Pennsylvania Appeals Court Holds that Simple Interest Applies in Workers’ Compensation Cases, Compound Interest Only When Provided by Contract or Statute
In a recent case, the Commonwealth Court addressed the issue of whether compound or simple interest accrues on an employee’s past due compensation. Interest is compounded when interest is added to the principal, and then interest is charged on the aggregate. The appeals court turned to the Workers’ Compensation Act and reviewed case law addressing the payment of interest on past due claims.
In this case, Mr. James Tobler, the claimant, petitioned the court for review of an order of the Workers’ Compensation Appeal Board. The Board had affirmed a decision of the Workers’ Compensation Judge (WCJ) denying Mr. Tobler’s penalty petition. The WCJ determined that the employer did not violate the Workers’ Compensation Act by paying simple interest, rather than compound interest, on an award that had reinstated Mr. Tobler’s benefits. Mr. Tobler argued a compound basis most accurately reflects his actual loss of use of unpaid funds over time and also serves the purposes of the Act.
Mr. Tobler injured his left hand and received compensation benefits of $561.00 based on his weekly wage of $1,314.18. In a 2012 order, Mr. Tobler’s compensation benefits were reinstated as of November 2002, and the employer issued a payment to Mr. Tobler representing the compensation due.
Mr. Tobler then filed a penalty petition and argued that compound and not simple interest should have been applied in calculating the interest due. On the penalty petition, the WCJ framed the issue as determining the type of interest that should have been paid on the award. The parties agreed that the employer paid Mr. Tobler $117,278.74, the amount due and owing based on 10 percent simple interest. If Mr. Tobler were entitled to compound interest, the amount due would be $139,929.39. The WCJ held that Mr. Tobler was entitled to simple interest under the Workers’ Compensation Act. Mr. Tobler’s penalty petition was denied, and he appealed.
Mr. Tobler argued that under the Act, interest is considered additional compensation to the worker, and not a penalty against the employer. He also claimed that interest gained is unpaid compensation, and that should accrue interest.
The Workers’ Compensation Board rejected Mr. Tobler’s “additional compensation” argument and noted that Pennsylvania courts treat entitlement to compensation benefits separately from entitlement to interest. The purpose of a 10 percent interest under the Act is to provide compensation to a claimant for the delay in receiving funds. The Board also stated that the Act does not state whether interest that accrues should be simple or compound. Based on case law interpreting the interest provisions of the Act, the Board upheld the WCJ determination that Mr. Tobler’s penalty petition should be denied. Simple, not compound, interest was due on Mr. Tobler’s unpaid compensation benefits.
On appeal, the issue is whether the interest owed on a worker’s compensation award of past due indemnity benefits should be simple or compound. Mr. Tobler argues that compound interest reflects a worker’s actual loss of use of the unpaid funds. The compound interest awarded is additional compensation to the worker, not a penalty against the employer.
In their analysis, the court of appeals stated that interest payments are to place the claimant in the same position as if the employer did not contest his claim. The court reviewed case law and noted that compound interest is permitted only in those situations in which the parties provide for it, by agreement or a statute expressly authorizing compound interest. The general rule is that the law in the Commonwealth frowns upon compound interest.
Mr. Tobler claimed that the financial realities of the day require compound interest, but the court stated that he did not cite persuasive authority supporting his position.
The attorneys at the Needle Law Firm help injured workers pursue worker’s compensation claims. Contact our office at (570) 344-1266 for a free, confidential consultation.
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