Employment Law

A Little Severance Can Go A Long Way: Tips For Avoiding Post-Termination Claims From Disgruntled Employees

As counsel specializing in the defense of employment lawsuits against corporations, we frequently see cases of disgruntled employees seeking to collect workers’ compensation benefits from their employers after they have been terminated for cause.   Most of these claims are meritless and are simply the employees’ attempt to extract an additional monetary payout before finding new employment.   This should concern you as an employer because not only do many employees file a claim seeking workers’ compensation benefits after their termination, but they also file a petition for an additional monetary award under Labor Code section 132a.

Labor Code section 132a prohibits employers from discriminating or retaliating against an employee who has sustained a workplace injury or filed a claim for workers’ compensation benefits. Under section 132a, an aggrieved employee may bring a claim before the Workers’ Compensation Appeals Board and recover up to $10,000 and obtain a judicial order of reinstatement. California law also recognizes a like civil claim, which is styled as a wrongful termination of public policy claim.

How can you avoid such claims altogether? One option may be to offer your terminated employees a small amount of severance pay (two weeks to two months depending on your comfort level and the circumstances) in exchange for a general release and waiver of all civil claims arising from the employee’s hire, work at, and termination from your company, including, but not limited to, 132a claims. While the California Labor Code prohibits employers from entering into an agreement with an employee wherein the employee waives his or her right to pursue workers’ compensation benefits, this does not appear to be the case with respect to 132a claims.

At least one California Court of Appeal has held that an employer may enter into a severance or settlement agreement with an employee wherein the employee agrees to release and forego all civil claims, including all claims that would be brought under section 132a. See Integrated Healthcare Holdings, Inc. v. Weiss (2010) 2010 Cal.App.Unpub. LEXIS 7227. Because the Integrated Healthcare decision was not certified by the California Court of Appeal for publication, it is important to note that it is not binding on lower courts. It is, however, instructive for understanding how courts might evaluate and enforce such agreements if they were asked to rule on them.

Another mechanism for achieving the same effect of a general release, is to have the employee warrant in his or her severance agreement that he or she is not aware of any work injury prior to the date of execution of the severance release. While such an agreement may not prevent the employee from claiming that an injury manifested later, workers’ compensation claims filed after the date of termination are looked upon skeptically by most workers’ compensation carriers. Even more scrutiny will be applied to a “late” filed workers’ compensation claim if the employee has warranted on the date of termination that he or she was unaware of any work injury(ies). It is unclear whether the Workers’ Compensation Appeals Board would enforce such a warranty to bar a claim as there is no case law addressing this issue. However, this is one more tool for attempting to minimize after-the-fact workers’ compensation claims.

Ultimately, there is little guidance from California courts on such agreements and releases as they relate to 132a claims. This is in part because the damages associated with 132a claims are low enough that they typically do not result in the “bet the company” litigation that typically leads to appellate or Supreme Court decisions that clarify murky areas of law. At a minimum, though, any severance agreement that includes a waiver of an employee’s 132a claim should be able to later be presented and approved by the Workers’ Compensation Appeals Board (the WCAB). In Steller v. Sears, Roebuck & Co. (2010) 189 Cal.App.4th 175, the California Court of Appeal held that a general release of all claims (which was not specific as to whether it included the employee’s claims for workers’ compensation benefits or claims brought under section 132a) was “conditional upon WCAB approval,” meaning that if the WCAB approved of the agreement and determined that the employee’s interests had been sufficiently protected in negotiating the agreement, it would be enforceable and could bar the employee’s later claims.

If you are considering terminating an employee, need help or guidance in drafting a severance agreement, or updating your company’s current standardized agreement, Klinedinst’s employment team is here to help. Make sure you are getting the maximum protection when you have to terminate an employee so you can avoid claims filed after-the-fact.