NANCY FRENCH, Employee/Cross-Appellant, v. SPECIAL SCHOOL DISTRICT #1, SELF-INS./SEDGWICK CLAIMS MGMT. SERVS., Employer /Appellant.
WORKERS’ COMPENSATION COURT OF APPEALS
FEBRUARY 23, 2010
TEMPORARY PARTIAL DISABILITY - EARNING CAPACITY. Although the employee had minimal wages and was nominally working as an independent contractor during the brief periods at issue, where the employee’s work was temporary pending her resumption of retraining, where she had worked for the post-injury employer in the past, and where she was at all times cooperating with rehabilitation assistance, the compensation judge’s conclusion that the employee’s earnings were a sufficient basis for temporary partial disability benefits was not clearly erroneous and unsupported by substantial evidence.
PENALTIES; RULES CONSTRUED - MINN. R. 5220.2540, SUBP. 1.B., MINN. R. 5220.2570, SUBP. 5, and MINN. R. 5220.2790, SUBP. 1.A.; STATUTES CONSTRUED - MINN. STAT. § 176.225, SUBDS. 1 and 5. Where the judge had denied penalties under Minnesota Statutes section 176.225, subdivision 1, for delay in payment of benefits on grounds that the employer had raised good faith defenses, where the employee had agreed at hearing that her penalty claim was pursuant to subdivision 1, where the court found no basis under that subdivision, but only under subdivision 5 of that statute, for an award of penalties for failure to timely deny a claim, where subdivision 5 and certain related Minnesota Rules cited in the employee’s brief were not argued before the judge, the compensation judge’s denial of penalties under subdivision 1 of the statute without reference to any potential claim for penalties for failure to reply under subdivision 5 was not clearly erroneous and unsupported by substantial evidence.
Determined by: Pederson, J., Johnson, C.J., and Wilson, J.
Compensation Judge: Gary M. Hall
Attorneys: David R. Vail, Soderberg & Vail, Minneapolis, MN, for the Cross-Appellant. Timothy P. Jung, Lind, Jensen, Sullivan & Peterson, Minneapolis, MN, for the Appellant.
WILLIAM R. PEDERSON, Judge
The self-insured employer appeals from the compensation judge’s award of temporary partial disability benefits and the employee cross-appeals from the judge’s denial of penalties for the employer’s failure to pay those same benefits in a timely manner. We affirm the judge’s decision.
Nancy French [the employee] began working as a janitor/engineer with Special School District #1 [the employer] in March 1993. The work was physically demanding, and the employee sustained a number of injuries to her low back arising out of that employment. On November 30, 2003, the date of the employee’s last work injury, the employee was forty-eight years old and was earning a weekly wage of $868.93, and the employer was self-insured against workers’ compensation liability, with claims administered by Sedgwick Claims Management Services, Inc. [Sedgwick]. Subsequent to her November 2003 work injury, the employee was physically unable to return to her pre-injury job, and she began receiving rehabilitation assistance from qualified rehabilitation consultant [QRC] Michael Stern in February 2004. She was eventually terminated by the employer on March 10, 2004, after which the QRC administered vocational testing and the employee commenced a search for alternative employment within her medical restrictions.
In November of 2005, the employee obtained a part-time job as a daycare helper with Molly Bee Enterprises [MBE], a daycare provider evidently owned and operated by her friend Inez DeMare. The employee was advised by her QRC to accept this position and to continue looking for other work. The employee worked at MBE approximately two or three hours per day, four or five days per week, from November 28, 2005, until April 25, 2006. In a findings and order issued January 22, 2007, Compensation Judge Gary M. Hall concluded that the employee had conducted a reasonably diligent job search while working part time and that, “given her restrictions at that time and the recommendations of her QRC, the [job at MBE] was a reasonable attempt to get back into the job market.” The judge determined that the employee’s wages during this period accurately reflected her reduced earning capacity, and he awarded temporary partial disability benefits based upon those earnings.
The employee briefly worked on a full-time basis for two other employers during July and August of 2006, but she was unable to retain those jobs due to a lack of qualifications for the positions. In September of 2006, the employee commenced a program of retraining in heating and air conditioning design at Dunwoody College of Technology. QRC Stern submitted a formal retraining proposal in November of 2006, which was contested by the employer and eventually heard by Judge Hall on November 21, 2007. In a findings and order issued December 11, 2007, the judge found the proposed retraining plan to be reasonable, and he awarded retraining benefits retroactive to September of 2006.
