new job opportunities through a course of study while an older person may have temporarily retired from the labour force. Thus the class of non-earners covers a diverse range of people, fulfilling different roles and undertaking different activities. We define a non-earner as a person who sustains incapacity in a transport accident and is not within the definition of earner. The term does not refer simply to a person who is not participating in the workforce at the date of the accident.

B. Compensation for Loss of Earning Capacity

7.81 Figures from the 1981 Census indicate that even an extended definition of earner would exclude a substantial proportion of the New South Wales population. At the time of the Census, there were 2.76 million people (53.8 per cent of the population) ³⁹ outside the labour force in the State. These figures exclude 133,000 unemployed people ⁴⁰ and indicate the difficulty of establishing a scheme which assesses compensation for loss of earning capacity solely or primarily by reference to pre-accident earnings.

7.82 The Working Paper canvassed the question of whether non-earners should be compensated for what was described as “loss of economic capacity”. This phrase was used to mean the loss or impairment of the non-earner s ability to undertake paid work (whether or not that ability would have been utilised) or to provide unpaid services for their families or other people. The Paper pointed out that the circumstances of non-earners, in relation to future paid employment vary considerably. Some may have a settled expectation of entering or re-entering the workforce within a specified period, others may intend to do so, but face uncertainty as to whether employment opportunities will be available. In some cases, as with a Young child, it is clear that the person will not enter the paid workforce for many years. Certain people, such as a full-time homemaker who wishes to continue in that role or a person who has taken early retirement, may have a firm intention never to take up or resume paid employment.

7.83 It is not difficult to cater for non-earners who at the date of the accident were about to enter or re-enter the workforce (paragraph 7.12). Where, however, the accident victim’s entry or re-entry into the paid workforce is more distant or uncertain, different issues arise. There is no recent past or imminent future income to use as a measure for loss of earning capacity and indeed in some cases there will be a settled expectation that the person would never have undertaken or resumed employment. The question is whether the Scheme should provide periodic compensation for loss or impairment of economic capacity analogous to that provided to earners for loss or impairment of earning capacity, and, if so, on what basis.

7.84 The Working Paper put forward two principal arguments in favour of compensating non-earners in respect of “loss of economic capacity”. ⁴¹ One was that many non-earners perform indispensable functions that have substantial economic value, even though they are unpaid for the services they provide. This argument has been acknowledged by the recognition that support services should be available where the incapacitated person performed substantial household services before the accident (paragraphs 10.3-10.4). Moreover this principle also applies to earners who provide household services and so does not of itself justify the payment of periodic compensation to non-earners some of whom would not be providing these services in any event.

7.85 The second argument was that

even though a non-earner has no immediate prospect or intention of undertaking paid employment, a physical disability may deprive that person of the opportunity, later in life, to enter or re-enter the workforce. ⁴²

It was pointed out that this argument applied particularly strongly to children who could ordinarily be expected to seek employment after completing their education. Consequently, incapacity inflicted by accidental injury would deprive the child of the opportunity to pursue a career and gain employment, although the child’s success would depend in part upon prevailing economic conditions, particularly employment opportunities. The argument was also applied to homemakers. It is a very common pattern in Australia for women to resume careers or undertake retraining after a period of child-rearing. This is reflected in labour force statistics which show that more married women, aged between 20 and 34 and with dependent children, are outside the labour force than in it, but the pattern is reversed after the age of 35. ⁴³ The average labour force participation rate for married women in Australia over the year February 1982 to February 1983, was 52.2 per cent. ⁴⁴ Again, the circumstances of full-time homemakers may change for other reasons. A spouse may die, become unemployed or leave the relationship. A firm intention to remain outside the workforce may give way to economic necessity. In short, long-term physical disability may deny the homemaker the opportunity of seeking further employment, whether from choice or necessity.

7.86 The Working Paper suggested that this argument could be given effect by adopting the “lost opportunity” principle of compensation, under which compensation would be paid to non-earners to replace the income they could have been expected to earn but for the injuries sustained in the transport accident. ⁴⁵ However, if the lost opportunity principle is applied, it should be applied to all non-earners sustaining long-term incapacity and not merely (as was suggested in the Working Paper) to selected categories of non-earners such as children or young people about to enter the workforce. All non-earners, in the long term, have the potential to enter or re-enter the paid workforce and any attempt to distinguish among the various categories, by regarding some as more” deserving” is bound to produce arbitary and unjustifiable results. ⁴⁶ Thus we recommend that non-earners who sustain long-term incapacity as the result of a transport accident should receive compensation in respect of their loss of earning capacity. Long-term incapacity means incapacity which continues for a period or periods totalling at least 104 weeks. Compensation should be available only for the period of incapacity in excess of 104 weeks. We explain later why compensation should be limited to cases of long-term incapacity and why the period of 104 weeks has been chosen to mark the distinction between short-term and long-term incapacity.

