News

October 01, 2013

The Fifth District Appellate Court recently affirmed a jury verdict entered in favor of employee Larry Holland against his employer Schwan’s Home Services, Inc. (“Schwan’s”) awarding Holland $660,400 in compensatory and $3.6 million in punitive damages for retaliatory discharge.  In this article, we provide an overview of the facts and relevant issues on appeal.

Overview of Facts

Holland was a facility supervisor for Schwan’s at their West Frankfort facility and suffered a back injury on August 22, 2008 when he slipped and fell on ice while unloading goods from a semitruck.  Following the accident, his physician concluded that he could return to work with the following restrictions:  “no heavy lifting, no prolonged standing and should be on light duty with only minimal driving.”

At the time of the accident, Schwan’s operated a “temporary alternate duty” (“TAD”) program designed to provide workers with temporary job duties within their work restrictions.  Schwan’s placed Holland in the TAD program beginning on August 25, 2008.  Schwan’s location general manager was responsible for ensuring that the duties assigned to Holland did not exceed his job restrictions. However, Holland testified that the location general manager did not take any action to modify Holland’s job duties and Holland was required to complete the same tasks as before his accident.  These duties fell outside his work restrictions.  Holland’s back condition and symptoms worsened.

Physical therapy was prescribed in December 2009, but was not initially authorized.  On January 14, 2009, Holland received a call from the adjuster for the third party administrator responsible for administering his claim asking about his physical therapy.  Holland relayed that he had not yet received authorization for the physical therapy and also that his ability to attend physical therapy was limited by his work schedule.  When the workers’ compensation specialist learned that Holland had not attended physical therapy, she contacted his treating physician without Holland’s permission in an attempt to convince the physician to release Holland back to full duty because he had not followed through with the physical therapy the physician had prescribed.  The physician stated that he would not release Holland to full duty without reexamining him.

When Holland followed up with his physician, the doctor agreed that Holland’s work schedule was relevant to his physical therapy and imposed an additional work restriction that Holland was not to work more than six hours on the days he had physical therapy.  Holland testified that he relayed the new job restrictions to Schwan’s location general manager on January 26, 2009, but he did not agree to change Holland’s work schedule to accommodate the physical therapy.

The following day, the workers’ compensation specialist and adjuster discussed Holland’s new work restrictions and decided that they would have Holland undergo an IME.  Holland underwent an IME on March 9, 2009.  The IME physician agreed with Holland’s treating physicians and opined that the recommended treatments were necessary and appropriate.  The IME physician also increased his job restrictions by restricting him from any lifting over 15 pounds.  He opined that Holland could return to full duty upon completing the prescribed injections and physical therapy.

In light of the IME, the workers’ compensation specialist recommended to Schwan’s that since Holland had indicated his work schedule was interfering with his physical therapy, they should consider taking him off work until he completed the therapy.  Schwan’s location general manager told the specialist not to take Holland off work because he needed Holland’s help and to extend his participation in the TAD program another 30 days.  On March 24, 2009, Holland was informed by letter that he was being given one final 30 day extension in the TAD program which would end on April 24, 2009.

Over the next month, Holland complied with all of his treatment requirements.  During that time, Schwan’s continued to require Holland to work beyond his medical restrictions despite the fact that he was supposedly in the TAD program.  When Holland returned to his treating physician on April 28, 2009, the doctor took him off of work completely so that he could participate in more aggressive physical therapy.

When Schwan’s learned of the doctor’s new recommendations, they began discussing whether they would ask Holland to resign from his position.  E-mails between Schwan’s and the individuals handling the claim were admitted at trial that contained discussions of their strategy regarding how Schwan’s could remove Holland from his position.  The workers’ compensation specialist suggested doing some surveillance and Schwan’s location general manager suggested that Holland “had been playing this game for quite some time.”  A decision was made to replace Holland as the facility supervisor and he would be given the option of securing another position within 30 days from when he was released to full duty work.

On May 19, 2009, Holland’s physician stated that he could return to full duty work on May 25, 2009.  On May 20, 2009, Schwan’s sent a letter to Holland notifying him that he no longer qualified for the facility supervisor position based on his “performance and a record of unreliability.”  The letter stated that upon his full duty release on May 25, he would have 30 days to apply for other positions as they are posted.  He was notified that if he was unable to find another position by June 23, 2009, he would be terminated.

