The Effect of Pebworth on VR Settlements

Sunday, April 11, 2004 | 0

The 2nd District Court of Appeal recently issued its decision in Pebworth v. WCAB, finding that the settlement of prospective VR benefits and services was not limited to 2003 dates of injury but, in fact, applied to all pre-2004 dates of injury. It is unlikely the decision will be appealed to the California Supreme Court since both the applicant and defendant had appealed the Board decision in order to obtain approval of their settlement agreement. Although this is a second district case, early indications are that the DWC will apply the decision state wide. This decision may result in a trickle of VR settlements becoming a flood as injured employees, employers, and insurers seek to resolve old or disputed cases.

As we have previously noted, settlement of prospective rehabilitation benefits is not without risk to employers, insurers, and injured employees. Some of the potential problems with VR settlements include:

* Does a VR settlement protect employers from subsequent FEHA claims by employees? Probably not, unless the employee has specifically waived re-employment rights.

* Is an insurer incurring a potential liability if it settles a case without first verifying that the employer is unable to offer a modified or alternative job? Employers who can offer modified or alternative work will not be pleased to see up to $10,000 accrue to their loss experience when they could avoid the expense entirely.

* Similarly, is an insurer at risk for settling VR without first making a determination that the employee is a QIW? As above, employers will not appreciate the negative impact of a settlement on their experience modification factor where they believe a non-existent liability has been settled.

* Could a VR settlement be invalid if the employee has not been provided a proper Notice? There is no specific requirement to provide the employee with notice prior to a VR settlement but, to date, we have no case law on the subject. We do have case law supporting the requirement to provide employees with proper notice (see Marriott Corp v. WCAB (Gomez)(1977) 62 CCC 816, City of Long Beach v. WCAB (Clemons)(2001) 66 CCC627, Int'l Parts Exchange v. WCAB (Ryan)(1998) 63 CCC 309).

* Do the parties (including the Rehab Unit) have an affirmative obligation to determine if the employee is able to "self-direct" his or her rehabilitation effort? L.C. section 4646(b) indicates that the settlement is provided in lieu of rehabilitation benefits "...for the employee's use in self directed vocational rehabilitation." Further, this section requires that the Unit may only disapprove a settlement agreement "...upon a finding that receipt of rehabilitation services is necessary to return the employee to suitable gainful employment." Since the RU-122 does not require the parties to demonstrate in any way that the employee is able to self-direct his/her rehabilitation effort, it is possible that a settlement agreement may be vulnerable to future reversal at the Board.

* What is the settlement value where the employee has already begun VR services? An applicant's attorney may demand $10,000, even where his/her client has already used $8000 in benefits and services. It may be worth $10,000 to the insurer who wants to be rid of the case but the employer whose experience modification is adversely affected may object to anything more than $8000 (or perhaps $2000 since the apparent L.C. section 4646 limit is $10,000).

There are already indications that substantial numbers of pre-2004 cases will include a settlement of VR liability; VR settlements were already a fact of life in workers compensation (using the RU-107a) and they will become more common via the RU-122. Presumably applicant attorneys will advise their clients regarding their options and the potential value of a vocational rehabilitation program. Employers and insurers need to protect themselves by including language in C&R agreements that provides the applicant with notice language as well as language that confirms that the employee is accepting the VR settlement in lieu of other options including modified or alternative work with the pre-injury employer. Since the RU-122 has yet to be tested at the Board, insurers and self-insured employers should not rely on the RU-122 alone to protect them against L.C. section 5410 claims or FEHA claims against the employer.

It is rarely mentioned in the context of settling the VR benefit but many injured workers will be at risk if they settle their right to services. There are thousands of injured workers annually that do return to work as a result of VR services. Many who succumb to the lure of "easy money" may find the path to medically appropriate employment much more difficult than they anticipated.

Finally, employers and insurers should understand that VR settlements are not a panacea to cure all the perceived ills of the rehabilitation benefit. If settlement of the benefit becomes widespread, a VR component will become an element of most settlement demands with the possible consequence that VR settlements could become more expensive than provision of the actual benefit.

Contributed by vocational rehabilitation expert Allan Leno, Leno & Associates, (818) 370-8859, allanleno@leno-assoc.com.

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