How to Prove and Quantify Loss of Earning Capacity
According to the seminal case on the law of damages, Andrews v Grand & Toy Alberta Ltd,  2 SCR 229, an injured party’s damages are to be assessed through various heads of damage.
These categories include both pecuniary damages (i.e. tangible damages such as medical costs and income loss) and non-pecuniary damages (i.e. intangible damages such as loss of amenities of life).
After incurring a devastating injury, a plaintiff may be unable to work and gather an income. If the injury caused the plaintiff to stop working and thus stop earning an income, then they can be compensated in accordance with what they would have been making ‘but for’ the injury caused by the defendant. This is known as ‘Prospective Loss of Earnings’ or ‘Loss of Earning Capacity.’
These damages can be allocated in a multitude of factual scenarios that lower the plaintiffs earning capacity. This includes but is not limited to (A) a plaintiff who is forced to retire early; (B) a creation of increased risk of lost wages through the possibility of reinjury/surgery etc.; and (C) a loss of competitive advantage through a modification of duties or a change in occupation.
Conceptualizing Loss of Earning Capacity
Loss of income can be conceptualized in two ways. It could either be seen as a series of future losses stemming from a continual loss of wages, or as a present loss of earning capacity. It was determined in The Queen v Jennings et al, SCR 532, that the latter was the correct conception.
Through this conception of income loss, the plaintiff is treated as a capital asset with an individual earning capacity. Upon being injured, that earning capacity becomes diminished. If a dump truck earns $100,000 per year for a company, but a blown gasket reduces its lifespan by 3 years, then the injured party has lost $300,000 in earning capacity from the broken part. The same conceptualization occurs in a plaintiff’s claim for lost earning capacity. The award is treated akin to the loss of a capital asset that occurred because the capacity was impaired by the defendant-caused injuries.
Proving Loss of Earning Capacity
Since the determination of damages occurs upon settlement or judgement following a trial, the court cannot take a ‘wait and see’ approach to proving future income loss. Instead, the plaintiff must prove that they will suffer an income loss in the future as a result of the injury. It is not necessary for a plaintiff to establish loss of earning capacity on a balance of probabilities (i.e. 50.1% chance or more that it will occur). Instead, the burden requires that the plaintiff prove a “real and substantial possibility” of impairment of their ability to earn an income. This is summarized in a jury charge that was approved by the Ontario Court of Appeal in Lazare v Harvey, 2008 ONCA 171:
“The onus is not on the plaintiff to prove on the balance of probabilities that her future earning capacity will be lost or diminished. The onus is a lower one. [The appellant] need only satisfy you on the evidence that there is a reasonable and substantial risk of loss of income in the future to be entitled to damages under this heading …
[The question] is whether there is a real and substantial risk that [the appellant] will suffer a loss of future income, because of the injuries she sustained in the accident. The higher and/or more substantial the risk of [the appellant] suffering such a loss, then the higher the award she should receive.”
Lazare v Harvey, 2008 ONCA 171.
Thus, the standard that the injured plaintiff is required to meet is a “real and substantial possibility.” If we return to our dump truck example, all that would have to be proven is that there is a real and substantial possibility that the capital asset will suffer a loss in income as a result of the blown gasket.
It is important to note that this injury need not manifest immediately. Although the gasket may be fixed by replacing it with a new part, the internal injuries could eventually cause the truck to retire early. The income may continue for a few years after the accident, but the income loss will eventually occur. This commonly occurs in personal injury cases, especially if a plaintiff’s injuries are degenerative or late onset. So long as the plaintiff can prove that there is a real and substantial possibility that a loss will eventually occur, then compensation will be awarded.
Determining the Quantum
The question then shifts to determining the exact quantum. Transferring a person’s lost earning capacity into a damage award is not an exact calculation. Instead, it is based on probabilities, individual backgrounds, and actuarial science. This is an extremely contextual exercise, with the conventional process being to gather a plaintiff’s annual lost income and multiply it by every year that the trier of fact determines that they most likely cannot work. Alternatively, the quantum may be calculated through actuarial information, including average salaries per demographic and familial medical, occupational, or educational histories. This practice is used in the case of younger persons who suffer injuries, as there is little to no past income to extrapolate into the future.
In Walker v Ritchie, 2005 CanLII 13776 (ON CA), the Ontario Court of Appeal upheld a $1.4 million dollar lost earning capacity award, after a 17-year old plaintiff was catastrophically injured in a car accident. The court calculated this figure by determining that her above-average grades and outstanding athletics would have likely resulted in her completing a human kinetics or teaching degree. They then took actuarial tables and projected her earnings from 17 years old, until retirement, deducting her post-injury earning capacity.
An additional layer of complexity is added when considering contingencies. A contingency is a future event that may or may not come into existence. These can be either positive (i.e. promotion) or negative (i.e. unrelated illness or chosen early retirement). As a result, they may either increase or decrease the award. These are limited, however, for two main reasons:
General contingencies which represent ‘the common lot of all of us’, such as illness, are already implicitly contained in actuarial projections (Beldycki v Jaipargas, 2012 ONCA 537); and
If there is no compelling evidence that specific contingencies exist, then they should not apply. The court is not prepared to speculate on mere possibilities (Butler v Royal Victoria Hospital, 2017 ONSC 2792).
In summary, there must be specific evidence pointing to the occurrence of certain contingencies. If this is present, then the damage award may be increased or reduced in accordance with that finding. For instance, if there is economic evidence that there is a 75% chance that the dump truck could make $200,000 per year, then the trier of fact may raise the award to $175,000 per year to account for that positive contingency. It also works in the opposite way for negative contingencies.