Your client spent eight years as a convoy security contractor in Kandahar. An IED shattered his lumbar spine. He has a high school diploma, no stateside work history since 2014, and the only job skills he developed in his thirties involve operating a PKM and assessing ambush vectors. Now the carrier wants to discuss vocational rehabilitation and is hinting at a Section 8(i) settlement with a rehabilitation credit that would shave $85,000 off the proposed lump sum.
Welcome to one of the most misunderstood intersections in DBA practice. Section 39 of the Longshore and Harbor Workers' Compensation Act (applied to DBA claims through 42 U.S.C. Section 1651) requires carriers to provide vocational rehabilitation services to injured workers who can benefit from them. But the statute is maddeningly vague about what that means in practice, and the consequences of getting it wrong during settlement negotiations can cost your client tens of thousands of dollars.
ClaimTrove's database contains 5,022 OALJ decisions, and vocational rehabilitation disputes appear in a significant portion of permanent partial disability cases. The pattern is consistent: carriers offer minimal services, claimants refuse to participate, and ALJs apply settlement credits that neither side fully understood when they started negotiating. This article walks through what Section 39 actually requires, how vocational rehabilitation works for overseas contractors, what constitutes good-faith participation, and how the rehabilitation credit calculation works in Section 8(i) settlements.
What Does LHWCA Section 39 Actually Require From Carriers?
Section 39(c) of the LHWCA directs the Secretary of Labor to provide vocational rehabilitation services to permanently disabled workers who can benefit from them. In practice, the Department of Labor's Office of Workers' Compensation Programs (OWCP) administers these services, and carriers are responsible for funding them when the claim falls within the Act's coverage.
The services include vocational evaluation, skills assessment, labor market surveys, retraining programs, and job placement assistance. Carriers must pay for these services when OWCP determines they are reasonable and necessary, and the carrier's obligation continues until the worker either returns to suitable alternative employment or the rehabilitation plan fails for legitimate reasons.
Here's where DBA practice diverges from domestic Longshore cases. Most injured contractors live overseas during treatment, speak English as a second language, or have skill sets that don't translate to the civilian labor market. A medic from Mosul doesn't become a paramedic in Peoria without significant retraining. A linguist who worked Pashto in Helmand faces a market where Pashto skills outside government contracting are effectively worthless.
Section 39 doesn't excuse carriers from providing services because the claimant is difficult to place. It requires a good-faith effort, and OALJ decisions consistently hold carriers responsible for funding reasonable retraining even when the expected outcome is modest. For a deeper look at how these compensation obligations interact, review our guide to LHWCA benefits and calculation methods, which covers how rehabilitation obligations run alongside indemnity benefits during the retraining period.
How Does Vocational Rehabilitation Work for Overseas Contractors?
The practical mechanics of DBA vocational rehabilitation are shaped by three realities that don't exist in domestic workers' comp. First, many claimants are third-country nationals living in countries where the U.S. rehabilitation framework has no counterpart. Second, even U.S. citizen claimants often have military or contracting backgrounds that don't map cleanly to Dictionary of Occupational Titles categories. Third, the labor market surveys that carriers rely on are typically conducted in the claimant's stateside zip code, even when the claimant hasn't lived there in a decade.
OWCP assigns a rehabilitation counselor who conducts the initial evaluation, develops an individualized written rehabilitation plan (IWRP), and monitors progress. The carrier pays for the evaluation, any approved retraining (which can run 18-24 months in some cases), job search assistance, and in some cases relocation costs.
The claimant receives continuing temporary total disability benefits during active rehabilitation, which creates its own tension during settlement negotiations. Carriers have strong incentives to close out rehabilitation obligations before entering Section 8(i) discussions because the open-ended nature of the benefit creates reserve exposure. This dynamic parallels what happens with TTD termination disputes, and our analysis of why carriers fight TTD termination more than any other benefit explains the financial pressures driving carrier behavior here.
What Constitutes Good-Faith Participation?
Good-faith participation cuts both ways. Carriers must fund reasonable services, and claimants must actively engage with the program. ALJs evaluate good faith by looking at specific behaviors on both sides.
For carriers, good faith means timely approval of OWCP-recommended services, payment of reasonable costs without repeated objection, and cooperation with the rehabilitation counselor's plan. Carriers who repeatedly challenge every invoice, demand independent vocational evaluations designed to undercut OWCP's findings, or delay approvals until the claimant gives up do not receive favorable treatment in settlement credit calculations.
For claimants, good faith means attending scheduled evaluations, participating in prescribed retraining, conducting documented job searches when placement phase begins, and communicating honestly about barriers to progress. Claimants who skip appointments, refuse to consider retraining for physically appropriate work, or reject job offers within their restrictions without documented reasons face credit reductions against their settlement value.
