Synopsis: When Can an Employer Sue an Employee?

Editor’s comment: Following up on our KCB&A Update article of last week about when an employee can sue an employer, we wanted to provide the counterpoint—when can you sue one of your workers?

Employee Negligence Causing Damage or Injury to Others

As a practical matter, employees are generally not held liable to their employers for ordinary negligence or carelessness in the performance of their duties. Instead, an employer accepts the risk of employee fallibility/negligence and may be forced by the courts to take that into account in the costs of doing business.

Practical considerations aside, however, the common law does not necessarily bar negligence actions against an employee. For example, the Washington State Supreme Court explained the following:

Common law property damage actions by an employer against its negligent employees are uncommon. . . . [I]n cases where there is no insurance coverage, suing an employee who negligently causes extensive property damage is ordinarily a useless act because of the limited funds and income available to the employee. Further, as noted by the trial court, employees are often included within an employer's insurance coverage, thereby barring litigation between the two.

Nevertheless, unless otherwise barred, it is well settled that an employer has a common law right of action against its own employees for property damage arising out of ordinary acts of negligence committed within the scope of employment.

Stack v. Chicago, Milwaukee, St. Paul, & Pacific Rail Road Co., 94 Wash. 2d 155, 158 (1980) (citing supporting cases from various jurisdictions); see also Restatement (Second) of Agency § 401 (1958) (“[I]f a paid agent does something wrongful, either knowing it to be wrong, or acting negligently, the principal may have either an action of tort or an action of contract. This is true when an agent negligently harms a chattel of the principal, or, by negligence or fraud, causes a principal to be liable to a third person, exceeds his authority in selling goods, or violates a duty of loyalty.”)

Please note this might be a way to counter repeated safety violators who cause damage to equipment or property. In the Interstate Scaffolding v. IWCC claim, the worker on light duty allegedly was spray-painting slogans on scaffolds in the workplace. If the employer were to have both fired and then sued the employee for the cost of remediation of the graffiti, the WC litigation may have settled more favorably or been dropped. We are not aware of any legal rule or statute that would block such a lawsuit against the worker.

In our view, employers should consider being much stronger about countering WC claims involving unsafe or negligent acts, causing injury or death with civil suits. There was a famous ruling in Oklahoma where a truck driver picked up a hitchhiker and may have been romantically distracted by the hitchhiker and, without slowing, ran right into a moving train. The crash resulted in a complete loss of the tractor-trailer, customer load and massive destruction of the moving train, including a six-figure environmental clean-up. In our view, the trucking company should have considered countering the WC claim with a civil action against the estate of the decedent who violated many safety rules and several laws in causing the damages.

Other Civil Actions by an Employer Against an Employee

In addition to negligence actions, there are several other scenarios where an employer can sue an employee, including causes of action for indemnity, breach of contract, and intentional torts. For example, some permissible causes of action an employer can bring against an employee are outlined below (please note this list is not exhaustive or all-inclusive):

Claims for indemnification: Where a third-party sues an employer for damages caused by an employee’s negligence (i.e., under the doctrine of respondeat superior), an employer can bring a counterclaim against an employee for damages to be paid to a third-party as a result of the employee’s negligence.

Breach of contract: An employer can sue if an employee fails to perform his or her obligations under a contract—for example, by breaching a non-compete or non-solicit agreement.

Breach of duty of loyalty: Employees have a common-law duty to act solely for their employer's benefit regarding all matters within their employment. This duty exists regardless of whether there is an employment contract. Please note this duty is distinct from an officer’s or director’s heightened fiduciary duty to the employer.

Conversion/Theft: An employer may sue an employee for the intentional wrongful possession or disposition of the employer’s property. The employer may sue to recover the property itself or for the value of the property. Conversion also covers the intentional destruction of property.

Intentional interference with contractual relations and/or advantageous business relationship: This includes actions against a former employee for interfering with an employer’s relationships with current employees.

Defamation: To win, the employer must prove the statement harms the employer's reputation, is false, and was publicized with the requisite degree of fault.

Of course, even if an employer is successful in any of the above actions, some employees may lack the assets to satisfy a judgment. Then again, a successful lawsuit against an employee may be valuable even if no money is recovered—for example, by sending a message to other employees and by deterring similar wrongful acts in the future.

This article was researched and written by Chris St. Peter, J.D. and your editor. Please feel free to provide your thoughts and comments to Chris at cspeter@keefe-law.com.

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Synopsis: Simple, Clear Thoughts on Illinois “Pension Reform” of Last Week.

