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Attorney Column: Terminating an employee for filing a fraudulent workers’ compensation claim could increase that employer’s liability
by William E. Shaughnessy, Esquire and Stephanie Lamb Pugh, Esquire

You are a small business owner (equipment rental company) and made a mistake several years ago in hiring a nephew (James) of one of your good friends. For the last several months you have been looking for an excuse to rid your good company of this employee. James, who has a history of back problems, comes in on a Monday morning and within 15 minutes after clocking in, he reports he picked up a compressor and strained his back. The alleged accident was unwitnessed. Several employees advised you that James had moved from one apartment to another over the previous weekend. Your workers’ compensation insurance carrier quickly investigates the claim and denies the claim. Seizing the opportunity, you terminate James for filing a fraudulent workers’ compensation claim.

Good idea? Probably not!

In South Carolina, an employer who discharges or demotes an employee because that employee has “instituted or caused to be instituted” in good faith any proceeding under the South Carolina Workers’ Compensation Act can be liable for damages to the employee so discharged or demoted (S.C. Code Ann. § 41 1 80). Per the statute, an employer found liable for such retaliatory conduct can be forced to pay damages in a civil action (outside of the Workers’ Compensation Act) for lost wages suffered by the employee as a result of the separation or demotion. Further, the court can order that the employee be reinstated to his or her former position.

In a recent South Carolina Court of Appeals case, Crosby v. Prysmian Communication Cables & Systems, USA, LLC, 371 S.C. 101, 723 S.E.2d 813 (Ct. App. 2012), the court held that if the South Carolina Workers’ Compensation Commission finds compensable the claim of an employee, who has been terminated for filing a bogus claim, the compensability finding has a “preclusive” effect in a retaliatory discharge claim.

In that case, Crosby, on January 6, 2005, notified her employer, Prysmian, that she had injured her right knee on the job on January 5, 2005. After the employer, as well as its workers’ compensation carrier, investigated the claim, Prysmian, on January 25, 2005, notified Crosby that she was fired. The letter Prysmian sent to Crosby stated, in part:

Both Prysmian, and its workers’ compensation insurer, American International Group, Inc. (AIG), have investigated your claim and determined that your claim lacks merit and Prysmian believes it was filed with fraudulent intent. … as a result of AIG’s determination and statements obtained in the course of the investigation of your claim, Prysmian has decided to terminate your employment, effective immediately, for filing a false claim for workers’ compensation benefits.

Following her termination, Crosby filed a workers’ compensation claim, and in July 2005, Commissioner J. Alan Bass conducted a hearing on the claim. Prysmian defended the claim asserting that Crosby hurt that same knee outside of work on January 2, 2005 (three days before the alleged injury). Crosby countered that she had injured her knee on January 2, 2005 but that she had iced the knee and that her knee had gotten better before the injury of January 5, 2005. Crosby testified that she did not report the injury of January 5, 2005, immediately but reported it the next day as she thought the knee would improve on its own as it had after the non-work related injury of January 2, 2005. Prysmian presented testimony of co workers who observed Crosby limping on her right leg as she arrived to work on January 5, 2005. Though Crosby admitted she was limping, she attributed the limp to blisters on her toes she developed from wearing high heels at a New Year’s Eve church service. Commissioner Bass found the Claimant a credible witness and awarded the case.

On December 21, 2005, Crosby filed a civil lawsuit against Prysmian for retaliatory discharge under § 42 1 80. Prysmian answered and asserted that Crosby was “validly terminated for fraudulently filing a workers’ compensation claim.” The court held that the South Carolina Workers’ Compensation Commission’s finding that Crosby suffered a work related injury is “preclusive,” thereby precluding Prysmian from offering any evidence which could prove a defense to the workers’ compensation claim. In other words, because the Commission had determined the claimant suffered a compensable injury, the employer could not assert that the employee had been terminated for filing a fraudulent claim.

The elements of a retaliatory discharge claim consist of: (1) institution of a workers’ compensation proceeding; (2) discharge or demotion; and (3) a causal connection between the first two elements (i.e., causal connection between institution of a workers’ compensation proceeding and discharge and demotion). Thus, the Commission’s finding of compensability after an employee has been fired for allegedly filing a false claim is likely a “death nail” for employers facing retaliatory discharge claims stemming from the same incident.

The lesson in this is that employers should be exceedingly cognizant of the fact that their decision to terminate an employee for filing a false workers’ compensation claim could have a detrimental impact on that employer’s liability outside of the Workers’ Compensation Act.