JAKE LONG, Employee/Respondent, v. MINN. VIKINGS FOOTBALL CLUB and BERKLEY SPECIALTY UNDERWRITING, Employer-Insurer/Appellants.

The employer and insurer appeal the compensation judge’s determination that the employee is entitled to temporary partial disability benefits.  We affirm.

The employee, Jake Long, was hired to play professional football for the employer, Minnesota Vikings Football Club, for the 2016-2017 season.  The employer was insured for workers’ compensation liability by Berkley Specialty Underwriting. 

On November 13, 2016, the employee sustained an admitted left Achilles tendon injury while playing in a regular season game.  He underwent surgery to repair the tendon.  Due to complications, he developed a staph infection and his surgeons were unable to properly reattach the tendon.  He was unable to continue playing professional football.

After the employee’s football career ended, he and his family moved to Nashville, Tennessee.  During the employee’s football career and prior to the date of injury, the employee had invested some of his earnings and accrued personal wealth.  The employee used some of this wealth to start a real estate business (hereinafter “Laurilo”), which was registered as a limited liability company.  

Laurilo’s first investment property (“Aberdeen”) was purchased in 2018 for $428,000.  The employee invested over $300,000 renovating the property and began renting it out in April 2018 for $3,500 a month.  On January 28, 2020, the employee hired a property management company to oversee the management of this property for $275 per month.  The company was responsible for renting, leasing, and managing the Aberdeen property, and for collecting rents, fees, charges, and security deposits. The company also contracted, hired, supervised and/or discharged firms or individuals for the operation and maintenance of the property, including the utilities, and performed small repairs on the property.

The employee cancelled the management contract a few months later and took over the day-to-day management of the property himself.  His duties included all of those previously performed by the management company, as well as the additional duties of researching other potential property purchases, meeting architects and contractors, handling finances and accounting of the business, paying the businesses’ bills, and communicating with tenants.

In August 2020, Laurilo acquired a second property (“Brightwood”) and began renting it out for $7,000 a month.  The employee also assumed the active management of this property.  The two properties generated a total of $10,500 in monthly rent.  The employee did not draw any salary or wages for his labor and services, nor did Laurilo employ, or pay wages to, any other person.  Instead, the employee reinvested the rental property returns into the business with the ultimate goal of building its real estate portfolio.

On March 12, 2020, the employee filed a claim petition alleging entitlement to temporary partial disability (TPD) benefits from March 6, 2020, to the present and continuing relative to his 2016 injury.  The employer and insurer asserted the employee was not entitled to the claimed benefits.

The matter was heard before a compensation judge on December 11, 2020.  At the hearing, the parties stipulated to the employee’s average weekly wage rate of $8,711.65, based upon his salary as a football player, and that the employee suffered a career-ending injury on November 13, 2016.  The employee claimed that he was entitled to TPD compensation based on post-injury wages calculated^[1] using the $10,500 monthly rent.  The employer and insurer argued that (1) the employee was not earning an income; (2) the value of the employee’s work activities for Laurilo could not be determined in the absence of expert testimony; and (3) in the alternative, if the $10,500 monthly rent constitutes “earnings,” then all of the employee’s investments must be included in the calculation of post-injury earnings when determining the employee’s TPD claim.

Following the hearing, the compensation judge found that the employee’s rental income represented earnings for purposes of TPD benefits and that the employee was accordingly entitled to TPD benefits from March 6, 2020, through the hearing date.  The employer and insurer have appealed.

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(3).  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).

A decision which rests upon the application of a statute or rule to essentially undisputed facts generally involves a question of law which the Workers’ Compensation Court of Appeals may consider de novo.  Krovchuk v. Koch Oil Refinery, 48 W.C.D. 607, 608 (W.C.C.A. 1993), summarily aff’d (Minn. June 3, 1993).

The issue on appeal is whether the employee is entitled to TPD benefits.  An injured employee is entitled to TPD benefits when “. . . the employee is employed, earning less than the employee’s weekly wage at the time of the injury, and the reduced wage the employee is able to earn in the employee’s partially disabled condition is due to the injury.”  Minn. Stat. § 176.101, subd. 2(b).  The employee must establish an actual loss of earning capacity that is causally related to the injury.  Dorn v. A.J. Chromy Constr. Co., 310 Minn. 42, 245 N.W.2d 451, 29 W.C.D. 86 (1976).  An employee’s actual earnings are presumed to be an accurate reflection of reduced earning capacity, but this presumption may be rebutted by evidence proving the employee’s post-injury earnings are not an accurate reflection of the employee’s earning capacity.  Trujillo v. Pride Constr., Inc., No. WC17-6081 (W.C.C.A. Dec. 4, 2017).

