Long v. Injured Workers' Ins. Fund

Decision Date30 September 2015
Docket NumberNo. 2615, Sept. Term, 2013.,2615, Sept. Term, 2013.
Citation225 Md.App. 48,123 A.3d 562
CourtCourt of Special Appeals of Maryland

Bruce M. Bender (Axelson, Williamowsky, Bender & Fishman, PC, on the brief), Rockville, MD, for appellant.

James R. Forrester (Rudolph L. Rose, James R. Forrester, Jason A. Heller, Semmes, Bowen & Semmes PC, on the brief), Baltimore, MD, for appellee.

Panel: DEBORAH S. EYLER, REED, JAMES P. SALMON (Retired, Specially Assigned), JJ.



A covered worker who is permanently injured in the course of his or her employment, under the Maryland Workers' Compensation Act (the Act),1 is entitled to compensation for lost earning capacity. The amount of compensation an eligible employee is entitled to recover is usually determined by the application of a simple formula, i.e., two-thirds of the employee's average weekly wage (“AWW”), provided, however, that the AWW does not exceed the State's AWW or equal less than $25. See Md.Code (2001, 2008 Repl.Vol.), Labor & Employment Article (“LE”) section 9–637(a) and (b).2 AWW includes tips and the reasonable value of housing, lodging, meals, rent, and other similar advantages that the covered employee receives from the employer. LE § 9–602(a)(2). Usually, the AWW is calculated by taking the gross wages paid to the worker in the 14 weeks immediately preceding the accident and dividing that figure by 14.3 Under certain circumstances, however, the Workers' Compensation Commission (“the Commission”) has discretion to use a longer or shorter period than 14 weeks to determine the AWW. See Gross v. Sessinghause & Ostergaard, 331 Md. 37, 50, 626 A.2d 55 (1993).

In Maryland, a sole proprietor who devotes full-time to the business of the proprietorship may elect to be “a covered employee.” See LE § 9–227.

The Act does not specify how the AWW is to be calculated if the injured worker is a sole proprietor and therefore is self-employed. As the Supreme Court of Arizona observed in Mail Boxes, etc., U.S.A. v. Industrial Comm. of Arizona, 181 Ariz. 119, 888 P.2d 777 (1995), this creates a definitional problem:

In reality, sole proprietors are not employees and do not earn wages. A sole proprietor can never be an employee of the business he or she creates because a sole proprietor and the business are one legal entity. A person cannot be one's own employee. Nor does a sole proprietor receive a “ wage” from the business for his or her services. Thus, using employee language in a nonemployee setting creates definitional problems.

Id. at 779.

The aforementioned definitional problem gives rise to the main question presented in this appeal, which is: When the injured worker is a sole proprietor, should his or her AWW be based upon the income of the sole proprietorship after deducting business expenses or upon the gross profit of the sole proprietorship, without considering business expenses? This is a question of first impression in Maryland.

In the case at hand, the Commission decided that the AWW should be based upon the monies the claimant received from the sole proprietorship, after deducting the business expenses shown on claimant's federal income tax return.

The claimant filed, in the Circuit Court for Montgomery County, a petition for judicial review of the Commission's order. The claimant contended that the Commission should have calculated AWW based on the gross income of the sole proprietorship in the relevant period prior to the accident. Alternatively, the claimant contended that AWW should be based on the gross receipts of the sole proprietorship because, purportedly, prior to the accident he paid his insurer, the Injured Workers' Insurance Fund (“IWIF”), premiums based on that amount. The Circuit Court for Montgomery County, after a hearing, affirmed the decision of the Commission, granted summary judgment in favor of IWIF,4 and denied Long's motion for summary judgment.

I.Factual Background

The appellant, Patrick Long (“Long”), at all times here relevant, was the owner of Long Floor Works. Except for Long, no one else worked for that company. Long Floor Works, as its name suggests, is in the business of installing floor covering. Long, prior to 2011, made an election, pursuant to LE § 9–227, to be a “covered employee” under the Act.

At all times here relevant, Long's sole proprietorship performed work, as an independent contractor, for Ryan Homes. Ryan Homes paid the sole proprietorship each week based on the number of hours Long worked.

While installing carpet on July 24, 2011 as a subcontractor for Ryan Homes, Long suffered a severe back injury. Although he was able to return to work temporarily, due to his work-related injury he has not worked since November 2011, and, according to his counsel, it is “likely” that he will be 100% disabled for the rest of his life. About six months after the accident, on January 23, 2012, Long filed a notice of claim with the Commission.

