California Lawyers Association

California Workers’ Compensation and Employment Law Crossover: Settling Civil, Employment, and Workers’ Compensation Cases, in a Single Settlement Agreement

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California Workers’ Compensation and Employment Law Crossover: Settling Civil, Employment, and Workers’ Compensation Cases, in a Single Settlement Agreement

DAVID SKAGGS, ESQ.

Thousand Oaks, California

Note: This article does not discuss the workers’ compensation device known as a third-party compromise and release, whereby a defendant other than the employer is ultimately liable for some to all of an employee’s injuries/losses. The article focuses instead on an employer’s liability that simultaneously arises under both workers’ compensation (that is, administrative) and civil employment laws.

What happens when litigants intend to resolve civil, employment, and workers’ compensation cases in a single document? Are release agreements made in one jurisdiction enforceable in the other?

California Civil Code section 1541 permits parties to release claims upon agreement, and parties may waive Civil Code section 1542, which prohibits such release agreements from affecting unknown claims. However, Labor Code section 5001 prohibits parties from releasing workers’ compensation rights unless a workers’ compensation judge approves the release.

In the context of the employer-employee relationship, certain rights cannot be summarily released or waived, due to public policy considerations. One such right is an employee’s entitlement to workers’ compensation benefits (Claxton v. Waters (2004) 69 Cal.Comp.Cases 895). Labor Code section 5000, et seq., expressly limits the ability of an employer to obtain a release of workers’ compensation liability.

To validly release workers’ compensation rights, the release, known as a compromise and release or C&R, must meet all of the following criteria:

  • The release must be in writing (Labor Code §5003).
  • The release must use the preprinted form approved by the California Division of Workers’ Compensation (DWC), which includes certain mandatory language and information (such as injury date, employee’s average weekly wage, settlement amount, and so on) (Labor Code §§5003, 5004; 8 Cal.Code Regs. §10874).
  • The writing must be signed by both parties (Labor Code §5002), with the employee’s signature attested to by two disinterested witnesses or a notary public (Labor Code §5003).
  • The writing must be filed with the Workers’ Compensation Appeals Board (WCAB) (Labor Code §5002).
  • The settlement amount listed in the writing must be deemed adequate by a workers’ compensation judge (WCJ) (8 Cal.Code Regs. §10870).
  • The writing must be approved by a WCJ in an Order Approving Compromise and Release (Labor Code §5001).

What Happens When Civil Litigants Intend to Resolve Civil, Employment, and Workers’ Compensation Cases in a Single Document?

When parties settle a civil suit and intend to include a release of workers’ compensation rights, the settlement is conditioned, by implication if not expressly, on subsequent WCAB approval of the workers’ compensation release. This is because workers’ compensation releases are invalid until the WCAB approves them.

In the case of Steller v. Sears, Roebuck and Co. (2010) 75 Cal.Comp.Cases 1146, an employee filed a workers’ compensation claim against her employer for an injury to her back. When her employer allegedly failed to accommodate her physical limitations, she filed a disability discrimination suit in civil court. The employer served a $95,000 Code of Civil Procedure section 998 settlement offer in the suit, which stated that it

includes, and shall operate as a satisfaction of all claims for…alleged damages, costs and expenses, attorneys’ fees and interest…in this action, as well as all demands, actions, liabilities, obligations, damages and/or causes of action arising from this lawsuit or relating to [appellant’s] employment with [respondent] (Steller, supra, at p. 1148).

The 998 offer did not expressly reference the concurrent workers’ compensation action. However, at a later MSC held in the civil case, both parties acknowledged that the $95,000 offer was premised on a global resolution of both pending actions. Plaintiff’s counsel announced on the record in open court that plaintiff accepted defendant’s $95,000 settlement offer and later moved to enter judgment in accordance with the agreement but insisted that the workers’ compensation case was excluded from the settlement. The trial court granted the plaintiff’s motion to enforce the settlement agreement, including the workers’ compensation release.

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The Second District Court of Appeal, Division Six, first determined that extrinsic evidence is admissible to determine whether or not parties intend to release claims arising under both civil and workers’ compensation laws and concluded that the parties had intended to release all claims under both jurisdictions. Second, the court determined that a global settlement (of civil and workers’ compensation claims) reached in the civil court is void unless and until the WCAB approves the workers’ compensation release and, therefore, must be conditioned upon such WCAB approval.

What Happens When Workers’ Compensation Litigants Intend to Resolve Workers’ Compensation and Civil Employment Cases in a Single Document?

When parties settle a workers’ compensation suit and intend to include a general civil release of liability for claims outside of workers’ compensation, the parties must use release language separate from the preprinted general release language found in the form Compromise and Release document, preferably in a separate addendum and likely requiring a separate consideration (see 8 Cal.Code Regs. §10870). This is because the general release language found in the form C&R document mandated by the DWC has been judicially limited only to claims arising under workers’ compensation laws.

Note: The current DWC form Compromise and Release also contains language expressly limiting the workers’ compensation release to claims that are subject to the exclusivity provision of workers’ compensation law.

The landmark case in this context is the California Supreme Court’s decision in Claxton v. Waters, supra. In Claxton, a female administrative office assistant filed two workers’ compensation claims—a physical-mental claim arising from a slip-and-fall and a mental-mental claim arising from alleged sexual harassment)—and a civil FEHA sexual harassment claim. Five months after filing her civil case, the plaintiff settled both of her workers’ compensation claims by executing the Compromise and Release document containing the standard preprinted general release language, which a WCJ approved. Thereafter, the employer moved to dismiss the civil case based on the general release language in the Compromise and Release.

The plaintiff submitted proof of her intent to limit the release to workers’ compensation matters only. The trial court granted the defendant’s summary judgment motion and the court of appeal reversed. The Supreme Court, aware that public policy considerations govern workers’ compensation law, which is structured to protect the employee by limiting suboptimal outcomes, held that the preprinted general release language in a workers’ compensation form is limited to a release of workers’ compensation claims only and cannot be expanded by extrinsic evidence of an employee’s intent to the contrary. In Claxton, the Supreme Court distinguished its earlier holding in Jefferson v. Dept. of Youth Authority (2002) 67 Cal.Comp.Cases 727, where the court had permitted a workers’ compensation settlement to bar an employee’s right to later file a civil sexual discrimination suit because, in Jefferson,

the preprinted workers’ compensation compromise and release form had an attachment expressing the parties’ intent to have the release also apply to the employee’s civil action alleging sex discrimination (Claxton, supra, at p. 732).

In summary, every release of workers’ compensation benefits requires WCAB/WCJ approval, such that if the compensation release is included in a global settlement of civil and workers’ compensation rights/liabilities, the global settlement is conditioned upon WCAB/WCJ approval of the compensation release. In disputes over such settlements, extrinsic evidence of the parties’ intent to include a workers’ compensation release is admissible.

The general release language found in every workers’ compensation mandatory-form Compromise and Release document does not extend to rights/liabilities outside the jurisdiction of the WCAB. In disputes over such language, extrinsic evidence of the parties’ intent to include a civil general release is not admissible as to the meaning and effect of the standard boilerplate language. Proof of the parties’ intent to release claims outside the jurisdiction of the WCAB in a WCAB Compromise and Release document requires separate language from the standard boilerplate language and may require additional consideration to support it.

David M. Skaggs is Assistant Vice President, Legal at Pacific Compensation Insurance Company in Los Angeles, California. The views and opinions expressed in this article are those of its author and should not be construed to reflect the views or opinions of any organization with which the author is employed or otherwise affiliated.

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