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Special Report: Understanding the Impact of California Minimum Wage Changes on Temporary Disability Rates

Effective April 1, 2024, the minimum wage for many California fast-food workers increased from $16 to $20 an hour. The changes were brought by Assembly Bill (AB) 1228, which was signed by Gov. Gavin Newsom on Sept. 28, 2023. AB 1228 added Labor Code § 1474, § 1475 and § 1476.[1]

The change, of course, means that the average weekly wage (AWW) of employees — and, accordingly, the rates for indemnity payments — will increase. But the more poignant concern: Is there an increase for existing cases in which temporary disability is being paid out? After all, if a raise is expected and scheduled at the time of injury, that must be taken into account when establishing the AWW. Do existing claims need to be looked at now for a possible adjustment? The answer might well be yes.

The changes obviously will affect the calculation of AWW for workers injured on or after April 1, 2024. But it could affect the wages for workers injured before that day as well. Although LC 4453 (c) establishes four methods for calculating the AWW, LC 4453 (c)(4) states that "[W]here for any reason the foregoing methods of arriving at the average weekly earnings cannot reasonably and fairly be applied, the average weekly earnings shall be taken at 100 percent of the sum which reasonably represents the average weekly earning capacity of the injured employee at the time of his or her injury ..." It has long been recognized that "Earning capacity is not locked into a straitjacket of the actual earnings of the worker at the date of injury; the term contemplates his general over-all capability and productivity; the term envisages a dynamic, not a static, test and cannot be compressed into earnings at a given moment of time." (Goytia v. WCAB (1970) 1 Cal. 3d 889, 894.)

In Grossmont Hospital v. WCAB (Kyllonen) (1997) 59 Cal. App. 4th 1348, the Court of Appeal held that "wage increases that were scheduled or reasonably anticipated at the time of injury and that would occur during the anticipated duration of the disability may be considered in determining the injured worker's 'earning capacity' and ultimately the benefits due. However, where the subsequent change in wages is not scheduled or reasonably anticipated at the time of injury or where it would not occur during the anticipated duration of the disability, it may not be considered." It explained:

The essence of the employer's analysis is to determine whether there are factors that within the anticipated duration of the temporary disability would increase or decrease the earnings the worker would have received absent the injury. If such factors exist and their impact is significant enough that it is unreasonable or unfair to use actual earnings at the time of injury to calculate temporary disability benefits, earning capacity should be used to calculate benefits. However, if no such factors exist or their impact on earning capacity is de minimis, the employer may use actual earnings in calculating benefits.
This does not mean an employer must speculate or provide for remote possibilities. It is only where there is "specific demonstrable evidence" that increases or decreases would have occurred that an employer need consider them. ([Citation].) We recognize there are no bright lines by which an employer may determine earning capacity. The employer's obligation, however, is only to take into consideration factors that may affect earning capacity and to make reasonable determinations based on those factors.

So, employers must look at factors that were known at the time of injury to determine an employee's earning capacity. It isn't required to guess or speculate as to potential increases. But if there is specific, demonstrable evidence that such factors exist, they should be considered in assessing an employee's earning capacity and ultimately the AWW.

That could require an employer to consider minimum wage increases that were approved before an employee's injury but did not come into effect until afterward. In Camberos v. Lyon, 2019 Cal. Wrk. Comp. P.D. LEXIS 75, the WCAB held that a minimum wage increase that was enacted on Sept. 25, 2013 by AB 10, before an applicant's injury on Dec. 21, 2014, should be considered in calculating her AWW. The WCAB explained: "Since defendant tied applicant's hourly wage rate to the state minimum wage and the minimum wage was scheduled to increase pursuant to AB 10, an increase in applicant's wages was reasonably anticipated at the time of her injury and that increase must be considered in calculating applicant's earning capacity under section 4453(c)(4)." In that case, AB 10 provided for a minimum wage of $10 per hour, but the evidence established that the applicant's hourly rate generally was paid at the applicable minimum wage plus 25 cents per hour. So the WCAB calculated the applicant's AWW using a rate of $10.25 per hour.

The WCAB does not require minimum wage increases to be considered if they were passed long after an employee's injury. (See Gutierrez v. WCAB (2019) 84 CCC 631 (writ denied); Grace v. Panino Santa Ynez, 2020 Cal. Wrk. Comp. P.D. LEXIS 83.) But a minimum wage increase that was enacted prior to an employee's injury should be considered.

There was a long gap between the date the governor signed AB 1228 and the date the minimum raise for fast-food workers went into effect. Most bills in California go into effect January 1 of the following year. AB 1228, however, specified that the minimum raise of $20 per hour was effective April 1, 2024. So, fast-food employers might need to review claims to determine whether the AWW, and hence temporary disability rates, should be increased for employees with injuries from Sept. 28, 2023 to April 1, 2024.

There are no hard and fast rules for how the AWW increases should be calculated to account for the increase in the minimum wage. If an employee was earning the minimum wage before April 1, 2024, it might be appropriate to increase his or her AWW by 25 percent to account for the corresponding percentage increase in the minimum wage. If the employer had a practice of paying a certain amount above the minimum wage, as in Camberos, it probably would be appropriate to calculate the AWW using the same amount above the minimum wage. Ultimately, employers are required to make a good-faith effort to determine what the employees' earnings would have been, but for the injury.

For further discussion on calculations based on earning capacity under LC 4453(c)(4), see Sullivan on Comp Section 8.10 Average Weekly Earnings — Earning Capacity.

  1. In addition to the minimum wage increase, AB 1228 also established the Fast Food Council within the Department of Industrial Relations, which is authorized to adopt future minimum wage increases and safety standards that are reasonably necessary to protect fast-food restaurant employees. The new minimum wage applies to workers of a "national fast food chain," which is defined as a set of limited-service restaurants consisting of more than 60 establishments nationally. The restaurants must share a common brand or are characterized by standardized options for decor, marketing, packaging, products and services. The restaurants also must be engaged primarily in providing food and beverages for immediate consumption on- or off-premises where patrons generally order or select items and pay before consuming, with limited or no table service. Bakeries and restaurants that operate within a grocery establishment are exempt.

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