Can Job Termination Agreements Be Negotiated as Part of Workers' Compensation Settlements in New Jersey?

There are no published cases dealing with resignation as part of workers' compensation agreements in New Jersey.  Contrary to other states where such resignation agreements are routine, New Jersey employers and carriers seldom negotiate resignation in connection with a workers' compensation settlement.  One main reason this practice does not prevail in New Jersey is that our state law focuses on loss of function as opposed to return to work.  Temporary disability benefits end at maximal medical improvement in New Jersey, and most workers' compensation settlements here involve claimants who are already back to the same or another job by the time of settlement.

That is not the case in other states.  In states like Pennsylvania and Florida, compensation settlement agreements generally include the employee's resignation.  On occasion employees have challenged these agreements as coercive or contrary to public policy.  In almost all of these challenges around the country, the policy in favor of resignation agreements has been upheld.

One case of interest is Wittig v. Allianz, A.G, Fireman's Fund, et. al. 145 P.3d 738 (Intermediate Court of Appeals Hawaii 2006). The plaintiff Wittig was injured at work on January 30, 2000.  She was sent for an IME which provided several impairment ratings.  Based on the IME, Fireman's Fund proposed a settlement of $31,504 for “closure of your entire workers' compensation claim and request for your resignation with your employer.”

Wittig did not respond to the offer.  Months later she was reexamined to determine any increase in permanent impairment.  She retained counsel who filed a complaint with the Insurance Division of the State Department of Commerce and Consumer Affairs alleging that Fireman's Fund engaged in unfair settlement practices. Wittig then filed a civil complaint alleging bad faith.  While the suit was pending, Wittig was awarded partial permanent disability benefits of $25,328.52 and temporary disability benefits of $1,410.75.

In her civil suit, Wittig contended that Fireman's Fund retaliated against her for filing a workers' compensation claim by seeking her resignation.  The court rejected these arguments and stated, “There is nothing inherently wrong with a voluntary settlement agreement that includes the employee's resignation as a condition, particularly where the employee is offered additional compensation for resigning.  A settlement on such terms may be attractive to the employee and serve the employee's interests.”

The court went on to observe that workers' compensation settlements involving an employee's resignation are common in many states.  It cited approvals of such resignation agreements in Virginia, District of Columbia, Michigan and Minnesota: “Instead of violating public policy, permitting a settlement offer to include an employee's resignation expands the opportunity for settlement and advances the public policy favoring dispute resolution through voluntary settlement agreements.”

As for the argument that Fireman's Fund coerced resignation, the court once again disagreed.  “We fail to see how Fireman's Fund's inclusion of the resignation term in its settlement offer was coercive. Wittig was not forced to accept Fireman's Fund's offer.  She had the option of declining to accept the offer and pursuing her claim for benefits before the Director of the DLIR.”

Clearly, a New Jersey Judge of Compensation would not have the authority to pass on the validity of such an agreement, nor enforce it at a later date.  Resignation agreements need to be privately negotiated outside workers' compensation court.  The court in Wittig underscored a key point for employers who wish to make resignation part of a workers' compensation settlement.  There must be separate consideration or additional compensation for the resignation.  The claimant would need to be represented by competent counsel and understand any waiver of rights, including resignation. The agreement must be truly voluntary with claimant having the option to pursue a full hearing.  Under these circumstances such an agreement would not appear to violate New Jersey public policy.

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