NJ High Court Strikes Down Employment Contract Clauses Waiving Third-Party Claims

Yesterday, in an eagerly awaited decision, Vitale v. Schering-Plough Corp., Case No. A-20-16 (Dec. 11, 2017), the Supreme Court of New Jersey held that a disclaimer in an employment agreement in which the employee prospectively waives third-party claims against the employer’s customers is contrary to the public policy expressed in sections 39 and 40 of the New Jersey Workers’ Compensation Act and, therefore, is void. The case, involving a security guard who worked for a security services firm and was assigned to defendant, Schering-Plough Corporation’s facility, will be returned to the trial level for reconsideration of various liability and damages issues.

Background

Vitale worked for Allied Barton Security Services (Allied Barton) as a security guard. At the time he was hired, he signed an employment agreement that waived his right to pursue any claim against any Allied Barton customer to which Vitale might be assigned for work. Vitale sustained injuries when he fell down the stairs that led to the Schering-Plough guardhouse basement. At the time of the incident, Vitale was descending the stairs to retrieve uniforms for other officers. He filed a workers’ compensation claim against his direct employer, Allied Barton, which was subsequently resolved.

Trial Court: $900,000 Verdict for Vitale

Vitale also filed a civil action against Schering-Plough, contending that he was a business invitee and that Schering-Plough’s negligence in the maintenance of its facility caused his injuries. Schering-Plough moved for summary judgment, contending that Vitale’s claims were barred by the waiver language in his employment agreement. The trial court denied Schering-Plough’s motion, finding that the waiver was void as against public policy. The case went to the jury and the trial court did not permit the jury to consider whether Vitale himself was negligent and partially responsible for his injuries. Evidence suggested that Vitale had not turned on the stairwell light before descending the stairs. The jury awarded Vitale $900,000 in compensatory damages and Schering-Plough appealed.

The appellate panel affirmed the denial of Schering-Plough’s motion for summary judgment, but also held the trial court should have instructed the jury to consider what fault, if any, lay with Vitale. The panel remanded the case for a new trial on the question of liability. The Supreme Court accepted the appeal.

Supreme Court’s Opinion

The Supreme Court agreed with the appellate panel in relevant part. It noted that N.J. Stat. § 34-15-39 generally provides that [except as otherwise provided in the Workers’ Compensation Act] no agreement or compromise, made before the happening of any accident, shall be valid or bar a claim for damages for the injury resulting from such accident. The Court stressed that the New Jersey Legislature had not restricted section 39 to the waiver of workers’ compensation benefits through pre-accident agreements. Section 39’s language was sufficiently broad so as to apply to the type of waiver that had been included in Vitale’s employment agreement.

The Court also noted that N.J. Stat. § 34-15-40 addressed the employee’s right to file a tort action against third parties. It added that the Legislature contemplated a scheme in which the injured worker would collect workers’ compensation benefits and pursue his or her common-law remedy against the third-party tortfeasor. Because the employer could potentially be repaid its workers’ compensation outlay through that third-party recovery, the scheme tended to ameliorate the burden imposed on the employer’s workers’ compensation carrier, thus promoting the equitable balancing of competing interests that the overall statutory scheme was designed to achieve.

Waiver Undermines Legislative Intent Within the Workers’ Comp Act

If the Court were to enforce a waiver such as that signed by Vitale, it would undermine the Legislature’s purpose in enacting Sections 39 and 40. It would not only deprive the employee, Vitale, of the opportunity to pursue an action against a potentially culpable third party, but would also eliminate Allied Barton’s workers’ compensation carrier’s lien on any damages awarded to Vitale in his third-party action. Public policy would not allow that result.