B & Dcontracting; Zurich American Insurance Co v. Otis Pearley; Director, Office of Workers’ Compensation Programs, Us Department of Labor

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 07-60495
B & D CONTRACTING; ZURICH AMERICAN INSURANCE CO
Petitioners
v.
OTIS PEARLEY; DIRECTOR, OFFICE OF WORKERS’ COMPENSATION
PROGRAMS, US DEPARTMENT OF LABOR
Respondents
Petition for Review of an Order
of the Benefits Review Board
Before REAVLEY, CLEMENT, and PRADO, Circuit Judges.
PRADO, Circuit Judge:
B & D Contracting (“B&D”) and Zurich American Insurance Company
petition this court for review of the Benefits Review Board’s (“BRB”) order
affirming an administrative law judge’s (“ALJ”) award of disability benefits to
Otis Pearley (“Pearley”) pursuant to the Longshore and Harbor Workers’
Compensation Act (“LHWCA”), 33 U.S.C. §§ 901-950. The issue in this appeal
is whether the ALJ and the BRB properly classified B&D’s per diem payments
to Pearley as “wages” for the purpose of calculating benefits under the LHWCA.
Finding no error, we deny the petition for review.
I. FACTS AND PROCEDURAL HISTORY
United States Court of Appeals
Fifth Circuit
F I L E D
November 6, 2008
Charles R. Fulbruge III
Clerk

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1 Both parties refer to these payments as “per diems,” although they are calculated on
an hourly basis. For the sake of simplicity, we adopt the same terminology.
2 A totally disabled employee’s benefits are calculated as two-thirds of the employee’s
average weekly wage at the time of injury. 33 U.S.C. §§ 908(a)-(b), 910.
2
Pearley began work as a shipfitter for B&D in July 1999, earning $16.50
per hour. When he filed his first tax return, approximately six months after
starting work, he discovered that B&D had divided his paycheck into an hourly
taxable rate of $8.50 and an untaxed hourly “per diem”1 rate of $8.00. In July
2000, Pearley received a raise to $9.50 per hour in wages and $9.00 per hour in
per diem payments.
On June 10, 2002, Pearley injured his back in the course of his
employment. B&D paid Pearley $241.52 per week in temporary disability
benefits from June 2002 through January 2006. It specifically excluded its per
diem payments to Pearley in the calculation of his benefits rate. Pearley
challenged the amount of these payments before a Department of Labor ALJ.
The ALJ concluded that B&D should include Pearley’s per diem payments
as wages for the purpose of calculating his average weekly wage. Accordingly,
the ALJ calcuated Pearley’s average weekly wage as $761.98, with a
corresponding benefits rate of $507.98.2 The ALJ denied B&D’s motion for
reconsideration. The BRB affirmed the ALJ’s decision, and B&D filed this
timely petition for review.
II. JURISDICTION AND STANDARD OF REVIEW
This court has jurisdiction to review a final decision of the BRB relating
to an injury that occurred within this court’s territorial jurisdiction. 33 U.S.C.
§ 921(c). Here, the claimant’s injury occurred in Avondale, Louisiana.
This court’s review of a BRB decision is “limited to considering errors of
law and ensuring that the [BRB] adhered to its statutory standard of review,
that is, whether the ALJ’s findings of fact are supported by substantial evidence

