When is final settlement of a worker’s comp claim not a final settlement?

Karen McAndrew, Leigh Cole, Editors
Dinse, Knapp & McAndrew, P.C., Burlington

by Karen McAndrew

The Vermont Supreme Court recently shed some light—although not total clarity—on the effect an employee-signed release agreement can have on any later worker’s comp claims she may file.

Facts

Brandy Clayton was a hair stylist at a J.C. Penney store. In February 2011, she filed a worker’s comp claim for a painful left foot condition that she alleged first occurred in March 2010 as a result of standing on her feet all day. Her employer accepted the claim as compensable.

In October 2013, while Clayton’s claim was being processed and settlement discussions were underway, she saw a podiatrist for pain in her right foot as well as her left foot. The podiatrist noted that her pain in both feet was likely related to standing all day at work. She saw the podiatrist again for the same complaints in early 2014, and in June 2014, she told an independent medical examiner of pain in both feet.

In September 2014, Clayton and J.C. Penney signed a “Full and Final Form 16 Settlement Agreement” related to the March 2010 injury and filed it with the Vermont Department of Labor (VDOL) for approval. A completed Form 16 must be filed before the VDOL will approve any settlement of a worker’s comp claim.

The accompanying release agreement contained something of a mash-up of language pertaining specifically to Clayton’s March 2010 work-related injury and any associated conditions and broad general release language about any injury or condition related in any way to her employment.

By statute, the labor commissioner can approve a worker’s comp settlement only if its terms are in the employee’s best interests. To this end, a hearing officer appointed by the commissioner sent Clayton a letter that referred to her “foot pain” resulting from her work activities and cautioned that she should understand that signing the release “means that if you get worse in the future and need to see a doctor . . . or even have to search for a less strenuous job, you will not be entitled to any worker’s compensation assistance. I need to know that you completely understand this.”

Clayton signed the agreement, with the acknowledgment that she understood “that once the agreement is approved, I will relinquish my right to all future worker’s compensation benefits causally related to my . . . work injury.” The hearing officer then approved the settlement.

Six months later, in March 2015, Clayton filed a worker’s comp claim for injury to her right foot. J.C. Penney filed a form denial, stating that the condition predated the release and was causally related to her left foot injury. The commissioner held that the release barred all claims causally related to the specific work-related injury but then took it upon herself to rule that a release that bars anything other than claims related to the specific work-related injury—here, the left foot injury—is void as a matter of public policy. The parties appealed the commissioner’s ruling to the Vermont Supreme Court.

Court weighs in

The specific question before the supreme court, therefore, was whether the commissioner had the authority to void a release on public policy grounds, and the court held that she did not.

The powers of an administrative agency such as the VDOL are limited to those specifically granted by statute. The applicable statute in this case says the commissioner has the power to disapprove of a settlement or release only if it doesn’t conform to the general worker’s comp scheme or if it is found not to be in the best interests of the employee. In this case, there was the added fact that the commissioner’s designee—the hearing officer—had previously approved the release, so the commissioner had no authority to reverse that decision.

This is where the confusion comes in, however, because in the end it’s not clear what the dispute was about. The commissioner had held that the release was valid insofar as it covered conditions arising from the original work-related injury but not to unrelated claims arising from later injuries. The supreme court said it was valid to the extent it covered injuries that “pre-date or co-occurred” with that March 2010 injury, and J.C. Penney had apparently narrowed its defense on appeal to a contention that Clayton’s right foot injury was causally related to her left foot injury. So it seems like everyone was on the same page, in which case it’s not clear why the supreme court even waded into what appears to be a nonissue.

Moreover, the court’s opinion doesn’t clarify what would seem to be the critical issue: Does the release cover all work-related injuries—such as the right foot injury—that occurred before the date the release was signed?

In most other contexts, releases are written in terms of any claims “known or unknown” that have occurred up to the date of the signing of the release—and the release in this case, while somewhat poorly worded, contains language to that effect. The court referred only to injuries that “pre-date or co-occurred” with the left foot injury. It didn’t address the question of whether the release would bar further related claims. If the right foot injury happened after the left foot injury but before the release was signed and it was known at the time the release was signed, would the release bar a claim on the right foot? That answer will have to wait for another day.

However, the court did provide some helpful language about the enforceability of releases in the worker’s comp context. Once a release is approved by the labor commissioner, it may be set aside only if entered into under circumstances of fraud or “mutual mistake of fact,” which are the general standards for setting aside any otherwise valid contract.

Bottom line

The main message, in this and other contexts, is the importance of clarity and precision in contractual language, including releases, which are often used in connection with settlement of discrimination, wrongful termination, and other employment-related claims as well as worker’s comp claims.

Karen McAndrew can be reached at kmcandrew@dinse.com or 802-864-5751.