The COVID-19 epidemic has caused a record number of layoffs, furloughs, and terminations, as many businesses have been forced to close due to state and local health restrictions.
Unemployment claims have reached a record high in California, with 2.7 million workers having filed unemployment claims.
A rise in unemployment has traditionally been correlated with an increase in workers’ compensation claims. This economic uncertainty raises several important questions in the workers’ compensation system, particularly the post-termination defense and its application to furloughs and layoffs when a return to work is uncertain.
The purpose of the post-termination defense was to reduce claims filed by employees in retaliation for termination. Labor Code § 3600(a)(10) provides that claims filed after a notice of termination or layoff, including voluntary layoffs, are barred unless:
- the employer had notice of the injury prior to the termination,
- medical evidence shows the existence of the injury preceding the termination,
- the injury occurs after the notice of termination, but before the effective date of the termination, or
- the date of injury in a cumulative injury is subsequent to the effective date of the termination.
In the midst of the COVID-19 epidemic, however, what exactly is a “termination?” Does an employer effectively “terminate” employees when it asks them to stay home, with no return to work date and their continued employment uncertain? Specifically, if an employee gives notice of an injury occurring before the business closed, but after they have been told there is no work, is the claim barred by the post-termination defense?
The WCAB has occasionally addressed similar situations, which shed some light on this issue. In Gil v. WCAB (66 CCC 1557) (2001), the applicant was hired as a seasonal employee for the strawberry picking season. He was notified of his layoff in July 1998, with an effective date of July 13, 1998. In August 1998, he first reported an injury he claimed to have sustained on May 3, 1998, and first sought treatment for the injury.
In October 1998, he was rehired for the strawberry planting season. The WCJ found the applicant’s claim barred by section 3600 (a)(10), and the Appeals Board affirmed, concluding that the ending of the applicant’s seasonal employment constituted a layoff and/or termination within the meaning of section 3600(a)(10), and that none of the exceptions applied.
In non-seasonal work, however, there is little guidance on whether a furlough could constitute a layoff that severs the employment relationship. EDD regulations distinguish a “temporary layoff” from a “layoff.” A “layoff” is considered an “involuntary leaving” and is for an indefinite period of time. By contrast, a “temporary layoff” does not sever the employment relationship. If the employee terminates the employment relationship during such temporary layoff, the leaving is a voluntary leaving. (Cal.Code Regs., tit. 2, § 1256–1 (c)(3).)
Furthermore, EDD regulations provide that although an employee “neither performs services nor receives wages during an authorized true leave of absence or a temporary layoff due to lack of work,” the employment relationship continues “because the work will resume at a later date, and there has been no termination of employment.” However, a layoff “for an indefinite period, or for an unreasonable length of time, or where there is no contemplation that the employee will resume his or her work in the future may sever the employer-employee relationship.” (Cal. Code Regs., tit. 22, §1256–1(e)(2).)
Thus, if an employee is laid off on March 15 due to lack of work as a result of COVID-19 health restrictions, with no return date provided, and the employee files a claim on April 1 for a February 1 injury, it is likely that the post-termination defense will not bar the claim. The employment relationship has not been severed and the length of time between the March 15 layoff and the April 1st claim is not indefinite or unreasonable.
In contrast, if the employee in the example above does not file his claim until July 1, and still has not returned to work by that time, the post-termination defense may apply and the claim may be barred. In this case, the layoff was arguably indefinite, the length of time unreasonable, and there was no contemplation of returning to work. Of course, these are highly fact-sensitive issues that will vary on a case-to-case basis.
The Court of Appeal held in 1982 that “where workers are laid off without a definite recall date, the layoff terminates the employment relationship.” (Campos v. Employment Development Dept. (1982) 132 Cal. App.3d 961, 966) (holding that workers on indefinite leave are not disqualified from receiving unemployment benefits when they refuse to accept recall offers in the course of a trade dispute.)
In conclusion, temporary layoffs that do not sever the employment relationship and which last a short period of time may not raise post-termination issues.
Indefinite layoffs, however, may allow insurers to argue that the layoff was effectively a termination of employment and that the post-termination defense applies.
Insurers seeking to assert a successful post-termination claim should carefully document the facts surrounding the layoff, including whether applicant applied for EDD unemployment benefits, applied for employment elsewhere, whether there was a return-to-work date offered by the employer, and whether the employer resumed business in a reasonable time. This era of mass furloughs, layoffs and business closures will present challenges to insurers, but careful analysis of the employment relationship may result in a successfully asserting the post-termination defense.
Michael P. Burns is a Partner at Bradford & Barthel’s San Jose location. Before joining B&B, Mr. Burns practiced civil litigation and employment law. He currently serves as an arbitrator for the Santa Clara County Bar Association’s Fee Dispute Resolution Program. Since joining B&B, his primary areas of practice include workers’ compensation and subrogation. Mr. Burns can be reached at email@example.com or (408) 392-8202.
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