Woman sitting on couch worrying about her loss of income

Claiming A Loss of Income

The person injured as a result of the negligence of someone else is entitled to claim compensation for the damages suffered, which can be pecuniary or non-pecuniary (see Pecuniary Damages vs Non-Pecuniary Damages”). The pecuniary damages are those that are monetary in nature, either by way of additional expenses incurred or revenue lost due to the tortious act. It is easy to understand that an injured individual may no longer be able to perform part of or any work duties after an accident. Thus, that person may temporarily or permanently lose the ability to earn a living as a result of the injuries. Unless s/he was wealthy before the accident or had other types of income, s/he may be forced into poverty without a replacement to the lost earning capacity. The pecuniary loss may be in addition to the psychological sequela potentially associated with a loss of the sense of identity ingrained in one’s work. As stated by Chief Justice Dickson, in Reference re Public Service Employee Relations Act (Alb.), [1987] 1 SCR 313 p 368:

Work is one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being. Accordingly, the conditions in which a person works are highly significant in shaping the whole compendium of psychological, emotional and physical elements of a person’s dignity and self respect.

That statement has been adopted and repeated by several courts since.

Most things in a person’s life flow from his or her work, from housing, hobbies, food, entertainment, lifestyle, etc. Thus, when employment is partly or wholly taken away by accident, the victim of a tortfeasor may tumble down a spiral abyss from which the exit may not be obvious. Monetary compensation in such circumstances may allow to maintain a lifestyle, but may not necessarily return a sense of identity and self-worth to the victim. Non-pecuniary damages assist in indemnifying the intangible loss (see “Pecuniary Damages vs. Non-Pecuniary Damages”).

That being said, when compensating the victim who is no longer able to earn a living, it is necessary to identify the loss that has been incurred. In Andrews v. Grand & Toy Alberta Ltd, [1978] 2 SCR 229 p 251, Justice Dickson again explained that “It is not loss of earnings but, rather, loss of earning capacity for which compensation must be made […]. A capital asset has been lost: what was its value?” Of course, one of the first obstacle may be how to assess that capital asset in light of an infinite number of scenarios. The formula is not as simple or straightforward as it may sound. People may work full-time or part-time; they may be employed or self-employed; they may be unemployed, retired or minors; they may have limited or numerous work options; they may work at several jobs; the work may be permanent or seasonal; they may make deliberate decisions to reduce workload and work part-time even if able to work full-time; employment may be unionized with specific seniority lists, recall rights, wage scales, etc.

The courts face dilemmas when trying to distinguish loss of income from loss of earning capacity, especially when it comes to future claims. How should they deal with individuals who have underutilized working capacity at the time of the accident, which becomes fully utilized following the injuries? Although no loss of income may occur, a loss of earning capacity may clearly be registered. The New Brunswick Court of Appeal, in Vincent v. Abu-Bakare, 2003 NBCA 42 para 49, narrowed the issue as follows:

… it must be acknowledged that Canadian courts have, on occasion, overlooked the absence of any evidence of a real and substantial possibility of lost earnings or profits and awarded pecuniary general damages for loss of earning capacity upon proof of an accident-related restriction in employability. They have done so on the theory that the plaintiff has been stripped of a valuable capital asset. Courts, particularly in British Columbia, have shown no hesitation in making awards of that nature even in cases where the injured party has returned to his previous work and is earning as much as he or she earned in the pre-accident period. […] Moreover, there is some academic support for this approach.

Thus, is the loss of an earning capacity subject to compensation even if it was not utilized before the accident?

It is worth nothing that the above quote is directed at the future loss of income, or ‘pecuniary general damages for loss of earning capacity’. The test of ‘real and substantial possibility’ also concerns future losses instead of past ones (see “Proof of Past Events vs Future Contingencies”). The court had already said “at the outset that there is, in my view, no useful distinction between the two labels, ‘future loss of earnings’ and ‘loss of earning capacity’” (para 41). Regarding past loss of income, the victim will usually be in a better position to show that, but for the accident, s/he would have engaged in regular or additional work before the trial. Thus, in New Brunswick, the jurisprudence does not ascribe a practical difference between future loss of income and loss of earning capacity, but it is necessary to show more than a theoretical loss of income. The mere fact of no longer being able to perform an activity will not lead to a finding of pecuniary loss if there is no evidence of a ‘real and substantial possibility’ that the activity would have generated an income in the future.

Past Loss of Income

When an award is granted for loss of income for the period before the trial, it is then known as special damages. To be successful, the plaintiff needs to prove, on a balance of probabilities, that:

  1. She/he is disabled from performing the work for which a claim is made;
  2. But for the accident, she/he would have performed the work in question;
  3. An income is lost as a result of the inability to perform the work.

Future Loss of Income or Loss of Earning Capacity

Loss of earnings is the difference between what someone earned before an accident and what they can earn now. When determining the amount of compensation to which you are entitled there is an evaluation of your earning capacity over your expected employment.

Loss of earnings is divided into two categories, both of which are based on hypothetical events. The loss of future earnings compensates you for the work you are no longer able to do following the trial. Loss of past earnings, on the other hand, is compensation for the time between the injury and the settlement or trial.

Calculating loss of earnings can be a complicated process that frequently requires input from multiple experts. Financial experts from both sides of the case will calculate the plaintiff’s future earning potential by analyzing their current earnings, the industry in which they work, their career trajectory, and other factors. Medical experts will be consulted in order to determine how long the plaintiff will be unable to work. If their injuries resulted in permanent disability, the compensation for lost earnings will be greater than if they only experienced a temporary impairment.