By Barbara J. Koenig

McDonald's management was upset. The restaurant chain had fired a shift manager under its zero-tolerance policy for failing to report an allegation of sexual harassment. However, the shift manager was eligible for workers' compensation benefits.

When McDonald's challenged her eligibility for benefits, the workers' compensation judge (WCJ) ruled that even though she had been fired for cause, she was entitled to temporary total disability (TTD) benefits as well as permanent partial disability (PPD) benefits, including modifier points, after she reached maximum medical improvement (MMI). McDonald's appealed, but the New Mexico Court of Appeals affirmed the WCJ's order.

The appellate court said that it was bound to construe the Workers' Compensation Act (WCA) "in favor of providing compensation to an injured worker absent clear statutory language to the contrary. It is not our place to insert language into the WCA that does not exist. That task falls to the Legislature alone." The New Mexico Legislature took the hint.

During the 2015 legislative session, and later in the 2017 regular legislative session, lawmakers started redrafting the sections of the WCA that seemed unfair and unworkable to many employers. The revisions became law on June 16, 2017. Now, when a worker is fired for cause unrelated to a workplace injury, the worker is no longer eligible for workers' comp benefits beyond the basic impairment rating benefit.

Purpose of WCA

When a worker reaches MMI, she is given an impairment rating based on the extent of her permanent impairment. The impairment rating is applied to two-thirds of her preinjury wage to determine her PPD benefits. If the worker isn't earning her preinjury wage at the time of MMI, she is also eligible for modifier points based on her age, education, and physical capacity.

The modifier points are added to the impairment rating to arrive at a higher PPD rating. The worker's PPD benefits are calculated by multiplying the higher PPD rating by two-thirds of her preinjury wage. Modifier points can make a substantial difference in a worker's PPD benefits.

If an employer makes a reasonable work offer to an injured worker at or above his preinjury wage and within his medical limitations, he must accept the offer or face losing a substantial portion of his monetary workers' comp benefits.

If the worker accepts a job with another employer at or above his preinjury wage, he is likewise no longer eligible for a substantial portion of his monetary workers' comp benefits. The injured worker will continue to receive reasonable and necessary medical care for his injury in all these scenarios; only his monetary benefits will be affected.

The policy and intent of the WCA is to provide every person who suffers a workplace injury that results in a permanent impairment the opportunity to return to gainful employment as soon as possible with minimal dependence on workers' comp.

However, to employers and the insurance companies that provide workers' comp policies, a series of court decisions in the last several years seemed to contradict that policy and give injured workers an unfair way to collect substantial monetary benefits.

Recent Cases Strike Employers as Unfair

Three cases in particular bothered employers. In all three cases, the workers were found to be entitled to full benefits even though they had voluntarily retired or had been fired for cause.

In the first case, Jesse Cordova, who belonged to a union, was injured a month before his scheduled retirement. Although he returned to work in a light-duty job that accommodated his shoulder injury, he decided to retire on the date he had previously selected. Under union rules, he wasn't able to work for a union company, including his employer, and still collect his union retirement benefits. The sticking point was his eligibility for workers' comp benefits.

Cordova's whole-body permanent partial impairment rating for his shoulder injury was seven percent. His modifier points, based on his age, education, skills, and residual physical capacity, were 45, leading to an impairment rating of 52 percent. The employer challenged his eligibility for workers' comp after his retirement, but the court ruled that he could collect his TTD and PPD benefits with modifier points even though he had voluntarily left the labor market.

To many employers and their attorneys, that decision seemed unfair. The employer was being forced to pay substantial workers' comp benefits to someone who had voluntarily retired. If a worker returns to work at or above his preinjury wage, the employer doesn't pay PPD modifier points, which can greatly increase the monetary PPD benefits. In this case, however, the employer was effectively prevented from offering the employee a job after his retirement date.

In the McDonald's case, the shift manager, Michelle Hawkins, knew the young employee who claimed she had received a sexually inappropriate message from a supervisor. The complaining employee was a friend of her son's, and Hawkins found the young employee not particularly trustworthy or credible. However, McDonald's zero-tolerance policy required that all sexual harassment claims had to be reported. Hawkins was fired for cause for failing to report the alleged harassment.

Hawkins had injured her lower back a few months before she was fired. She was released to work by her doctor but had a 20-pound lifting restriction. McDonald's put her on light duty and paid her the same wage she was earning before her injury. Upon firing her, however, it stopped paying workers' comp benefits. Hawkins litigated McDonald's decision to terminate her monetary workers' comp benefits.

The WCJ ruled that Hawkins was entitled to TTD benefits until she reached MMI and then was entitled to PPD benefits with modifier points until she was able to obtain employment at her preinjury wage. The court of appeals affirmed, ruling that the WCA was designed to provide compensation to injured workers, even if they were fired for cause. The court reasoned that a worker doesn't voluntarily remove herself from the labor market when she is terminated, with or without cause.

Finally, Lawrence Jaramillo, an injured worker who had been receiving PPD benefits, was fired by the New Mexico Corrections Department (NMCD) after he was accused of sexual harassment. When the NMCD stopped paying his PPD benefits and modifier points, he filed a claim to reinstate them. The WCJ ruled that Jaramillo was entitled to receive his PPD benefits enhanced by modifier points. The appellate court agreed, ruling again that a worker who is terminated for misconduct hasn't voluntarily removed himself from the labor market.

Legislature Responds to Employers' Frustration

Employers found those cases discouraging. The courts had previously ruled that an injured worker who quit his job to start his own business had voluntarily removed himself from the labor market and therefore was no longer eligible for PPD modifier points.

Likewise, a worker who committed a felony and was incarcerated for several years had voluntarily removed himself from the labor market and couldn't receive PPD modifier points. However, the same logic didn't extend to workers who violated workplace rules and were fired for cause. Instead, they were deemed not to have voluntarily removed themselves from the labor market.

The new law changes that. Now, a worker isn't eligible for TTD benefits if:

1. The employer makes a reasonable offer of work at the preinjury wage and the worker rejects the offer;
2. The worker accepts other employment at or above the preinjury wage; or
3. The worker is terminated for misconduct unrelated to the workplace injury.

The law contains provisions allowing WCJs to penalize employers that terminate workers for pretextual reasons, including assessing a fine of up to $10,000, payable to the worker.

Moreover, a worker won't be eligible for PPD modifier points if:

1. The worker returns to work at or above the preinjury wage;
2. The worker accepts other employment at or above the preinjury wage;
3. The employer makes a reasonable work offer at the preinjury wage and the worker rejects the offer; or
4. The worker is terminated for misconduct unrelated to the workplace injury.

Takeaway

As with all new or modified laws, the effectiveness of the revisions to the WCA will be determined when they are applied to difficult cases. The legislature's fiscal impact report warns of increased litigation over the reasonableness of work offers and predicts that the changes may lead to inconsistent rulings among WCJs because each case will be dependent on the circumstances of the job offer and the worker's rejection of the offer.

Time will tell how well the revised WCA works in real employment situations, but employers are hopeful that they can now terminate workers for cause and not be forced to pay excessive workers' comp benefits to former employees.

Barbara J. Koenig, a contributor to New Mexico Employment Law Letter, can be reached at barbara@frjlaw.com.