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Income Compensation for Accident Victims

by Toronto Personal Injury Lawyer

employment[2]Lucy worked at a desk job 44 hours a week earning $18.00 an hour. She also earns about $300.00 a week playing saxaphone at bars on evenings and weekends.  She’s paid in cash for most of her gigs and doesn’t declare this income to CCRA. While driving to one of her gigs, Lucy had the misfortune of being in a car accident; a car accident where she suffered a mild brain injury, broken clavicle, and multiple fractures to her fingers. Doctor’s have advised her that she can’t return to work for some time, and that it’s very unlikely that she’ll ever be able to play the saxaphone again. She does not have disability insurance and has maxed out vacation time available to her. This article will discuss where Lucy can look to obtain compensation for her income loss.

Income Replacement Benefits

Let’s assume that Lucy has suffered injuries that keep her from returning to work. If she had health and disability benefits through her day job, she would first look to the short/long term disability insurer who would provide her with some degree of income replacement. Since she doesn’t, she will look to her own auto insurer for income replacement benefits. (It’s worth noting that if she did have disability insurance,  Lucy’s auto insurer would receive a credit for any money she was paid under the disability policy).

Like all car insurance policies, Lucy’s policy provides for income replacement benefits or “IRB”s for short.  Section 5 of the Statutory Accident Benefits Schedule (“SABS”) states that an insurer shall pay an income replacement benefit to an insured person who sustains an impairment as a result of an accident if the insured person was employed at the time of the accident and can no longer perform the essential tasks of their employment; or the person was not employed at the time of the accident but was employed for at least half a year prior to the accident (and that person can’t perform their essential tasks of their employment).  This benefit is available to both employees and self-employed individuals (who would be wise to retain an accountant to assess how much they are entitled to by way of IRBs). Luckily for Lucy, she was employed by a company and the application process is relatively straightforward. Assuming her car insurance company believes she is unable to work, she’ll receive bi-weekly cheques in the mail, however, the cheques won’t be for as much money as she was making before the accident.

Lucy’s employer must submit an OCF 2 to her insurance company, who will then calculate how much money they’ll pay her, which is really all Lucy needs to know. Lucy will not be paid for the first week she’s off work.

The basic amount of IRBs payable on a weekly basis is 70% of gross employment income loss. Since she earned $792.00 per week before the accident, this means the insurance company will pay her $544.00, right? Wrong. Standard auto insurance policies cap a claimants IRBs at $400.00, though there is an option to purchase enhanced benefits. Lucy didn’t purchase enhanced benefits, so now she’s left trying to recover the rest of the money she’s losing from the person who caused the accident, or more particularly, the at-fault party’s insurance company. While IRBs are paid weekly or bi-weekly, damages for income loss in lawsuits are only paid at trial or, as is more often the case, when the parties agree to a settlement. It will will probably be at least a year, if not two, or three, or more, before Lucy sees a penny from the negligent driver’s insurance company.

Loss of Income, Earning Potential and Competitive Advantage

Lucy was lucky enough to retain a good personal injury lawyer who initiated a lawsuit against the at-fault party soon after her accident. As part of her claim for damages, Lucy’s lawyer is asking for income lost up to the time of the trial, as well as future income loss, loss of earning capacity, and loss of competitive advantage, which we’ll discuss presently.

Past Loss of Income

Lucy’s claim for past loss of income encompasses all of the money she lost prior to the trial date. The personal injury lawyer’s first job it to prove the income loss. With respect to Lucy’s day job, this is simple as the personal injury lawyer will produce her pay stubs. It will not prove so simple to prove how much money Lucy made, and therefore can be said to have lost, with respect to her playing in a band. This is one of the risks people take when they work for cash and don’t declare income to CCRA. Lucy’s personal injury lawyer will try to wrangle up any receipts or other evidence of Lucy’s income as a sax player, but it’s very likely that the defendant won’t give this evidence too much credence. In the grand scheme, it is unlikely that  Lucy will be able to collect 100 cents on the dollar for the money she claims to be losing as a result of not being able to play the sax.

So, what is Lucy’s claim worth? First, the Insurance Act limits a plaintiff’s recovery to 80% of their net income loss. Second, defendants are entitled to a credit for whatever IRBs a person receives. Assuming she is still receiving IRBs at the time of trial,  Lucy can therefore only claim approximately $233.60 per week in income loss ($792 gross income x 80% less $400/week in IRBs). This is in addition to any income loss suffered with respect to playing the sax, which, as before, will be difficult to prove.

Mitigation of Income Loss

If Lucy is able to mitigate her loss – a topic for discussion in its own right – and she returns to work, her income loss claim would have to be adjusted. If she goes back to her old job(s), her income loss claim crystallizes on the day she does. If she takes a job that makes less money than before, her income loss claim is reduced by the income she’s earned.

Future Income Loss

An accident victim is entitled to 100% of their future income loss, from which amount the defendant is entitled to deduct any payments from other sources, such as IRBs, disability benefits, or income from lower paying jobs a plaintiff has at the time of trial. However, not being able to see into the future, it is often difficult to accurately project a person’s claim for future loss of income. Often, personal injury lawyers will retain accounting and medical experts to set out a number of predictions and will then argue with insurance defence lawyers about which is the most reasonable.

Loss of Earning Capacity and Loss of Competitive Advantage

Let’s imagine that Lucy is lucky enough to be able to return to her pre-accident employment, but that the injuries she sustained threaten to diminish her future job prospects, the likelihood that she’ll be promoted, or, the difficulty she might face finding a new job (or a new band), should she be dismissed from her previous position.

In this case, her personal injury lawyer will advance a claim for loss of earning potential or loss of competitive advantage. These types of claims are rife with uncertainty and unpredictability and Courts have used various methods to calculate how much a person’s loss of earning capacity is worth; sometimes expert reports will assist courts as they employ complex formulas using weighted averages and probabilities, while other times, they’ll simply look at all the facts and assess what’s fair.


Don’t worry too much about Lucy. She had the best doctors, the support of her family and friends, and a great personal injury lawyer who negotiated fair settlements for both her accident benefit and tort claims. For our part, we’ve learned that folk unable to return to work after a car accident may be entitled to $400.00 in IRBs paid weekly or bi-weekly, but will have to wait some time to recover any other income loss. If you earn upwards of $600.00/week, you may want to look into enhancing your auto insurance policy and raising the bar higher than $400.00 in IRBs.

We have also learned that working for cash poses particular problems for plaintiffs who want to make a claim for a loss of (unreported) income. Finally, we have learned that even if these folk return to work, they still may have a claim for compensation based on the fact that they may not be able to secure promotions, pursue alternate employment opportunities, or simply work as efficiently as they did before the accident.

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