Fried, Kane, Walters, Zuschlag and Grochmal PO Box 955
Gibsonia, PA 15044-0955

Simple Interest (Not Compound) is Payable under the PA Workers’ Compensation Act

Tobler v. WCAB (Verizon Pennsylvania, Inc.), No. 2211 C.D. 2014, filed July 9, 2015

Factual and Procedural Background
Employer accepted a work injury of carpal tunnel syndrome, following which Claimant's benefits were suspended. Claimant filed a reinstatement petition, and in February 2012 the WCJ awarded reinstatement as of November 2002. This was circulated following a remand by the Board on the matter. In May 2012 the employer issued payment to the claimant representing the compensation due under the order, including simple interest. Claimant then filed a penalty petition alleging a violation of the Act by paying simple rather than compound interest. Whether simple or compound interest was due was the only issue before the WCJ. The WCJ determined the claimant was entitled to simple interest under Section 406.1(a) of the Act, which states "interest shall accrue on all due and unpaid compensation at the rate of ten percentum per annum." The WCJ cited several cases from the Superior Court circulated prior to the enactment of Section 406.1.

Claimant appealed the denial of the penalty petition, arguing that interest under the Act was additional compensation to the worker rather than a penalty against the employer. The Board rejected Claimant's argument, noting that PA courts had never indicated that interest was to be considered the same as compensation benefits when interest is being calculated. It was noted that the courts had treated entitlement to compensation benefits separately from the entitlement to interest, indicating that they are distinct items. The Board agreed that the purpose of the interest was not to penalize the employer, but to compensate a claimant for the delay in payment during which the employer has use of those funds which were due to the claimant. The Board noted that the Supreme Court had previously held that compound interest was not favored in the law and permitted only where explicitly provided for by statute or contract.

Commonwealth Court Decision
In upholding the Board, the Commonwealth Court noted Claimant's argument that an award of compound rather than simple interest most accurately calculates the employee's actual loss of use of the unpaid funds over time and served the humanitarian purposes of the Act. The Commonwealth Court rejected claimant's argument that this made him essentially an involuntary creditor. The Court noted that the statute itself does not specify whether the interest provided is to be compound or simple, and that the Supreme Court had previously observed that PA frowns on the use of compound interest. The Supreme Court had previously held that the use of compound interest was permitted only where parties provide for it by agreement or is specifically authorized by statute. The Court agreed with the Board that statutory interest was to be treated separately from past due compensation. The claimant had no persuasive authority in support of his position, and the Court noted the longstanding judicial policy of disfavoring compound interest in finding a lack of proper authority to award compound interest on WC benefits.

Analysis/Practice Pointer
The Tobler Decision makes clear that the Employer/Insurance carrier properly pays Claimant simple interest and that a claimant is not entitled to compound interest under the PA Workers’ Compensation Act. Additionally, this case reminds us that decisions of the Workers’ Compensation Appeal Board are not binding precedent and can be ignored especially when contradictory to even very old Decisions of the Courts.