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No. 07-60495
3 The meals and lodging were exempt from federal income taxation under § 119 of the
Internal Revenue Code, which provides,
3
and are consistent with the law.” H.B. Zachry Co. v. Quinones, 206 F.3d 474,
477 (5th Cir. 2000) (quotation omitted). We review the BRB’s legal conclusions
de novo. Tarver v. Bo-Mac Contractors, Inc., 384 F.3d 180, 181 (5th Cir. 2004).
We do, however, afford deference to interpretations of the LHWCA by the
Director of the Office of Workers’ Compensation Programs. Pool Co. v. Cooper,
274 F.3d 173, 177 (5th Cir. 2001).
III. DISCUSSION
The purpose of the LHWCA is to compensate employees for the loss of
wage-earning capacity resulting from work-related injuries. Metro. Stevedore
Co. v. Rambo, 515 U.S. 291, 298 (1995). The LHWCA defines the types of
compensation that qualify as wages for the purpose of determining an
employee’s pre-injury average weekly wage, which is then used to calculate the
amount of disability benefits. Under the LHWCA, “wages” are defined as
the money rate at which the service rendered by an employee is
compensated by an employer under the contract of hiring in force at
the time of the injury, including the reasonable value of any
advantage which is received from the employer and included for
purposes of any withholding of tax under subtitle C of title 26
(relating to employment taxes). The term wages does not include
fringe benefits, including (but not limited to) employer payments for
or contributions to a retirement, pension, health and welfare, life
insurance, training, social security or other employee or dependent
benefit plan for the employee’s or dependent’s benefit, or any other
employee’s dependent entitlement.
33 U.S.C. § 902(13). The only question before us is whether the per diem
payments B&D made to Pearley fall under this definition of wages.
This court has previously construed the definition of “wages” under
§ 902(13). In Quinones, we considered whether the tax-exempt value of meals
and lodging was considered “wages” under the LHWCA.3 206 F.3d at 477-79.

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There shall be excluded from gross income of an employee the value of any
meals or lodging furnished to him, his spouse, or any of his dependents by or on
behalf of his employer for the convenience of the employer, but only if—
(1) in the case of meals, the meals are furnished on the business
premises of the employer, or
(2) in the case of lodging, the employee is required to accept such lodging
on the business premises of his employer as a condition of his
employment.
26 U.S.C. § 119(a).
4
The claimant argued that wages include “the reasonable value of any advantage
received,” and that the phrase “and included for purposes of any withholding of
[federal income tax]” was illustrative, but not limiting. The panel disagreed:
[The claimant] implicitly construes the first occurrence of the term
“including” as meaning “including but not limited to.” That
construction is undermined by the fact that the second occurrence
of the term “including” in § 902(13) is followed by the parenthetical
“(but not limited to).” Both occurrences of the term “including” were
added to § 902(13) in the 1984 amendments to the LHWCA, and it
is illogical to assume that Congress intended both to be construed
as “including but not limited to” but only chose to modify the second
occurrence of the term with a parenthetical.
Id. at 479.
The court concluded that under § 902(13), “‘wages’ equals monetary
compensation plus taxable advantages,” and therefore, the value of meals and
lodging exempt from taxation under § 119 are not wages or taxable advantages
and are excluded from the definition of wages. Id.; accord Wausau Ins. Cos. v.
Director, OWCP, 114 F.3d 120, 121-22 (9th Cir. 1997) (holding that the value of
meals and lodging that are tax exempt under § 119 is excluded from wages
under the LHWCA).
We subsequently interpreted the holding in Quinones to mean that “for a
[payment] to constitute a wage, it must be considered either monetary
compensation or a taxable advantage.” James J. Flanagan Stevedores, Inc. v.

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No. 07-60495
4 These payments were distributed annually and were based on an employee’s seniority
and hours worked that year. Gallagher, 219 F.3d at 431 n.10.
5
Gallagher, 219 F.3d 426, 431 (5th Cir. 2000) (emphasis added). In Gallagher,
the claimant argued that non-taxable “container royalty payments”4 were part
of his average weekly wage for the purposes of the LHWCA. See id. The
claimant’s employer contended that those payments were “fringe benefits,”
which are specifically excluded under § 902(13). Id.
In defining the line between fringe benefits and wages, the Gallagher
panel cited approvingly to the reasoning of an earlier Fourth Circuit case,
Universal Maritime Service Corp. v. Wright, 155 F.3d 311 (4th Cir. 1998), and
explicitly adopted the definitions of “wages” and “fringe benefits” from that case.
Gallagher, 219 F.3d at 432. In construing § 902(13), the court in Universal
defined “wages” as “the ‘money rate’ of compensation that is provided (1) for the
employee’s services (2) by an employer (3) under the employment contract in
force at the time of the injury,” as well as the reasonable value of any taxable
advantage. 155 F.3d at 319. “Fringe benefits,” as we explained in Gallagher,
“refers only to a class of fringe benefits whose value is too speculative to be
readily converted into a cash equivalent.” 219 F.3d at 432 (citing Universal, 155
F.3d at 324). Applying those definitions, the Gallagher court concluded that the
container royalty payments were not fringe benefits, and that because the
employer paid them based on the number of hours the employee worked, they
were compensation for services rendered and therefore fell under § 902(13)’s
definition of wages. Id. at 432-33.
The Fourth Circuit’s decision in Custom Ship Interiors v. Roberts, 300 F.3d
510 (4th Cir. 2002), which cites Universal and our decisions in Gallagher and
Quinones, is particularly persuasive. In Roberts, a cruise ship employee received
a non-taxable daily payment designed to cover his meal and lodging expenses

