Compromise and Settlement: May An Employer Include a Penalty Clause to Ward Off Further Vexatious Claims?

Each year I read–or at least scan–more than 1,500 workers’ compensation cases that make the appellate reporter system around the nation. As large as that number sounds, it’s really fewer than five per day. And yet, as we all know, only a small fraction of claims filed make it even to a hearing, much less an appellate court. The vast bulk of claims are handled either without controversy or they are settled by the parties. Indeed, the entire workers’ compensation system requires that virtually all cases be dispatched without any sort of formal hearing or appellate process. If every injury produced a contested hearing, the system would crash around us. Just how free are the parties to settle a truly disputed claim? May the employer include a penalty clause requiring substantial liquidated damages to be paid by the worker if further litigation is initiated? A decision last week from Louisiana, Ayro v. Willstaff, Inc., 2014 La. App. LEXIS 433 (Feb. 19, 2014), provides some important insight. 

Background

Ayro initially filed a workers’ compensation claim alleging that he had sustained a work-related injury in 2006. Five years later, the matter proceeded to trial and a WCJ found in favor of the employer, dismissing Ayro’s claim. Six weeks later, Ayro filed a second claim, asserting the same allegations as before, seeking benefits for the 2006 claimed accidental injury. Rather than immediately dismiss the claim, the WCJ, on her own motion, appointed a physican to conduct an independent medical examination to address Ayro’s medical condition. The physician opined that Ayro required no further medical treatment and that he was capable of returning to full-duty work.

The Green Poultice

Although the IME supported the employer’s contention that Ayro could recover nothing, the employer sought to conclude the matter once and for all by offering Ayro $3,000, in exchange for a full release. At that time, Ayro was represented by counsel. As part of the negotiated settlement, the agreement contained a clause, specifically acknowledged as fair by Ayro, that should he initiate or file any additional claim against the employer related to the alleged 2006 incident, Ayro would pay the liquidated sum of $5,000.00 as damages. After reviewing the document with his counsel, Ayro signed the agreement and accepted the $3,000 payment. A few months later, however, Ayro filed still another claim for benefits against the employer related to the 2006 incident—this one pro se. He also filed a motion to rescind the compromise and settlement agreement. Following a hearing, the WCJ entered an order dismissing the claim and ordering Ayro to pay the stipulated damages of $5,000.00, as required by the signed agreements. Ayro appealed.

Appellate Court’s Ruling

The appellate court initially observed that the requirements of La. Rev. Stat. § 23:1272, relative to the approval of settlement agreements, had been met in the case. That is to say that at the time Ayro signed the settlement agreement he was represented by counsel, affidavits were executed certifying that Ayro was explained his rights and the consequences of the settlement to him and that he understood said rights and consequences. After reviewing the various documents, including the affidavits, the WCJ signed an Order approving the settlement. The court found no evidence of fraud or misrepresentation by any party.

The court added that at the hearing the WCJ questioned Ayro regarding his allegations of incompetence, that Ayro testified to the court he was not under the influence of drugs at that time and was represented by counsel. He testified further that his attorney explained to him the terms and effects of the settlement agreement. Ayro also stated he was not harassed into accepting the settlement, and he freely signed the paperwork. Accordingly, the WCJ determined Ayro was not incompetent and was not under any legal duress. The appellate court could find nothing in the record to dispute this finding by the WCJ.

No Penalty Allowed Under Comp Statute

As to the $5,000 penalty clause, the appellate court added, however, that nowhere in the Louisiana Workers’ Compensation Act was such a penalty or punitive damage award permitted against a workers’ compensation claimant. The court acknowledged that, under the comp statutes, penalties and attorney fees could be awarded to a claimant when the employer or carrier had violated the terms of a settlement agreement, such as failing to pay when due. No such provision allowed such a penalty to be enforced against Ayro, however.

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