by Douglas W. Allen

This article first appeared in the spring 2004 issue of the Expert Witness.

Often the simplest questions in life have the most complicated answers. Such is the case in measuring the value of non-market activity like volunteer hours, leisure time, and especially the value of a housewife. How can something so much a part of our everyday experience as “household service” be such an elusive thing to evaluate … especially in court?

Of course, at the heart of the matter is the absence of explicit market pricing for housewives. “If only,” exhorts the expert economic witness, “housewives were bought and sold on an open market like wheat futures, we could have an accurate measure of their worth.” This market oriented predilection for using prices to measure value not only drives the methods currently used, it is the source of the problems in measuring, and perhaps the source of the courts often reluctance to rely on “economic” measures of worth. To paraphrase Oscar Wilde, economists often know the price of everything, but the value of nothing.

To refresh your memory, economists have argued for two different methods to measure the value of a housewife: the opportunity cost method; and the replacement cost method.

The fundamental idea behind the opportunity cost method is “what does the household sacrifice by having the wife stay home to work?” In other words, what is the opportunity cost of the housewife’s time? If a female lawyer is earning $150/hour, and she decides to forgo an hour of work to do the dishes, the cost of that task is $150. The economist then says the $150 measures the value of an hour of housewife service.

The replacement cost approach to the problem asks: “how much would it cost to replace the services of the housewife?” The idea being one could go into the market place, find the wage for nannies, cooks, prostitutes, etc., then use these wages as the value of the housewife services. Sometimes an average is used, sometimes the wage within each specialty is used.

Both of these methods are riddled with well known problems:

• They measure the value of household services at the margin, and not the total value.
• The OC approach assumes your hours of work are completely flexible.
• The RC approach assumes the productivity of the wife and market replacement are the same.
• Both methods have a hard time dealing with full-time, long-term housewives who have been separated from the labor market for years.
• Both methods rely on often arbitrary measures of time devoted to household services.
• Both methods are silent on how to treat housewife services that are not available in the market.
• Both methods have a difficult time dealing with the commingling of leisure and household services.

The list goes on. Such problems are a source of income for an expert economic witness, but there must be a better way – especially for the case of the long-term, full-time housewife where using market measures is inappropriate.

The fundamental problem with both methods is that they are based on market oriented economic theory, and as a result they ignore the institutional aspect of marriage. Marriage, as an institution, is designed to produce a set of goods that the market does not produce. Certainly some market goods get jointly produced in the marriage, but these are secondary to the main purpose of marriage. Marriage restricts the behavior of both the husband and wife such that they have an incentive over their life-cycle to cooperate in procreation and the successful rearing of the next generation. To confuse the value of a housewife with the services of domestic service misses the point entirely. The market based procedures are only crude, unreliable, and biased under-estimates of the true value of a housewife.

Within the past 25 years economists have started to move away from this purely market based way of thinking, and have started to consider the institutional aspects of exchange. This work leads to an interesting method of evaluating a housewife – one that works best in the case where the market approach does poorly. This method is simple to use, and is based on the revealed spouse choice at the time of marriage as an indicator of the value of a spouse’s contribution to a marriage.

Marriage is a sharing arrangement. A husband does not hire his wife, nor does the wife hire her husband. When the marriage is doing well both benefit, and in hard times both suffer: “for better or for worse.” Some shares are better than others. A spouse who gets a small share of the pie has little incentive to work within the marriage. The gains from an increased share to this person will more than offset the disincentives caused by reducing the share to the other spouse. Economists have shown that for a given man and woman there is an “optimal share” which creates the best incentives for the husband and wife to contribute to the marriage.

The interesting thing about the optimal share is that, with one exception, it never pays the average contribution of each spouse. For example, if one spouse were contributing 90% of the marriage value and the other spouse was contributing 10%, the optimal share turns out to always be lower than 90% for the more productive spouse. This is a good deal for the low productive spouse, but a bad deal for the partner. The only time this is not true is when each spouse is equally productive and they share 50-50.

In a marriage of unequals then, to have the optimal share means that one of the spouses is unhappy. On the other hand, to share in proportion to unequal contributions means the share is not optimal and the incentives are not right: the marriage will be low valued. In either case, there is a problem.

Couples do not marry in a vacuum. Individuals compete with one another for mates. This competition for spouses, along with the optimal sharing rule above, forces people to marry individuals they expect will make an equal contribution to the marriage. A person will always do better marrying someone of equal quality and sharing equally, rather than marry someone with of a lower quality, even though their share is higher in the latter case. The result is that in equilibrium husbands match with wives who are expected to contribute equally over the life of the marriage.

