Appellate Court Rules that Communications between Employer and Workers’ Compensation Carrier are Admissible in Retaliatory Discharge Claims

A little known fact about the Illinois Workers’ Compensation Act is that, in addition to providing workers’ compensation benefits for injured employees, it provides a separate right for employees to sue their employers for retaliatory discharge if they are terminated in retaliation for pursuing benefits after a work-related injury.  A recent Illinois Appellate Court decision regarding a retaliatory discharge claim, Holland v. Schwan’s Home Service, Inc., affirmed a jury verdict of $660,400.00 in compensatory damages and $3.6 million in punitive damages and illustrates that it is essential for Illinois employers to be aware of this aspect of the law.

In this case, the employee brought a retaliatory discharge claim against his previous employer asserting that he had been terminated in retaliation for pursuing his rights under the Illinois Workers’ Compensation Act. The Appellate Court also affirmed several evidentiary rulings that permitted the employee to admit the workers’ compensation carrier’s file regarding his claim into evidence.

The admission of the file was quite damaging to the employer as it contained records of correspondence between the employer and the carrier discussing the ability of the employer to terminate or replace the employee in light of the fact that he had exhausted his FMLA leave. This file also documented that the employee had been reprimanded by his employer for not attending physical therapy despite the fact that the physical therapy had not been approved by the insurance company. Further, these notes, presumably thought to be confidential by both the insurance carrier and the employer, reflected that a “WC specialist” employed by the insurance company sent an email to the handling adjuster stating, “get ready for a battle. His position has been reassigned, and he will be given 30 days to accept another position or he will be terminated.” The next day, the HR department notified the employee that he was not qualified to be employed at his pre-injury position based on his “performance, unreliability, and inability to perform essential job functions.” The employee was invited to reapply for another job with the employer, but not able to return to work until he had been accepted by the location general manager. The facts presented at trial showed that the employee was contacted by the employer and advised that there was a job open that was only available to him. Shortly thereafter, the insurance company contacted the employee by mail, advised him that he had been released to full duty work by the IME, that his previous job had been reassigned, and that he would be considered to have resigned voluntarily unless he began the new job presented to him.

The employee did not respond and the insurance carrier informed him that he was being discharged for not returning to work approximately one month after the job was made available to him.

The Court found that the attorney-client privilege objection to the admissibility of the insurance carrier’s file was not applicable. The Court acknowledged that attorney-client privilege can extend to communications between the insurer and the insured, but only for those “communications that were made for the dominant purpose of transmitting it to an attorney for the protection of the interests of the insured.” Due to the fact that neither the employer nor their workers’ compensation carrier had disputed any aspect of the employee’s claim, the Court found that the purpose of the statements contained in the file were merely to administer the employee’s claim. Additionally, the Court ruled on the employer’s objection to the admission of the file on the basis that it was a business record that was made in anticipation of litigation. The Court ruled that, “However, there is no evidence in the record that the [insurance carrier’s] claim file was created in anticipation of litigation as opposed to in its regular course of business. The report had been made for the employer’s benefit and so it was reliable for statements admitted against Schwan’s interest.”

What does this mean for employers? In Illinois, the termination of an employee with a pending workers’ compensation case has always complicated the handling of the claim and, in many instances, increased the exposure for the payment of benefits. In the wake of the Holland case, employers should not only be aware that the termination of this type of employee can lead to significant monetary damages where it can be connected to the Workers’ Compensation claim, but that the communications between the employer and the insurance company regarding the claim can be used as evidence.

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