Editor’s comment: We have never seen so much misinformation and misdirection from all sides of a multi-billion dollar issue. We don’t think any news source got it completely right. We are sure the state government unions continue to foster a combination of public relations spins, fabrications and propaganda for all to read. We ask our friends, clients and readers to please stop using the word “pensions”—it is just post-employment income. Let’s try to dumb this down a bit.

1. Illinois Taxpayers are now forced to guarantee lifetime income for all state government employees and local teachers who make the requisite “contributions” during their required employment tenure. There may be as many as 800,000 such folks.

2. We don’t have any problem with the concept, we just want the three sources of this form of “lifetime income”

a. Contributions from the participants;

b. “Matching contributions” from taxpayers and

c. Investment income

to come from those three sources while a worker is working. Right now, the system is “unfunded” to the tune of about 60% which means 60 cents of every “pension” dollar paid is coming from you and me, as taxpayers, to pay the post-employment income of people like former Governors Jim Thompson and Jim Edgar. Those folks haven’t worked for the state in over a decade but they are again being paid, as if they were active employees.

3. Right now, the three sources in letters a-c above don’t meet the requirements of current system participants by about $100B! We don’t feel current system participants should be shorted matching contributions while they are working for the state or local governments. We also don’t feel the state should be allowed to borrow money/issue bonds to silently fill the gaps. If you don’t have enough money to pay your bills, cut staff until you have enough money.

4. The reforms of last week are designed to end the “unfunded status” of our “pension” programs in year 2044. Please note the government unions are fighting in court to stop even that from happening and basically continue to rip-off taxpayers indefinitely. What Senate President Cullerton promised in opposition to the reforms was more and more taxes, as he confusingly but accurately asserted our State government can’t file for bankruptcy. In response, we point out any business that can’t timely pay its bills is arguably “bankrupt” and, by that definition, our State government under Senate President Cullerton has been bankrupt for at least a decade because we are always several billion behind in payments to hundreds of state vendors and everyone other than government union and salaried workers.

5. All aspects of the so-called “pension” plans have lots and lots of continually moving parts that are just about impossible for busy taxpayers to follow—by that we mean our legislators and governor constantly change how much participants contribute, how much government matches, how much participants are paid, how long participants have to be in the system to qualify or “vest”, how much they have to contribute and various other parts.

6. Please note only 4 out of 5 Illinois government pension programs were “reformed” in last week’s legislation. The Judicial Retirement System can’t be “reformed” by the legislature—this plan is contained in the IL Constitution. Our Judges/justices continue to have “pensions” or post-employment income that requires them to pay as little as $100,000 over a very short eight-year vesting period and, upon retirement, they can receive post-employment income well into the millions. For one example, Justice Tobias Barry, who penned the landmark ruling in Edward Hines Lumber v. Industrial Commission, contributed less than $100K during his years of service and has cashed “pension” checks for over $2,000,000 to date and still counting.

7. When you hear “pension” proponents arguing they contributed “their fair share,” please remember the math above. Please also remember some state government workers do contribute a “fair” amount, if they work for years and years. In contrast, lots of them contribute a mere fraction of the overall lifetime cost of their pension and the gap has to be made up by taxpayers in current tax dollars. This anomaly and uncertainty is the main issue we have with the whole government “pension” concept.

8. For that reason, we assert the whole thing should be the subject of a constitutional amendment. If we are going to stay with this overall “reform” concept, we feel the current reforms along with a concomitant reform to the IL Judicial Retirement System should all be sent to voters in the form of a constitutional change that will clearly withstand any court challenge.

9. We watched in horror to see a recent television report where IL government workers qualified for their pensions, left employ to get their pensions and later returned to the same job at what is then 180% of pay. To our understanding, that may be legal if you follow the rules to do so. We feel the legislators who created such rules should be tarred and feathered. If you don’t feel that potential is akin to stealing from taxpayers, you don’t need to read the rest of this article.

10. Illinois state government has not one but five different, duplicative and redundant “pension” systems. There are five different boards of trustees, five different “independent” auditing groups, five different websites and five different staffs. We hope some day they may buy one of those new-fangled “computers” and bring that number down to, duh, one.

11. Please also note one of Governor Pat Quinn’s toughest battles has been his strident efforts to bring this goofy “pension” concept into line in the face of fierce union opposition. He was booed off the stage at the Illinois State Fair by government unions. AFL-CIO President Michael Carrigan was quoted in the Chicago Sun-Times as claiming “Mr. Quinn can’t win in 2014 until he makes peace with public-sector unions.” We hope Governor Quinn tries to make peace with all IL taxpayers first. We salute our plucky Governor for not caving to the threats and personal attacks he has faced.