This does not mean the type of contributions are the same. The husband may be expected to work in the labor force, the wife may work in the home full time. Nor does it mean the contributions actually end up equal. It simply means that the couple believes at the time of marriage that the two different streams of services are of equal value – otherwise they wouldn’t marry. Thus this approach recognizes the most valuable contribution of a full-time housewife – giving birth and raising children. The other methods, by focusing on simple household chores, ignore the most important contribution of the wife.

Recognizing the incentives of sharing within a marriage explains why marriages have a hard time surviving large unexpected shocks like infertility or long spells of unemployment. An option to divorce is to renegotiate the share. However, renegotiation, ex post, will always imply a sub-optimal share. The spouse who ends up, ex post, more productive will always be better off finding a new mate of similar productivity.

Recognizing the incentives of sharing explains why full time working wives still tend to do more than half of the housework in a marriage. Women still earn 70% of men, on average. Since total contributions must be equal in successful marriages, women who contribute less market value to the marriage must contribute more household services.

The idea that people tend to marry equals is in our popular culture. The expression “what does she see in him?” indicates that some hidden redeeming feature must be present to compensate for an observable shortcoming.

If we accept the argument that individuals marry others of equal expected value, then we have a simple, but better, method of measuring the value of household services for marriages that remain intact. If a marriage is on-going, the partners must feel that on average they are getting out of the marriage what they are putting in, and that this marriage provides a higher value than marriages to other people. The condition for this is that the partners are making approximately equal contributions and are sharing 50-50. Thus, to determine the value of household services we need only look at the market earnings of the husband and adjust for the market earnings of the wife, and the household services of the husband. Or:

Value of housewife = Husband’s income – Wife’s income + value of husband’s household services.

Suppose the wife does not work outside the home, and the husband never does any work around the house. Then the value of the wife’s household service is simply equal to the husband’s income. This methodology is not only easier than the standard ones, it is better in that it is a true measure of value, rather than just cost. It is better because it does not have any of the ad hoc aspects of the market measures since it relies on the revealed behavior of the individuals to assess their own value.

Douglas W. Allen is the Burnaby Mountain Endowed Professor of Economics, Department of Economics, Simon Fraser University

by Therese Brown and Audrey Hallson

This article first appeared in the winter 1997 issue of the Expert Witness.

Articles in previous issues of The Expert Witness have dealt with the appropriate approach to the valuation of the loss of household services, as well as methods to determine the number of hours lost, and a brief look at the way that the courts have dealt with this issue. The focus of this article is the determination of the hourly rate which should be applied to the replacement cost of those household services which the plaintiff performed prior to the accident but is now unable to undertake.

On the face of it, this would seem to be a fairly straightforward process. The features which make this issue more complex become apparent when we pose certain questions, such as: What activities comprise household services? What type of provider can best replace those services which the plaintiff is now unable to undertake? Are there features which differentiate the services offered by seemingly similar service providers? Is there a standard which should be adhered to in regard to the level of service that a plaintiff should be compensated for? Is there a generalist rate that can be applied to the loss of household services which reflects the replacement cost of household services for the plaintiff?

While some of these queries lack pat answers applicable in all cases, it is our intent to give these issues serious consideration in the discussion which follows.

What are Household Services?

Anyone who has undertaken activities in or around the home is well aware that these chores are many and varied. Certain household duties come quickly to mind in this regard, for example, meal preparation, general cleaning, and laundry. There are other household activities which should also be considered, despite the fact that they may not form a large proportion of total household responsibilities. Examples would include indoor as well as outdoor maintenance.

Of interest here is the rate payable to replacement help for those services which the plaintiff is no longer able to undertake. In many instances a plaintiff continues to undertake selected household activities but his/her injury precludes participation in other activities. It is, therefore, important to compensate the individual fairly by utilising an hourly rate for a provider who actually performs the required services. The following discussion will provide a brief explanation of the services provided by various agencies or individuals who may be contracted to provide replacement help to a plaintiff.

Types of Service Providers

We find it useful to distinguish three primary types of service providers. These we call: homemakers, housecleaners, and handymen.

The primary purpose of a homemaker is to provide services which allow a person, compromised in some way, to remain in his/her own home. Homemakers generally undertake non-labour intensive housekeeping duties including light cleaning, meal preparation, grocery shopping, and laundry. These individuals would not undertake all of the general cleaning tasks required in the household. It is not the norm for homemakers to provide any of the equipment or supplies required in the performance of their duties.

Housecleaners tend to specialise in more labour intensive cleaning duties than do homemakers, and they usually provide necessary equipment and supplies. These individuals may be found either through agencies which are listed in the yellow pages of telephone directories or through classified advertisements in newspapers. The latter are more likely to be owner/operators.