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No. 07-60495
6
while away from home. Id. at 512. However, because the cruise ship provided
free room and board to its employees, the claimant incurred no such expenses
that the per diem purported to cover. Id.
In determining whether these per diem payments constituted wages, the
court examined in-depth § 902(13). See id. at 513-15. Heavily citing Universal,
the court noted that the definition of wages in § 902(13) is properly read as three
separate clauses. It first observed that “[t]he opening clause of § [902(13)]
broadly covers the money rate at which an employee is compensated under his
employment contract for providing services . . . . ‘At a minimum, this
encompasses cash compensation’ provided for services rendered under the
employment contract.” Id. at 513 (quoting Universal, 155 F.3d at 319). The
court further explained that even “[i]f the payment at issue is not regular cash
compensation it might still fall under the second clause, which expressly
includes as a ‘wage’ the reasonable value of ‘any advantage’ received by the
employee that is subject to tax withholding.” Id. at 513-14 (citing Universal, 155
F.3d at 319-20). Most importantly for the instant case, the court explicitly noted
that “the second clause does not serve to limit the first. Instead, it defines a
different category of benefits that might be considered wages.” Id. at 514 (citing
Universal, 155 F.3d at 319 n.10). Thus, “[w]hether or not a payment is subject
to withholding is not the exclusive test of a ‘wage.’ Monetary compensation paid
pursuant to an employment contract is most often subject to tax withholding, but
the LHWCA does not make tax withholding an absolute prerequisite of wage
treatment.” Id. at 515. Applying the definitions of “wages” and “fringe benefits”
from Universal and Gallagher, the court found the per diem payments to have

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No. 07-60495
5 The court noted that (1) the claimant “regularly received [the per diem payments] as
a part of his employment contract”; (2) “[l]ike his hourly wages, the payments correlated to the
amount of time [the claimant] worked each week”; (3) “the payments were unrestricted cash
payments”; and (4) there was not even a requirement that the claimant incur any room and
board expenses. Roberts, 300 F.3d at 514.
7
“every indicia of an ordinary wage,”5 id., and concluded that the “so-called per
diem . . . was nothing more than a disguised wage.” Id. at 515.
Notwithstanding such reasoning, B&D urges this court to apply a strict
rule that only taxable compensation can constitute wages under the LHWCA.
We decline to adopt such a rule. The plain text of § 902(13) defines wages as the
“money rate at which the employee is compensated” plus any taxable
advantages. Quinones, 206 F.3d at 479. The money rate clause of § 902(13) does
not require taxability. The ALJ and BRB properly concluded that the per diem
payments in this case played the role of money wages—they were paid at an
hourly rate and did not directly correspond to any actual expenses of the
employee. Although B&D variously argues that the per diem payments were
designed to defray travel, lodging, or commuting expenses, these explanations
are unconvincing. Pearley worked approximately seventy miles from his home,
but B&D admitted that the same per diem structure would apply to an employee
who lived across the street from his place of employment. The per diem
payments depended on only the number of hours an employee worked.
Furthermore, another rationale supported B&D’s decision to pay employees in
this way. The per diem payments were designed to maximize employees’ take
home pay, provide tax benefits to the employer, and keep up with B&D’s
competitors that paid employees in a similar manner.
Thus, the per diem payments in this case played the role of wages: they
were calculated based on the number of hours worked; they were paid in the
same paycheck as the employee’s normal wages; the per diem was an
unrestricted payment, unrelated to actual costs of meals, lodging, or travel; the

