The person injured as a result of the negligence of someone else is entitled to claim compensation for the damages suffered, which can be pecuniary or non-pecuniary (see “Pecuniary Damages vs Non-Pecuniary Damages”). The pecuniary damages are those that are monetary in nature, either by way of additional expenses incurred or revenue lost due to the tortious act. It is easy to understand that an injured individual may no longer be able to perform part of or any work duties after an accident. Thus, that person may temporarily or permanently lose the ability to earn a living as a result of the injuries. Unless s/he was wealthy before the accident or had other types of income, s/he may be forced into poverty without a replacement to the lost earning capacity. The pecuniary loss may be in addition to the psychological sequela potentially associated with a loss of the sense of identity ingrained in one’s work. As stated by Chief Justice Dickson, in Reference re Public Service Employee Relations Act (Alb.), [1987] 1 SCR 313 p 368:

Work is one of the most fundamental aspects in a person’s life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person’s employment is an essential component of his or her sense of identity, self-worth and emotional well-being. Accordingly, the conditions in which a person works are highly significant in shaping the whole compendium of psychological, emotional and physical elements of a person’s dignity and self respect.

That statement has been adopted and repeated by several courts since.

Most things in a person’s life flow from his or her work, from housing, hobbies, food, entertainment, lifestyle, etc. Thus, when employment is partly or wholly taken away by accident, the victim of a tortfeasor may tumble down a spiral abyss from which the exit may not be obvious. Monetary compensation in such circumstances may allow to maintain a lifestyle, but may not necessarily return a sense of identity and self-worth to the victim. Non-pecuniary damages assist in indemnifying the intangible loss (see “Pecuniary Damages vs. Non-Pecuniary Damages”).

That being said, when compensating the victim who is no longer able to earn a living, it is necessary to identify the loss that has been incurred. In Andrews v. Grand & Toy Alberta Ltd, [1978] 2 SCR 229 p 251, Justice Dickson again explained that “It 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?” Of course, one of the first obstacle may be how to assess that capital asset in light of an infinite number of scenarios. The formula is not as simple or straightforward as it may sound. People may work full-time or part-time; they may be employed or self-employed; they may be unemployed, retired or minors; they may have limited or numerous work options; they may work at several jobs; the work may be permanent or seasonal; they may make deliberate decisions to reduce workload and work part-time even if able to work full-time; employment may be unionized with specific seniority lists, recall rights, wage scales, etc.

The courts face dilemmas when trying to distinguish loss of income from loss of earning capacity, especially when it comes to future claims. How should they deal with individuals who have underutilized working capacity at the time of the accident, which becomes fully utilized following the injuries? Although no loss of income may occur, a loss of earning capacity may clearly be registered. The New Brunswick Court of Appeal, in Vincent v. Abu-Bakare, 2003 NBCA 42 para 49, narrowed the issue as follows:

… it must be acknowledged that Canadian courts have, on occasion, overlooked the absence of any evidence of a real and substantial possibility of lost earnings or profits and awarded pecuniary general damages for loss of earning capacity upon proof of an accident-related restriction in employability. They have done so on the theory that the plaintiff has been stripped of a valuable capital asset. Courts, particularly in British Columbia, have shown no hesitation in making awards of that nature even in cases where the injured party has returned to his previous work and is earning as much as he or she earned in the pre-accident period. […] Moreover, there is some academic support for this approach.

Thus, is the loss of an earning capacity subject to compensation even if it was not utilized before the accident?

It is worth nothing that the above quote is directed at the future loss of income, or ‘pecuniary general damages for loss of earning capacity’. The test of ‘real and substantial possibility’ also concerns future losses instead of past ones (see “Proof of Past Events vs Future Contingencies”). The court had already said “at the outset that there is, in my view, no useful distinction between the two labels, ‘future loss of earnings’ and ‘loss of earning capacity’” (para 41). Regarding past loss of income, the victim will usually be in a better position to show that, but for the accident, s/he would have engaged in regular or additional work before the trial. Thus, in New Brunswick, the jurisprudence does not ascribe a practical difference between future loss of income and loss of earning capacity, but it is necessary to show more than a theoretical loss of income. The mere fact of no longer being able to perform an activity will not lead to a finding of pecuniary loss if there is no evidence of a ‘real and substantial possibility’ that the activity would have generated an income in the future.

Past Loss of Income

When an award is granted for loss of income for the period before the trial, it is then known as special damages. To be successful, the plaintiff needs to prove, on a balance of probabilities, that (1) s/he is disabled from performing the work for which a claim is made, (2) but for the accident, s/he would have performed the work in question, and (3) an income is lost as a result of the inability to perform the work. The claim will fail if any of (1) or (2) is not established, while the award may be nominal if (3) is not satisfied: Abu-Bakare, supra paras 67 & 75. The usual issues of causation and magnitude of damages also come into play (see “Causation”; “The Vulnerable Victim: Thin Skull vs Crumbling Skull Cases”). Regarding (3), the claim may include undeclared income (see “Claiming Undeclared Income”).