Replacement services which are of a home maintenance nature would generally be provided by a handyman. These service providers may be accessed through the yellow pages or classified advertisements. They would undertake tasks such as the repair of leaky faucets, replacement of a furnace filter, or minor household repairs.

Finally, repair of automobiles and outdoor maintenance, such as lawn maintenance or snow removal, would be accomplished by service providers who specialise in those particular services.

Average Rates Charged by Service Providers

In February and March of 1997 Economica undertook a comprehensive survey of rates charged by various service providers in the Calgary and Edmonton areas. With the exception of those housecleaners who are individual providers, we have relied on prices quoted by businesses who offer their services in the yellow pages of telephone directories. The table below summarises the results of this survey. These rates are shown in terms of the cost per hour to hire the various service providers, other than average costs for lawn maintenance and snow removal services. The latter prefer to provide quotes for the total cost per season of providing the service.

The large rate differential between homemakers and housecleaners is largely explained by the fact that these providers offer services which differ from one another in a number of important ways. As previously noted, homemaker services are limited to lighter cleaning duties. The source of the rate differential between “agency” and “individual” housecleaners is less apparent. The most significant difference between these two providers is that the former are usually bonded, insured, and covered by workers’ compensation, which is generally not the case for the latter.

Generalist Rates for Replacement Household Services

In a previous article (The Expert Witness, Winter 1996), we proposed that the technique of choice in the valuation of household services is the generalist variant of the market replacement method. An alternate valuation method, the specialist method, would base the loss on the cost of hiring various and assorted specialists to replicate the contribution previously made by the plaintiff. The concern with that method derives mainly from its impracticality. To match the rates charged by numerous specialists to innumerable household tasks which are now outside of the plaintiff’s capacity would be an almost impossible task. As such, the generalist variant remains the method of choice.

It is shown in two examples which follow that the use of one all-inclusive generalist rate is usually sufficient to accurately capture the plaintiff’s loss of household services. It is recognised, however, that the generalist rate may be oriented either toward: the homemaking type of service (including meal preparation and lighter cleaning); or the housecleaning type of service (comprising more onerous cleaning duties). Finally, a third example describes a situation in which the use of one all-inclusive generalist rate may be inadequate. In that case, it is shown that the use of the generalist rate may need to be supplemented with the use of another rate.

In the first instance, it is assumed that a severely injured plaintiff who resides in a small condominium, will require the services of an individual who will prepare meals and perform general light cleaning duties, to allow him/her to remain in his/her own home. In this case homemaking services would comprise the largest component of future replacement services, as outdoor maintenance is provided and only minimal general cleaning activities would be required in the smaller residence. It can be assumed then that the loss can be calculated according to a generalist rate based on the average cost of hiring a homemaker.

In a second instance, a plaintiff who is less severely injured is able to continue with meal preparation and light cleaning, precluding him/her only from undertaking more labour intensive cleaning duties. Thus, the relevant generalist rate would be the average hourly rate charged by housecleaners.

Finally, in a third case it may be necessary to supplement the use of a generalist rate with the rate of another service provider. For instance, it may be found that the plaintiff’s previous contribution to household services was in the area of meal preparation and home repair/maintenance, neither of which are possible now given his/her physical limitations. The replacement help required by the plaintiff would then include both a homemaker and handyman. For the former, the use of a homemakers’ rate would be representative of the generalist rate required in the calculation of the loss. This alone would not capture the plaintiff’s loss if it shown that prior to the accident he/she also contributed several hours per week to maintenance duties. In this case, the use of a handyman rate should be applied to the portion of hours which the plaintiff is no longer able to contribute toward those type of activities.

Additional Complications

As can be seen in the table of household provider rates, there is a large differential between the average rates of housecleaners hired through classified ads and those hired from agencies. It appears that this is attributable to the fact that the latter tend to be bonded, insured, and covered by workers’ compensation, which is usually not the case for the former. The implication of this additional proviso is that the customer who hires housecleaners from an agency is afforded additional protection. Protection, in part, is derived from the screening of service providers, due to their bonded status. The consumer who buys cleaning services from an agency would be covered for breakage or theft which might occur while the service provider was in his/her home. In addition, because of workers’ compensation coverage, the plaintiff would not be liable for injury that the housecleaner may incur while in the plaintiff’s home.

To some extent, then, the consumer who purchases cleaning services from an agency is choosing a service which differs from that purchased from an individual provider. Determination of the appropriate replacement rate for the provision of housecleaning services is an important issue, as it can have a significant impact on the award. It is important, therefore, to ascertain which of these rate forms the basis for adequate compensation for the plaintiff who will need to hire housecleaning replacement services.