C. Assessment of Compensation

1. Notional Earning Capacity

7.87 The next question is how compensation for loss of earning capacity of non-earners should be assessed, bearing in mind that it will usually not be possible to use pre-accident earnings as a guide. Some non-earners, such as children or young students, have never been in employment. Others have had training and work experience but have been out of the workforce for a long period and have lost the skills or competitiveness for their previous employment. Similarly, the non-earner’s skills may be redundant because of advances in technology or changes in the structure of industry.

7.88 As with earners, there should be an opportunity for non-earners suffering long term incapacity to apply for compensation to be assessed on the basis of what we have described as potential for advancement (paragraphs 7.64-7.79). This will require an individual examination of the injured person’s circumstances and prospects to determine what he or she would have earned had the incapacity not occurred. However, this does not go far enough in meeting the circumstances of non-earners. Some incapacitated non-earners may not be able to show that they would have undertaken or resumed employment at a particular time and thus be unable to show a specific loss for which compensation should be paid. Yet they have been denied the opportunity of seeking remunerative employment even if it is not clear when advantage would have been taken of that opportunity. Even a person who, at the date of the accident, had resolved never to re-enter the workforce has been denied the opportunity of seeking employment should his or her circumstances change. The statistics in labour force participation show that many people experience a pattern of moving in and out of the workforce over their working lives and that to assume their intentions at a particular date will remain fixed is often unrealistic. Thus to link compensation for loss of earning capacity to the claimant s ability to prove that he or she would have entered or re-entered the workforce is too narrow a basis for dealing fairly with incapacitated non-earners.

7.89 The most satisfactory approach is to adopt a standard figure as the means of determining earning capacity of a non-earner. This standard, which can be described as the non-earner’s “notional earning capacity”, should be used to assess compensation for loss of earning capacity unless the non-earner can rely on an assessment based on potential for advancement. This solution is similar to that adopted by the Australian Woodhouse Committee, which, in 1974, proposed a minimum flat rate of $50 per week, which was to be the “notional earning” attributed to non-earners. ⁴⁷ Thus we recommend that in general, compensation for a non-earner’s long-term loss of earning capacity should be ascertained by reference to that person’s “notional earning capacity”. The notional earning capacity of a non-earner who has attained the age of 21 should be set at 50 per cent of AWE (approximately $210 at June 1984). Where the non-earner has not attained the age of 21, his or her earning capacity should be set as follows:

Age 16-17: 30 per cent of AWE

Age 18-20: 40 per cent of AWE

This approach is consistent with the proposal for a minimum earning capacity to be attributed to earners sustaining long-term incapacity. The intention is that the approach to the compensation of earners and non-earners in the long term should, in practice, be based on similar principles.

7.90 The choice of the level of notional earning capacity must, to some extent, be arbitrary. On the assumption that, in the case of total incapacity, compensation would be paid at the rate of 80 per cent of notional earning capacity, a figure of 50 per cent of AWE for non-earners over the age of 21 produces periodic compensation for loss of earning capacity approximately equivalent to the minimum adult weekly wage for New South Wales. ⁴⁸ It would, of course, be open to the community to devote more resources to compensating incapacitated non-earners and thus increase the figure chosen to represent notional earning capacity.

2. Potential for Advancement

7.91 Many, perhaps most, non-earners who have sustained long-term incapacity will be unable to demonstrate a loss of earning capacity greater than that which would follow from the notional earning capacity attributed to them under earlier recommendations. However, some will be able to show that their loss was significantly higher. For example, a woman who has temporarily left the labour force to care for children may be incapacitated in a transport accident. She may be able to show that she intended to resume work when the children reached school age, and that her skills and work experience make it highly likely that her earnings would have been substantially greater than her notional earning capacity. Non-earners should be able to seek compensation on the basis of potential for advancement in the same way, as earners. Accordingly, we recommend that a non-earner who has sustained long-term incapacity should be eligible to apply for compensation for loss of earning capacity on the basis of potential for advancement. Such an application should attract as nearly as possible, the same principles as those governing a similar application by an earner (paragraphs 7.70-7.77).