First, the employer and insurer argue that the employee was not earning an income, and instead, was simply an investor receiving passive income.  We disagree.  The employee’s testimony, deemed credible by the compensation judge,^[2] showed he performed the day-to-day management of Laurilo’s rental properties.  His activities included all those previously performed by the management company to manage the Aberdeen property, as well as the additional duties he took on managing the Brightwood property.  He also testified that although he does not need to work given his financial circumstances,^[3] he likes working and plans to keep doing so.  Likewise, although he does not draw a wage, the failure of a self-employed injured worker to take a wage is not itself a disqualifying fact precluding an award of TPD benefits.  Hansford v. Berger Transfer, 46 W.C.D. 303 (W.C.C.A. 1991).  Rather, the issue then becomes one of determining the market value of the employee’s labor.  Each case must be determined based on its unique facts.  Here, there are no other employees of Laurilo.  The employee provided the labor for the active management of the properties.  The employee’s activities in this respect were not the activities of a passive investor, but rather, those of a person employed as the manager of a business.^[4]

Case law has acknowledged a variety of calculations that may be used to impute a value for the work of self-employed employees.  In the present case, the compensation judge reviewed and rejected some of these alternative methods for determining whether the employee was entitled to TPD benefits.

In Newbauer v. Pepsi Bottling, 43 W.C.D. 339 (W.C.C.A. 1990), summarily aff’d (Minn. Sept. 30, 1990), we held that a self-employed employee’s earnings could be determined by the annual net income of the employee’s company.  In this case, however, Laurilo’s tax returns were unavailable because the annual tax year had not concluded by the hearing date, so the record did not permit calculating the post-injury earning capacity by dividing the company’s annual earnings by 52 weeks.  We do not accept the employer and insurer’s argument that tax records are the only method for determining a value for the employee’s labor and that his claims must be rejected merely because tax returns are not yet due or available.

In Egan v. Shannon’s Plumbing & Heating, slip op. (W.C.C.A. Sept. 14, 2001), we stated, “[i]n a self-employment situation, a compensation judge should determine what it would cost the owner of the business in question, in an arm’s length negotiation, to hire someone to do the work performed by the employee.”  There was some evidence as to the value of part of the employee’s responsibilities.  Laurilo had previously hired a company to oversee the management of its initial rental property for $275 per month.  The company was responsible for renting, leasing, and managing that initial property and also collected rents, fees, charges, and security deposits, performed small repairs, and supervised contractors in the maintenance of the property.  The employee testified that after a few months, he cancelled the contract with the company and personally took on those responsibilities for all Laurilo’s properties, as well as additional tasks in managing the properties.  However, the compensation judge found that the employee performed much more work than the limited services the company had provided and that $275 per month did not accurately reflect the fair market value of the employee’s services.  The judge therefore concluded that a calculation based on that evidence was inappropriate.

Expert vocational testimony might have been helpful in this case, but we note that neither the employee nor the employer and insurer offered evidence of this kind at the hearing below.  Similarly, while there might have been other business records that could have shown overhead, other expenses, and the like, the exact calculation of profits here was not crucial to the calculation of benefits under the rather unusual factual circumstances of this case.  Certainly, there was no evidence or argument that the employee’s work for Laurilo should be valued at more than $10,500 per month.  Subject to statutory caps on benefits, the amount of TPD benefits payable to an employee is generally less when the employee earns more because the wage loss, as compared to the wage at the time of injury, is less.  The employee predicated his case on conceding the highest possible wage based upon the evidence submitted, which was the full amount of the rental income.  Given that the compensation judge selected this highest possible current wage for the employee, any additional evidence that might have been offered to support a lower wage would have only inured to the benefit of the employee.

In Hansford, supra, we noted that, in the absence of specific evidence supporting a prescribed method of wage calculation, a compensation judge may use any method of wage calculation that reasonably reflects the employee’s injury-related loss of earning power.  In the present case before us, the calculation of the employee’s TPD benefits claim requires the application of Minn. Stat. § 176.101, subd. 2(a), which provides in part, “the compensation shall be 66-2/3 percent of the difference…subject to the maximum rate.”  In addition, Minn. Stat. § 176.101, subd. 2(c) further limits the employee’s TPD benefits.  The employee’s stipulated average weekly wage rate was high enough that none of the alternatives offered by either of the parties’ evidence would significantly affect the compensation judge’s determination.  Under the unique circumstances of the present case, we conclude that the method used by the compensation judge in this matter, accepting the full $10,500 monthly rent as earnings for purposes of calculating TPD benefits, was not unreasonable in light of the evidence presented.

Finally, the employer and insurer assert in their appeal, that if the finding utilizing Laurilo’s rental income as a basis for the calculation of the employee’s post-injury earnings is affirmed, then all income from the employee’s investments must also be added to the employee’s overall post-injury wage for TPD benefit purposes.  They point to language in McQuillan v. Sysco, Inc., 57 W.C.D. 210, 216 (W.C.C.A. 1997), that states that “tax returns may be used to establish an employee’s post-injury earning capacity if they are relevant and reliable.”  The employer and insurer argue that the employee’s 2018 and 2019 personal tax returns included substantial taxable income from capital gains or other investments, interest, and dividends, and that the taxable income shown for both of these years was higher than the employee’s average weekly wage.