Long filed a federal income tax return for the year 2011 in which he said he received no “wages.” He did, however, declare $16,879 in business income for that year. This was shown on Schedule C of his federal tax return. That schedule, titled “Profit or Loss From Business,” showed that gross receipts of the business for 2011 equaled $44,606 but that Long had incurred business expenses totaling $27,727.5 Thus, the net profit for the sole proprietorship was $16,879 ($44,606 less $27,727.)

At the hearing before the Commission, the question arose as to how IWIF calculated premiums for workers' compensation insurance. The evidence in that regard was somewhat murky. IWIF sent a letter to Long dated May 15, 2011, which was about two-and-one-half months before the subject accident. The stated purpose of the letter was to obtain information from Long so that IWIF could establish premiums on the policy based on the policy holder's estimate of “payroll.”

In response, Long sent back a form dated May 23, 2011. The pre-printed form was captioned “IWIF Premium Audit Report.” That form showed that Long represented to IWIF that his “gross wages” for the prior year were $11,077.6 At the hearing, Long's counsel characterized that “gross wages” calculation as a “mistake.” Also introduced into evidence was a letter from IWIF dated March 12, 2012, saying that Long's premium for the prior year (May 15, 2011 through May 15, 2012) was $2,416, and that the premium for the next year would be $2,905, which would be “subject to audit.” Documents attached to the letter indicated that the premiums were based on an “audited payroll: for 2009 of $36,900.” Apparently, the payroll for 2010 or 2011 had not yet been audited.7

The Commission found, on July 15, 2012, that Long had sustained an accidental injury arising out of and in the course of his employment on July 24, 2011 and that he was temporarily totally disabled from August 20, 2011 until September 20, 2011 and from November 1, 2011 “to present and continuing.” The Commission also found that Long was temporarily partially disabled from September 24, 2011 until October 21, 2011.

Additionally, the Commission found, on July 15, 2012, based on information provided exclusively by Long, that Long's AWW was $1,500, “subject to verification.” Based on that preliminary finding, the Commission ordered benefits paid for temporary total disability at the maximum rate of $940 per week.8

About two weeks later, on July 28, 2012, Long filed a request for document correction, in which he asked the Commission, among other things, to amend the amount of his AWW to $1,737.11 based on what he termed his “gross wages” for the 14 weeks preceding his accident. The Commission, prior to receiving any response from IWIF, corrected its award of compensation to indicate an AWW of $1,737.11.

On August 16, 2012, IWIF filed a motion for rehearing regarding Long's AWW. The insurer's request led to a hearing before the Commission about one year later, on August 12, 2013.

At the hearing, IWIF introduced evidence that Long's federal tax return for 2010 showed, on Schedule C, that the sole proprietorship had earned, after deduction of all business expenses, income of $11,747. It was IWIF's position that Long's AWW should be adjusted to $225.90 ($11,747 divided by 52). The claimant's 2011 federal tax return was also introduced. Long's attorney argued, inter alia, that AWW should be based on the total income for the sole proprietorship, without deducting any business expenses.

In response to Long's argument, the Commissioner pointed out that Long's counsel was attempting to equate “gross receipts” of the sole proprietorship with “gross wages.” The Commissioner indicated that he did not think that the terms were synonymous.

On August 13, 2013, the Commission issued a written order. The order stated that Long's 2011 tax returns provided the “best evidence” of his AWW for 2011. The order shows that the Commission calculated Long's AWW by taking the net income of the sole proprietorship for the year 2011 ($16,879) and dividing that figure by the 34 weeks Mr. Long had worked in the year 2011. This formula yielded an AWW of $496.49.9

Long filed a request for rehearing, which the Commission denied. He then filed a timely petition for judicial review of the Commission's decision concerning his AWW. Prior to a hearing on the petition, both sides moved for summary judgment after agreeing that there were no material issues of fact. In support of his petition for judicial review, Long filed in the circuit court, an affidavit, which he signed; he said in the affidavit that he was told by a representative of IWIF that his premiums for the year beginning May 15, 2012 “would be based upon my gross profits of $48,000.” No explanation was given in the affidavit, or elsewhere, as to why Long would need workers' compensation insurance for the period beginning May 15, 2012. After all, he introduced evidence at the August 2013 hearing that he hadn't worked since October 31, 2011 and, according to...

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