7.92 Attention should be drawn to an earlier recommendation ‘Which is especially relevant to a particular group of non-earners, namely incapacitated children. Paragraph 7.76 proposed that, in assessing compensation on the basis of potential for advancement, account should be taken only of factors likely to occur within 10 years of the date of the accident. This limits the scope of such an assessment for older children and eliminates it for younger children.

7.93 Careful consideration has been given to whether young children who are incapacitated in transport accidents should be permitted to apply for compensation on the basis of potential for advancement. This is a matter of considerable difficulty, since predictions as to the future earning capacity of children are even more unreliable than those for adults. Courts deciding common law negligence actions acknowledge the speculative character of such an undertaking ⁴⁹ and may reach widely divergent results in similar cases. In practice, a great deal depends on such matters as the perceived quality of the child’s home environment and his or her educational opportunities and personal attributes. These criteria can apply unfairly to children from less well-off homes and to children whose talents had not developed at the date of the accident. There is much to be said for not permitting children under a certain age, say 15, to apply for compensation on the basis of potential for advancement on the ground that such an assessment is simply too speculative and unfair to children with no record of employment or vocational training. The emphasis of the Scheme, in relation to severely disabled children, should be on maximum rehabilitation and vocational training, taking advantage of the greater adaptability of younger people. The recommendation to which we have referred will preclude most claims by younger children but will allow consideration to be given to the occasional case in which it can be confidently said that a child would have earned substantially more than his or her notional earning capacity within 10 years of the accident.

3. Post-Accident Earning Capacity

7.94 In assessing compensation for a non-earner’s earning capacity it will be necessary to take into account his or her post-accident earning capacity. It might be thought that this will present difficulties in some cases because of the absence of a recent work history and because the incapacitated non-earner may not have intended to resume or take up remunerative employment. However, these difficulties may arise with incapacitated earners, particularly in view of the broad definition of earner we have adopted. Accordingly we recommend that in assessing the post-accident earning capacity of non-earners the same approach should be taken as with earners (paragraphs 7.58-7.63). This means that the starting point will be the earnings actually derived by the injured person from post-accident employment. If the person is not employed during the relevant period, his or her post-accident earning capacity would be nil. If, however, the Corporation is satisfied that the person’s earning capacity is greater than his or her actual earnings, by reason of the factors referred to in the earlier recommendations, it can assess post-accident earning capacity on another basis. If, for example, the injured person is capable of undertaking employment that is reasonably available and can compete in the relevant labour market at no significant disadvantage as a result of his or her disability, the Corporation could regard that person as capable of earning the wage or salary that would be derived from that employment. Clearly a non-earner, like an earner, will be provided with assistance in relation to rehabilitation and vocational retraining. If a non-earner decides that he or she does not wish to train for or seek employment, this will be a relevant factor for the Corporation to take into account in determining the loss of earning capacity, if any, that has been sustained.

D. Short-Term Incapacity

7.95 The majority of transport accident victims suffer minor injuries and are incapacitated for ordinary daily activities only for a short period. Even in the case of pedestrians, pedal-cyclists and motor-cyclists, who are most likely to suffer serious injuries, a substantial majority are no longer restricted in their normal activities three months after the accident. ⁵⁰ There is no reason to believe that the experience of transport accident victims who are non-earners is any different from that of earners. An important question is whether non-earners should be compensated for loss of earning capacity sustained during a period of relatively short-term incapacity.

7.96 There are sound reasons why non-earners should not be compensated for loss of earning capacity in respect of relatively short-term incapacity, although other forms of compensation should be provided including compensation for reduced capacity to perform substantial household services (paragraphs 10.3-10.4). The Working Paper noted that the

... major argument against compensating non-earners is that such persons have suffered no demonstrable loss of earnings or earning capacity, since they had no substantial earnings immediately before the accident and no settled expectation of receiving future earnings, whatever their long-term aspirations might have been Thus, if the rationale of a scheme based on lost earning capacity is the need to compensate individuals for losses actually sustained, it can be argued that there is no sound basis for paying periodic compensation to people who cannot show that they have lost earnings as a direct result of their injury. ⁵¹

This argument, as has been seer cannot fairly be applied to non-earners sustaining long-term incapacity. However, the argument has force in relation to short term incapacity and gathers further force from the extended definition of earner, which includes people with firm arrangements to enter or re-enter the workforce. The expanded definition makes it likely that a non-earner about to exercise his or her potential to undertake remunerative employment would be classified as an earner, and compensation for loss of earning capacity would be assessed accordingly. A further safeguard is provided by the recommendation in paragraph 7.14, relating to non-earners incapacitated for more than six months, who would have joined the workforce within two years of the date of the accident.

