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The Tangled Web We Weave: The Intersection of Workers Compensation and Labor and Employment Laws, I

Due to an explosion of state and federal legislation over the last 20 years, employers now find that once-routine decisions regarding employees with work-related injuries have become extremely complex and anything but routine. In fact, the web of laws and other legal considerations that affect employment decisions for injured workers is so intricate that employers often become paralyzed - electing to make no decision at all. Typically, this accomplishes little and can even magnify the problem.

Because of the now-tangled web of legislation, employers must systematically analyze numerous legal considerations before making employment decisions pertaining to injured employees.

This article provides checklists for analyzing issues such as whether an injured worker's insurance benefits should be continued, whether an injured worker continues to accrue various fringe benefits while on workers' compensation, and whether an injured worker can or should be disciplined or discharged.

This article also addresses how employment decisions involving injured workers are affected by past practice; collective bargaining agreements; benefit plans; discrimination claims; the FMLA, ADA, and COBRA; private employment contracts; and employee personnel policies.

This chapter will also discuss the interplay of workers' compensation and the doctrine of "collateral estoppel" in unemployment compensation matters. Finally, this chapter will explore the relationship between the ADA, workers' compensation, and other laws in areas such as medical examinations, light duty versus reasonable accommodation, how settlement of a workers' compensation claim affects ADA liability, drug testing, and unauthorized disclosure of drug- and alcohol-related information.

Discipline and Discharge of Injured Workers

Common questions that employers have when they have an injured worker that they would like to terminate or disciple include:

  1. When can an injured worker be disciplined/discharged for misconduct?
  2. Can an injured worker's employment be terminated for reasons other than misconduct?
  3. Should an employer discipline, discharge, or otherwise terminate the employment of an injured worker?

To answer these questions employers should review internal documents and consider the ramifications of any action they may take. To assist an employer in this review process, below is a list of steps to be taken.

Review and Interpret Labor Contract

Examine the language of any applicable labor contract, including any policies or agreements incorporated in the contract, to determine if the dispute is controlled by clear and unambiguous language. Most labor contracts include a standard by which management may discipline or discharge employees.

Typically, such provisions can be found in the "management's rights" clause, and provide that management may discipline or discharge employees for "just cause" (or "good cause," "proper cause," "good reason," "cause," etc.). Over the years, arbitrators have meticulously defined these terms and created a number of guiding principles:

"[I]t is common to include the right to suspend and discharge for 'just cause,' justifiable cause,' 'proper cause,' 'obvious cause,' or quite commonly simply for 'cause.' There is no significant difference between these various phrases. These exclude discharge for mere whim or caprice. They are, obviously, intended to include those things for which employees have traditionally been fired. They include the traditional causes of discharge in the particular trade or industry, the practices which develop in the day-to-day relations of management and labor and most recently they include the decisions of courts and arbitrators.... They include such duties as honesty, punctuality, sobriety, or, conversely, the right to discharge for theft, repeated absence or lateness, destruction of company property, brawling and the like. Where they are not expressed in posted rules, they may very well be implied, provided they are applied in a uniform, non-discriminatory manner." [Worthington Corp., 24 Lab. Arb. Rep. 1, 6-7 (BNA 1955).]

"Just" or "proper" cause for discipline and discharge may exist even when the injured worker is not found to have engaged in misconduct (e.g., when the worker's physician opines that the worker will never recover or will never return to work). A worker can be dismiss for "just" cause for violating a work rule. Work rules can be the result of negotiations between the parties, and may or may not be specifically incorporated in the labor contract.

Work rules also can be created unilaterally by management where the contract, typically in the management's rights provision, permits management to do so. Regardless of how such rules were created, an arbitrator will take them into account when determining whether the employer had "just" or "proper" cause for disciplining or discharging the injured employee.

Typically, an arbitrator will permit a grievant to challenge the discipline by arguing that the work rule itself and/or management's application of the rule is not "reasonable."

Review Past Practices

Labor arbitrators should not consider or rely on past practices when the contract language is clear and unambiguous. If a labor contract applies but does not contain clear and unambiguous language, then the arbitrator will review past practices of the parties (the employer and the union) to determine:

  1. How the parties have previously interpreted the labor contract or other relevant policies;
  2. Whether a rule or policy was created by prior conduct; and
  3. Whether the employer has administered its policies consistently and in a non-discriminatory fashion.