There is yet another factor, not yet alluded to here, which further complicates the valuation of the loss of household services. This is the loss of the management component of household services. A more complete discussion of the concept of the “management or indirect labour component” of the loss of household services can be found in an earlier article dealing with judgments in the valuation of household services (The Expert Witness, Autumn 1997). Any individual who has managed a household can verify that this is essential to the success of any well-run home. In regard to this important function, however, the determination of an appropriate rate becomes increasingly difficult, as this is not a service which can be readily purchased in the market. Until an alternate approach is determined to deal with the loss of household management capabilities the loss is probably best reflected by the generalist rate for replacement help that is being used in that particular case.

The Courts

A number of recent court judgments have specified hourly rates at which the loss of household services has been valued. In Morris v. Budnarchuk (1997) Action No. 9503 04671, Sanderman J. accepted the hourly rate of $10.75 which had been applied to the pre-accident loss. The rate of $12.00 for the future loss of housekeeping services was rejected, to be replaced by the rate of $10.75 throughout. One of the points raised to support the rejection of the higher rate was that there had been no consideration given to the fact that there are people who will perform household services for minimum wage. Likewise, in Reynolds v. Pohynayko (1997) 202 A.R. 1, a proposed rate of $12.00 per hour was rejected in favour of a rate of $8.50 per hour. The rationale for this decision was that there was no need to pay agency rates for housecleaners, as housecleaning services could be hired directly. In Labbee v. Peters, (1997) 201 A.R. 241, McIntyre J. ruled $10.00 per hour to be an appropriate generalist rate at which replacement help could be hired. Other recent decisions have employed similar rates.

These decisions leave both counsel and economic experts in something of a quandary. Whereas our survey indicates that it would be difficult to find a service provider for less than $13 per hour, even from the classified ads, the courts have consistently imposed their own view that no rate above $11 is permissible. The question is: should the expert substitute a rate which has been derived employing a sound statistical methodology with one which has been chosen by a number of trial courts, but not approved by the Court of Appeal?

Some economists testifying in Alberta have answered “yes” to this question and, in the face of the evidence which they have collected themselves, have begun to recommend a rate of $10.00 to $12.00. It is our view that this approach is an abrogation of the responsibility of the expert to provide the best evidence possible. Of course, should the legislature or the courts mandate a particular rate, as has been done with respect to the discount rate in most provinces, the expert would be obligated to adopt that rate regardless of the evidence.

Summary

This discussion has expanded on the use of the generalist method in the determination of the loss of household services. Assigning an appropriate rate to the loss of household services may have a large impact on an award for the loss of household services. Given this reality, it is important to look closely at the nature of a plaintiff’s loss of household services. In most cases, the loss can be valued at one all-inclusive generalist rate. This necessitates the determination of whether the generalist’s role is to provide access to homemaking services of a non-rigorous nature or housecleaning services which are more labour intensive. In reference to the latter, it must then be determined whether the plaintiff’s needs are met by the services of an individual provider or whether a housecleaner hired through an agency is more appropriate.

It has been noted that the rates applied to the loss of household services in the courts are not consistent with the rates charged by the service providers contacted in our survey. There is considerable discrepancy especially between the rates suggested by recent court decisions and the rates of housekeeping agencies which we surveyed. This would imply that plaintiffs are not being compensated at a rate which would allow them to hire replacement workers who are bonded, under the auspices of a licenced business. It may be argued that the plaintiff should have access to bonded replacement workers from a licenced agency, thus leaving him/her relatively less vulnerable in regard to the increased potential of theft or breakage of personal property, and exposure to a liability claim from an injured worker. If there is validity to that claim, it may be argued that the use of an agency rate in the valuation of a household services claim is necessary to restore the plaintiff to his/her pre-injury status.

Finally, there are instances when the use of one generalist rate may result in inadequate compensation. In those cases, a more complex approach is necessitated, whereby the plaintiff’s loss is valued according to the cost of replacement help for more than one type of service. Given that this would make the calculation of the loss more complex, it would be advisable to pursue this route only if the plaintiff’s loss of capacity in categories outside of basic homemaking/housecleaning services forms a significant portion of the loss.

From 1996 through February 1998, Therese Brown was a consultant at Economica.

From 1995 through December 1998, Audrey Hallson was the office assistant at Economica. She also assisted with Economica’s newsletter, and conducted research.

by Therese Brown

This article first appeared in the autumn 1997 issue of the Expert Witness.