7.97 A further difficulty is that of assessing the value to a non-earner suffering short-term incapacity, of the lost opportunity to exercise earning capacity. If notional earning capacity were to be applied in such cases there is a danger not only of overcompensation, but of creating incentives to prolong a period of incapacity to take advantage of compensation for loss of earning capacity. This danger is increased where the Scheme provides, as is later recommended, for compensation in respect of the injured person’s loss of capacity to provide household services. ⁵² This form of compensation is of special significance to some categories of non-earners. For these reasons we recommend that non-earners who are incapacitated as the result of a transport accident for a period of less than 104 weeks should be entitled to all benefits under the Scheme other than compensation for loss of earning capacity.

7.98 The period of 104 weeks has been chosen as marking, the distinction between short-term and long-term incapacity. This is not necessarily the most appropriate period and, if anything, we may have erred on the side of caution in selecting a period which permits only the most seriously incapacitated non-earners to claim compensation for loss of earning capacity. It may be that experience with the Scheme will suggest that the period can be shortened without creating substantial administrative difficulties or undesirable disincentives to rehabilitation.

VI. SUMMARY

7.99 This Chapter has dealt with the general principles governing compensation for loss or impairment of earning capacity sustained by people injured in transport accidents. Compensation will be based on the difference between the injured person’s earning capacity at the time of the accident and his or her post-accident earning capacity. The Chapter examines earners and non-earners separately, although many principles are common to each group.

Earners

• The concept of an “earner” is defined very broadly. The term is not confined to those who are employed or self-employed at the date of the accident. It includes those who have worked for a significant period during the two years before the accident and those who had firm arrangements at the date of the accident to take up employment. This approach takes account of high rates of unemployment and patterns of attachment to the workforce.
• The earning capacity of an employee should be generally measured by weekly earnings at the time of the accident, although account can be taken of the employee’s earnings over a substantial period before the accident. Account should also be taken of special factors such as seasonal employment, which would have affected post-accident earnings.
• Compensation for a self-employed person should be assessed by reference to lost earnings, the cost of replacement services or the earnings that could have been derived from alternative employment, depending on the circumstances.
• An earner sustaining long term total incapacity should be deemed to have a notional earning capacity equivalent to 50 per cent of AWE ($210 in June 1984).
• The test of post-accident earning capacity should take account of the employment reasonably available to the injured person in view of his or her training, skills and experience. A person should not be considered to have a capacity greater than actual earnings unless he or she is capable of competing for employment of a kind for which he or she is suited and can do so at no disadvantage by reason of the disability.
• An earner sustaining long-term incapacity (greater than 104 weeks) should be eligible to apply for assessment of compensation on the basis of potential for advancement This would allow such matters as likely promotions or improved prospects to be taken into account in assessing loss of earning capacity.

Non-Earners

• A non-earner is a person who does not come within the definition of earner and includes children and full-time homemakers not recently in the workforce. Because of the broad definition of earner the term does not simply refer to people not employed at the date of the accident.
• A non-earner sustaining long-term incapacity should be entitled to compensation for loss of earning capacity. For this purpose a wholly incapacitated non-earner should be deemed to have a “notional earning capacity” of 50 per cent of AWE ($210 in June 1984).
• A non-earner sustaining long-term incapacity should be eligible to apply for assessment on the basis of potential for advancement.
• A non-earner sustaining short-term incapacity (less than 104 weeks) should not be entitled to compensation for loss of earning capacity but will receive other benefits under the Scheme.

1. One Adelaide Survey, indicated that most transport accidents victims suffer minor injuries and return to work within a relatively short period: see Appendix A, tables A.34, A.35.

2. See Motor Accident Act 1973 (Vic.), s.25; Motor Accidents (Liabilities and Compensation) Act 1973 (Tas.), schedule 1, part V, paras.2,5: and Motor Accidents (Compensation) Act 1979 (NT), s.13.

5. Accident Compensation Act 1982 (NZ). s.5

4. Appendix A, para.A.18.

5. Id., para.A.19.

6. Id., para.A.20.

7. Id., paira.A.23.

8. Working Paper, paras.6.13-6.14.

9. Id., para 6.15. The Working Paper also suggested that special provision should be made to compensate Students and school leavers for loss of earning capacity, id., para.6.18.