Three days later, on December 14, 2007, QRC Stern wrote to the claims representative at Sedgwick and to the employee’s attorney, reporting that, due to financial issues and a pending eviction, the employee needed to drop out of school. The plan was for her to return to school in the spring, but she was later informed by Dunwoody that, because technical courses were only offered at certain times, she would have to wait until the following September to return. Meanwhile, payments in accordance with the December 11, 2007, findings and order were delayed by Sedgwick and issued about a month late.
Sometime in April of 2008, the employee again returned to work as a daycare helper at MBE, working two hours per day at $8.00 per hour. The employee’s QRC reported this employment to Sedgwick in his progress report dated May 28, 2008. He reported also that the employee was trying to increase her hours and that he would possibly recommend job search assistance for her to obtain better employment for the summer. On June 17, 2008, the employee’s attorney wrote to the employer’s attorney, enclosing two handwritten payment records from MBE for pay periods ending April 23 and June 6, 2008. The April 23 record identified the employee as an independent contractor earning $160.00 for twenty hours of work. The June 6, 2008, record reflected a payment of $144.00 for eighteen hours of work. These payments were evidently for work performed during the two weeks preceding each payment date. In his June 17th letter, the employee’s attorney requested that the employer “[p]lease pay or deny payment of temporary partial disability benefits within 14 days as required by law.” The employer evidently did not respond to this letter. On July 22, 2008, Sedgwick did issue a check to the employee, evidently representing temporary partial disability benefits from April 23 through June 7, 2008. Two days later, on July 24, 2008, the employee filed a claim petition, seeking payment of temporary partial disability benefits continuing from April 17, 2008, as well as penalties against the employer “for failure to pay benefits per Findings & Order of 12/11/07; [f]ailure to respond to reasonable inquiries; failure to pay TPD; failure to pay or deny TPD as required; failure to pay attorney fees on a timely basis.” In its answer to the claim petition, filed August 1, 2008, the employer denied the claim for temporary partial disability benefits beyond those already paid, denied that penalties were warranted, and reserved its defenses regarding causation and earning capacity.
The employee continued to work for MBE through August 15, 2008, eventually increasing her hours in July to fifteen per week. She then returned to her retraining program at Dunwoody on September 3, 2008. The employer reinstated the employee’s temporary total disability benefits on October 8, 2008, but failed to include payment for the first two weeks of September. Those benefits were eventually paid on November 11, 2008, following an administrative conference.
On February 3, 2009, the employee’s attorney wrote to the employer’s counsel, enclosing a handwritten payment statement from Ms. DeMare showing two additional cash payments to the employee from MBE, covering April 29 through May 9, 2008, and May 12 through May 23, 2008. These payments again evidently reflected a ten-hour work week by the employee.
On or about March 15, 2009, the employee, for personal reasons, withdrew from her retraining program for a second time and again returned to work for MBE. She did not receive credit for the courses taken during the 2008-2009 fall and winter quarters at Dunwoody. On April 8, 2009, the insurer filed a Notice of Intention to Discontinue benefits based on the employee’s withdrawal from her retraining program. The following week, the employee’s attorney wrote to the employer’s attorney, enclosing another handwritten payment statement from Ms. DeMare, showing cash payments to the employee from MBE for work performed during the previous summer, between June 7 and August 15, 2008, and from March 15 through April 11, 2009. The employee worked fifteen hours per week in 2009.
The employee’s claim for temporary partial disability benefits and penalties came on for a hearing before Judge Hall on April 22, 2009. At trial, the judge identified two issues that were before him, including “[w]hether, and if so to what extent, penalties are appropriate under Minn. Stat. § 176.225, Subd. 1 (as set forth in Petitioner’s Exhibit “A”)?” In Petitioner’s Exhibit “A,” the employee was claiming a 30% penalty on various benefits, apparently under Minnesota Statutes section 176.225, subdivision 1. Witnesses at trial included the employee and QRC Stern. The employee testified that she continued to have back and leg symptoms and remained restricted from lifting over twenty pounds. While she did not think that she had ever been released for full-time work, she acknowledged that she could probably work full time if the work was within her restrictions. She testified further that she had immediately informed QRC Stern of her actions when she withdrew from her retraining program in 2008 and again in 2009. She testified that, because she needed money and the job market was poor, she had contacted Ms. DeMare at MBE, where the job duties remained what they had been when she worked there in 2005 and 2006. She testified that she recalled conducting a job search for about a month in March of 2008 but that in 2009 MBE was her only employment contact. The employee agreed that MBE paid her primarily in cash as an independent contractor. She stated that she had not kept any business records regarding that work, that she had not worked for any other employer in 2008 or 2009, and that she had not filed a tax return for any earnings in 2008, because she “didn’t really have any income.”