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No. 07-60495
6 Under the FLSA, an employee’s “regular rate” of pay excludes “reasonable payments
for traveling expenses, or other expenses, incurred by an employee in the furtherance of his
employer’s interests and properly reimbursable by the employer; and other similar payments
to an employee which are not made as compensation for his hours of employment.” 29 U.S.C.
§ 207(e)(2).
8
same per diem was paid to all employees regardless of where they live; and the
per diem constituted almost half of Pearley’s gross pay. The only contrary factor
is B&D’s contention that the per diem was not subject to withholding; however,
this court in Gallagher held certain non-taxable payments to be part of an
employee’s “money rate” of compensation under § 902(13). See 219 F.3d at 433.
In light of the LHWCA’s purpose of compensating injured employees for the loss
of wage-earning capacity, the per diem payments in this case formed a part of
Pearley’s regular wages.
B&D claims that the ALJ’s decision is inconsistent with our holding in
Berry v. Excel Group, Inc., 288 F.3d 252 (5th Cir. 2002). In that case, an
electrician, Berry, sued his employer under the Fair Labor Standards Act
(“FLSA”), 29 U.S.C. §§ 201-219, claiming that his $150 weekly “per diem”
payment should count as regular pay for the purpose of calculating his overtime
compensation. Id. at 253. Despite the fact that the employer paid all employees
the same per diem regardless of where they lived, the court concluded that the
per diem was reasonable as reimbursement for Berry’s 100-mile commute. Id.
at 254. This holding is inapposite. The Berry court construed the definition of
wages under the FLSA, which uses a different definition than the LHWCA.6 In
addition, the per diem payments in Berry were “legitimate, reasonable
reimbursements for travel expenses.” Id. Here, by contrast, B&D provided
other reasons for the per diem payment structure, such as remaining
competitive, providing a higher salary to employees, and producing tax benefits
for the employer.

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No. 07-60495
7 B&D also argues that the BRB’s decision is in conflict with McNutt v. Benefits Review
Board, 140 F.3d 1247 (9th Cir. 1998). McNutt, however, is distinguishable from the instant
case. McNutt involved a true per diem payment—there, the employer paid the claimant $100
for each day he worked abroad to defray room and board expenses related to living abroad.
Id. at 1248. There was no evidence that the employer paid all employees this amount, nor that
the claimant would have received this per diem had he not been stationed abroad. Pearley,
by contrast, received the per diem payments at an hourly rate; the payments were not tied to
reimbursement for lodging or meals.
9
B&D also suggests that the ALJ’s decision in this case conflicts with
decisions of ALJs and the BRB in several prior LHWCA cases. However, to the
extent that those prior decisions conflict with our own precedent, we are
compelled to follow Fifth Circuit jurisprudence. Furthermore, prior
administrative decisions are not uniformly consistent on this point. In at least
one case, the BRB upheld an ALJ’s decision that a claimant’s per diem payment
should be included in his average weekly wage. See Colbert v. CDI Aircraft
Maint., BRB No. 97-1120 (1998).7
Finally, B&D argues that Pearley “cannot have it both ways”—if the per
diem was part of his wages, it should be taxed; if it is a non-taxable advantage
or fringe benefit it should not be part of his wages under the LHWCA. B&D
variously defines the per diem as reimbursement for travel, lodging, meals, or
commuting expenses, and it is not clear under what authority these payments
are excluded from federal income taxation. Understandably, Pearley does not
challenge B&D’s claim that the per diem payments are not taxable. The
government, which filed a brief in support of the BRB’s decision, expressly takes
no position on the taxability of the per diems. The questions of taxability of
these payments is an issue not currently before this court. Today we merely
conclude that these per diem payments qualify as wages under the LHWCA.

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10
IV. CONCLUSION
For the reasons stated above, we hold that the BRB properly considered
the per diem payments in this case to be “wages” for purposes of the LHWCA.
Accordingly, we deny the petition for review.
PETITION DENIED.

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