If there is a labor contract, but it does not apply, the employer will still need to examine how past situation have been handled to past to determine:

  1. how has the employer has previously interpreted relevant policies,
  2. whether a de facto policy has been created, and
  3. whether the employer has administered its policies consistently and in a non-discriminatory fashion.

Labor arbitrators (as well as judges and referees) scrutinize an employer's discipline and discharge of injured workers very carefully to determine whether the employer's action was fair and consistent, and to determine if the action was actually a pretext for unlawfully discriminating against the employee for getting injured or for filing a workers' compensation claim.

Therefore, in addition to the issue of whether the disciplinary action is justified under the language of the labor contract, you should carefully examine past practice to determine:

  1. Whether the severity of the discipline is justified (i.e., does the punishment fit the crime?);
  2. Whether the employer has followed established procedure for taking such action;
  3. Whether the employee has been afforded due process and an opportunity to fully explain his position;
  4. Whether the employer has consistently enforced its work rules and policies; and
  5. Whether the employee had fair notice of the relevant work rule or policy.

Review Work Rules, Personnel Policies, and Past Practices

If there is no labor contract, examine work rules, other personnel policies, and past practices for guidance on what is not acceptable conduct, procedures for discipline, and severity of discipline.

In "at-will " states, employees may be disciplined for "good reason, bad reason, or no reason at all," and personnel policies are typically not found to be binding contracts unless they contain specific language to that effect.

However, even in "at-will" states, employees may not be discriminated or retaliated against for reasons that are unlawful under federal, state, or local statutes or common law.

An employer's failure to follow its own work rules or personnel policies, or its deviation from past practice, does not, by itself, give an employee a cause of action for discrimination. However, lack of adherence to one's own policies or a deviation from past practice without legitimate business reasons can be significant factors in a finding that the action taken was a pretext or excuse for unlawful discrimination.

By statute, many states prohibit an employer from retaliating against an employee for filing a workers' compensation claim. Other states have no such statute but nevertheless recognize a common-law claim for retaliation as an exception to the "at-will" doctrine. In such states, protection against retaliation may be available only to "at-will" employees.

Consider the Possibility of Discrimination Claims

Once you have determined that the discipline/discharge is consistent with the labor contract, work rules, and other personnel policies, determine whether such action nevertheless violates any discrimination laws (e.g., ADA, ADEA, Title VII, NLRA, state anti-discrimination laws, etc.). Examine whether the relevant provision or policy is "intentionally" discriminatory - i.e., discriminatory on its face, implemented for discriminatory reasons, or administered in a discriminatory fashion. If the relevant provision or policy is not "intentionally" discriminatory, determine if the provision or policy has an "adverse impact" on employees in any protected class.

Review FMLA Ramifications

Determine if the discipline or discharge violates the Family and Medical Leave Act and its regulations.

Review COBRA Ramifications and Requirements

Typically, termination of employment is a "triggering event" that terminates company-paid health insurance coverage for the employee and his dependents. If so, the employee and his dependents may be eligible for continued coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Examine the health insurance policy, summary plan description, labor contract, and any relevant personnel policies to determine if a "triggering event" occurred that terminates company-paid insurance coverage for the employee and his dependents. Determine if the employee (and dependents) is eligible for COBRA coverage - that is, must they be offered the opportunity to participate in the employer's group health insurance plan at the employee's own expense plus an administrative fee?

Keep in mind, employees may lose their COBRA rights if the triggering event for the discontinuation of coverage is the result of "gross misconduct." Determine how long the employee is entitled to participate in the employer's group health insurance plan at the employee's own expense.  The usual period of 18 months may be extended to 29 months if the employee is "disabled" as defined by the Social Security Act.

Review Any Applicable Private Employment Contract

If applicable, determine whether the discipline or discharge violates any provision of a private employment contract and whether you have adhered to all procedural requirements for terminating the contract.

Typically, such contracts specify the conditions for terminating the agreement and require that the employee be given notice of an intent to terminate. Also, such contracts often require that the employee be given an opportunity to cure any contractual breaches.

Consider the Workers' Compensation Ramifications

Determine the status of the employee's workers' compensation claim. In many states, if the employee's workers' compensation claim has never been terminated by an agreement with the claimant or by a court order, the employer must initiate legal proceedings and receive a court order before terminating workers' compensation benefits.

In those states, the employee could continue to receive weekly workers' compensation benefits at least through completion of the litigation.