QRC Stern testified that, when the employee dropped out of school in 2008, he did not recommend job search assistance because the employee’s situation was temporary, the labor market was poor, and he anticipated that the employee would shortly be returning to school. Under those circumstances, he testified, he had not wanted to incur the expense of job placement services, nor had placement services been requested by the employer. He noted that the employee’s rehabilitation plan continued to be retraining and that, because there had already been a record in this case of employment at MBE, the employee’s continuing to work at MBE at a temporary job seemed like a pragmatic approach to follow. He testified finally that the employee continued to suffer a loss of earning capacity causally related to her work injuries.
In a findings and order issued June 25, 2009, the compensation judge awarded certain penalties for the employer’s unreasonable delay in paying benefits pursuant to the December 2007 findings and order and the judge’s subsequent order on attorney fees. The judge also awarded temporary partial disability benefits for the brief period requested in 2008 and for four weeks in 2009, through April 11, 2009. The judge denied, however, the employee’s claim for penalties for late payment of those benefits, on grounds that “[t]he employer/insurer had good faith defenses to those claims.” The employer appeals from the award of temporary partial disability benefits, and the employee appeals from the denial of penalties for the employer’s failure to pay or deny those benefits in a timely manner under the Minnesota Rules.
STANDARD OF REVIEW
On appeal, the Workers’ Compensation Court of Appeals must determine whether “the findings of fact and order [are] clearly erroneous and unsupported by substantial evidence in view of the entire record as submitted.” Minn. Stat. § 176.421, subd. 1 (2008). Substantial evidence supports the findings if, in the context of the entire record, “they are supported by evidence that a reasonable mind might accept as adequate.” Hengemuhle v. Long Prairie Jaycees, 358 N.W.2d 54, 59, 37 W.C.D. 235, 239 (Minn. 1984). Where evidence conflicts or more than one inference may reasonably be drawn from the evidence, the findings are to be affirmed. Id. at 60, 37 W.C.D. at 240. Similarly, findings of fact should not be disturbed, even though the reviewing court might disagree with them, “unless they are clearly erroneous in the sense that they are manifestly contrary to the weight of evidence or not reasonably supported by the evidence as a whole.” Northern States Power Co. v. Lyon Food Prods., Inc., 304 Minn. 196, 201, 229 N.W.2d 521, 524 (1975).
1. Temporary Partial Disability
In order to establish entitlement to temporary partial disability benefits, an employee must demonstrate that she has a work-related disability and an actual loss of earning capacity causally related to that disability. Krotzer v. Browning Ferris, 459 N.W.2d 509, 43 W.C.D. 254 (Minn. 1990); Dorn v. A.J. Chromy Constr. Co., 310 Minn. 42, 245 N.W.2d 451, 29 W.C.D. 86 (1976). In the present case, it is essentially undisputed that the employee is subject to restrictions as a result of her work-related low back condition. It is also undisputed that the employee is physically precluded from returning to her pre-injury job and that she has sustained a 10% permanent partial whole-body disability as a result of her work injury. The employer contends, however, that the judge’s award of temporary partial disability benefits does not conform with applicable law and is clearly erroneous and unsupported by the record. It argues first that the employee failed to establish post-injury earnings during the period of her alleged wage loss. The employee acknowledged, it contends, that the various cash payments made to her by MBE reflected status as an independent contractor, not as an employee. Further, it argues, though she presented evidence of gross business receipts, the employee offered no additional evidence of costs or expenses showing how that minimal revenue translated into income. In view of the employee’s testimony that she did not file a 2008 tax return because she “didn’t really have any income,” the employer argues, the judge had no record of post-injury earnings from which he could have determined a wage loss. We are not persuaded.
