Workers’ Compensation Settlement Process from Start to Finish
California employment laws change annually and 2018 will bring new challenges for business owners. What hasn’t changed is that all California employers are required by law to have Workers’ Compensation insurance, even if they have only one employee. If an employee gets hurt or sick because of work, employers are required to pay Workers’ Compensation benefits. Workers’ Compensation insurance provides basic benefits, including medical care, temporary disability benefits, permanent disability benefits, supplemental job displacement benefits, a return-to-work supplement, and death benefits.
The vast majority of Workers’ Compensation claims are resolved without any problems, though not always.
Here’s some key information about the Workers’ Compensation settlement process in California to get you up to speed.
Is Settling Your Best Option? What You Need to Know to Decide
In very simple terms, a ‘settlement’ means that your employee, who was injured or became ill as a result of work, agrees to end legal proceedings in exchange for something – which in most instances is money.
In exchange for ceasing legal action, the employee receives a lump sum of money. The total of the lump sum usually includes the projected cost of ongoing medical treatment.
The inclusion of projected medical expenses is extremely important, so make sure that you have a very good understanding of the type and extent of medical treatment the employee will need going forward.
Beginning the Process: Negotiations
While most Workers’ Compensation claims are settled without acrimonious dispute, that’s not always what happens, and the process can be extremely challenging for the employer. Here’s what to expect:
First Settlement Demand Draft
Usually the employee’s attorney will initially attempt to negotiate a settlement in the employee’s best interest by drafting a ‘Settlement Demand’ clearly detailing what the employee is seeking. Be sure to closely review the document to make certain that no exposure (on your part) is overlooked or omitted.
Your insurance company will usually make a counter offer for less or something other than the initial Settlement Demand. That’s when negotiations really begin. Settlement negotiations can be conducted with the insurance company, at a settlement conference in court, or through mediation with both parties involved.
What Happens if a Settlement Isn’t Made?
If no settlement can be reached, the process is usually pursued in a formal hearing presided over by a judge.
Bringing a Settlement to Court
Keep in mind, in a hearing, the final decision-maker is the judge and that he or she alone has the power to determine any compensation benefits.
Also remember that the hearing judge cannot award future benefits in a lump sum. The judge can only determine what is due the employee as of the date of the hearing, and can order ongoing weekly benefits unless another event occurs that could terminate those benefits.
Remember, as well, that many employees decide to settle Workers’ Compensation claims after weighing their options.
What Kind of Paperwork Should I Expect?
Honestly, there’s going to be a lot of paperwork. That’s how the Workers’ Compensation settlement process operates. You can expect to be asked to sign or provide the following:
Covenant Not to Appeal / Agreement Not to Re-apply
A Covenant Not to Appeal / Agreement Not to Re-Apply means that neither your employee nor you will contest the settlement terms.
A Confidentiality Agreement, which is sometimes referred to as Non-Disclosure Agreement, is usually included in a Workers’ Compensation settlement. By agreeing to it, the employee pledges to not disclose certain information to third parties.
This agreement binds both parties – the employee and you – to very specific pledges on the disclosure of information, and is enforceable under California law.
Social Security Disability or Medicare Status Documentation
Before agreeing to a settlement, make certain that your employee provides current information about their Social Security and Medicare status.
Compromise and Release
A General Release (also referred to as a Release of Liability) stipulates that your employee ‘releases’ you from any future liability to the employee’s injuries or illness.
What to Expect at the End of a Settlement
Usually when a settlement is reached, the injured party is anxious to receive the settlement check. Your attorney will draft a ‘Stipulation for Settlement’ document, which is often a lengthy document that details the precise terms of the settlement and payment terms.
Medical Open vs. Medical Closed
One of the terms of settlement is often whether medical is left ‘open’ or if it is ‘closed’.
Medical Open means that the employee has the right to pursue future claims for medical treatment. It does not mean, however, that all medical expenses will be paid for the rest of the employee’s life.
Medical Closed means that part of the money the employee receives in the settlement is payment for potential future medical treatment. Most people use private health insurance coverage for their future treatment expenses. If the employee is Medicare eligible or currently a Medicare recipient, other issues enter into play, which your attorney can detail.
Release of Future Claims
You and your attorney will carefully review and approve the Stipulation for Settlement document, before circulating it to all involved parties. After all parties approve the document, it is sent to California’s Office of Administrative Hearings.
Official Approval Letter
An Approval Letter will only be issued by the judge reviewing the settlement if everything in the document appears to be fair and all of the appropriate parties’ interests have been dealt with. Once the judge issues the ‘Award Letter’, the employee should receive a check in two weeks.
Workers’ Compensation benefits are typically not considered taxable income.
Need More Info?
Here’s a source for more information from the State of California Department of Industrial Relations: http://www.dir.ca.gov/dwc/dwc_home_page.htm.
The Workers’ Compensation Insurance Rating Board (WCIRB) recently issued its “State of the System: Report on the State of the California Workers’ Compensation Insurance System”. In it, you’ll find a wide range of information, including a chapter on employer costs related to Workers’ Compensation Insurance: https://www.wcirb.com.
This blog post is intended for informational purposes only and does not constitute legal advice. No attorney-client relationship is created between the author and reader of this blog post, and its content should not be relied upon as legal advice. Readers are urged to consult legal counsel when seeking legal advice.