In this article, Ed Duckworth reviews a recent development on quantum,
and why awards for loss of earnings can now be much higher than you
might expect. Whilst this may seem a little bit dull, the figures
at the end make it worthwhile reading about!
Loss of earnings
A claim for past or future lost earnings can be a valid part of
any personal injury or clinical negligence claim.
Traditionally, there have been two basic approaches:
- If a Claimant can prove an inability to do any form of work
following an injury, a claim for full lost earnings (net of tax and
other deductions) until assumed retirement age is hard to
resist. If the injury means a Claimant cannot return to their
previous occupation but can still work in a lower paid role, a
claim for the difference in pay will be made.
- If a Claimant has recovered from an injury and returned to
work, but has a lasting disability, a claim for being disadvantaged
on the labour market may be made (known as a “Smith -v- Manchester”
award). This is usually relatively small – a nominal
recognition that if the Claimant were to lose their job, it may be
more difficult to obtain new employment. The award would
typically be a lump sum equivalent of anywhere between 6m to 3
years of their net current salary.
When working out loss of earnings for life, there are two key
- The “Multiplicand” – this is net earnings figure being lost per
year, e.g. £30,000.
- The “Multiplier” – if a 30 year old Claimant can no longer work
and planned to retire at age 65, he has lost 35 years of
earning. At first sight, his future loss of earnings is
£30,000pa x 35 = £1,050,000. However, the Claimant receives
that £1,050,000 as a lump payment now – and if invested over 35
years it will end up being worth much more. To avoid any such
over-compensation, there are statistical tables (the Ogden tables)
used in calculating such losses that adjust that figure of 35 years
downwards, which aim to take into account the likely return from
investing awards of damages now. It also takes into account
that the Claimant is getting a lifetime of earnings now which he
might not have got for some other reason – e.g. dying from a
currently unknown health condition in a year’s time. In our
example, 35 years is reduced to 22.78 – this is the
“multiplier”. This means that instead of receiving £1,050,000
now for the earnings lost over his lifetime, the Claimant would be
awarded £683,400 (£30,000 x 22.78).
The latest version of the Ogden tables has suggested a major
change to how claims for loss of earnings are calculated.
This followed the emergence of research on what factors determine
the overall time you are likely to spend in employment.
The researchers found there are three key factors:
- Educational attainment
- Employment (i.e. whether a Claimant was employed at the time of
the injury and at the time damages are assessed).
- Bill was a concert pianist taking home £30,000pa. He was
injured by the Defendant, leading to the loss of a few
fingers. As he can no longer be a pianist, he is planning to
retrain as a tele-sales worker but is currently unemployed – he
aims to take home £20,000pa. Bill is now 30 and wants to
retire at age 65. Using the traditional approach to an annual
partial loss of earnings, the claim would be £10,000pa x 22.78 (our
multiplier above) = £227,800.
- Using the new approach the claim would be assessed in three
- His previous salary of £30,000pa x 22.78 = £683,400
- Minus his likely salary now of £20,000 x 7.75 (that multiplier
of 22.78 now adjusted greatly downwards to reflect the fact he is
now “disabled” and unemployed) = £155,000
- Loss of earnings claim is now…………… £528,400
- If Bill had managed to work as a pianist, you might expect he
would only receive a small Smith -v- Manchester award – perhaps
£30,000. However, this new approach can be claimed even where
a Claimant has returned to the same job they were doing
before. Here, that would still result in a claim for
How does a Claimant qualify for this new approach?
A Claimant must satisfy three tests:
- He must have an illness (physical or psychiatric) that will
last for more than a year. Bill has lost his fingers
- The condition must affect the kind or amount of paid work he
In our examples, either Bill had to give up being a pianist (his
type of work) or even if he could return to this, he says the aches
in his hand mean he has to take a lot of days off sick – so the
amount of work he can do is affected.
- The impact of the disability must substantially limit
the ability to carry out normal day to day activities. This
test is taken from the Disability Discrimination Act which gives
Bill says he is a keen model aircraft builder and can no longer
do this – that is not a day to day activity so he fails this test
and cannot use the new loss of earnings approach. Bill
redrafts his schedule of loss and says he is now a bit slower at
e-mailing on the computer – that’s a day to day activity but is not
a significant limitation and he again fails the test. Bill
redrafts his schedule of loss again and says he cannot do up
buttons – the reserve on the case needs to increase!
The limited case law on this area suggests Judges will take a
cautious approach to this new method for claiming loss of earnings
and even if a Claimant satisfies the three stage test, the formula
may be adjusted to “reflect the reality of the situation”.
Whilst that may offer some comfort to Defendants, if you see a
surprisingly high claim for loss of earnings in a schedule, it must
be reviewed carefully.