Given the record in this case, and regardless of the independent contractor label placed on the employee by MBE, the judge reasonably viewed MBE’s payments to the employee as representing qualified employment earnings for the periods in question. The employee had previously worked for MBE in 2005 and 2006, and she had already been awarded temporary partial disability benefits based on those earnings. The employee testified that her job duties for MBE in 2008 and 2009 had not changed and remained within her restrictions. She had evidently worked for no other employers during this period and, despite being labeled as an independent contractor, she was paid an hourly wage and received payment every two weeks. Moreover, expenses related to her job were evidently paid by MBE, and any necessary business records were maintained by MBE, not by the employee.
The mere fact that MBE may have described the employee as an independent contractor does not in fact make her one. Neither party questioned the employee in any detail regarding her relationship with MBE, and the judge was not bound by that designation. Similarly, the employee’s unexplained statement that she did not have income or file a tax return in 2008, without more, does not compel the conclusion that she had no post-injury earnings for the periods at issue. While an employee’s earnings from self-employment must be based on the employee’s net income after deduction of reasonable business expenses, there really is no evidence in this record that the employee was operating a business. The judge’s determination that payment records from MBE reflect the employee’s post-injury earnings during the time periods at issue is supported by substantial evidence.
The employer next argues that the judge failed to properly apply the law regarding the employee’s duty to mitigate her losses. It contends, citing Yacoub v. American Nat'l Ins., 60 W.C.D. 168 (W.C.C.A. 2000), that, when an employee is released to return to work full time and obtains only part-time employment without conducting a diligent job search, the part-time earnings do not reflect the employee’s post-injury earning capacity. Here, the employer contends, the employee testified that she did not look for work at any time relevant to her claim, with the exception of a few unspecified and unquantified contacts in the month of March 2008. Given the employee’s minimal earnings, her admission that she could probably work full time, and her failure to diligently search for work, the judge’s award of temporary partial disability benefits, it contends, is not supported by the record. We are not persuaded.
Whether wage loss during part-time post-injury employment is a result of the personal injury is generally a question of fact. Nolan v. Sidal Realty Co., 53 W.C.D. 388, 394 (W.C.C.A. 1995). Working less than full time may or may not be reasonable under the particular facts of the case. Kunferman v. Ford Motor Co., 65 W.C.D. 198, 209 (W.C.C.A. 2004) (citing Nolan, 53 W.C.C. 388). This court has repeatedly stated that, when an employee has rehabilitation assistance, the issue is not so much whether there was a diligent job search as whether the employee has made a good faith effort to cooperate with her rehabilitation plan. See, e.g., Schreiner v. Alexander Constr. Co., 48 W.C.D. 469, 476 (W.C.C.A. 1993); Grieco v. Minnesota Natural Foods, 48 W.C.D. 174 180 (W.C.C.A. 1992); Bauer v. Winco/Energex, 42 W.C.D. 762, 769 (W.C.C.A. 1989). We find no evidence that the employee failed or refused to cooperate with rehabilitation efforts. As the compensation judge explained in his memorandum,
The employee’s decision to obtain employment at Molly Bee Enterprises from April to August of 2008, and for the weeks of March 29, 2009, and April 12, 2009, was reasonable in light of the temporary nature of her leave from school. The QRC apparently believed this was a reasonable option and testified that the employee was cooperative. The record is clear that the employee continues to experience a loss of earning capacity related to her work injury. Although the employment at Molly Bee Enterprises may not be an accurate reflection of her earning capacity, given the temporary nature of this employment, and the lack of any real alternatives, the employee is entitled to temporary partial disability benefits during these time periods.
While we have some concern about the judge’s comment that “the [employee’s] employment at Molly Bee Enterprises may not be an accurate reflection of her earning capacity,” the judge was clearly persuaded by the expert testimony of QRC Stern and the testimony of the employee. QRC Stern, the only vocational expert to testify, stated that the employee cooperated with her rehabilitation plan. He testified that he didn’t want to run up additional placement expenses in a poor labor market when the employee would be returning to school in a few months. He noted that employment at MBE had previously been found reasonable and that it appeared to him that the most pragmatic approach in this case was not to request additional placement assistance. The employee testified that she had conducted a job search without success and that she had already worked at MBE and knew that the work was within her physical restrictions. We conclude that this testimony constitutes substantial evidence in support of the judge’s conclusion as to the appropriateness of the employee’s work at MBE as a basis for an award of temporary partial disability benefits.
