O’Gallagher: The effect of termination on workers’ compensation

Masterbrand Cabinets v. Douglas Waid, 72 N.E.2d 986 (Ind. App. 2017), deals with an issue that comes up very often in Indiana workers’ compensation. It is a question for which there has not been clear legal standards, certainly before this decision, and arguably still currently — namely, is an employee who is injured in a compensable WC case entitled to temporary total disability benefits, when no longer employed by employer? Both DTCI and ITLA filed amicus briefs.

This question is critical because if a worker remains employed, the employer can offer light duty within the appropriate medical restrictions, and the employee must either accept it or forego disability benefits, per I.C. 22-3-3-11.

In addition, I.C. 22-3-3-7 outlines specific circumstances where disability benefits can be denied in a compensable case. One of these is if “employee is unable or unavailable for work for reasons unrelated to injury.” I.C 2-3-3-7(c)(5).

So what does that mean in the context of an employee who is no longer employed and therefore cannot work light duty? This is an extremely frequent scenario.

Most seem to agree that if the worker voluntarily terminates employment, the section above applies. Also, if the worker is incarcerated or perhaps has another, non-work-related injury or condition, application of this defense is usually appropriate.

What about termination of employment by employer? Some hearing members have stated that factual findings would be appropriate as to whether the termination was legitimate (just cause) or pretextual (to avoid having to pay disability benefits, accommodate light duty or even as retaliatory action).

Waid was an employee who had previously been “coached” as to his anger issues in workplace. He then had a compensable slip-and-fall and back injury but was returned to work by the authorized workers’ compensation doctor.

Waid then became involved in a verbal altercation with his supervisor, cursing at him and throwing an ice pack. He was subsequently terminated from employment.

Waid was issued a permanent partial impairment rating but requested a board medical exam, which found him not to be at maximum medical improvement (MMI). The case proceeded to hearing.

At the hearing, Masterbrand argued that Waid’s termination was for “just cause” and that his conduct “fell well below the standard reasonably expected of an employee.” Therefore, I.C. 22-3-3-7(c)(5) applied, and he should not be awarded ongoing disability benefits while he continued to be out of work and treating for the work injury.

However, the single hearing member ruled, “In the context of determining an injured worker’s entitlement to TTD or TPD benefits, the Board is not required (nor is it empowered) to make determinations of the justness of the termination or level of misconduct of the injured worker.” Ongoing disability benefits were therefore awarded.

An appeal to the full board followed, which resulted in modified findings that somewhat avoided the misconduct issue but upheld the award of TTD, based on medical evidence that he was not at MMI and restrictions were not adequate. In other words, the job termination was irrelevant because the employee was proved to be “correct” in the end regarding his ability to work without restrictions. There was also evidence that that was the crux of the dispute between Waid and his supervisor, leading to the confrontation resulting in his dismissal. The full board found that “(p)laintiffs inability to work was related to his work injury in question.”

On appeal, Masterbrand argued that I.C. 22-3-3-7(c)(5) applies and that Waid’s “loss of earning power resulted from his loss of temper and aggression” (termination for just cause), not his injury.

In its amicus curiae filing, DTCI argued that I.C. 22-3-3-7(c) does not distinguish between terminated employees and those who quit their employment, but “only requires a finding of whether an employee is ‘unable or unavailable to work for reasons other than the work injury’” to avoid obligation to pay benefits. Citing Borgman v Sugar Creek Animal Hosp., 782 NE.2d 993 (Ind. Ct App 2002), DTCI maintained that once an employee is released to work in any capacity, the employee is no longer entitled to disability benefits because any further inability to work is not caused by the injury but rather by the employee’s actions, such as resignation or violation of company policies. DTCI argued further that it would be poor public policy for an employer to be forced, or even encouraged, to retain “misbehaving” employees who happen to have an ongoing workers’ compensation claim, as this would result in disparate treatment of employees and could pose a safety risk and expose employers to further litigation.

ITLA noted that adoption of Masterbrand’s argument would also lead to bad public policy, specifically, that “anytime an employee disagrees with his employer over … his worker’s compensation claim, the employer could terminate him claiming employee subordination,” thus encouraging employers to “create conflict” to avoid payment of benefits (the “pretext” situation discussed earlier).

Ultimately, the Court of Appeals upheld the award of benefits. Notably, the court did not explicitly endorse (nor reject) the single hearing member’s (rather radical) finding that the board is not empowered to judge the level of employee misconduct leading to termination, but did hold, “Waid’s termination for misconduct does not prevent him from receiving TTD benefits as a result of his on-the-
job injury.” Certainly, the court also relied on the fact that the full board found that Waid’s “inability to work was related to his work injury.”

The court mentioned that the Legislature could address this issue as to explicit bars to compensation and benefits, as it has in other instances. However, as law seems to be now, the board will not address reasons for termination when deciding whether TTD or TPD is owed.

This result leads to certain questions. What if, for instance, an employee with an ongoing workers’ compensation claim, does not report for work (either light duty or for full duty, as in Waid’s case) and is then fired as a no-show? Is the employee eligible for TTD?

Does this ruling, at least as a practical matter, completely negate the light duty or “suitable work available” defense of the employer, pursuant to I.C. 22-3-3-11?

Also, consider if the employee commits a theft or issues threats or engages in other egregious misconduct, knowing, or at least reasonably expecting, that they will be terminated? Is he or she still entitled to TTD?

While it certainly is understandable that it may be difficult for the board to rule on fact-intensive employment issues, the board can do so, and does do so in many circumstances. In this writers’ view, it is not clear why the board cannot do so under these circumstances.

Further, despite some consensus in the past as to this issue, it now may be unclear what the law is as to eligibility for TTD benefits even when an employee resigns employment. In Masterbrand, the court declined to adopt the standard, purported by defendant to be a logical consequence of Borgman, that a worker who voluntarily (or involuntary) terminates employment is barred from TTD.

Since the Masterbrand decision six years ago, the above questions have not been resolved, at least in this writer’s view. It will be interesting to observe how these issues are addressed in the future, by the Workers Compensation Board, the Legislature, employers and by the bar.

Stay tuned.•

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James O’Gallagher is an Indiana attorney. He has practiced since 1990, concentrating in the areas of workers’ compensation defense, employment law, defense of first party fraud and civil litigation. He also served as an adjunct professor at Loyola University School of Law in Chicago. Opinions expressed are those of the author.