                                            RENDERED: FEBRUARY 16, 2017
                                                       TO BE PUBLISHED

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                             2016-SC-000249-WC


COMMONWEALTH OF KENTUCKY,                                          APPELLANT
UNINSURED EMPLOYERS' FUND


                 ON APPEAL FROM COURT OF APPEALS
V.                  CASE NO. 2015-CA-001854-WC
               WORKERS' COMPENSATION NO. 11-WC-00211


KARA SIDEBOTTOM (A/K/ A KARA                                       APPELLEES
HARVILLE); WHITNEY BRAND INC.;
HON. GRANT ROARK, ADMINISTRATIVE
LAW JUDGE; AND WORKERS'
COMPENSATION BOARD



              OPINION OF THE COURT BY JUSTICE VENTERS

                                 AFFIRMING

      The Commonwealth of Kentucky, Uninsured Employers' Fund (UEF)

appeals from a decision of the Court of Appeals that upheld an opinion issued

by the Workers' Compensation Board (Board). The Board determined that the

Administrative Law Judge (AW) had properly calculated Sidebottom's average

weekly wage, affirming the conclusion of the AW that Appellee, Kara

Sidebottom, was a variable wage employee (salary plus tips) at the time of her

work-related injury and that her workers' compensation benefits must,
therefore, be calculated according to KRS 342.140(d), rather than KRS

342.140(1)(a), which applies to claimants who are paid a fixed weekly wage. 1

      Our review on appeal proceeds under the following standards: "An

award or order of the administrative law judge ... shall be conclusive and

binding as to all questions of fact .... " KRS 342.285. When reviewing a

decision of the Board, we will affirm absent a finding that the Board has

misconstrued or overlooked controlling law or has so flagrantly erred in

evaluating the evidence that a gross injustice has occurred. Western Baptist

Hospital v. Kelly, 827 S.W.2d 685, 687-688 (Ky. 1992).

      We find no significant disagreement about the facts as determined by the

AW; the issue in dispute is whether the AW, and hence the Board, applied the

correct statute to those facts in determining Sidebottom's average weekly wage.

For the reasons stated below, we affirm the Court of Appeals.


                I. FACTUAL AND PROCEDURAL BACKGROUND
      When Kara Sidebottom began her job as a waiter at Whitney's Diner in

2009, her duties included seating customers, taking orders, serving customers,

stocking the salad bar, bussing tables, and collecting payment from customers.

She was paid $2 .10 per hour plus tips and she generally worked at least forty

hours per week and often "much more."




       1 The Board's decision, affirmed by the Court of Appeals, also vacated part of
the AW's award not pertinent to this appeal and remanded the matter to the AW for
further consideration regarding the application of the three-times multiplier provided
by KRS 342.730(l)(c)l.

                                           2
      Beginning May 1, 2010, the owner of the business gave Side bottom

increased employment responsibilities in addition to the ordinary duties she

performed as a waiter. Concurrent with the increased responsibilities,

Sidebottom's pay structure was changed from the hourly rate of $2.10 plus tips

to a weekly rate of $100.00 plus tips.

      Prior to the May 1 transition, Sidebottom's employer reported her income

from tips to the Internal Revenue Service as required by law. Afterwards,

although Sidebottom continued to report her tips to her employer, the employer

failed to report her income from tips to the IRS. Sidebottom did not learn that

her employer had not reported her tips until she received her 2010 W-2 form.

Sidebottom did not include her unreported tip income on her 2010 personal

income tax return.

      On December 3, 2010, seven months after her "promotion," Sidebottom

fell during the course of her employment and injured her spine. She eventually

underwent spinal fusion surgery. In due course, she filed a workers'

compensation claim in connection with the work-related injury.

      In determining Sidebottom's weekly compensation benefit, the AW

applied KRS 342.140(1)(d). This statute sets forth the process for calculating

the average weekly wage for a claimant who, at the time of her injury, was

being paid a wage that varied "by the output of the employee," which includes

workers being compensated through tips. The AW determined that even

though Side bottom's tips at the time of her injury were not reported to the IRS,




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she was still at that time a variable wage employee working on a "wage plus

tips" arrangement.2

      The UEF maintained that at the time of her injury Sidebottom was a

salaried, or fixed wage, employee whose average weekly wage should have been

determined in accordance with KRS 342.140(1)(a) using the amount of $100.00

per week. The calculation advocated by UEF would have yielded a

substantially lower benefit award for Sidebottom. The Board disagreed and

affirmed the AW's application of KRS 342.140(1)(d) for determining

Sidebottom's average weekly wage. The Court of Appeals affirmed, and the

appeal to this Court ensued.


