The Snowball Effect: How a Workers' Compensation Claim Can Create Crossover Liability for Employers and Ways to Mitigate Exposure

In California, workers’ compensation claims sometimes lead to crossover employment actions, or even California Division of Occupational Safety and Health (“Cal/OSHA”) cases, stemming from the same set of facts and circumstances. Consider, for instance, an employee working for a construction company who falls off a ladder and breaks his back during the course and scope of his job. There is no dispute that this incident is a work-related injury. However, it could also result in a Cal/OSHA action and might snowball into a Serious and Willful Misconduct claim, a wrongful termination lawsuit, or even a Labor Code Section 132a claim in the hands of the right attorney, if the employee is separated after the fall and the circumstances tangentially support the allegation.

While the employer in this example may be aware of the obvious (i.e., that the injury will result in a workers’ compensation case, and an expensive one at that), the employer may not foresee how the incident can also result in multiple types of claims and potential liability. Generally, there is a three-step process that every employer should take when a work-related injury occurs to mitigate exposure.

The first step is to identify all potential claims that can arise from a work-related injury and how the handling of the claims might overlap within the company. Many employers recognize how industrial and employment-related claims intersect and take specific action when appropriate, including but not limited to offering modified duties to an injured worker to cut off temporary total disability benefits in the workers’ compensation claim, as compared to making the determination and/or engaging in dialogue with the injured worker to initiate an adequate interactive process under the California Fair Employment and Housing Act (“FEHA”). However, most businesses (large ones in particular) that have designated departments to handle workers’ compensation cases, leaves of absences, and the interactive process fail to ensure crossover handling of the claims. As a result, problems arise because the departments are siloed. Indeed, businesses, and their insurance companies, that take a narrow approach to handling workers’ compensation claims can overlook the potential for significant civil exposure and the opportunity to shut down that risk before it escalates into a bigger, more costly problem given the substantial costs involved with defending an employment lawsuit and the exorbitant damages that can be recovered.

As an example: an employee, Mary Jane, is called into a performance review on November 15, 2021, where she learns that she is not meeting expectations. The week prior, Mary Jane had complained to her manager about her neck and elbows hurting from typing at work, but she was not offered any medical treatment or accommodations to alleviate the pain. Mary Jane is distraught by the news regarding her performance, and is concerned about being terminated, so she goes to see her doctor to consult on both the neck and elbow pain as well as her psychological distress. In mid-December 2021, Mary Jane submits a doctor’s note to the employer advising that she needs a month off due to work stress, as well as to allow sufficient time for her neck and elbow pain to subside. However, when Mary Jane fails to submit formal leave paperwork as requested by the employer, she is terminated prior to the end of that month. Mary Jane seeks legal counsel and finds an attorney to file a workers’ compensation claim on her behalf. She claims a continuous trauma of work stress and injury to her neck and elbows. Early in the litigation, the defense team quickly resolves the workers’ compensation claim by Compromise and Release for $15,000. Mary Jane and her workers’ compensation attorney walk away with their settlement.

A couple of months later, the employer receives a six-figure settlement demand letter from a different civil attorney alleging violations under the FEHA and whistleblower retaliations on Mary Jane’s behalf. In hindsight, when rushing to close the file on the workers’ compensation side, the potential civil exposure was completely neglected. Here, although Mary Jane had a straightforward workers’ compensation claim, the employer either missed, or purposely chose not to accommodate, the month off per the original doctor’s note. In terminating her, the employer may have unknowingly established a viable disability discrimination action including liability on the derivative claims, such as failure to provide reasonable accommodations and/or failure to engage in the interactive process, in addition to a retaliation claim for the adverse employment action (i.e., the discipline and subsequent termination following Mary Jane’s complaint about her neck and elbows).

Under this scenario, the best way to prevent crossover exposure and potential for substantial damages is open communication between departments, including Human Resources (“HR”), Risk Management, Leave of Absence, Workers’ Compensation, and Legal. Civil exposure for businesses is often the result of the “right hand not knowing what the left hand is doing.” Here, if the HR and the Workers’ Compensation departments had communicated at the outset of the injury, there would have likely been more consideration given to the timing of the performance review meeting in relation to Mary Jane’s complaint about neck and elbow pain. Further, if the employer had a consistent date on which they delivered performance reviews to all their employees, the appearance of retaliation would be mitigated. That is, if Mary Jane and her peers were reviewed the same day, the argument that she was disciplined based on reporting work-related pain to her neck and elbows loses traction. However, if the employer does not follow a consistent review date, and the performance review meeting date at issue was arbitrarily selected, the employer will have a more difficult time justifying the reason for the date of the meeting and how the meeting was unrelated to her pain complaint the week prior. Furthermore, if the HR, Workers’ Compensation, and Leave of Absence departments had communicated about Mary Jane’s return-to-work status, they would have likely recognized termination may not have been appropriate at that time.

The second step to mitigate exposure on potential crossover claims is to remember that all adverse actions, especially terminations or suspensions, should be reviewed with experienced employment counsel. If counsel is not available, then a trained HR professional with knowledge and expertise in employee risk management, and the importance of timelines, should be consulted. In this scenario, the advice of counsel or senior HR management may have prevented Mary Jane’s termination from proceeding while Mary Jane was engaging in protected activity.

The third and final step to mitigate exposure, and a best practice when settling a workers’ compensation claim with potential civil liability, is to secure a general civil release with separate consideration. California workers’ compensation settlements need to be approved by an administrative law judge (“ALJ”); general releases should not be presented to the ALJ approving the workers’ compensation settlement, as the ALJ does not necessarily have jurisdiction over claims outside of the work-related injury. Nevertheless, if a business insists on and is successful at negotiating with the injured worker and/or their counsel for a solid general release as a term of the resolution, this provides far more protection than a simple voluntary resignation. In this instance, had the workers’ compensation defense team secured a solid release, the employer could have presented the release to the employee’s civil attorney, and the employment-related claims would have been dead on arrival.

In sum, identification coupled with open communication, coordination, and a global litigation strategy that covers the varying but related claims is key for businesses to minimize the snowball effect that can arise out of what might appear to be a simple workers’ compensation case.