Or our state should cut all this silliness and simply phase in a 401K plan. In doing so, government workers would make contributions and own them. Their investment choices would not be run by crooks; oops, we mean people that donate to politicians. As the government workers’ 401K plan assets grew, they would know what they would get when finished. We feel this is the only predictable and fair way to provide retirement programs for these workers. Trust us, this won’t happen unless and until all IL taxpayers/voters get together and see the financial mess our government is in from years or out-of-control “pensions.”

We appreciate your thoughts and comments. Please post them on our award-winning blog.

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Synopsis: Understanding How a Concomitant Release/Resignation Works in the Workers’ Comp Setting.

Editor’s comment: Of great concern to the workers’ compensation professional is the legal effect of resolution of the workers’ compensation claim when the employee simultaneously resigns at the time the workers’ compensation claim settlement is approved. Coincidental resignation by an employee can occur as a combination of a multitude of factors including a personal decision not to return to work, the effects of the workers’ comp injury, labor disputes with the employer, fellow employees or the union or loss of job due to plant or company closing.

A prudent workers’ compensation professional must understand workers’ compensation benefits are only one of a variety of benefits or claims which an employee might have as part of the employment relationship. If one resolves only the worker’s compensation claim, you may be leaving all of the employee’s other rights, benefits or claims ‘unresolved.’

An excellent example of this concept occurs when an employee resigns as ‘part’ of claim settlement. Your concern is the employee might later claim they were was ‘coerced’ into the resignation to receive any settlement at all. While we have not yet seen a reported case on a claim for retaliatory discharge as a result of a coincidental resignation, your organization does not want to have to litigate the issue as a matter of first impression in the Illinois courts.

Second, an employee may have labor disputes of any nature pending. These disputes might be pending at the local grievance level or at a national level as a result of an appeal of local determination. Obviously, a resignation as part of a workers’ compensation settlement leaves such labor disputes ‘pending’ without a proper resolution.

Also, it is important to recognize workers’ compensation benefits arise from state statutes. The settlement of a state workers’ compensation claim has no direct impact on the employee’s federal rights. There are a plethora of federal statutes which impact an employee’s rights while working and the employee’s rights at the time of termination and resignation. These include the American with Disabilities Act, Title VII of the Civil Rights Act, the Fair Labor Standards Act, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Employment Retirement Income Security Act and the National Labor Relations Act, to name a few.

The obvious response of the WC professional when presented the above list is to remark, “what does that have to do with my claims?” The reply has to be that your organization pays you to recognize and anticipate claim-related problems and to forestall them, if at all possible.

Therefore, it is our recommendation you do not ignore an employee’s claim or rights with regard to any common law or statutory claim whether it is a federal or state statute. When the employee resigns as part of a workers’ compensation settlement, we recommend you obtain a common law release as part of that resignation which specifically outlines both federal and state rights and ‘terminates’ (or in some instances, reserves) rights at the time of resignation/settlement. Use your knowledge and expertise to control the situation as much as possible.

An appropriately drafted general release, based upon appropriate consideration (in lay terms, money), should effectively defeat or block an employee from maintaining any suit or claim following resignation. We do not feel that you are sufficiently protected in obtaining a resignation with a release if it is not supported by consideration.

There may be rights which you want to survive the resignation

At the time the employee resigns, there are three major issues which you should certainly address as you may want to work with the employee and not extinguish all of the employee’s rights when he or she resigns.

The most important of these rights are pension benefits. An employee may be part of a pension or profit sharing plan which he or she should certainly be entitled to due to contributions by your organization and the employee. We have generally advised there is a West Coast decision which ruled a general release blocked an employee’s pension claim--a result which may have been unintended by either employee or employer and which would certainly result in a fountain of litigation. Where an employee has pension rights or benefits available to him, it would seem appropriate to preserve such rights at the time of resignation. The general release should be tailored to cover the possibility.

A more delicate issue is unemployment benefits. With the recent changes in this law, such benefits may provide substantial benefit to an employee who has left employment. However, such benefits allow the employer to dispute such a claim following application by the employee.

If you are willing to allow the employee to make such a claim and not contest the question of resignation versus termination, you are placing your organization in a contradictory position. If you want the employee’s unemployment benefits to be treated as if he or she resigned and thereby render the employee unable to obtain benefits until after the waiting period for a resignation, it should be clearly outlined in the general release. Therefore, it is our suggestion that such a determination be made in conjunction with counsel and all matters should be covered in settlement negotiations. Be certain to confirm the final decision on unemployment benefits is up to the applicable state agency.

