Loss of Income and Loss of Earning Capacity
If you have been injured due to someone else’s negligence or deliberate wrongdoing, and your ability to work has been impacted, you may suffer a loss of income or a loss of earning capacity.
What is Loss of Income?
Loss of income is, simply put, a loss of the money that an injured person would have received through work, but for the harm that they suffered as a result of negligence. It may be past, or future, or both.
Loss of income may occur due to a loss of wages, commissions, benefits, business income, even the value of a family business.
To prove a past loss of income, often it is enough to simply show what the injured person was earning on a regular basis in the months or years leading up to the injury. The damages awarded for a past loss of income simply equal the amount of money that should have been earned over that period of time, but for the injury.
A loss of income may be complete, or partial. For example, a person who was previously working 40 hours per week may suffer an injury, and have to reduce their hours of work to 30 hours per week as a result. That person’s past loss of income might be the lost wages that he or she would have earned over those 10 lost hours of work per week.
Proving a future loss of income may be more complicated. People rarely stay in the same job, in the same position, and at the same wage, for their entire working life. Calculating a future loss of income may require evaluating potential future promotions, wage increases, the value of lost benefits, or even career changes.
There are numerous other adjustments that must be considered when evaluating and proving a future loss of income. “Negative contingencies”, such as the possibility of early retirement, economic downturn, or job loss, must also be accounted for. Different career scenarios, retirement plans, educational pathways, and even life span, must be investigated. It is for these reasons that statistical evidence and expert consultants are often required to evaluate and prove future losses.
How do taxes and statutory withholdings affect Loss of Income?
In Canada, income tax is not payable on the amount awarded for loss of income. However, income tax is payable on any investment income awarded on a damages award. Any questions about taxes payable on personal injury awards should be directed to a qualified tax professional.
Can Loss of Income be claimed by a person who has to take care of another injured person?
YES! If a family member or caregiver has lost income because he or she now has to spend extra time taking care of the injured person, that caregiver has his or her own loss of income claim. For example, if a parent of an injured child has to reduce their work, or delay their career, because of the injury to the child, that parent can claim for their lost income, both past and future. Or if a spouse has to take an early retirement to care for her injured partner, that caregiver can also claim for lost income.
What is Loss of Earning Capacity and how is it different from Loss of Income?
To succeed in a claim for Loss of Income, an injured person must prove, on a balance of probabilities, that they have or will suffer that loss. But what if the injured person is still able to work, for now, and the future is uncertain? What if the injured person was just starting out in her career, or was still in school, at the time of the injury?
If it is clear that a person has suffered an injury that creates a real and substantial risk that they will lose income in the future, the injured person can succeed in a claim for a Loss of Earning Capacity, even if it is not possible to prove that the person will, on a balance of probabilities, lose income. The likelihood of the future hypothetical loss is reflected in the amount of the award.
To evaluate a Loss of Earning Capacity, a court will look at many factors, including:
- Whether the injured person has been made less capable of earning income from any employment;
- Whether the injured person is less marketable as an employee;
- Whether the injured person has lost the ability to take advantage of opportunities that otherwise may have been available; and
- Whether the injured person is less valuable to him or herself as an income earning individual.
The essential question is whether the person has lost any of his or her capacity to do work.
How do I know if I have suffered or will suffer a Loss of Income or Loss of Earning Capacity?
As you can see from the above, determining a Loss of Income or Loss of Earning Capacity claim is not an easy task and there are many factors to consider. If you are concerned that you have lost income, or that you may lose income or your capacity to do work, your best move is to contact a lawyer for advice. Our experienced team of lawyers can help you to evaluate whether you have a claim for Loss of Income or Loss of Earning Capacity, and whether it is worth pursuing legally.