This is the third in a series of articles on the loss of household services in personal injury or wrongful death actions. The previous two articles dealt with the approach to the calculation of household services (The Expert Witness, Winter 1996), and the method used to estimate the number of hours lost (The Expert Witness, Spring 1997). The purpose of this article is to provide a view of the law as revealed in a number of recent court decisions.

Establishing General Principles

Two cases in particular, Daly v. General Steam Navigation Co., (1980) 3 All E.R. 696, an English Court of Appeal decision, and Fobel v. Dean (1991), 6 W.W.R. 408, a Saskatchewan Court of Appeal decision, provided precedent-setting judgments involving a claim for household services. Two main principles which are set out in Daly deal with the pre-trial and future loss of household services. First, a future loss was allowed, regardless of the intent, or lack of it, on the part of the plaintiff to hire replacement household labour to compensate for the lost capacity to undertake household work (see Daly at 701),

It is really quite immaterial, in my judgment, whether having received those damages the plaintiff chooses to alleviate her own housekeeping burden … or whether she chooses to continue to struggle with the housekeeping on her own and to spend the damages which have been awarded to her on other luxuries…

This reasoning was later advocated by Justice Vancise in Fobel and subsequently in recent Alberta cases (for instance see, McLaren v. Schwalbe (1994) 16 Alta. L.R. 108 at 138).

In Daly, it was deemed appropriate, to utilise the cost of hiring replacement domestic help to measure the damages, at least in terms of the future loss. In reference to the pre-trial period, however, Bridge, L.J. stated that the cost of replacement services was not an appropriate measure of the loss of housekeeping ability, which in that case was the additional difficulty experienced by the plaintiff in carrying out household duties. The loss, rather, should have been assessed as a part of the plaintiff’s general damages, and the additional pain, suffering and loss of amenity experienced by the plaintiff should be the measure of that loss. Despite this finding, the appeal court concurred with the trial judge regarding the amount of compensation, although the compensation in the lower court was based on the cost of replacement help.

In Fobel, at 423, Vancise J.A. commends the approach to the impairment of housekeeping ability taken in Daly, which awards the plaintiff for her loss of ability rather than relying on the prior “antiquated if not sexist” approach which compensated a third party for the loss of services previously provided to them by the victim. Also recognised, at 424, is the need to consider and define the notion of housekeeping capacity. Vancise J.A. notes that Daly provides a basis for this type of consideration when two major roles are delineated: first, “ordinary housework”; and second, “proper supervision of children”. Vancise J.A. takes this concept further, classifying the former type of duty as “direct labour”, the loss of which can be replaced quite readily by employing household labour, and the latter as “management or indirect labour” which encompasses the duties of a homemaker which are less tangible, such as household management and those aspects of the care of children which extend beyond physical care. The point is made that the latter is much more difficult to replace, and that it is up to the trial judge to ascertain to what extent ability has been impaired, in the case of either component. Despite this clearly enunciated view, the award did not incorporate a separate amount for the loss of “management” as evidence had not been brought forward on which to base a loss for that component.

Substantiating the Loss

While there seems to be consensus that the loss of household services is compensable, there is less agreement concerning the evidence that should be brought forward to substantiate the extent of the loss. As aptly stated by the Court of Appeal in Mason v. Peters (1982), 139 D.L.R. (3d) 104 at 110, “Precise proof is manifestly impossible, but if a basis for reasonable ascertainment of the amount of damages has been established, the court will make the assessment as best it can with what it has.”

There are instances in which the court relies on the plaintiff and/or the plaintiff’s family as the primary source of information in the estimation of the loss of household services. In one such case, Gilchrist v. Oatway (1995), 168 A.R. 56, at 66, the court based the loss on information from family members who estimated the additional household work which they had undertaken due to the plaintiff’s injury, even though they were unable to provide a detailed record of that additional contribution. In that case the evidence was taken at face value but then discounted to reflect a possible decrease in required household services, based on projected changes in family circumstances. In many cases, however, additional evidence as well as documentation has been required.

In Simmie v. Parker and Unger (1994), 164 A.R. 178, Rawlins J., at 182, ruled that the court’s minimum requirements for household services claims included: statistical data on time spent on household services by the average individual with characteristics similar to the plaintiff; specific information regarding tasks previously undertaken by the plaintiff and her/his ability to complete those tasks, post-accident, in the time available for those tasks; and time spent by paid help or family members in replacement of the plaintiff’s duties.