                                  II. ANALYSIS

      In support of its argument that Side bottom's average weekly wage should

have been calculated in accordance with KRS 342.140(1)(a) as if she was a

fixed weekly wage employee, the UEF relies upon KRS 342.140(6). That statute

defines "wages" for purposes of determining workers' compensation benefits as

follows:

      The term "wages" as used in this section and KRS 342.143 means,
      in addition to money payments for services rendered, the
      reasonable value of board, rent, housing, lodging, and fuel or
      similar advantage received from the employer, and gratuities


      2 The AW initially awarded temporary total disability benefits at the rate of
$172.81 per week from December 2010 through December 2012, and ultimately
awarded permanent partial disability benefits in the amount of $103.69 per week for
425 weeks beginning January 1, 2013. In calculating these benefits, pursuant to the
"most favorable to the employee" look-back provision contained in KRS 342.140(1)(d},
the AW used Sidebottom's wage circumstances prior to her transition from hourly pay
plus tips to weekly pay plus tips because doing so was more favorable to Sidebottom.

                                         4
      received in the course of employment from others than the employer
      to the extent the gratuities are reported for income tax purposes.

(Emphasis added.)

      Because Sidebottom's "gratuities," or tips, at the time of her injury were

not "reported for income tax purposes," the UEF contends that they cannot be

considered as part of her "wages" for calculating her average weekly wage to

determine her workers' compensation benefit. The UEF further argues that

because Sidebottom's income was reported to the IRS as a fixed salary of

$100.00 per week, the AW was required to calculate her average weekly wage

pursuant to KRS 342.140(1)(a). KRS 342.140(1)(a) provides that when an

injured employee's "wages [at the time her injury] were fixed by the week, the

amount so fixed shall be the average weekly wage."

      Sidebottom acknowledges the effect of KRS 342.140(6) and agrees that

the unreported tips she received between May 1 and her December 3 injury

may not be used in the computation of her average weekly wage. There is no

doubt that gratuities not reported for tax purposes may not be counted as

income when calculating an injured employee's average weekly wage

calculation. But as the AW concluded, the application of KRS 342.140(6) does

not alter the reality that she is an employee with variable income derived from

gratuities; it does not convert her to an employee earning a fixed weekly wage.

      In contrast with KRS 342.140(1)(a), KRS 342.140(1)(d) governs the

calculation of the applicable average weekly wage for employees whose weekly

pay may vary because they are paid by "the day, hour, or by the output of the

employee." KRS 342.140(1)(d) provides that for such employees
                                        5
      the average weekly wage shall be the wage most favorable to the
      employee computed by dividing by thirteen (13) the wages (not
      including overtime or premium pay) of said employee earned in the
      employ of the employer in the first, second, third, or fourth period of
      thirteen (13) consecutive calendar weeks in the.fifty-two (52) weeks
      immediately preceding the injury.

(Emphasis added.)

      Under KRS 342.140(1)(d), the 52-week year preceding the injury is

divided into thirteen-week quarters. The average weekly earnings for each

quarter is then calculated and the quarter with the highest ("most favorable")

average weekly wage is the one used to compute the weekly compensation

benefit for the injured employee. The AW used that method to determine

Sidebottom's average weekly wage.

      Of course, Sidebottom's actual income for the entire 52 weeks that

preceded her injury included her tips. But because KRS 342.140(6) forbids

consideration of unreported tips, the AW included her tip income only for the

weeks that preceded May 1 because those are the only weeks for which tip

income was reported for tax purposes. The tips earned by Sidebottom after

May 1 were not reported, and were therefore excluded. Despite the fact that

she may have actually been taking home more earnings after May 1 than

before, with the exclusion of unreported tips after May 1, 2010, it naturally

follows that her quarter of most advantageous earnings would have occurred

before May 1, 2010.

