Worker’s Compensation Benefits May Offset Against Employment Discrimination Back Pay Awards
In Pennsylvania, do worker’s compensation wage loss benefits offset back pay awards in employment discrimination cases? Perhaps not surprisingly, the answer is “it depends.” There is no binding precedent in the Third Circuit (the offset would arise in the employment discrimination case, which most likely involves a federal claim under the ADA, Title VII, etc.), but at least the Eastern and Middle District have ruled that there is an offset. However, their holdings may be limited to self-insured employers. Read on for further explanation and a discussion on how to limit the amount of the offset.
At the heart of the issue is the collateral source rule, which originates in tort law. The collateral source rule provides that the amount of damages awarded against a defendant should not be reduced by other money given to a plaintiff from a collateral source, like a plaintiff’s private insurance, even if it results in double recovery for the plaintiff. McKenna vs. City of Philadelphia, 636 F.Supp 2d. 446 at 457 (E.D. Pa. 2009). The justification for the rule is that a wrongdoer should not get the benefit of payments that come from a source “collateral” to the defendant. Id. at 462.
The Third Circuit has not yet ruled whether the collateral source rule applies in cases that have both a worker’s compensation and employment discrimination aspect. Or, in other words, it has not yet ruled whether worker’s compensation benefits should be deducted from an award of back pay in an employment discrimination case. There is a split amongst the circuits on this issue: see McLean v. Runyon, 222 F.3d 1150, 1156 (9th Cir. 2000) (holding that the collateral source rule does not apply where the employer, USPS, was self-insured under the Federal Employees’ Compensation Act); but see Moysis v. DTG Datanet, 278 F.3d 819 (8th Cir. 2002) (holding that worker’s compensation payments should not be deducted from a back pay award under the ADA because they come from a collateral source). However, the Third Circuit district courts that have addressed the matter have held that the collateral source rule was NOT applicable. McKenna at 457. The Eastern District agreed in McKenna, but used language that may indicate the holding is limited to self-insured employers.
In McKenna, the court relied on the fact that the defendant, the City of Philadelphia, self-insured against worker’s compensation claims, and therefore the plaintiff/claimant’s worker’s compensation benefits came from the same source as his employment discrimination back pay award. Thus, the source of both payments was not collateral, but in fact the same. The court therefore deducted worker’s compensation wage loss benefits from the back pay awarded in the employment discrimination case .
In a memorandum order ruling on various motions in limine, the Middle District cited McKenna as support for not applying the collateral source rule, but then drew a further distinction. Miller v. Tyco Electronics, Ltd., No. 1:10-CV-2479, 2012 WL 5509710, at *3 (M.D. Pa. Nov. 14, 2012). It noted that the plaintiff/claimant’s C&R did not specifically delineate between settlement money for wage loss, future medical treatment, and disfigurement claims, and thus allowed the plaintiff/claimant to present evidence that some amount of the settlement should be apportioned to medical or other expenses rather than wage loss only.
Relatedly, worker’s compensation attorney’s fees are excluded from any offset against back pay. McKenna at 458. The McKenna court reasoned that the purpose of Title VII is to make the plaintiff whole, and because counsel fees did not go to the plaintiff/claimant they should not be included in the deduction from a back pay award. See also Supinski v. United Parcel Serv., Inc., No. 3:06-CV-00793, 2012 WL 727824, at *3 (M.D. Pa. Mar. 6, 2012) (favorably citing McKenna over Middle District precedent and holding that attorney’s fees are excluded from worker’s compensation payments that offset back pay).
Two conclusions can be drawn. The first is that a viable argument exists that the collateral source rule should (and does still) apply where the employer is not self-insured for worker’s compensation claims. This is a particularly appealing argument where the Uninsured Employer Guarantee Fund (UEGF) is on the risk for the worker’s compensation claim but the employer is liable for the discrimination claim.
The second conclusion is that even where a worker’s compensation settlement will certainly offset an award of back pay in an employment discrimination case (i.e. where the employer was self-insured against worker’s compensation claims), counsel should characterize as much of the settlement money as possible as non-wage-loss money. This should be done when settling the worker’s compensation case and in the employment discrimination case. Worker’s compensation attorney’s fees should be excluded, specific loss money should be excluded, and the cost of future medical treatment related to the work injury should be excluded. This will be helpful in settlement negotiations in the worker’s compensation case as well because it deflates the defense attorneys’ argument that all of the worker’s compensation settlement money will reduce any back pay awarded in the employment discrimination case.