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Employers often complain that it is unfair and provides a disincentive for employees to return to work if they are receiving both unemployment benefits and temporary total disability benefits through worker’s compensation. From a practical standpoint, employers are correct. An employee receiving both worker’s compensation benefits and unemployment benefits will be receiving more on a weekly basis than the employee was earning by showing up to work everyday. This certainly creates a disincentive to attempting to return to work and frustrates the purpose of both the unemployment and worker’s compensation system.
Therefore, employers have taken the position in the past that the employee is disqualified from receiving temporary total disability benefits through the worker’s compensation system if the employee receives unemployment benefits. Employers have relied upon two theories to assert this defense.
The first theory is that an employee is required to certify that he/she is able to work to draw unemployment benefits while the employee must prove that he/she is unable to work his/her regular job in order to receive worker’s compensation temporary disability benefits.
The second theory asserted is that the employee is disqualified by statute from receiving simultaneous unemployment and worker’s compensation benefits. Specifically, employers rely upon Iowa Code section 96.5(5)(b), which indicates that an employee is disqualified from receiving unemployment benefits if also receiving temporary disability benefits through worker’s compensation. Employers also rely upon several decisions from the Iowa Workers’ Compensation Commission for their theory, including Weatherwax v. Boesen, The Florist, L.L.C., IWCC File No. 5011784 (Arb. Dec. 2005); Darnell v. Experian Info. Solutions, IWCC File No. 5009064 (Arb. Dec. 2004); Nock v. GKN Armstrong Wheels, Inc., IWCC File No. 5006172(Arb. Dec. 2004); Wagner v. Giese Sheet Metal Co., IWCC File No. 1217613 (Arb. Dec. 2000).
On June 29, 2007, the Iowa Supreme Court decided a case that addressed these issues in the realm of a bad faith claim. Specifically, in Rodda v. Vermeer Manufacturing, 734 N.W.2d 480 (Iowa 2007), the Iowa Supreme Court contemplated these issues. In Rodda, the injured worker sought temporary total disability benefits during a period of time when he was also receiving unemployment compensation. The employer denied liability for temporary disability benefits under the above legal theories. Ultimately, the injured worker recovered the claimed temporary disability benefits and filed suit against the employer for bad faith, claiming that the denial of worker’s compensation benefits was unreasonable and not “fairly debatable.”
After the bad faith claim was filed, the employer filed a motion for summary judgment. The district court granted the motion for summary judgment and the case was appealed to the Iowa Court of Appeals and ultimately taken by the Iowa Supreme Court on further review.
The Iowa Supreme Court concluded that there was not a reasonable basis for denial based upon the argument that the claimant must certify an ability to work to obtain unemployment benefits. The Court explained that the standard under the unemployment law is different than the legal standard in the Iowa worker’s compensation laws. In the unemployment system, a worker must only certify the ability to work at some job. However, in worker’s compensation, an injured worker is entitled to temporary disability benefits until he/she actually returns to work, is capable of substantially similar work, or reaches maximum medical improvement. Iowa Code section 85.33(1). In other words, in the unemployment system, a worker must only be able to work “some” job while in the worker’s compensation system, the worker must be able to work the “same” job. Accordingly, the Iowa Supreme Court determined that it is not a reasonable legal argument to contend that an employee is disqualified from receiving worker’s compensation benefits if he/she also receives unemployment.
However, the Court took a different position with respect to the disqualification provision of Iowa Code section 96.5(5)(b). The Court noted that prior agency precedent had adopted the legal conclusion asserted by the employer. Although the Court did not ultimately reach a conclusion as to whether the legal argument urged by the employer is accurate, the Court concluded that the legal argument urged was reasonable and fairly debatable as a matter of law. Accordingly, the Iowa Supreme Court affirmed the district court and dismissed the bad faith suit.
Unfortunately, the Iowa Supreme Court’s decision did not ultimately resolve this legal issues. Given the language provided by the Court, this issue is presumably still open for debate and should not constitute a bad faith denial of temporary disability benefits if the employee is simultaneously receiving unemployment benefits. On the other hand, employers must be leery about this potential defense. In fact, the Iowa Workers’ Compensation Commission considered this legal issue on appeal in the Weatherwax case. In that appeal decision, the Commission concluded that an employee is not disqualified from receipt of worker’s compensation benefits if the employee is also receiving unemployment benefits. Given this appeal decision and precedent from the Commission, employers must ponder whether it is still reasonable to rely upon lower Arbitration Decisions, which do not and cannot set agency precedent.
Ultimately, interpretations of law should be left to the Iowa Supreme Court. Therefore, at least arguably, this remains a viable dispute and debate that should permit challenge without risk of an award of either penalty benefits or bad faith claims. On the other hand, given the recent appeal decision from the Commission, there is a risk that the Commission may determine that it is no longer reasonable to deny liability for temporary disability benefits under these circumstances.
Therefore, before denying temporary benefits under a theory that the employee is disqualified because receiving unemployment benefits, an employer must be prepared to defend this issue through the appellate process. It is possible, if not likely, that the Commission will award the benefits in conformity with their prior appellate precedent. It is also possible that the Commission may award penalty benefits for the denial of these benefits. Accordingly, an employer must have sufficient risk tolerance and willingness to risk an award of benefits and penalty benefits. The employer must be willing to appeal this issue to receive a definitive ruling on this issue and potentially to overturn any penalty benefit award.
From a realistic standpoint, the amount of benefits involved often will not be sufficient to justify a full and thorough appeal. In fact, it appears that the employee banked on that fact in the Rodda case. It appears that the employee did not bring a penalty benefit claim, obtained an award of temporary disability benefits, and then filed a bad faith suit. More than likely, the employer did not appeal the temporary disability award because it likely did not involve sufficient amounts to justify appeal through the entire appellate process. In other words, the employee obtained his award, lulled the employer into a sense of security to avoid the appeal, and then filed a bad faith suit. This is the reason that employers must consider and determine whether a denial of temporary benefits is a sufficient benefit to warrant the risk of penalty claims and/or bad faith claims even on an issue that the Iowa Supreme Court has indicated is fairly debatable.
As a caveat, it should be noted that the Rodda case also provides another important legal principle for employers. In Rodda, the Iowa Supreme Court noted that an employer “was not unreasonable in denying [an employee’s] claim for one day’s benefits, formally raised for the first time at the hearing.” This legal conclusion and statement may have important ramifications that could benefit the employer.
This case suggests that written discovery is even more important in most cases and that the employer should serve written discovery seeking to have claimant outline his/her specific claims. Often, the injured worker will provide very sketchy responses to these discovery requests will not provide a specific claim for benefits. Pursuant to the Iowa Supreme Court’s decision in Rodda, an employer should not be found to be in a penalty situation for not paying a claim that was not specifically raised by claimant prior to the date of hearing. In other words, unless claimant outlines his/her claims in discovery, the employer should be shielded from penalty benefits if the claimant later articulates or outlines specific claims at the time of hearing that were not previously delineated.
Although not the crux of this case, the Rodda decision should provide an important shield for employers in the defense of penalty claims in worker’s compensation cases. Diligence in serving discovery is now important and may assist employers in avoiding the surprise situations in which claims were not specifically delineate prior to hearing and then penalty benefit claims are asserted for not paying the undeclared claims.
Posted by William H. Grell on November 5, 2007 8:22 AM
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