When a young student who is enrolled in a full-time educational institution becomes disabled as a result of an accident, there is seldom a solely empirical basis for determining his or her income loss. One of the most difficult tasks facing personal injury litigations is predicting the income stream, which a student would have earned had he or she not been injured. The loss of pre-accident earnings capacity is based on research of forensic accountants, economists, psychologists, and sociologists concerning the impact of socio-economic factors, such as family dynamics, gender and educational attainment. A Student is defined herein as a young individual who was enrolled in an educational institution on a full-time basis and has no prior full-time work history. Pre-accident earnings capacity is herein defined as the income a person was capable of earning and would probably have earned in the absence of the accident.

Generally, determining pre-accident earnings capacity for individuals already established in the work-force can be ascertained by adjusting earnings immediately before the accident to account for factors which may influence their earnings level. Firstly, valuing diminished “earning capacity” of a plaintiff is one method relied upon in many judgments. In a Supreme Court of Canada case, The Queen v. Jennings (1966), 57 D.L.R. (2d) 644, Judson J. concluded that if a plaintiff “…has been deprived of his capacity to earn income… it is the value of the capital asset which has to be assessed” (at 656, emphasis added). Furthermore, the Supreme Court of Canada in Andrews v. Grand and Toy Alberta Ltd. [1978] 2 Supreme Court Reports 229 held that “[i]t 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?” Since the notion focuses on human capital, the more appropriate question is what the victim could have earned if the accident had not occurred. Although, Canadian Courts have approved the capacity approach, the second conceptual notion, valuing the probable earnings of a plaintiff, is the one that is actually applied in most judgments. Therefore, valuing the earning capacity of students (or young adults that rarely have prior working histories) is a much more difficult task for the judicial system. An alternative basis must be established for the determination of their pre-accident earnings capacity. The factors discussed below are general and are applicable to any type of case such as a motor vehicle accident, industrial accident, slip and fall, medical malpractice, etc...

In reviewing theoretical arguments laid out in Tucker (Guardian ad Litem of) v. Asleson where the British Columbia Supreme Court assessed a young female plaintiff’s earning capacity. Justice Finch articulated the factors generally, as well as the comments on the use of statistics based upon her sex.

“I accept, as a starting point, that the measure of the plaintiff’s earning capacity should not be limited by statistics based upon her sex. Before the accident the plaintiff was a bright little girl growing up in a stable home environment. In Canada, no educational or vocational opportunities were excluded to her. She could have become a doctor, lawyer, or business person. Or, in line with her childhood wish, a veterinary. Of course she might have done none of those things. She might have dropped out of school, and never had gainful employment of any sort. Those considerations, however, speak to the likelihood of her achieving her capacity, rather than what that capacity was. [emphasis added]

The court thus decided a judgement in favor of the plaintiff of ($947,000). However, Justice Finch deducted the decision by applying 60-65 per cent reduction for contingencies such as the possibility that the plaintiff, might not have been a university graduate. The decision was upheld in a later matter on the basis that the trial judge had not made a reversible error.

In Chu v. Jacobs, a young fifteen year old female was injured in a motor vehicle accident. In its decision, the court found that prior to the accident, she was an athletic and brilliant girl who had won awards and been on the honor role at school. During the trial, she was enrolled in a business administration program. Justice Boyd commented on his rationale in his decision:

“For some time before the accident, and even following the accident (despite the serious traumatic injuries and ongoing residual disability), Eva has demonstrated that she is a keen student and a hard worker. I am confident that she has the scholastic ability, and more importantly the determination and single-mindedness necessary to complete her bachelors degree. I expect that Eva will indeed enter the workforce, albeit a year late, and that she will thereby suffer a loss of earnings…”

The victims pre-accident potential was assessed carefully by looking at her personality, school marks and testimonies of her work motivation.

When the Ontario Motor Protection Act was first introduced in June of 1990, there was no provision for the compensation of lost education or tuition fees in the Statutory Accident Benefit Schedule (“SABS”). For a working individual, a claimant was entitled to 90% of their net income. If an individual had no prior income and met the eligibility criteria, then he or she received $185 per week for a certain period.

The SABS under the next regime, Bill 164, provided that:

“The amount of a weekly education disability benefit shall be equal to half of the net weekly income ..... using a gross annual income from employment equal to 52 multiplied by the Average Weekly Earnings for Ontario, Industrial Aggregate, for the month of June in the year immediately preceding the year in which the benefit is first payable, as published by Statistics Canada under the authority of the Statistics Act (Canada).”

Under the current insurance regime, Bill 59 (effective November 1, 1996) the SABS categorizes students as being eligible for a non-earner benefit of $185 per week. This benefit increases to $320 per week if the student continues to qualify for benefits 2 years after the accident. If this benefit were to represent 90% of net income, then the gross annual income would be approximately $25,000. This may be regarded as unfair to students who are in advanced fields of study or have greater potential as each student has particular strengths, intellect, skills, career goals, ambitions and so forth. There are many factors that come into play when determining the pre-accident earnings capacity of a student.