In DeNardo v. Divine Redeemer Mem. Hosp., 450 N.W.2d 290, 42 W.C.D. 626 (Minn. 1990), the employee, who had been released to work full time, was only able to find a part-time position following a diligent work search. The part-time position was all the employee was able to obtain because of her disability, and the supreme court concluded that “the part-time wage was the most reliable evidence, on the record before [them], of her earning capacity.” DeNardo v. Divine Redeemer Mem. Hosp., 450 N.W.2d 290, 293, 42 W.C.D. 626, 632 (Minn. 1990). The court noted, in response to the employer and insurer’s argument that the employee could work full time, that the employer and insurer’s remedy was to request modification of the employee’s rehabilitation plan in an administrative conference. Id. In the present case, the employer offered no vocational evidence of its own and made no effort to provide placement services or to address the employee’s part-time employment at an administrative conference. In 2008, the employee’s plan was always to return to school in September, and, regardless of her earlier withdrawal from the retraining program, she would have been out of school during the summer of 2008. While there is no particular evidence of a diligent job search in this case, the judge reasonably concluded that the employee cooperated with rehabilitation efforts, and, given the brief period at issue here, the employee’s failure to search for full-time employment was not fatal to her claim. Again, given the circumstances of the employee’s rehabilitation in 2008 and the brief period for which benefits were awarded in 2009, we agree with the judge’s conclusion.
Finally, the employer argues that, even if the gross cash payments received by the employee from MBE represent the employee’s income, the employee’s earnings were too insubstantial to qualify for temporary partial disability benefits. We again conclude that the judge’s decision was not unreasonable or otherwise unsupported by substantial evidence. The record in this case could be more complete on a number of points. No medical evidence was introduced regarding the employee’s current restrictions. Nor did the employee testify about the nature of her work activities at MBE. We acknowledge also the employer’s concerns about the job being one provided by a friend involving cash payments and minimal hours. All that being said, however, the judge was aware of the employee’s previous history at MBE, and he recognized that the employee only required temporary employment.
“What constitutes sporadic employment resulting in an insubstantial income is a factual issue, the resolution of which depends not solely on the amount of income earned or the number of hours worked.” Hildebrandt v. City of St. Louis Park, slip op. (W.C.C.A. Sept. 13, 2004). Determinations of earning capacity are factual in nature. See generally Einberger v. 3M Co., 41 W.C.D. 727 (W.C.C.A. 1989). It is a function of the compensation judge to determine the employee’s earning capacity. Noll v. Ceco Corp., 42 W.C.D. 553, 557 (W.C.C.A 1989). The issue on appeal is not whether the evidence will support a different result but whether substantial evidence supports the compensation judge’s decision. See, e.g., Land v. Washington County Sheriff’s Dep’t, slip op. (W.C.C.A. Dec. 23, 2003); Ask v. Winona Health, No. WC08-156 (W.C.C.A. Oct. 29, 2008). Where the evidence conflicts or more than one inference may reasonably be drawn from the evidence, the compensation judge’s findings must be affirmed. Hengemuhle v. Long Prairie Jaycees, 358 N.W.2d 54, 59 37 W.C.D. 235, 239 (Minn. 1984).
In this case, the compensation judge heard the testimony of the employee and of her QRC, and he reviewed the payment records from MBE submitted into evidence by the employee. Given the record before us, we cannot conclude that the compensation judge’s factual findings are unsupported by substantial evidence, nor are we left with a definite and firm conviction that a mistake has been made as a matter of law. See Northern States Power Co., 304 Minn. at 201, 229 N.W.2d at 524 (“[f]actfindings are clearly erroneous only if the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed”). Accordingly, we affirm the judge’s award of temporary partial disability benefits.
