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A Cautionary Tale of Workers’ Compensation Claims

The Connecticut Supreme Court recently heard arguments on an important issue for employers – the inclusion of workers’ compensation claims in general releases signed by departing employees. 

In Leonetti v. MacDermid, Inc., Stephen Leonetti, a discharged employee, executed a separation and release agreement wherein his employer, MacDermid, Inc., agreed to pay him approximately $70,000 in severance in exchange for a global release where Leonetti would voluntarily abandon any and all claims against MacDermid. MacDermid intended to include, through the use of broad terms in the agreement, Leonetti’s abandonment of a pending workers’ compensation claim. The agreement did not specifically allocate any portion of the monetary severance toward the settlement of the workers’ compensation claim. Most importantly, the agreement, which contemplated settling Leonetti’s workers’ compensation claim, was not submitted to the Workers’ Compensation Commissioner for approval. Connecticut’s statutory scheme requires that all stipulations (settlements) of workers’ compensation claims be approved by the Workers’ Compensation Commissioner in order to be binding. 

After Leonetti signed the separation and release agreement and was paid the severance funds, his counsel brought the matter to the Workers’ Compensation Commission with respect to the language in the release, which included the workers’ compensation claims, in an effort to invalidate those specific portions of the release. The Workers’ Compensation Commissioner agreed with Leonetti and his counsel, determining that the language waiving the workers’ compensation claim was unenforceable because the Commission did not approve it and it was not supported by sufficient consideration. The Compensation Review Board and the Connecticut Supreme Court affirmed the Commissioner’s decision. The Connecticut Supreme Court reiterated that since the agreement was never approved by the Commissioner, the workers’ compensation claim was not properly resolved by way of full and final stipulation. Thus, the employer was still responsible for future medical and/or indemnity benefits to Leonetti despite the fact that the severance payment was already made.

To make matters more complex, while Leonetti was litigating the workers’ compensation issue, MacDermid was litigating its own action to recover the severance funds paid to Leonetti in exchange for executing the separation and release agreement. MacDermid proceeded under a theory of unjust enrichment based upon the allegation that Leonetti had no intention of honoring the release of his workers’ compensation claim when he signed the agreement, but took the money anyway. A jury agreed with MacDermid on its unjust enrichment claim and awarded MacDermid the return of the severance payment, including interest. Leonetti appealed the jury verdict on the grounds that the unjust enrichment claim was an attempt to enforce an invalid workers’ compensation claim release and on the grounds of collateral estoppel. MacDermid responded by noting that the jury found that Leonetti was unjustly enriched by the sum of money he received pursuant to the agreement and that collateral estoppel does not preclude the unjust enrichment claim because it was not previously decided. 

The Connecticut Supreme Court has yet to issue a final ruling. While we await the Supreme Court’s decision, it is important to be mindful of the protracted and costly eight year litigation over the terms of the general employment release at issue in this case. Leonetti’s litigation regarding the enforceability of a “global release” demonstrates that the agreements that seek to release workers’ compensation claims are not binding until they are approved by the Commissioner. While the language in the release may be valid for common law purposes, it is not enforceable until approved by the Commissioner. This is because common law principles do not overcome the statutory protections afforded to employees by the Workers’ Compensation Act. 

More importantly, this case highlights the importance of careful and knowledgeable drafting of the language in employment releases premised on an understanding of the relevant statutory and administrative provisions. 

Please do not hesitate to contact us if you have questions about employment releases, separation or severance agreements, or any employment-related legal matters. We are happy to assist.