These criteria were considered in a worker’s compensation decision handed down in 1994 [Decision No. 787/94 in W.C.A.T. Reporter] which dealt with an 18 year student worker who had his hands crushed in a work related accident. It was stated that in order to calculate a future earnings loss, a decision maker must consider the following:

“the net average earnings, if any, of the worker at the time the Board determines compensation under this section;...

“the personal and vocational characteristics of the worker;..

“what constitutes suitable and available employment for the worker;..”

The specific factors under consideration were,

“the fitness of the worker to perform the work;

“the health and safety consequences to the worker in working in the environment in which the work is performed in light of the impairment;

“existence and location of potential employment opportunities for the worker in the labor market in which the worker is expected to be employed; and

“the likelihood of the worker securing employment.”

These criteria are not reflected in the SABS of consideration of adequate compensation.

These would however, be useful to consider in a slip and fall, medical malpractice or product liability whose full potential is still not evident. These criteria should be considered in advancing an argument for adequate compensation.

Note that the future loss of income has no threshold or deductible after judgement is made at trial assuming liability is favorable; these criteria could be used to advance a future loss of income claim.

RELEVANT FACTORS

Family History There is a propensity for students to follow in the footsteps of their parents or relatives. Recently, a number of articles have been published that report a strong correlation between parents’ and childrens’ earnings. The work positions that parents hold can influence a student’s career goals. In other instances, parents may strongly encourage their children to pursue career paths which they feel would provide them with a sense of security. In attempting to determine one of the most probable courses of a student’s career, an interview with family members may prove useful.

Education The courses in which a student enrolls at a secondary or post-secondary level may provide an indication of the student’s vocational interests. However, it should be noted that a common field of courses may just indicate a “hobby” interest and may not necessarily translate into a career pursuit. This is especially true when the Student is in the earlier stages of education.

A child’s educational attainment may be significantly affected by parental choices such as the number of siblings in the family, the number of locational moves, and family structure changes. Parental income has been found to have a positive affect on young adult’s schooling achievements. This is mainly because parental income is an important economic resource for a child while growing up. Also parental education levels directly influence young adults’ educational choices. The number of siblings in a family also has an affect on the educational attainment of children; it has been found that as the number of siblings increases the level of educational attainment declines. The number of locational moves has a significant affect on the educational accomplishment of children; as the number of geographical moves increase there is more negative impact on a child's educational attainment. Family structure is another important factor that affects the educational attainment of a child. Studies have found that children from single parent families, step-parent families, and non-traditional family arrangements have a lower probability of completing high school and attaining further education than do children from traditional, two-parent families.

Interests and Hobbies Often career choices can evolve from hobbies and activities in which the student takes part. An interest in star gazing, repairing household appliances, or painting could provide insight into a student’s set of skills. However, as students are young, they may not know what they would realistically pursue when they were ready to enter into the workforce. Hence, a hobby could be just a hobby.

Educational Achievement Level The marks a student achieves may indicate his or her inclination to pursue professional studies. However, high marks obtained in secondary school do not necessarily infer that the student will continue this level at a post-secondary institution. Some students discover that they cannot maintain their high marks at a college and university level which results in failed or dropped courses. In contrast, other students who performed poorly in high school may find their untapped potential when they vigorously apply themselves at university.

Intelligence Marks achieved in academic courses is one method of gauging a student’s intelligence; although it should be noted that there are many skill sets that a student may possess which are not covered in any educational curriculum. Subsequent intelligence and aptitudinal testing may provide valuable insight into what skills a student possesses. This is exemplified in Miles v. Judges judgement of May 22, 1997. In that case, a 21-year old woman suffered brain injuries in an operational procedure. Based on her activities before the accident, such as never failing a grade in school, having completed grade 12 in one year and having passed 3 O.A.C subjects without difficulty while maintaining regular employment, it was found that on a balance of probability that the brain injuries sustained from an operational procedure caused her to fall to an abnormal state of mentality. The court found that she was a normal child, with normal intelligence, with active and independent spirit, that would have led to gainful employment.

Vocational Interest Students who are ready to graduate from high school or are entering a post-secondary institution may already have a career choice in mind. These principles were considered in the Miles v. Judges decision handed down in May 22, 1997, which dealt with a 21-year student who intended to become a kindergarten teacher. Evidence based on her career interest in early childhood education was used. Particularly, as a young student, at the age of 16, she met with a retired school teacher to do a co-operative placement for a full year while at high school. In their decision, the court pointed to the fact that her early interest in the education field and her plans were strong indicators of her intentions to pursue a career in early childhood education. For this reason, the decision was based on childhood intentions to establish a future pecuniary loss.

