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The Pennsylvania Commonwealth Court has reviewed its recent decisions regarding a claimant’s burden of proof in seeking to overturn a compromise and release agreement and once again found on behalf of the employer. In Farner v. W.C.A.B. ( Rockwell Intern.), the Commonwealth Court held that an employee’s misunderstanding that she would continue to receive private health care coverage from her employer after resolving her workers’ compensation claim did not provide her with grounds to overturn the compromise and release agreement. The facts of the case are relatively straightforward. Rita Farner, the claimant, suffered a work-related fractured left arm, which disabled her from her employment with Rockwell International Corp. The employer accepted liability for her disability and apparently paid Farner workers’ compensation benefits for more than 10 years. In February 1999, the claimant agreed to resolve her workers’ compensation claim for a lump sum payment of $45,000. Farner, through counsel, entered into a compromise and release agreement with Rockwell in which she agreed to release all claims related to this work-related injury in exchange for the lump sum payment. Importantly, Farner also agreed to resign her employment from Rockwell and signed a voluntary resignation statement dated the day of the C&R approval hearing. In that statement, Farner stated, “I fully realize that with this resignation, I am no longer entitled to any of the privileges or benefits to which employees of [employer] may be entitled except those benefits and rights which are vested at the time of my resignation.” The claimant’s own attorney asked her at the compromise and release hearing whether she understood that she was “still entitled to receive your pension from [employer] and get your health benefits under United Healthcare.” Farner responded that this was her understanding. Although an attorney at this hearing represented the employer, that attorney made no effort to clarify the claimant’s misunderstanding on this issue. The claimant’s health benefits under United Healthcare were not vested, and those benefits were terminated a few months after the C&R approval hearing. After the hearing, the workers’ compensation judge issued a decision finding that the claimant fully understood the legal significance of the C&R agreement and approved it. Neither party appealed. Nearly a year and a half later, the claimant retained a new attorney, who filed a review petition alleging that the employer breached the C&R agreement by failing to pay the claimant’s medical insurance premiums following the WCJ’s approval of the agreement. This review petition was assigned to a different WCJ, and hearings were held. Farner testified that her former attorney assured her that she would continue to receive health care benefits through the employer’s plan after the C&R. However, she did not allege that any representative of the employer discussed this aspect of the settlement with her, and no employer testimony was offered during the litigation of the review petition. Rockwell did offer the claimant’s voluntary resignation statement into evidence, however. The WCJ granted the review petition and set aside the C&R agreement, finding that at the time she executed the C&R agreement, the claimant misunderstood that her medical insurance coverage was to continue. The judge further found that neither of the attorneys present at the C&R hearing corrected the claimant’s obvious misunderstanding of this issue, contributing to the claimant’s belief that she was going to continue to receive medical insurance coverage. Thus, the workers’ compensation judge found that “there was a clear misunderstanding/mistake pertaining to a material issue at the time the parties executed the compromise and release agreement … and that at the time they asked for it to be approved.” The employer appealed to the workers’ compensation appeal board, which reversed. The board conceded that Farner genuinely misunderstood the agreement, but it held that her misunderstanding was a unilateral mistake in light of claimant’s written acknowledgement in the voluntary resignation statement. The board concluded that a unilateral mistake was insufficient to set aside a C&R agreement. The claimant then appealed to the Commonwealth Court, which has now affirmed the board. Citing its own recent decision in N. Penn Sanitation Inc. v. W.C.A.B. (Dillard), the court first analyzed claimant’s appeal under a common law standard. Writing for the majority, Judge Robert Simpson explained that a C&R agreement might be set aside upon a clear showing of fraud, deception, duress or mutual mistake. Here, Farner alleged mutual mistake, which, under common law, requires the party seeking to set aside the agreement to prove that both parties are mistaken as to a present, material fact that existed at the time the agreement was executed. While the claimant here was clearly mistaken as to the employer’s duty to continue paying medical insurance premiums after her resignation, there was no evidence that the employer “shared that mistake at the critical time.” The court held that “[t]he absence of any finding as to employer’s state of mind results in the conclusion that claimant failed to prove mutual mistake.” In a lengthy dissent, Judge Rochelle S. Friedman pointed out that “where one party charged with knowledge of the terms of an agreement knows or has reason to know of a unilateral mistake by the other party, and the mistake, as well as the actual intent of the parties, is clearly shown, relief will be granted to the same extent as if a mutual mistake existed,” as seen in Welsh v. State Employees’ Retirement Board. Friedman opined that the employer’s attorney must have known of the claimant’s mistake, since the attorney was present at the C&R hearing where the claimant testified that she understood she was to receive ongoing private health care coverage through her employer. The majority opinion did not address this argument. The majority also analyzed the case under the doctrine of collateral estoppel, citing its recently published case, Stiles v. W.C.A.B. (Dep’t of Pub. Welfare). As in Stiles, the court here held that the claimant was collaterally estopped from relitigating the key issue raised here, whether the claimant understood the full legal significance of the agreement, as this was already decided by the WCJ who approved the C&R agreement in 1999, and that finding was not appealed. This decision, a 2-to-1 split, appears to have been a decision that could have gone either way. Certainly, the claimant’s position is sympathetic in that it appears that she was truly misled into forfeiting her private health care coverage. It is not unusual, and it is probably recommended in most circumstances, for an employer to ask its employee to sign a separation agreement at the same time a workers’ compensation matter is settled via C&R. The parties here seemed to have accomplished the claimant’s separation from employment with a rather vaguely written “voluntary resignation statement” that was certainly not understood by the claimant or her counsel, and may not have been understood by defense counsel. The voluntary resignation statement did not specifically address whether ongoing health care benefits were “vested rights,” such that they would continue after resignation. While Farner signed her resignation statement at the same time she resolved her workers’ compensation claim, it was not the compromise and release agreement that was deficient. It appears that the C&R agreement covered all of the “usual” provisions associated with the settlement of a workers’ compensation claim. The deficiency, instead, was in the “voluntary resignation statement.” Longtime employees often have a multitude of current and potential claims against their employers when separating from employment. All of these should be addressed in a thorough employment separation agreement that plainly addresses all of the rights and benefits that are being waived and all those that are being retained by the separating employee. There are potentially dozens of local, state and federal employment statutes that should be addressed in a separation agreement to avoid litigation after the workers’ compensation case is settled and the employment relationship is severed. If either claimant’s counsel or employer’s counsel do not specialize in employment law, they should seek assistance and advice from attorneys who do practice in those areas. Here, it appears that neither of the attorneys involved in the initial C&R hearing understood the terms of the voluntary resignation statement, and the claimant paid the price. Matthew S. Wynn is a shareholder at Littler Mendelson’s Philadelphia office and heads the firm’s Pennsylvania workers’ compensation practice group. He is the defense co-chairman of the workers’ compensation section of the Philadelphia Bar Association and has represented employers, insurers and third-party administrators in workers’ compensation litigation since 1991. He can be contacted via e-mail at [email protected] or via telephone at 267-402-3015. If you are interested in submitting an article to Law.com, please click here for our submission guidelines.

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