Concern regarding a lack of evidence on a household services claim was also expressed in Acheson v. Dory (1993) 8 Alta. L.R. (3d), at 145, when Picard J. stated that additional evidence that could have been provided would have included “the length of time she was totally and then partially incapacitated and the quantum and nature of the assistance required.” Further, at 146, Justice Picard listed other information pertinent to the establishment of the loss:

…the specific tasks the plaintiff can no longer accomplish or only with assistance, the standard of housekeeping she has maintained and seeks to continue, the modifications she can make to allow her to achieve her standards, the number of hours she and her husband worked in her home prior to the accident and the number she now works, the number of hours she believes she will need assistance.

Experts’ Evidence as to Loss of Hours

Another important factor in the determination of damages for the loss of household services is the acceptance of evidence offered by experts. In Grimard v. Berry et al., (1992), 102 Sask. R. 137, Maurice J., at 152, states that it must be understood that, as expert witnesses are partisan witnesses, it is imperative that their conclusions be supported by the evidence. In this case, the court determined that the estimated requirement for household services according to the plaintiff’s experts ran contrary to medical evidence that the plaintiff was still able to undertake light housekeeping duties. As a result, damages were calculated only on the inability to complete heavier housework. In other cases, the loss of household services may be adjusted in light of other factors in the plaintiff’s life. In Mackie v. Wolfe (1994), 153 A.R. 81, at 146, the claim for a loss of household services was reduced by the court on the basis of the employment circumstances of the plaintiff, as well as her active social and family life.

Reference to average statistics to support the information solicited from the plaintiff or the plaintiff’s family, as to her/his household contribution, increases the validity of that information. This was the case in Brouwer v. Grewal, (1995) 168 A.R. 1 (Q.B.), at 354, when evidence as to the plaintiff’s weekly pre-trial contribution to household services was shown to be less than the average statistics for a woman with her socioeconomic statistics, with an accompanying explanation for this discrepancy.

Similarly, there have been instances in which average statistics have formed the basis of the evidence as to household contribution, supported by testimony from the deceased’s family. In O’Hara et al. v. Belanger (1989) 98 A.R. 86, at 87, counsel for the defence argued that the employment characteristics of the deceased (extensive job-related travel) would have made it difficult for him to actively participate in household duties. Berger, J. affirmed that average statistics were, nevertheless, an appropriate basis for the estimation of the loss of services as evidence had not been brought forward to show that the deceased had not made “average” contributions.

Other approaches have also been used to support the estimated weekly requirement of household assistance. In Fobel, at 432, an estimate of the plaintiff’s level of disability, expressed as a percentage, (in that case 70 percent) was applied to the number of hours spent at household activities by the plaintiff pre-accident.

Are Household Services Replaceable and at What Cost?

In some instances, the household services which were performed by a plaintiff or the deceased cannot be replicated by replacement labour. The extent to which household services are replaceable was an issue in Taguchi v. Stuparyk (1994) 16 Alta. L.R. (3d) 72, at 84-5, when the husband of the deceased testified that a replacement worker he had hired did not actually replace his wife’s household contribution, in terms of quality. Counsel for the defendant argued to have the loss of services valued at $7 per hour, the rate paid to the teenage worker, whereas, evidence from expert witnesses valued such services as high as $23 per hour. The defendant argued that the higher commercial rates were not applicable as they incorporate overhead, profit, and additional building costs. Matheson J., stated that while commercial rates were not determinative, they were, nevertheless, “important and relevant” in this type of valuation. On that basis, the award for the future loss of household services was calculated according to an hourly rate of $12 which was described as being representative of the middle ground.

A related subject, regarding the adequacy of compensation, refers back to the discussion in Fobel with regards to the two components of the loss of household services: direct labour, including most general housekeeping duties; and management or indirect labour. Various judgments have considered a loss in either one or of both components in an award for a loss of household services. Marshall J. noted, in Brouwer v. Grewal and Edmonton (City), (1995), 168 A.R. 342, at 353-4, that the assessment of the plaintiff’s loss must consider not only her loss of ability to perform manual tasks but her ability to perform the management function of homemaking, remarking particularly on her difficulty with decision-making on basic decisions such as meal-planning. A rate of $13.31 per hour was relied on to calculate the award for the loss based on a survey of companies and individuals who provide housekeeping services.

The difficulty posed by the assessment of loss in regards to the management component of housekeeping services is made apparent by Matheson J., referring to Fobel, in Taguchi, at 86, “commercial rates in evidence here still only compensate the plaintiffs for the ‘direct labour’ aspect of housekeeping loss while the ‘management’ aspect discussed by Vancise J.A. … remains as a loss which is difficult to quantify and therefore compensate.”