Past Employment History Part-time or summer employment may indicate a Student’s vocational interest. Odd jobs as an office clerk in an accounting firm may indicate the student’s desire to enter into that field. Trends in a student’s past employment may also indicate the probability of that student obtaining a job in the future. In Thompson et al. v. Zurich Insurance Co. it was stated that,

“Working at a young age is part of a great thread of consistency which runs through the lives of the nine children of the family”

Geography A student’s career goal may be incompatible with the region of residence. Students who want to become teachers may find a shortage of positions available in the city or province they reside in. They may have greater opportunities teach abroad. Students entering into a particular field may encounter keen demand or lack of opportunity in their geographic marketplace. Economic opportunities may vary substantially by geographic region. If an individual lives in a poor community, work in certain fields may not be available unless they are prepared to move to another business center. Students in a rural environment may have a limited choice of vocational opportunities.

Gender There are many gender biases that exist in the workplace. Statistics indicate that women are still paid less than their male counterparts. This should be taken into consideration when researching salaries. There are also many positions that tend to be gender biased such as secretary, construction worker, mechanic and nurse.

Marital Status Whether a student is married at the time of the accident may impact on the type of position desired. A married woman may opt for a part-time position to supplement family income; while a married man may strive for a higher paying job as he would be the primary source of financial support. A single student, on the other hand, may reject a high paying position in favor of one which would provide him/her with more experience in the absence of significant financial commitments.

Full Time or Part Time As with marital status, a student may choose to work part-time depending on his or her circumstances. A student may decide to work part-time while taking part-time courses for the next 6 years.

Relevant Statistics: Labour Economics Statistics usually involve an aggregate of some sort. Salaries might be broken down by education, but not by position or field. Hence, each educational category will consist of people who are unable to find a progressive job and are working at an administrative level as well as those who have excelled substantially in their field. It is important to find out which class of people were surveyed. A secretary with a B.A. may earn less than a factory manager who does not have a B.A. A student working for the government is likely to earn less than a person working in a non-private sector. It is important to identify the different categories of people that were involved in the study.

The statistics on wages should also be analyzed. Does the salary amount include fringe benefits? Certain positions or industries pay more benefits than others. These benefits include the use of a company car, company credit card, charges to hotels, flights and so forth. A sales representative may have greater access to company resources for personal use than other staff members. These additional benefits may not have been taken into account when comparing wages across different categories.

Some employers choose a performance based approach and provide a base salary to their employees while the other portion is commission or bonus based. When researching wages, it should be determined whether the salary includes a commission component or if it represents a base salary. Research for a specific industry should help determine the typical compensation breakdown.

Labour Force Participation Rates The labour force participation rate is the percentage of a given population that is either employed or looking for employment. Recent trends indicate that participation rates among married women have increased within the past few decades. In addition, general participation rates for men working past 65 years of age and from 14 to 19 years has also decreased. Among other factors, this is partially due to lower high school dropout rates and early retirement incentive plans. The participation rates of married women working part-time may be substantially higher than married males due to the fact that women are still the secondary breadwinners in the family.

Hours Worked A study of occupations suggest variations on the average number of hours worked. Staff of professional practices tend to work longer than average hours. Some fields are stable and there are no peak or slow seasons. In accounting fields, certain periods will be heavy with overtime hours as people race to meet the tax filing deadline. However, an Avon representative may only work a few hours during the day. Some occupations may be more conducive to part-time work while in other occupations, employees work on a full-time basis. Some corporations have implemented a flexi-time system.

Probability of Attaining Desired Position All of these above factors should be taken into consideration when determining the probability of a student attaining his or her career goal on a pre-accident basis. A few scenarios based upon a few potential occupations will provide a range of pre-accident earnings capacity.

A student’s pre-accident earnings capacity in the absence of an accident is broad. The points described above can be used to narrow down and identify possible career paths of a student in the absence of an accident.

Since there is a degree of uncertainty with respect to determining future potential careers, a number of probable careers could be chosen to represent a student’s future pre-accident earnings. There are various sources to obtain earnings. Statistics Canada has broad categories which segregate earnings by education, gender, industry, sector, and province. At the other extreme, consulting firms could provide more accurate detailed earnings, although this would be the most costly alternative. In the case where a personal injury has occurred, a vocational rehabilitation specialist could provide a range of salaries. A discussion with people in the industry would also provide an idea of the entry level salary and chances of promotions.

By: Gordon Krofchick

Gordon Krofchick is a Chartered Accountant and Chartered Business Valuator who specializes in forensic accounting issues and quantification of economic damages.

Daksha Patel is a recent Chartered Business Valuator Graduate.

Saqib Durrani is a business consultant and holds a Masters of Business Administration

Harvey Consky is a lawyer who provided case research for case research.

Student at work, Krofchick, Gordon et. al., July 23 2002

Valuations for the house hold services, Krofchick, Gordon et. al., Nov 27 2000

Non-pecuniary Damages, Krofchick, Gordon et. al. , Jan 31 2000