When should a general release/resignation be utilized?

Any time an employee is leaving your employ for any reason and is simultaneously entering into a workers’ compensation settlement, we recommend that a combined general release/resignation strategy be considered. As a workers’ compensation professional, even if you settle a “small” claim where a petitioner is changing jobs, it is a prudent idea to consider obtaining a common law release and resignation. The worst nightmare of any workers’ compensation professional would have to be resolving a total and permanent disability claim with a coincidental resignation.

Immediately following completion and payment of the settlement, petitioner indicates he/she is withdrawing the resignation and seeks accommodation consistent with the Americans with Disabilities Act, claiming he or she was unaware of disabled status and the requirement the employer accommodate them. Even worse would be a claim the employer coerced them into the resignation as part of settlement to take advantage of his disabled status and thereby retaliatory discharged him.

These are just two of the examples which might conceivably occur. There are a variety of other potential scenarios which could just as easily develop which might leave the workers’ compensation professional in an embarrassing or annoying position.

Your highest priority must be to insure once you have settled the workers’ compensation claim with a coincidental resignation, every effort is made to insure the resignation ‘sticks.’ You do not want petitioner to return with any sort of litigation or benefit claim which you have not contemplated and have ‘allowed’ him or her to make (such as the claim for pension benefits outlined above). Every possibility should be considered as part of settlement negotiations. It is our recommendation the only way to insure this has taken place is to obtain a general release/resignation with appropriate consideration to support same.

One caveat: workers’ compensation lawyers may not be well-versed in employment law

One interesting aspect of utilizing a general release in conjunction with a workers’ compensation settlement is the workers’ compensation attorney is not typically retained to provide advice with regard to the wider range of employment law issues and may be ill-informed with regard to same. Workers’ comp attorneys are retained by their clients pursuant to a specific statutory language on a Commission approved form. This form sets out the narrow scope of the attorney’s retention and limits the fee to the workers’ comp claim only. It is an open question as to the amount of the fee that the attorney might receive on monies paid to support the general release/resignation. Many workers’ compensation lawyers will balk at being asked to review the broader employment law issues if you tender a general release and resignation at the time of the worker’s compensation settlement. It becomes incumbent upon you to insist the attorney provide the client/employee with appropriate legal advice or refer the matter to an employment lawyer competent to advise the employee.

Remember the workers’ compensation lawyer when settling a total and permanent disability claim typically receives a hefty fee. As part of the services which earn that fee, the lawyer should be equipped to fully and properly advise the client with regard to the bundle of rights which may be affected by the settlement of the workers’ compensation claim along with relinquishment of employment coincidental thereto.

If the attorney gives you any indication they are unable or unwilling to properly advise the client, you should insist it is their responsibility to do so to avoid any claim by the employee that he/she did not receive effective representation by counsel. Do not allow the workers’ compensation lawyer to claim ignorance or apathy and utilize it to the benefit of his client. You have to insist and insure that the attorney has fully advised petitioner of the rights he is preserving or giving up to avoid later confusion or litigation.

A note of caution in setting up the settlement with a release/resignation

When you present the settlement to opposing counsel, it is our suggestion you do so by first splitting the workers’ compensation settlement and monies reserved to support the general release. For example, if it is your intention to settle the case for a total of $150,000 to include monies to support the release/resignation, present the settlement to counsel by indicating you will pay $145,000 to settle the workers’ compensation case. You should also indicate you will provide an additional $5,000 to support the general release and resignation.

The purpose of bifurcating the finds in advance is to avoid the suggestion that you are intimidating or coercing the employee to settle the worker’s compensation case and that part of that plan was that you would not pay any monies in settlement unless petitioner was forced to resign. You want to present the monies to give legal effect to the resignation and release to be “fresh money.”

Your overall goal in obtaining a release/resignation

The goal of the workers’ compensation professional in settling a claim where petitioner/plaintiff has left the employ of respondent is to be certain the employee does not come back. You also want to be similarly satisfied you have no exposure to litigation or administrative claims subsequent to the resolution of the employment status.

We strongly suggest that you consider a strategy employing a general release/resignation in conjunction with the workers’ compensation settlement to insure this necessary result. We also strongly caution you should always discuss this with counsel whether petitioner is represented by an attorney or not.

We appreciate your thoughts and comments.

KCBA Blog

12-9-13; When Can an Employer Sue an Employee?; Simple, Clear Thoughts on the Illinois “Pension Reform”; Understanding How a Concomitant Release/Resignation Works and more