Assumptions

There have been judgments, in which household services awards have reflected various assumptions about family circumstances, the division of labour in the family, or the assigning of responsibility. In Mayes v. Ferguson and Stettner (1992) 102 Sask. R. 250, at 258, Barclay J., decreased the potential award by 50 percent on the assumption that as the plaintiff and her husband were both working full-time and had no children they would have hired a part-time housekeeper even had the accident not occurred. Alternatively, in the case of DeMarco v. Toronto Transit Commission, (1978) 19 O.R. (2d) 691, at 694, the reduction of the award was based on the assumption that the plaintiff’s husband and sons should have assisted her when injury from the accident prevented her from fulfilling her household duties, thereby reducing the burden that was left to the plaintiff’s daughter.

There is danger inherent in basing an award on an assumption about what “should be” rather than what “is”, as pointed out in McLaren, at 136, when various non-traditional household arrangements are noted. Picard J. makes two points in regard to the use of potentially erroneous assumptions: first, that there is need for caution when relying on such assumptions; and second, that this issue once again highlights the importance of bringing forth sufficient evidence in these types of claims.

The Dependency Argument

In a fatal accident claim for loss of household services, the claim may or not be adjusted to reflect that the loss of services is offset to the extent that family members no longer have to provide household services solely for the benefit of the deceased. In Labee v. Peters and Thompson (1997) Action No. 9404-00110, at 23, the defendant’s expert argued that the household services provided to the deceased exceeded the contributions which the deceased made in this regard, so that until the deceased would have retired, there was not a loss of household services. While the loss being claimed by the defendant’s experts was reduced somewhat, the court ruled that the deceased’s spouse did suffer a loss of household services as she would have to pay for particular specialised work which her husband would have done.

Conclusion

The various judgments noted above suggest that the determination of the award for the loss of household services is not a straightforward matter. Thorough documentation, specific to the plaintiff or deceased in question, which details the loss of household services is essential. In the case of an injured plaintiff, the level of disability may differ according to different time periods. If such is the case, the number of hours requiring replacement and the type of replacement required must be clearly stated for the respective periods. Average statistical evidence can provide further support to the claim. In terms of the replacement cost for the loss of household services, it is prudent to rely on the cost of employing household labour in the locale where the plaintiff resides. As the loss of household services may be comprised of a “management” as well as a “direct labour” component, the loss of both aspects of household services should be considered. Since the loss of household services is not straightforward, the extent of the loss may be difficult to prove. It is crucial, therefore, to ensure that a claim for this loss is supported by thorough documentation and statistical evidence.

From 1996 through February 1998, Therese Brown was a consultant at Economica.

by Therese Brown

This article first appeared in the winter 1996 issue of the Expert Witness.

Since individuals make valid contributions through their efforts at both paid and unpaid work, the courts have concluded that they should be compensated when they are unable to pursue either type of employment. In the field of personal injury litigation this has implied that calculation of a plaintiff’s damages should include the loss (or impairment) of the individual’s ability to perform household services. Controversy remains, however, concerning the method which should be used to establish the economic value of that loss.

Three frequently discussed household services valuation methods will be explored here: the opportunity cost method, and both the generalist and specialist variants of the market replacement method. Each of these wage-based methods will be defined and the advantages and disadvantages associated with each of them will be outlined. It will be argued that there are sound reasons for the courts to have frequently adopted the generalist variant of the market replacement approach in personal injury cases.

The Opportunity Cost Method

Valuation of household services utilizing the opportunity cost method is based on the assumption that when an individual chooses to undertake unpaid work, such as household activities, the possibility of spending that time at paid work is precluded. Thus, the salary associated with that employment is foregone. Wages sacrificed to allow the individual to spend time at unpaid work are thus said to be representative of the economic value that the individual places on the unpaid activity. For example, if the individual has chosen to give up 20 hours a week of employment paying $10 per hour, in order to engage in 20 hours of housework, the opportunity cost approach concludes that the value of that housework must have been at least $10 per hour. Ten dollars becomes the valuation of an hour of housework.

There are various problems associated with adopting the opportunity cost method to valuate household services, not the least of which is the determination of the wage that has been sacrificed to allow the individual to participate in unpaid work. Janet Yale has delineated some of these concerns in her article, “The Valuation of Household Services in Wrongful Death Actions” (University of Toronto Law Journal, 1984, 303). She notes that it is reasonably simple to estimate the foregone market wage in the case of an individual who has had recent labour market experience, who has clearly defined skills, or who belongs to a particular profession. Outside of this framework, the estimation of an appropriate market wage may become extremely difficult.