The compensation judge found that the employer had raised good faith defenses to the employee’s claim for temporary partial disability benefits, and he therefore denied the employee’s claim for penalties under Minnesota Statutes section 176.225, subdivision 1, for late payment of those benefits. On cross-appeal, the employee contends that the judge erred in failing to award penalties for the employer’s failure not only to make timely payment but even to deny those benefits within 14 days of her attorney’s June 17, 2008, letter as required under the Minnesota Rules. The judge did not specifically address any claim for a penalty for failure to deny the employee’s claim. We affirm the judge’s denial of penalties for any unreasonable delay in paying benefits, and we conclude that any penalty for the employer’s delay in denying the employee’s claim was not effectively raised before the judge.
Whether a penalty is appropriate under Minnesota Statutes section 176.225 is generally a question of fact for the compensation judge. Saarela v. Sun Country Airlines, slip op. (W.C.C.A Sept. 25, 1998). In his memorandum, the compensation judge specifically referred to the employer’s defenses based on the employee’s “reduced hours and minimal job search.” The employee had worked only ten to fifteen hours per week in her job at MBE, and, except for a brief and unsubstantiated job search in March 2008, had submitted no evidence of a job search for full-time employment. Although we have affirmed the judge’s award of benefits on other grounds, the fact that the employer did not ultimately prevail in its defense does not necessarily create a basis for imposition of penalties. See Greene v. Independent Sch. Dist. #202, 36 W.C.D. 601, 602 (W.C.C.A. 1984). Given the circumstances presented here, we find no basis for reversing the compensation judge’s decision denying the employee’s claim for penalties under Minnesota Statutes section 176.225, subdivision 1.
In her brief, the employee contends that the judge also erred in failing to award a penalty based on the employer’s failure to deny her claim for temporary partial disability benefits as required by statute. First of all, we find no basis under Minnesota Statutes section 176.225, subdivision 1, for an award of penalties for failure to deny a claim. At the beginning of trial, the employee’s counsel agreed with the judge’s statement of the penalty issue as a claim for a thirty percent penalty under Minnesota Statutes section 176.225, subdivision 1, and the judge’s finding references only that subdivision of the statute. In her brief, the employee references Minnesota Rules 5220.2540, subpart 1.B., and Minnesota Rules 5220.2570, subpart 5, which, she contends, compel a penalty for failure to deny a claim. Under our review, these rules, together with Minnesota Rules 5220.2790, subpart 1.A., appear to support a potential penalty only under subdivision 5 of the statute. None of the rules now cited by the employee - - or subdivision 5 of the statute - - was argued before the judge. Because the employee effectively made no claim under subdivision 5 of Minnesota Statutes section 176.225 or its corresponding rules, we decline to address the issue further. Cf. Titera v. Clearwater-Polk Elec. Coop., slip op. (W.C.C.A. Apr. 13, 2000) (where the parties were expressly invited by the compensation judge to set forth the issues and their defenses, and where notice of injury was not presented to the judge as an issue, the compensation judge did not err in failing to make a finding on the issue, and the issue was not properly before the Workers’ Compensation Court of Appeals).
 The parties stipulated at hearing that these findings and order of January 22, 2007, were to be incorporated as part of the record.
 The record does not disclose what the employee’s restrictions or earnings were during that time period. In that same findings and order, the judge found also that the employee qualified for a permanent partial disability rating of 10% of the whole body under Minnesota Rules 5223.0390, subpart 4.C.(2).
 Judge Hall’s December 11, 2007, findings and order were offered into evidence at the hearing below.
 Minnesota Statutes section 176.225, subdivision 1, provides for a penalty for delays in payment of benefits, outlining as follows circumstances in which assessment of a penalty is appropriate:
Subdivision 1. Grounds. Upon reasonable notice and hearing or opportunity to be heard, the commissioner, a compensation judge, or upon appeal, the court of appeals or the supreme court shall award compensation, in addition to the total amount of compensation award[ed], of up to 30% of that total amount where an employer or insurer has:
a) instituted a proceeding or interposed a defense which does not present a real controversy but which is frivolous or for the purpose of delay; or,
(b) unreasonably or vexatiously delayed payment; or,
(c) neglected or refused to pay compensation; or,
(d) intentionally underpaid compensation; or
(e) frivolously denied a claim; or
(f) unreasonably or vexatiously discontinued compensation in violation of sections 176.238 and 176.239.
For the purpose of this section, "frivolously" means without a good faith investigation of the facts or on a basis that is clearly contrary to fact or law.
Minn. Stat. § 176.225, subd. 1.