      Nevertheless, the UEF contends that because the only income being

reported for Sidebottom after May 1 was $100.00 per week, with nothing extra

                                         6
in tips, she is bound to that amount as her average weekly wage. In effect,

UEF argues that the income being reported to the IRS at the time of the injury

is dispositive of the average weekly wage to be used in calculating Side bottom's

workers' compensation benefits. We conclude that a proper application of KRS

342.140(6) does not produce that result. We agree with the Board and Court of

Appeals that the AW properly calculated Sidebottom's average weekly wage

based upon KRS 342.140(1)(d) rather than KRS 342.140(1)(a).

      The average weekly wage of an injured worker must be decided on a

case-by-case basis, and must take into account the unique facts and

circumstances of each case. Huffv. Smith Trucking, 6 S.W.3d 819, 822 (Ky.

1999). Ultimately, the goal in calculating the average weekly wage is to ensure

that the claimant's benefit rate is based upon what the worker would have

expected to earn had the injury not occurred. Desa International, Inc. v.

Barlow, 59 S.W.3d 872, 875 (Ky. 2001).

      It is not disputed that Sidebottom was compensated by tips from

customers up until the date of her injury and that those tips were a significant

share of her actual earnings. The fact that Sidebottom's tip income was not

reported for tax purposes does not alter the reality that she was paid a variable

wage based upon a "wage plus tips" arrangement. The UEF's position would

require us to ignore that reality.

      By excluding unreported income from a worker's average weekly wage

calculation, KRS 342.140(6) reduces the amount of earnings that can be

considered; it does not change the nature of the worker's pay or the method to

                                        7
be used for calculating the average weekly wage based upon the nature of the

worker's pay. The application of the UEF's theory of this case would

unjustifiably expand the rule beyond the words of the statute, which require

only the exclusion of unreported income, and extend it to create the legal

fiction that one who is actually paid a variable wage is instead deemed to be a

fixed weekly wage employee.

      In strict compliance with KRS 342.140(6), the AW did not include

Side bottom's unreported tip income in his calculation of her average weekly

wage. Thus, Sidebottom is properly deprived of the benefit she could otherwise

have gained by applying the potentially higher total income she received after

the May 1, 2010 transition.3 Concurrently, the UEF received a corresponding

advantage in the form of a lower payment obligation.

      We reject UEF's argument that as an additional consequence of the tax

reporting rule, the AW was further compelled to disregard Sidebottom's true

status as a variable wage employee and calculate Sidebottom's average weekly

wage as if she was a fixed weekly wage employee. We do not perceive the

adoption of that legal fiction as a necessary and statutorily-mandated

consequence of the tax reporting rule of KRS 342.140(6). See Jones v.

Crummies Creek Coal Co., 264 S.W.2d 294, 296 (Ky. 1953) ("It is a familiar rule



       3 As a component of its argument UEF asserts that "an employee should not
benefit from his own wrongdoing." However, again, Side bottom was punished for her
wrongdoing by not being allowed to calculate her income based upon her post-raise
earnings, which would have resulted in a higher award. Presumably she also suffered
adverse consequences imposed by the IRS for failing to report her tips on her 2010 tax
return.

                                          8
of construction that the Workmen's Compensation law should be liberally

construed in favor of injured employees and their dependents." (citations

omitted)).

      After properly excluding all unreported earnings, the AW correctly

utilized Sidebottom's wage data from the most advantageous quarter of the 52-

week period preceding her injury, pursuant to KRS 342.140(l)(d), and

calculated her average weekly wage accordingly. The Board and the Court of

Appeals properly affirmed that decision.


                                 III.   CONCLUSION

      For the foregoing reasons the opinion of the Court of Appeals is affirmed.

Pursuant to that opinion, this matter is remanded to the AW for additional

findings relating to the three-times multiplier as set forth in the decision of the

Workers' Compensation Board.

      All sitting. All concur.




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COUNSEL FOR APPELLANT COMMONWEALTH OF KENTUCKY, UNINSURED
EMPLOYERS' FUND:

Charles Davis Batson
Assistant Attorney General
Uninsured Employers' Fund

COUNSEL FOR APPELLEE KARA SIDEBOTTOM, A/K/ A KARA HARVILLE:

Tamara Todd Cotton
Stephanie Nicole Wolfinbarger
Cotton Wolfinbarger & Associates PLLC

COUNSEL FOR APPELLEE WHITNEY BRAND INC.:

Not Represented By Counsel




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