On Sept. 11,  the U.S. Court of Appeals for the Third Circuit handed down a decision that clarified the impact that a settlement in a workers’ compensation case (referred to as a compromise and release agreement) has on an employee’s rights to bring other claims against an employer, particularly when those claims arise out of the same work event. In Zuber v. Boscov’s, 2017 U.S. App. LEXIS 17484 (3d Cir. Pa. 2017), claimant Craig Zuber suffered a work-related injury which ultimately resolved by way of a compromise and release agreement. Following the resolution of his workers’ compensation case he then sued his employer for FMLA violations and retaliatory termination. In his civil complaint Zuber alleged that following his work-related injury his Employer failed to inform him of his FMLA rights and terminated him in retaliation for both reporting his work injury and attempting to avail himself of FMLA benefits. Boscov’s moved to dismiss the FMLA and retaliatory termination complaint arguing that Zuber waived these complaints by entering into the compromise and release agreement. Specifically, Boscov’s argued that paragraph 19 of the compromise and release contained a general release of any claim. The district court agreed and dismissed Zuber’s complaint. The Third Circuit reversed.

In reversing, the Third Circuit noted that the controversy before them was a matter of contract law. In so finding they noted that the “general release” that Boscov’s attempted to rely upon clearly only applied to workers’ compensation cases. Significantly, all compromise and release agreements are required to be prepared on the same standardized form. Paragraph 19 of that standard form (which is the paragraph of the form that Boscov’s attempted to use to have Zuber’s complaint dismissed) allows the parties to include additional settlement terms that are not already included in another paragraph of the form. In Zuber’s case, the language of paragraph 19 specified that Zuber was giving up past, present and future benefits as they related to his workers’ compensation claim. Appropriately, the paragraph did not include language about Zuber giving up any rights outside of the Workers’ Compensation Act.

The Workers’ Compensation Act is limited in scope to wage loss and medical damages a claimant suffers as a result of a work injury. This scope does not expand to ancillary employment law issues (such as FMLA rights or a termination of employment in retaliation for reporting a work injury). As such, a compromise and release agreement really should not address a waiver of such rights and most workers’ compensation judges will not allow a waiver of such rights to be addressed during proceedings.

Zuber was already terminated prior to entering his compromise and release agreement (and that termination gave rise to his other complaint). If a claimant has not already been separated from employment by the time his or her workers’ compensation case has resolved they are typically asked to resign in conjunction with the compromise and release agreement. When a claimant is asked to resign (or sometimes even if they have already been separated from employment) it is not atypical for that claimant to be asked to sign either a resignation letter or a general release in conjunction with the settlement of their workers’ compensation case. This would be a document prepared by an Employer separate and apart from the compromise and release agreement. Seemingly, this would be an answer to the recent Zuber ruling. However, as mentioned above, the signing of such a document is not permitted to be addressed at a compromise and release hearing on the record which may assist in laying the groundwork for the enforceability of the document. Further, a claimant is usually not offered any additional consideration to sign such a document, or if they are offered consideration it is for a very low value.

It was already a poorly hidden secret that these so-called “general releases” are likely not enforceable. As discussed, a claimant is asked to sign away all of his or her employment rights without any consideration. Compounding the lack of consideration is the fact that a claimant’s workers’ compensation settlement is held hostage if the claimant is not willing to sign the document (and if the settlement follows a claim petition, such as Zuber’s case, then the claimant has already been without any income for months). Given the amount of rights a claimant is asked to give up when signing a general release and the financial duress they are under when asked to sign the document the fact that adequate consideration is not typically offered would already make it difficult for the document to withstand a court’s scrutiny. The Zuber case now cements the unenforceability of such a document.

If a claimant is not waiving any rights outside of the act when entering into a compromise and release agreement then there is no argument that the compromise and release agreement itself prevents a claimant from settling their workers’ compensation case and pursuing an employment law case. In fact, that is precisely what Zuber did. All counts of his civil complaint following the compromise and release agreement arose out of the work injury that was the subject of the compromise and release. So, the Zuber case cements the fact that there is no res judicata or preclusion argument to be made following a compromise and release even if the additional litigation springs from the same events as the work injury. In addition, as discussed above, the compromise and release agreement itself cannot contain an effective waiver of any additional litigation. Thus, if an employer wants a settlement wherein any further litigation is prevented, then a separate general release must be signed, and the employer needs to afford reasonable consideration for that signature. The Zuber case would seem to indicate that settlement documents are being interpreted under basic contract law. If that’s the case, the failure to afford appropriate consideration for the execution of such documents would easily render them unenforceable.

This then begs the question of what “reasonable consideration” would be and also, who would be paying it? Typically an insurance carrier is paying the lump sum that resolves a workers’ compensation case. Is that insurance carrier, which may only cover the employer for workers’ compensation matters, now expected to pay the consideration for a general release? Or would an employer be expected to pay this amount themselves if they want an enforceable release? This is likely answered on a case by case basis depending on the employer’s plan with the carrier. More easily answered is the question of the value of a claimant’s signature on a general release. Employers often seek a general release when an employee is separated from employment. Typically some sort of severance package is afforded to the employee in consideration for their signature that consists of anywhere from a few weeks to a few months’ worth of wages. The amount is often commensurate with the length of employment, experience or expertise of the employee and the circumstances surrounding the separation. As long as the consideration is adequate such releases have consistently been upheld. The same practice should apply to a general release that is sought in conjunction with a compromise and release agreement if that general release is to be worth any more than the paper it is written upon.

In sum, the Zuber case confirms that an employer cannot prevent a claimant in a workers’ compensation case from pursuing additional litigation pertaining to ancillary employment law issues simply by entering into a compromise and release agreement. If an employer seeks a global settlement of all potential litigation then they need to pay proper consideration for the same.

Erica Shikunov, as associate at Pond Lehocky Stern Giordano, concentrates her practice on workers’ compensation.