ClaimTrove's OALJ decision index shows how ALJs have ruled on these disputes across different fact patterns. The decisions reveal that good faith is evaluated holistically, not through a single bright-line rule. A claimant who misses two appointments but otherwise participates actively is treated differently from one who misses ten. A carrier that challenges one labor market survey is treated differently from one that challenges every document OWCP produces.
How Does the Section 8(i) Settlement Credit Calculation Work?
Section 8(i) of the LHWCA allows parties to settle claims through a lump-sum agreement approved by the district director or ALJ. The settlement must be in the claimant's best interest and adequate under the circumstances. When vocational rehabilitation is part of the claim history, ALJs can apply a rehabilitation credit that reduces the settlement value attributable to wage-loss benefits.
The credit theory is straightforward. If the carrier provided good-faith rehabilitation services and the claimant either completed retraining or unreasonably refused to participate, the expected post-rehabilitation earning capacity is used to calculate wage-loss benefits rather than the pre-injury average weekly wage. This can reduce the settlement's wage-loss component substantially, often in the 15-30% range depending on the facts.
The calculation typically starts with the claimant's average weekly wage, applies the expected post-rehabilitation earning capacity based on labor market survey data, and computes the resulting two-thirds wage-loss benefit over the projected benefit period. The difference between this reduced figure and the uncredited calculation represents the carrier's settlement leverage.
For attorneys building settlement valuations, our breakdown of six factors state workers comp attorneys never encounter covers how rehabilitation credits fit alongside other DBA-specific valuation variables. The credit interacts with commutation discount rates, life expectancy tables, and medical set-aside calculations in ways that domestic practitioners often miss.
Why Do Carriers Push Vocational Rehabilitation Disputes Into Settlement?
Carriers have three strategic reasons to litigate rehabilitation disputes aggressively before settlement discussions begin. First, a favorable finding on good faith creates settlement leverage that can persist for years. Second, the cost of rehabilitation services is predictable and capped, while open-ended TTD exposure during retraining is not. Third, rehabilitation disputes create documentary records that support later arguments about Section 20(a) presumption rebuttal in subsequent claims.
The third point deserves attention. The Section 20(a) presumption makes DBA claims compensable by default, but carriers can rebut it with substantial evidence that the injury didn't cause the disability. A record showing the claimant refused retraining for work within medical restrictions becomes evidence that economic disability is volitional rather than injury-caused.
This is why experienced DBA attorneys treat rehabilitation correspondence as potential exhibits from day one. Every email to the rehabilitation counselor, every labor market survey response, every medical restriction update becomes part of the settlement calculus. The step-by-step workflow in our DBA claims process guide includes rehabilitation documentation practices that preserve your client's position.
What Should Attorneys Do Before Agreeing to a Rehabilitation Credit?
Before accepting any settlement that includes a rehabilitation credit, verify four things. First, review the complete OWCP rehabilitation file to confirm what services were actually offered, when, and under what terms. Second, audit the labor market survey methodology, including zip codes used, job descriptions matched, and wage data sources. Third, evaluate whether the post-rehabilitation earning capacity figure reflects actual available work or theoretical employment that doesn't exist for someone with your client's specific profile.
Fourth, research how ALJs in your venue have ruled on comparable rehabilitation disputes. Credit calculations are not uniform across the OALJ system, and decisions from other districts can inform your negotiation posture. Some ALJs apply rehabilitation credits mechanically based on labor market surveys. Others scrutinize carrier conduct carefully and reject credits when the carrier's good-faith record is thin.
ClaimTrove's OALJ decision index allows you to research vocational rehabilitation precedent filtered by carrier, ALJ, injury type, and outcome. The database reveals patterns in how specific carriers approach rehabilitation obligations and which arguments have succeeded before specific ALJs. Research vocational rehabilitation precedent for your claim type by running an investigation on your client's employer and carrier.
How Does the Rehabilitation Credit Interact With Medical Benefits?
Medical benefits under Section 7 of the LHWCA are separate from wage-loss benefits and are generally not reduced by rehabilitation credits. A settlement that includes a rehabilitation credit on the indemnity portion should leave medical benefits either open or funded through a separate Medicare set-aside allocation based on the claimant's projected future medical needs.
This separation matters because carriers sometimes propose global settlement structures that blend indemnity and medical components. When a rehabilitation credit is applied across the blended figure, claimants can inadvertently forfeit medical benefit value that should have been preserved. Reading the settlement stipulation carefully for this issue is essential, and retaining a qualified Medicare set-aside vendor for high-value claims protects against CMS recovery actions later.