From the Los Angeles Daily Journal

Standard Workers' Comp Settlement Form Does Not Release Job Bias Claims

By Richard S. Rosenberg, John J. Manier and Adrian J. Guidotti

The California Supreme Court has closed a "back door" for employers seeking to obtain a release of civil claims by settling a workers' compensation action. In Claxton v. Waters, 34 Cal.4th 367 (2004), the court held that the standard preprinted settlement form which is mandatory in workers' compensation proceedings does not release claims outside the scope of the workers' compensation laws.

The court further held that extrinsic evidence is inadmissible to prove that the parties intended the preprinted form to release claims outside the workers' compensation system. Instead, a release of such claims must be included in a separate agreement. This new "bright line" rule of evidence will apply only to future cases.

Generally, workers' compensation is an employee's exclusive remedy for injuries "arising out of and in the course of the employment." Labor Code Section 3600. Employers are liable for such injuries regardless of fault. The system is designed to ensure prompt relief to injured employees without the expense and burden of civil litigation.

As noted in Claxton, an exception to workers' compensation exclusivity exists for certain claims, including those based on unlawful discrimination, harassment, or conduct contrary to public policy. Such claims may be pursued in court as well as in workers' compensation proceedings.

Carolyn Claxton asserted civil and workers' compensation claims against her former employer, Pacific Maritime Association. Her workers' compensation claims arose from a slip-and-fall incident and from alleged sexual harassment by her former supervisor, Ray Waters. While her workers' compensation claims were pending, Claxton filed a civil action in Los Angeles Superior Court against the employer and Waters for sexual harassment under the Fair Employment and Housing Act, Government Code Section 12940, and related claims.

In February 1999, Claxton and the employer settled the workers' compensation claims for $25,000. Claxton executed the preprinted Compromise and Release form which is mandatory in workers' compensation proceedings, and the workers' compensation judge approved the Compromise and Release.

Paragraph 3 of the form executed by Claxton stated that the employer and insurance carrier were released and discharged "from all claims and causes of action, whether now known, or ascertained, or which may hereafter arise or develop as a result of said injury, including any and all liability of said employer…." However, the form did not specifically mention Claxton's pending civil action against the employer and Waters.

Thereafter, in Claxton's civil action, the defendants moved for summary judgment on the grounds that Claxton's execution of the workers' compensation release extinguished her civil claims. The trial court granted the motion and later ordered Claxton to pay $92,459.75 in "reverse" attorney fees to the defendants.

The Court of Appeal reversed the judgment and attorney fee award in an unpublished decision. The Supreme Court granted defendants' petition for review, but affirmed the Court of Appeal's decision.

The Supreme Court noted that under existing law, an employee's intent to release particular benefits must be established separately from the standard release language of the preprinted form. This protects injured employees from "unfortunate or improvident releases" resulting from such factors as financial pressure or bad advice.

In the court's view, this concern is especially paramount when an employer seeks to apply the standard release language to civil claims outside the workers' compensation system. The court cited to several appellate decisions rejecting such a broad application of the standard release provisions, including Lopez v. Sikkema, 229 Cal.App.3d 31 (1991); Asare v. Hartford Fire Ins. Co., 1 Cal.App.4th 856 (1991); Delaney v. Superior Fast Freight, 14 Cal.App.4th 590 (1993); and Mitchell v. Union Central Life Ins. Co., 118 Cal.App.4th 1331 (2004).

The court distinguished its previous decision in Jefferson v. Department of Youth Authority, 28 Cal.4th 299 (2002), in which the preprinted workers' compensation release form included an attachment expressly stating the parties' intent to apply the release to the employee's civil action for sex discrimination. Based on the language of the attachment, and the lack of extrinsic evidence regarding the parties' intent, the court in Jefferson held that this release extinguished the employee's sex bias claim. In Claxton, however, there was no such attachment to the preprinted release form.

The court rejected defendants' argument that Jefferson disapproved the decisions in Lopez and Delaney, and instead made clear that Jefferson was limited to its facts. The court thus held that the standard language in the preprinted form "releases only those claims that are within the scope of the workers' compensation system, and does not apply to claims asserted in separate civil actions."

The court next considered whether extrinsic evidence should be admissible to prove whether the parties intended the preprinted release to apply to claims outside the workers' compensation system. Although such evidence was allowed in Lopez, Asare, Delaney and Mitchell, the court in Claxton adopted a "bright-line" rule precluding such evidence.

The court reasoned that allowing extrinsic evidence would force budget-strapped trial courts to "expend their already scarce resources to divine and reconcile the parties' intentions" in signing the preprinted release. The court also sought to protect "unwary" employees from unintentionally releasing civil claims outside the workers' compensation scheme simply by signing a standard release form which does not reference such claims.

By contrast, the court found that disallowing extrinsic evidence "would not be unfair to the parties" because it would be "simple" for them to execute a separate document releasing claims outside the workers' compensation system. Such an agreement need not identify precise claims, so long as it refers generally to claims outside the workers' compensation law "in clear and non-technical language."

Because Claxton changes existing law regarding the admissibility of extrinsic evidence of the parties' intent to determine the scope of the preprinted release form, the court deviated from the general rule that judicial decisions are to be applied retroactively. The court recognized that that the parties in Claxton and other cases may have agreed to settlements in reliance on prior law allowing such extrinsic evidence.

In particular, some employers may have refrained from proposing or signing separate agreements because they concluded they could use extrinsic evidence to prove that the standard release form was intended to apply to claims outside workers' compensation. Accordingly, the court held that the new rule of Claxton will only apply prospectively, and that extrinsic evidence will be admissible to prove intent with respect to any preprinted settlement form executed before Claxton became final (that is, before September 29, 2004).

Justice Joyce L. Kennard wrote the majority opinion in Claxton. Justice Janice R. Brown concurred with the majority's decision to affirm the Court of Appeal's judgment, but disagreed with the new rule barring extrinsic evidence of the parties' intent with respect to the preprinted release form. Instead, Brown would have applied "generally applicable rules" of contract interpretation in analyzing the parties' intent.

Justice Brown concluded that Claxton's extrinsic evidence was sufficient to raise a triable issue as to whether the parties intended the workers' compensation release form to apply to Claxton's sexual-harassment claim. Because Claxton's new rule only applies prospectively, all parties in that case will be allowed to present such extrinsic evidence in further trial court proceedings.

In future cases under Claxton, however, the standard release form will not apply to civil claims outside the workers' compensation scheme, as a matter of law. Employers will be required to execute a separate document clearly releasing such claims, as the parties did in Jefferson.