On the other hand, if the employee's workers' compensation benefits have already been terminated, the claimant typically will have to initiate legal action to reinstate benefits and will not receive them prior to a final adjudication of her claim.

Even if the employee is receiving no weekly benefits, as long as the workers' compensation claim has not been terminated, the employer may still be liable for ongoing medical treatment related to the work injury.

In certain states, even if the employer establishes that the employee's discharge and resulting loss of earnings are the result of the employee's fault and/or misconduct, the employee may be entitled to a reinstatement of weekly benefits if she can establish that, due to a change in her medical condition, had she not been discharged, she would now be totally disabled from doing her job.

Continuing Insurance Benefits for Injured Workers

Common questions that employers have when continuing insurance benefits for a terminated injured worker include:

  1. Is the injured worker entitled to continuing health insurance, life insurance, long-term or short-term disability insurance, sickness and accident benefits, etc.?

  2. If so, for how long do such benefits continue

Once again, in addressing these issues, employers should take the following steps:

Review and Interpret Labor Contract

Where applicable, examine the contract, including any policies or agreements incorporated in the contract, and any prior arbitration decision, to determine if the dispute is controlled by clear and unambiguous contract language. Applicable provisions can appear just about anywhere in a labor contract.

Therefore, the entire agreement must be reviewed for applicable language. Besides the benefits provisions, relevant language can often be found in provisions pertaining to "break in service," "seniority," "wages," and "miscellaneous" provisions.

Review Past Practices

Labor arbitrators should not consider or rely on past practices if the contract language is clear and unambiguous.

If a labor contract applies, and the contract is ambiguous, review past practices to determine:

  1. How the parties have previously interpreted the labor contract or other relevant policies;

  2. Whether a rule or policy was created by prior conduct; and

  3. Whether the employer has administered its policies consistently and in a non-discriminatory fashion.

If no labor contract applies, past practices should nevertheless be examined to determine how the employer has previously interpreted relevant policies, to determine if a de facto policy has been created, and to determine if the employer has administered its policies consistently and in a non-discriminatory fashion.

Examine and Interpret All Benefit Plans

Examine all insurance policies, summary plan descriptions, and personnel policies for controlling provisions. The employee may have a cause of action under the Employee Retirement Income Security Act (ERISA) if there are inconsistencies in these documents or between any of those documents and the labor contract. (Note: Any writing that sets forth employees' entitlements to insurance benefits could create an ERISA benefit plan.)

Consider the Possibility of Discrimination Claims

Once the labor contract, past practices, personnel policies, and plan documents have been reviewed and interpreted, determine whether the policy violates any discrimination laws (e.g., ADA, ADEA, TitleVII, NLRA, state anti-discrimination laws, etc.):

  1. Is the policy "intentionally" discriminatory, i.e., discriminatory on its face, implemented for discriminatory reasons, or administered in a discriminatory fashion
  2. Assuming that the policy is not "intentionally" discriminatory, is the policy nevertheless unlawful because it has a "disparate impact" on employees in a protected class?

Review FMLA Ramifications

Determine whether the policy is consistent with the FMLA and its regulations with respect to the continuation of health insurance benefits.

Review COBRA Ramifications and Requirements

When it has been decided that health insurance benefits are to be discontinued under a group health insurance plan, determine whether COBRA is applicable and what must be done to comply with COBRA. First, examine the insurance policy, summary plan description, labor contract, and any relevant personnel policies to determine if a "triggering event" occurred that terminates company-paid insurance coverage for the employee and her dependents.

Then determine if the employee (and dependents) must be offered the opportunity to participate in the employer's group health insurance plan at the employee's own expense plus an administrative fee. (Note: Employees may lose their COBRA rights if the triggering event that results in termination of company-paid coverage is the result of "gross misconduct.")

Finally, determine how long the employee is entitled to participate in the employer's group health insurance plan at the employee's own expense. (Note: The usual period of 18 months may be extended to 29 months if the employee is "disabled" as defined by the Social Security Act.)

Review Any Applicable Private Employment Contract

Determine whether a private employment contract applies and whether it is controlling with respect to any of the above issues. Also, consider whether an implied contract was created with written policies or employee handbooks.

Accrual of Benefits (Pension Credits, Vacation, Sick Leave, Paid Time Off, Etc.)

Are injured workers entitled to accrue pension credits, vacation, sick leave, paid time off, etc., while they are on workers' compensation?

