Within the Pennsylvania Unemployment Compensation Law, specifically, Section 701, there lies a provision which imposes criminal and financial penalties upon an Employer who requires an Employee to waive, release or commute his or her rights to compensation under the Unemployment Compensation Act.  Accordingly, Employers are often uncertain as to how to properly protect themselves from an Employee, who resigns as a result of a Worker’s Compensation settlement.  Recent case law provides guidance to Employers on this important issue.

     On December 21, 2011, the Commonwealth Court issued its decision in Nicole Lee v. UCBR, supporting the position that an employee’s resignation, by letter, when provided in connection with a worker’s compensation settlement, is deemed voluntary for purposes of unemployment compensation, therefore rendering the employee ineligible for UC benefits. This Decision assists Employers who are otherwise forbidden by Section 701 from requiring that an employee waive or release his or her rights to unemployment compensation benefits, as part of the workers’ compensation settlement.

     Nicole Lee was an employee of the Williamsport Area School District. She suffered a herniated disc and filed a claim for workers’ compensation benefits. Ms. Lee agreed to settle her workers’ compensation claim and to execute and tender a letter of resignation from her position with the School District. Following her resignation, Ms. Lee applied for and was granted unemployment compensation benefits, as it was determined that she was forced to resign her employment under duress, as part of the workers’ compensation settlement. Accordingly, the UC Referee found that she left her employment for a “necessitous and compelling reason.”  On appeal, the Unemployment Compensation Board of Review reversed the Decision, concluding that Ms. Lee voluntarily terminated her employment by choosing to settle her worker’s compensation claim, and that work was available to the claimant had she not chosen to settle her workers’ compensation claim.

     Ms. Lee challenged the Board of Review’s Decision in favor of the School District, again claiming that the resignation and release she agreed to were involuntary and due to psychological pressures, and a mistaken belief as to availability of work. She also alleged a violation of Section 701 of the UC Law.  The Court rejected Lee’s appeal and concluded that Ms. Lee voluntarily separated from employment and was therefore ineligible for unemployment compensation benefits. The Court concluded that Lee had the option not to resign and not to settle her worker’s compensation case.  Therefore, the determination to resign from employment was her choice and she was therefore ineligible for unemployment compensation benefits. 

     The lesson from this case is precautionary for Employers and provides guidance as to the proper legal means to thwart a claim for UC benefits, when a companion workers’ compensation claim is being settled. Rather than including a waiver in the Employment Release, Employers should use a separate letter of resignation, simply stating that the employee is settling his or her workers’ compensation claim and is voluntarily resigning his or her position to pursue other vocational interests. Our firm has consistently followed this approach for the past 12 years, but it is comforting, nevertheless, to see that the Appellate Courts are in agreement.

     Accordingly, with respect to worker’s compensation settlements, Employers should:

  • Offer work, and/or be able to provide evidence in support of the position that work is available to the claimant, should the claimant prefer not to pursue a workers’ compensation settlement. 
  • Avoid language in the Employment Release or Compromise and Release Agreement which requires the employee to waive his or her rights to Unemployment Compensation benefits in violation of Section 701.
  • Utilize a separate letter of resignation, stating that the resignation of the employee is voluntary and is being tendered in furtherance of the employee’s desire to settle his or her workers’ compensation case and to pursue other vocational interests. Provide the resignation letter to the UC Service Center upon employee’s application for UC benefits, following approval the workers’ compensation settlement.

     If there are any questions about how the Lee Decision may affect the handling of pending claims for workers’ compensation, please call Paul Clouser, Denise Elliott or Katherine Shantz at Kegel Kelin Almy & Lord LLP to discuss your particular situation.

By Katherine L. Shantz, Esquire and Paul D. Clouser, Esquire