Monday, September 23, 2013

Severing The Work Comp Claim: Approval Required

It still surprises me that people (lawyers included) who have no exposure to the practice of workers' compensation law continue to be shocked when a general release doesn't cover a workers' compensation claim when settling a civil employment dispute.

The Connecticut Supreme Court reiterated that concept in Leonetti v. MacDermid Inc., No. 19085 where it ruled that an employer and employee could not waive their rights and obligations under the state Workers' Compensation Act without the approval of the Workers' Compensation Commission, and so a general settlement agreement between them upon termination of the employment relationship was not enforceable.

Leonetti had been a mid-level managerial employee with MacDermid – a developer and marketer of chemicals for metal plating and printing in Waterbury, Conn.

He alleged that he hurt his back lifting a barrel of chemicals in 2004, and he filed a claim for workers' compensation benefits. While his claim was pending, MacDermid informed Leonetti that he was being fired.

The company presented Leonetti with a termination agreement for his review and signature, but he objected to its terms.

The agreement required that Leonetti "release, remise, and forever discharge the Respondent-Employer from any and all claims, including workers' compensation claims, that (he) had or might have against (MacDermid)."

Leonetti said the severance payment was too low, considering he had spent 28 years with the company. The severance pay was equal to 27 weeks of pay at his base salary, but he said another employee who left the company after 28 years had gotten twice as much.

He said he also didn't want to have to release his workers' compensation claim, and that his workers' compensation attorney advised him not to sign the agreement.

Leonetti's attorney contacted MacDermid's general counsel and asked to have the language pertaining to Leonetti's workers' compensation claim be removed, but MacDermid responded that Leonetti could get the $70,228.51 only if he accepted the termination agreement as it was written.

Leonetti then signed the agreement, and after MacDermid paid Leonetti $70,228.51, it brought the agreement to the Workers' Compensation Commission for approval though a representative of its workers' compensation carrier.

At the hearing before the commission on the enforceability of the agreement, Leonetti testified that he had signed the agreement because he didn't want to lose the severance pay, and he had never intended to stop pursuing his comp claim.

MacDermid countered that the terms of the agreement required Leonetti to release his comp claim, and that the $70,228.51 payment was his benefit of the bargain. The company also contended that the course of its dealing with Leonetti's attorney also evinced that the dismissal of the comp claim was the central point of the agreement.

Leonetti, however, said he thought that the payment of $70,228.51 was based on the number of years he had worked for MacDermid and was not being paid toward his workers’ compensation claim.

The Workers' Compensation Commissioner noted that the $70,228.51 only reflected enough money for severance, found Leonetti credible and determined that the agreement did not release any work comp liability because it was not supported by the payment of separate consideration for the work injury.

The matter went through the appellate process, with the employer alleging they had been defrauded and Leonetti claiming that there was no additional consideration for his work injury.

Regardless of whether the agreement entered into by the parties might have been enforceable at common law, the court said, the fact of the matter is that no stipulation in a workers' compensation case is binding until it has been approved by the Workers' Compensation Commission.

"Thus, in the present case, the agreement signed by the parties had no effect on the claimant's workers' compensation claim unless and until the commissioner approved the agreement."

The court said MacDermid was free to seek a civil remedy against Leonetti based on his allegedly deceitful and fraudulent conduct.

The employer feels cheated, and I certainly understand that. The employee, from reading the case, may or may not have been playing games with the system, but I can also understand what appears to be buyer's regret.

I had seen this scenario many, many times when I was a defense attorney, particularly during the recessionary days of the 1980s when plant closings seemed to occur weekly.

But the rule is fairly standard in most workers' compensation jurisdictions and there are certain things that need to be covered when dealing with a global settlement - it comes down to proof. The waiver of workers' compensation rights on both sides is a difficult proposition without demonstrating that whatever is being paid in the settlement is adequate based on medical evidence.

And the Connecticut court affirmed this view stating, "the only evidence that the [employer] offered on this issue was that of its attorney, who confessed that he was not aware of how the claimant's severance pay was calculated. Furthermore, the attorney was not aware of the value of the claimant's preexisting workers' compensation claim."

This general rule reflects the underlying purpose of workers' compensation law.

The employer in such an exchange gets a guarantee that it won't be sued later for claimed work injuries. The employee gets a guarantee that he is being dealt with fairly based on what medical experts say about his condition.

That's part of the "grand bargain" that we always talk about in the work comp field.

(As a sort of post script afterthought, I can't help to speculate how this is going to play out in Oklahoma's new opt out system where an employer can opt out of participating in the workers' compensation system by providing civilly the same or better benefits that would be available to an employee in the system.)

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