Ohio Supreme Court Reiterates Commission’s Power to Reject Settlements in VSSR cases

The Supreme Court of Ohio, affirming a decision of a lower state appellate court, held that the Ohio Industrial Commission had properly rejected a proposed settlement related to an employer’s violation of specific safety requirements (VSSR) since Ohio Admin. Code 4121-3-20(F)(1) granted the staff hearing officer (SHO) broad discretion to disapprove the proposed settlement as inappropriate if the SHO found that the settlement was not fair or equitable to the injured employee [State ex rel. Zarbana Indus. v. Indus. Comm’n of Ohio, 2021-Ohio-3669, 2021 Ohio LEXIS 2073 (Oct. 19, 2021)]. The high court acknowledged that under the regulation the SHO was required to hold a hearing if the SHO did “not find the settlement to be appropriate in its present form,” but stressed that the regulation’s reference to “form” applied to the issue of the settlement’s fairness and equity, not its “structural” suitability.

Background

The employee suffered a crushed hand injury in a punch press, resulting in multiple finger amputations. His workers’ compensation claim was allowed for a crushing injury and several other conditions. He then applied for an award of additional compensation due to the employer’s alleged VSSRs. The employer denied that it had violated any safety requirements. The commission sent the parties a letter estimating that if the employee’s VSSR application was allowed, the award could range from approximately $21,000 to approximately $70,000, subject to increase if there is ongoing compensation or future compensation paid in this claim. The commission then held a hearing on the merits of the application.

Before the SHO issued his decision, however, the employer and employee submitted to the commission an agreement to settle the VSSR claim for a lump-sum payment of $2,000. The parties chose to set the terms of their agreement down on a form provided by the commission. The agreement provided, as part of the prepared form:

This agreement shall be submitted to the Industrial Commission of Ohio for approval, and Employer shall not pay the agreed amount until the agreement shall have been approved by the Ohio Industrial Commission and made a matter of record in the claim … [Opinion, ¶ 5].

SHO Disapproves the Settlement

The SHO then convened another hearing at which he considered the settlement agreement. The SHO issued two orders. One granted the employee a VSSR award of 30 percent of the maximum weekly rate. The commission asserted that the award at the time it was issued equaled approximately $40,000. The employer did not dispute that figure. The second order rejected the proposed $2,000 settlement as “neither fair nor equitable.” The employer sought reconsideration, but the Commission ultimately denied the request.

Tenth District Court Affirms

The employer then filed a declaratory-judgment action in a county Court of Common Pleas, alleging that the commission lacked statutory authority over VSSR settlements. The court dismissed the action for lack of jurisdiction, and the Tenth District affirmed. The employer then filed this mandamus action in the Tenth District, alleging that the commission lacked authority to reject a settlement agreement on the grounds of fairness or equity. The employer sought a writ compelling the commission to vacate its order rejecting the settlement, vacate its order granting Hayes a VSSR award, and issue an order approving the settlement. The Tenth District denied the writ [for my November 2020 discussion related to the Tenth District’s decision, click here].

Supreme Court’s Discussion of Issue

Initially, the Court rejected the employer’s contention that the General Assembly permitted the Commission authority to approve or disapprove VSSR settlements only as to “form” and not on the basis of fairness or equity. The Court stressed:

Moreover, [the employer’s] proposed reading makes little sense because the commission provides a form for parties to use when submitting proposed settlements; under [the employer’s] theory, the commission would have to approve any settlement submitted on that form. More to the point, however, Ohio Adm.Code 4121-3-20(F)(1) concludes with the broad statement that the SHO “shall issue an order either approving or disapproving the settlement.” Here again, the regulation provides no criteria for the SHO’s approval. But importantly, the object of the sentence—the item the SHO is to approve or disapprove—is the settlement, not the agreement [Opinion, ¶ 18, emphasis by the Supreme Court].

Freedom to Contract?

As to the employer’s argument that the regulation as applied infringed on its freedom to contract and therefore must be strictly construed, such that any authority the commission has to intervene in VSSR settlements does not go so far as to authorize an SHO to disapprove a settlement based on fairness or equity, the Court said that to the extent that freedom to contract was even applicable in the context of this administrative proceeding, the employer’s argument entirely overlooked the employee’s freedom to contract. The only contract to which the employee agreed required the commission’s approval of the settlement. Based on the foregoing, the Supreme Court affirmed the Tenth District’s judgment denying the writ.