Earning Capacity Law and Legal Definition

Earning capacity means a person’s capability or power to acquire money by contributing a person’s talent, skills, training, and experience. It is also called as earning power. Earning capacity is considered in the following situations:

when measuring the damages recoverable in a personal- injury law suit; and

when awarding child support, spousal maintenance or alimony, and in dividing property between spouses upon divorce in family law suits.

In Goytia v. Workers' Comp. Appeals Bd., 1 Cal. 3d 889 (Cal. 1970), the court observed that “An estimate of earning capacity is a prediction of what an employee's earnings would have been had he not been injured. In making a permanent award, long-term earning history is a reliable guide in predicting earning capacity, although in a variety of fact situations earning history alone may be misleading. All facts relevant and helpful to making the estimate must be considered. The applicant's ability to work, his age and health, his willingness and opportunities to work, his skill and education, the general condition of the labor market, and employment opportunities for persons similarly situated are all relevant.”