However, when dealing with hypothetical scenarios, similarly to future contingencies, probabilities (instead of the balance of probabilities) are applicable to past events: Athey v. Leonati, [1996] 3 SCR 458 para 27. The scenarios are given weight according to their relative likelihood. For example, but for the accident, a claimant might have been promoted or demoted before the trial. That is not subject to a definite conclusion when s/he has been totally disabled through injuries. In such cases, courts will assess the likelihood of the event when determining the loss associated.

As already indicated, no universal formula exists for calculating a loss of income. It will ultimately depend on the facts of each case as far as type, frequency and magnitude of work and income are concerned. Of course, if a claimant was not working and had no reasonable prospect of finding work before the trial, no compensation will be awarded. Even if there is a return to work after the accident, compensation may follow if overtime work or promotions are affected: Lavigne v. Doucet (1976), 14 NBR (2d) 700 paras 9-10 (CA); Ratych v. Bloomer, [1990] 1 SCR 940. A premature exit from the labour force caused by the accident is also indemnifiable. Those are of course in addition to the usual cases of total and partial disabilities. One thing seems certain however: courts will require objective and/or expert evidence of the loss, especially in cases of complex employment or earning history.

Regarding the value of the indemnity for loss of income, other considerations will come into play. Namely, in order to avoid over compensation, courts will look at replacement benefits that may have been paid to the claimant (see “Collateral Benefits Rule”; “Benefits Deductible from Awards of Damages”; “Deductibility of Section B Weekly Indemnity Benefits”). In New Brunswick, as per ss. 265.3 & 265.4(2) of the Insurance Act, RSNB 1973, c. I-12, deduction will be made for the income tax normally payable on the earned income. On the other hand, the claimant will be entitled to interest, at the discretion of the trial judge, on the amount for past loss of income in accordant with s. 45 of the Judicature Act, RSNB 1973, c. J-2.

Future Loss of Income or Loss of Earning Capacity

As already discussed, it is regarding future loss of income that arises the dilemma between loss of actual income and loss of an earning capacity. Because this part of the claim involves future events, it depends greatly on probabilities and hypotheses (see “Proof of Past Events vs Future Contingencies”). There has to be a ‘real and substantial possibility’ that the victim will suffer a loss. As explained in Abu-Bakare, supra, courts in New Brunswick are not as inclined to award theoretical losses of income as maybe in other provinces.

In Cleary v. McCluskey, 2002 NBCA 45 para 26, the unanimous Court of Appeal laid out the path to an assessment of a future loss of income:

[26]  This Court has held that pecuniary general damages should, whenever possible, be calculated in accordance with the actuarial method. […] Professor K. Cooper-Stephenson describes that method in Personal Injury Damages in Canada, 2d ed. (Toronto: Carswell, 1996) at pp. 203-04:

Assessment of damages for loss of working capacity involves:

  1. Estimation of the weekly, monthly or annual value of work that would have been performed, including lost earnings or profits calculated on a net-before-tax basis, the value of lost homemaking, and any loss of shared family income. From this will be subtracted the value of the work the plaintiff will now be capable of doing.
  2. Determination of the period during which the loss will continue, involving in serious cases ascertainment of the plaintiff’s pre-accident working life expectancy, including, if this has been shortened by the injuries, a reduced award during the “lost years”.
  3. Estimation of the reduction, if any, to be made to take account of the contingencies of life, either on a general level or with respect to particular contingencies that arise on the facts.

4.Determination of the appropriate discount rate to take account of projected inflation and investment interest. The effect of general productivity may also be accounted for at this point; and, with respect to the sub-heads that are not earnings-related, the award must be grossed-up for the tax that will be levied on the interest generated by the lump sum. [Of course, our Rules of Court prescribe a 2.5% discount rate.]

  1. Consideration of any overlap between the award for loss of working capacity and other heads of damage, and of any required reduction to take account of the plaintiff’s reduced need.
  2. Ascertainment of whether there must be deduction of collateral benefits the plaintiff will receive from outside sources as a result of the injuries.

Again, regarding future loss of income, no universal formula dictates the amount. Contingencies and discount rates also need to be taken into account. The presentation of expert actuarial evidence will often determine the value of the award.

This paper is offered for the purpose of discussion only. It does not constitute legal advice and its distribution does not create a solicitor-client relationship. Please consult a lawyer if you require legal advice.