To answer the question, look to the labor contract (where applicable), past practices, and applicable personnel policies. The labor contract, a private employment contract or other documents may provide the answer to the question. The employer should also, examine pension plan and short-term and long-term disability insurance policies to see what they may say about injured workers.

An employer should also examine the employment policies and practices to determine if it is discriminatory (either because it is "intentionally" discriminatory or because it has an "adverse impact").

Even if there is no written policy or agreement stating that the employee is entitled to certain fringe benefits, under many states' wage payment and collections laws , an obligation to pay such fringe benefits can be created by a practice or promise causing employees to have an expectation that they are entitled to such wages or benefits. In addition to the unpaid wages and benefits, under many such laws, an employee may recover attorneys' fees, costs, and liquidated damages.

Interplay of Unemployment Compensation, Workers' Compensation, and the Doctrine of Collateral Estoppel

Under the doctrine of "collateral estoppel" (also known as "issue preclusion"), conclusions that a court reaches on a particular issue in a case may prevent relitigation of that same issue in a subsequent case between the same parties. This doctrine applies even when the later case involves a completely different claim or cause of action.

For example, a company discharges an employee for theft, and the company president sends a memo to all employees describing the employee as a "thief." The employee sues the company for the tort of defamation of character, and the court finds as a fact that the employee did not steal.

The employee later sues the company for breach of contract. In the breach of contract case, the company would be precluded (i.e., "collaterally estopped") from re-litigating the issue of whether the employee stole.

If the company's sole defense to the employee's breach-of-contract claim is that the employee stole, the employee will most likely win the case without having to put on any evidence regarding the theft issue.

Collateral Estoppel Requirements

Because the doctrine of collateral estoppel is such a powerful tool in litigation and essentially allows a court to make a finding on an issue without taking evidence or affording a party its day in court, courts have set very specific requirements for the doctrine to apply:

  1. The issue or issues of fact determined in the prior case must be the same as those appearing in the subsequent case. (Typically, this does not mean that the nature of the claims or causes of action must be the same.)

  2. The party against whom the doctrine is invoked must be identical to or "in privity with" the party in the prior case.

  3. The prior judgment must be a final decision rendered on the merits.

  4. The party against whom the doctrine is invoked must have had a full and fair chance to litigate the prior case on the merits.

The Trap

Understandably, few non-lawyers have ever heard of the doctrine of collateral estoppel. This lack of awareness is dangerous because it can lead to court judgments being entered against employers in cases where those employers otherwise would have prevailed.

In some states, the doctrine of collateral estoppel has been particularly problematic because courts have permitted issues decided by administrative agencies (e.g., unemployment compensation agencies, workers' compensation agencies) to be used against employers (as well as employees) in subsequent, unrelated claims.

With increasing frequency, this has occurred in the context of workers' compensation litigation, where the workers' compensation claimant argues that a finding on an issue in a final unemployment compensation decision prevents the employer from re-litigating that same issue in the workers' compensation case.

For example, an employee has a work-related injury and returns to work on light duty. While working the light duty job, the employee is discharged for stealing. In the unemployment compensation case, the referee or judge finds as a fact that the employee did not steal and, therefore, did not engage in "willful misconduct."

The employee then files a workers' compensation petition demanding that his workers' compensation benefits be reinstated because he is still not fully recovered and his continuing loss of earnings due to his discharge is not his own fault. In the workers' compensation case, because of the doctrine of collateral estoppel, the company may be precluded from re-litigating the issue of whether the employee stole.

As a result, the company may lose the workers' compensation case and be ordered to reinstate the employee's workers' compensation benefits.

Practical Pointers

  1. Evaluate all claims, particularly those before administrative agencies such as unemployment compensation and workers' compensation agencies, to determine if factual findings in those cases could have an impact on other pending, threatened, or expected litigation.

  2. Weigh the potential risks and consequences of certain findings in the administrative litigation, the likelihood of prevailing in that litigation, and the risks and consequences of litigating or not litigating the administrative case.

  3. If the decision is made to litigate the administrative case, proceed vigorously and be certain to put in your whole case. If the decision is made not to litigate the administrative case, pull the plug on the litigation as early as possible, preferably before a hearing on the merits.

Wrap-up

Injured workers can be discharged or disciplined, but there must be careful consideration. Following the above steps and thoroughly examining the appropriate documentation, will minimize the risk of an employee lawsuit.

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