10. However, the Victorian and Tasmanian motor vehicle accidents schemes recognise the principle that non-earners should be compensated in respect of loss of economic capacity. See Motor Accidents Act 1973 (Vic.), s.30(1)(g) and Motor Accidents (Liabilities and Compensation) Act 1973 (Tas.), schedule 1, part V, para.3.

11. The Corporation also has a discretion to deem a person to be an earner when the period since the last employment is longer than 13 weeks: Accident Compensation Act 1982 (NZ), s.69. There are also special provisions relating to compensation for people below the age of 16, students, and people who have recently acquired qualifications or undergone training or who have recently begun a career. See Accident Compensation Act 1982 (NZ), s.63, which provides for loss of potential earning capacity.

12. Submission W53, p.12. See also submissions W59, p.5; W81, p.2-, and W15, p.3.

13. Australian Bureau of Statistics, Labour Force Experience, Australia, during the year ending February 1983, Cat. No.6206.0, table 12.

14. Australian Bureau of Statistics, The Labour Force Australia, February 1984, Cat No.6203.0, p.31, table 34.

15. See Appendix A. para.A.40. Not all the non-wage benefits referred to in para.7.17 above were included in this survey.

16. National Rehabilitation and Compensation Bill 1977 (Cth.), cl.24.

17. Appendix A, para.A.40.

18. Accident Compensation Act 1982 (N.Z). s.5 3 (1).

19. See H. Luntz, Assessment of Damages (2nd ed. 1983), paras.5.5.01-5.5.13.

20. Minogue Report, para.9.10.

21. Accident Compensation Corporation, Compensation for the Self-employed (New Zealand, 1983). pp.9-10.

22. Working Paper, para.6.5.

23. Motor Accidents (Liabilities and Compensation) Act 1973 (Tas.), schedule 1, part V, para.2A(3).

24. Id., para.2A(1)(b).

25. Id., para.2A(1) (a).

26. Id., para.2A(2)(b).

27. Id., para.1(3).

28. B. Jones, Sleepers, Wake! (1982), pp.1-8,

29. Working Paper, para.5.36.

30. Workers’ Compensation Act 1926, s.11(2).

31. See eg. C P Mills, Modification of the Workers’ Compensation System (unpublished Commission document, 1983), pp.21-22.

32. Accident Compensation Act 1982 (NZ), s.59(2) (b).

33. In July 1981 the corporation issued new guidelines for the reassessment of weekly compensation in cases of partial incapacity. See final appendix to Submission W9. For discussion of previous practice, see other appendices to Submission W9.

34. J L Fahy, Accident Compensation Coverage (7th ed. 1983), pp.45-46; see also pp.44-47 generally.

35. Submission W9.

36. Submission W76, pp.38-44.

39. Appendix A, para.A-10.

40. For more recent figures on unemployment, see id., para.A.13.

41. Working Paper, paras 7.9-7.10.

42. Id., para.7.10.

43. Australian Bureau of Statistics, Labour Force Status and other Characteristics of Families-Australia, June 1981, Cat No.6224.0, p.11, table 5.

44. Appendix A, para.A-23.

45. Working Paper, paras.7.19-7.21.

46. It is appropriate however, to make distinctions on the basis of the age of the injured person, since this is relevant to workforce attachment.

47. The Woodhouse Committee’s reasons for relying on a normal earning for non-earners were not identical to the reasons we have been given.

48. The minimum adult weekly wage in New South Wales in June 1984 was $158.60. Actual weekly compensation would be equivalent to 40 per cent of AWE or $168 in June 1984. We recognise that precisely the same justification cannot be used to pay only 80 per cent of a non-earner’s notional earning capacity as is used to justify paying 80 per cent of an earner’s loss of earning capacity. However, it is convenient to apply the same principle in arriving at the level of actual compensation.

49. See eg. Davis v. Kudrins, 5 June 1975, Supreme Court of New South Wales. Court of Appeal, transcript of judgment at p.4, per Reynolds J A. See also Denning v. Morris, 11 August 1978, Supreme Court of New South Wales, Court of Appeal, transcript of judgment at pp.3-4, where Hutley J A made similar observations.

50. Appendix A, Table A.35.

51. Working Paper, para.7.5.

52. See paras.10.3-10.4.