More problematic is the assumption, underlying the opportunity cost method, that the amount which must be spent to restore the plaintiff to his/her pre-accident position is the value which the plaintiff had placed on the household services which have been lost. Although the individual may have given up $20 per hour to engage in housework, that individual can, in principle, be compensated for his/her loss by employing a third person to perform the forgone tasks. If a maid service can be hired to wash the kitchen floor for $15, it does not matter whether the plaintiff had previously foregone $6 or $60 to wash that floor – it will be equally clean in either case. (The exception to this argument occurs when the plaintiff had formerly obtained pleasure from household chores – but the compensation of this loss is properly that of non-pecuniary damages.)

The Replacement Cost Methods

The approach taken in both replacement cost methods is to value household services according to what it would cost to hire an individual who offers those services on the market. The difference between the two market substitute methods is that the generalist method assumes that these services could be replicated by an individual who does general domestic work. The specialist method, on the other hand, assumes that to replace household services it would be necessary to hire individuals with expertise in specific areas that comprise the various components of household duties.

Jamie Cassels expresses two concerns about the use of the replacement cost method in an article entitled “Damages for Lost Earning Capacity: Women and Children Last!” (The Canadian Bar Review, 1992, 488). First, he notes that homemaking is more all-encompassing than is implied when described simply as housekeeping, and as such the services of a housekeeper cannot adequately replace the contributions made by someone who is running a household. He also argues that domestic wages are depressed due to the large volume of “volunteer and vulnerable” labour provided by women in this sector. This would imply that these services have a higher value than the relevant market wages would indicate.

Selection Among Methods

The concerns identified above are representative of the various criticisms leveled at wage-based methods. For the most part these concerns are valid and in principle imply that these methods are inferior to the ultimate tool in the assessment of household services which has been identified as one that valuates the outputs of unpaid work (Households’ Unpaid Work: Measurement and Valuation, Statistics Canada Publication 13-603E, No. 3, 28). Elimination of this method, on the basis of its impracticality, leaves the choice between wage-based methods and more subjective methods of valuation. Since the latter would unquestionably lead to inconsistent results, we come back to wage-based methods. Although not flawless, these prevail as the best techniques available, in any practical sense, to facilitate the calculation of loss of household services.

Once the field is narrowed to these methods, it is necessary to identify the criteria that the method of choice must satisfy. Janet Fast and Brenda Munro have outlined several criteria which serve this purpose in their article “Toward Eliminating Gender Bias” (Alberta Law Review, 1994, 12-13). In particular they note three issues which warrant consideration when choosing an appropriate method: first, its computational complexity; second, the extent to which it achieves distributional equity; and third, how well it satisfies the objective of restoring the plaintiff (as much as is possible) to his/her pre-accident position. On this basis, Fast and Munro recommend the use of replacement cost methods in the valuation of household services in personal injury claims, as they best meet these criteria.

Of the two replacement cost methods, it may well be that the specialist variant is unmanageable in a practical sense, in addition to being less than objective. This approach necessitates a lapse into subjectivity when a particular specialist in one of various occupational fields has to be matched to certain household tasks (Households’ Unpaid Work: Measurement and Valuation, Statistics Canada Publication 13-603E, No.3, 25). Another hurdle remains after the occupational field is identified, as various factors affect the wage payable to specialists, depending on whether they are self-employed or employees, full or part-time employees, supervisors or labourers in entry-level positions, etc. Prior to calculation of the average wage an assumption must be made as to the “type” of employee under consideration. It is apparent that the determination of the wage for a specialist is not a clearcut matter.

If the specialist variant is ruled out, for practical reasons, this leaves the generalist variant of the market replacement method as the technique of choice in the valuation of the loss of household services. One concern that remains in reference to this method is that individuals who work in the domestic sector may perform household tasks more efficiently than would individuals in their own homes. Allowance is made for this increased efficiency in Economica’s calculation of the loss of household services. To reflect this efficiency differential, the estimation of hours of household services which have been lost is reduced by 25 percent, giving an approximation of the number of replacement hours required (see “Adjusting Claims for Hours Devoted to Household Chores”, in the Summer 1996 Expert Witness).

In our view, the generalist variant of the replacement method, once adjusted in this way, is the tool which lends itself best to the calculation of the loss of household services in personal injury cases. It is only when the generalist approach is clearly inappropriate, such as when the plaintiff provided services to the household which could only be replaced by a skilled tradesperson, that we would recommend use of the specialist method.

The caveat still holds, however, that an estimate derived using the replacement cost method is only as reliable as the factors used in its calculation, specifically the determination of the number of hours requiring replacement and the hourly cost of the replacement services. Both of these topics will be discussed in future issues of The Expert Witness, as will a review of court judgments dealing with the loss of household services.

From 1996 through February 1998, Therese Brown was a consultant at Economica.