TRANSPORT ACCIDENTS IN VICTORIA: WHAT YOU NEED TO KNOW Part 3: Does the “But For” Test Apply in Calculating Loss of Earning Capacity Payments?

Part three - loss of earning payments

If you have been injured in a transport accident in Victoria, you may be entitled to loss of income payments under the Act, regardless of whether you were at fault. For the first 18 months after a transport accident, the Transport Accident Commission (the TAC) may pay you loss of earnings payments based on your actual income at the time of the accident. After this period, payments are assessed on your pre-accident earning capacity, considering training, skills and experience in employment that was reasonably available before the accident.

How does the TAC assess loss of earning capacity for apprentices?

If you were undertaking an apprenticeship at the time of your accident, your expected future earnings or hourly rate may have included an increase upon completing your apprenticeship. However, the TAC assesses loss of earning capacity under Sections 49, 50, 51 and 54A of the Act, which focus on your pre-accident earning capacity, rather than potential future earnings.

The Act outlines two circumstances under which weekly payments continue after the first 18 months following a transport accident:  

1. Loss of earning capacity: You must demonstrate a total loss (Sections 49 or 51) or partial loss (Sections 50 or 51) of earning capacity;

2. Severe injury and “safety net” criteria: You must meet the “safety net” income benefit criteria outlined in Section 54A.

For apprentices, the assessment considers your capacity to earn before the accident in employment reasonably available to you based on your training, skills and experience. It must be based on reality and inference, and not speculation. It is not a “but for” test, or a “might have been had it not been for the accident” test. This is distinct from common law principles, as Section 49(5) explicitly excludes speculative factors such as anticipated future earnings upon completing an apprenticeship.

In TAC v McRitchie (2001) VSC 151, the Supreme Court emphasised that pre-accident earning capacity must reflect actual employment reasonably available before the accident. It rejected the application of common law principles, which assess hypothetical future earnings, making the following observations:

The legislation specifically refers to a calculation made by reference to the capacity of the person to earn before the accident in employment reasonably available to that person in view of their skills and experience. In my view, this means that one looks at the person's capacity at that point in time. There are no words used to indicate that the calculation is to be made by reference to loss of earning capacity or what one's earning capacity might have been but for the accident or had it not been for the accident. The words used do not, in my view, permit one to import into the specific definition common law principles applicable to establishing loss of earning capacity, particularly when the definition does not use that phrase, but uses the phrase "capacity to earn before the accident". They are clearly different things.

What factors are considered in the assessment of pre-accident earning capacity?  

The assessment of your pre-accident earning capacity under Section 45(5) focuses on what you were capable of earning before the accident in employment that was reasonably available to you based on your training, skills and experience, not your actual earnings for future earning potential.

For example, if you were working part-time before the accident for various reasons unrelated to your skills, training and experience, but had the capacity to work full-time, this full-time capacity may be considered in the assessment.  

In Browne v TAC (2022) VCAT 1248, the Tribunal confirmed that Section 49(5) focuses on earning capacity before the accident rather than potential future earnings, although underemployment or part-time work may be considered if they align with the individual’s skills and experience. Senior Member Dea made the following observations:

Section 49(5) does not allow the application of common law principles applicable to establishing loss of earning capacity given the relevant test is ‘capacity to earn before the accident’ rather than ‘loss of earning capacity’. It is not open to look at what a person might have earned depending on what she might have done with their future, but it is open to consider whether a person was under-employed or in part-time employment. Accordingly, one is not bound only by the actual earnings but may consider other matters provided they arise from employment reasonably available and the person’s training, skills and experience at the relevant point in time.

In Papazacharia v TAC (2003) VCAT 2034, the applicant, a skilled machinist working part-time one day a week to care for her husband who subsequently died, was assessed as having a full-time earning capacity. The Tribunal determined that her capacity to work full-time as a machinist, based on her skills and the availability of such work, was the appropriate basis for calculating her loss of earning capacity payments.

In Muleta v TAC (2004) VCAT 1651, the applicant had recently started a firewood business that was running at a loss when the accident occurred. Despite this, his earning capacity was assessed and based on his previous salaried employment as a training co-ordinator, machine operator and union representative (of which he was retrenched), reflecting his demonstrated skills and employment history.  The Tribunal determined that the statutory test must consider historical context and exclude speculation about future opportunities. Deputy President Coghlan observed at paragraph 34:

Whilst Mr Muleta had not actually been looking for other employment after he was retrenched, because he was starting his own business, I am satisfied that it is not unreasonable to look at what he earned when last employed as the basis of calculating the amount of loss of earning capacity benefits having regard to his skills and experience. To approach it in that way is not fixing an amount having engaged in speculation about what Mr Muleta's working capacity over his working life would have been. It is fixing an amount by looking back at the past and fixing an amount which has an historical context.

In Purdie v Transport Accident Commission (Review and Regulation) (2024) VCAT 752, an apprentice boilermaker who suffered partial paraplegia as a result of a single vehicle motorcycle accident, argued for loss of earning capacity payments at a qualified boiler maker ratee, rather than his pre-accident apprentice rate. The applicant was in his third year of a four-year boilermaker apprenticeship and was working towards the qualification of Certificate III in Engineering and Fabrication Trade to become a qualified boilermaker. He was paid above the award rate of $25.00 per hour with an annual salary of $49,000 per annum.

Although the applicant demonstrated advanced skills and workshop managerial responsibilities, the Tribunal upheld the TAC’s decision to calculate payments at the apprentice rate of $25.00 per hour, finding that:

The vase highlights the distinction between statutory and common law approaches.  If the “but for” test applied, the applicant would have a persuasive argument that he would be entitled to be paid for loss of earning capacity at the higher rate of $40.00 per hour. However, the statutory language of Section 49(5) of the Act does not permit such an approach.

The TAC’s statutory test focuses strictly on pre-accident realities, making it vital to demonstrate earning capacity based on skills and employment available before the accident. For plaintiffs with complex earning scenarios, obtaining expert legal advice early can help clarify entitlements and strengthen claims under the Act.