We are not persuaded by this argument.  In Backaus v. Murphy Motor Freight, 442 N.W.2d 326, 327, 42 W.C.D. 24, 26 (Minn. 1989), the Minnesota Supreme Court stated, “wages are compensation for labor and services and reflect the worker’s ability to earn.  Wages include neither the income from capital equipment nor the increment in the value of a business interest arising out of the worker’s contributions of capital.”  However, there is no evidence that the employee’s other investment income, whether accrued before or after his work injury, unlike the income partly arising from his property management work, involved any labor of the type for which wages are typically payable. 

In addition, we note that the stipulated average weekly wage rate did not include any of the employee’s capital gains or other investments, interest, or dividends he was receiving at the time of the November 13, 2016, work injury.  

The compensation judge’s Findings and Order are supported by substantial evidence and the law and are affirmed.

I respectfully dissent.  The majority affirmed the compensation judge's award of temporary partial disability (TPD) benefits based on the gross rental receipts from investment property.  Because I would hold that the compensation judge erred by failing to make any finding that the employee was employed by the limited liability corporation, in arbitrarily assigning a wage based on gross rental receipts, and erred, as a matter of law, in awarding TPD benefits based on gross rental receipts from a capital investment, I would not affirm the Findings and Order. 

The issue before the compensation judge was whether the employee is entitled to TPD benefits from March 6, 2020, to the present as a result of his November 13, 2016, work injury.  Minn. Stat. § 176.101, subd. 2, defines TPD as compensation for the "difference between the weekly wage of the employee at the time of injury and the wage the employee is able to earn in the employee's partially disabled condition."  (Emphasis added.)  Case law established four elements to prove entitlement to TPD benefits:

Minn. Stat. § 176.101, subd. 2(b), requires that TPD benefits be paid “only while the employee is employed."  After the injury, the employee moved to Tennessee and, with his wife, started a property investment corporation or LLC, buying and managing properties.  He oversaw subcontractors to maintain the property and his wife worked “the design side.”  (T. 30.) 

The employee took no salary and had no plans to take an income or wages from the LLC.  He testified that he does not need to work to establish income for his family.  His net worth is "somewhere north of $40 million."  (T. 20.)  In 2018 and 2019, his tax returns show taxable income of $914,199 and $1,724,052, respectively.  This was income derived from interest, dividends, and capital gains.  Notably, if TPD benefits were based solely on the employee’s taxable income, he would not be entitled to any TPD benefits, as his income would have far exceeded his average weekly wage rate.  Injured workers are entitled to wage loss benefits if they meet statutory requirements.  The compensation judge erred in not making a specific finding that the employee was “employed” pursuant to Minn. Stat. § 176.101, subd. 2(b). 

The compensation judge also erred by arbitrarily picking a number as “earnings” without substantial evidence to support it.  Generally, an employee's failure to take a specific wage does not automatically disqualify an employee from receiving TPD benefits.  Each situation must be analyzed carefully on its facts to determine the employee's earnings.  Hansford v. Berger Transfer, 46 W.C.D. 303 (W.C.C.A. 1991).  However, under the specific facts of this case, the evidence the employee presented below was insufficient to establish the value of his services for the LLC.  He offered no evidence in the form of expert testimony or documentation showing the number of hours he worked, or the skills required.  Moreover, the gross rental receipts of $10,500 claimed as wages here did not consider expenses incurred.  The 2020 tax returns may have included that information, but they are not part of the record.  Without an indication of the cost to maintain and keep the nine properties owned by the LLC, a finding that the LLC’s gross rental receipts constitute the employee’s wages is arbitrary and without merit. 

Finally, as a matter of law, the compensation judge erred in using the employee's gross rental receipts from a property investment as earnings or wages to justify the award of TPD benefits.  Investment income, including rental receipts from a property portfolio, has not been and should not be considered "wages" for purposes of TPD benefits.  A wage is compensation for labor and services reflecting the employee's ability to earn.  Backaus v. Murphy Motor Freight, 442 N.W.2d 326, 42 W.C.D. 24, 26 (Minn. 1989).  "Wages neither include income from capital equipment nor the increment in the value of business interest arising out of the workers' contributions to capital."  Id. at 327. 

Investment in capital equipment, which provides a source of income stream, is no different than investment in property, a capital investment, that also provides a stream of income through rent receipts.  In the absence of evidence establishing the value of the employee's labor, rental income from an investment property does not equate to wages.  For these reasons, I would reverse the compensation judge's award of TPD benefits based on gross rental receipts.