At trial, Schwan’s district general manager testified that on May 5, 2009, Schwan’s regional general manager told him that he had approved a new material handler position for Holland at the West Frankfort facility.  He testified that this was a special position made available only to Holland and was never posted as a job opening.  However, at trial, Schwan’s did not produce any documentary evidence to support the district manager’s testimony and the May 20, 2009 letter did not mention that a material handler position was available to him.  Holland testified that when he spoke to Schwan’s district general manager on May 25 after receiving the letter, he was told that there was a material handler position available.  He testified that he was told that the only way he could return to work at Schwan’s was to apply for another position and that he was not to return to work until he had been accepted by Schwan’s.  Holland claimed that he did not believe he was formally offered a job during this conversation because he did not receive a formal internal offer letter from Schwan’s as was customary in the past.  He further testified that he knew from personal experience at that facility that Schwan’s did not need another material handler.  Holland was told during a subsequent conversation that Schwan’s would not be providing him with a salary continuation during the 30 day period and to contact the location general manager about the material handler position.

The workers’ compensation specialist e-mailed Schwan’s location general manager on May 27, 2009, asking whether any positions were available for Holland and if so, whether they had offered him a position.  The location general manager responded that he had not spoken with Holland and that, “At this point in time I have no available [material handler] positions.”  The location general manager testified at trial that he was unaware that Schwan’s had created a position for Holland.

Holland called the location general manager on May 27 to inquire about the position after seeing the position posted on the website.  He stated that he was not sure that the position existed and would have to check.  He called Holland back the next day and told Holland that there was a material handler position available at the West Frankfort facility and that it was being offered only to him.

A follow-up letter was sent to Holland on June 4, 2009.  The letter reiterated that a material handler position was available to Holland effective immediately and that if he failed to accept the position and return to work by June 23, 2009, he may be considered to have voluntarily resigned and be terminated.  Another letter was sent on July 1, 2009 with a “final offer of employment.  The letter advised that the position would remain available until July 6, 2009 and that he would be terminated effective that date if he did not accept the position.  Holland did not accept the position and on July 7, 2009, a letter was sent informing him that he was terminated due to his failure to return to work.  Schwan’s never filled the additional material handler position at the West Frankfort facility that was supposedly offered to Holland.

Decision on Appeal

Holland filed a complaint against Schwan’s alleging retaliatory discharge.  The jury found in his favor and Schwan’s appealed to the Fifth District Appellate Court raising a number of claimed errors.  Schwan’s primary contention on appeal was that Holland voluntarily resigned, rather than being terminated, from his employment with Schwan’s.  Schwan’s had requested that the trial court take this issue away from the jury and decide it as a matter of law on several occasions:  through a motion for summary judgment, a motion for a directed verdict and a motion for judgment notwithstanding the verdict.  The trial court denied all three motions.  Schwan’s maintained that when Holland recovered from his work accident and was ready to return to work, it offered him a position, but he refused to report for work.

Drawing all inferences in Holland’s favor, the appellate court concluded that the evidence was more than sufficient to establish that as of May 25, 2009, Holland was no longer employed with Schwan’s and that any renewed employment relationship was contingent on him applying and being accepted for a new position.  The court noted that although Holland was told on May 25 that he should contact Schwan’s location general manager for information about a material handler position, he was also told during that conversation that he should not report to work until he had applied and was accepted for another position.  The court noted that he was not receiving a salary or wages during the 30 day period.  The court also found that a reasonable jury could conclude that if Schwan’s had really created a job that was specifically available only to him, it would not require him to apply and be accepted for the job.  The court also noted a series of e-mails between Schwan’s and the individuals handling the workers’ compensation claim which called into question whether Schwan’s had actually created a position for Holland.

Another issue on appeal was whether the trial court properly admitted the workers’ compensation carrier’s claim file over objections that the contents of the file were privileged.  Although portions of the file were redacted, the court allowed into evidence those portions of the file which documented communications between the adjuster and Schwan’s for the purpose of showing Schwan’s knowledge.  Notably, the court found that the claim file was properly admitted and was not subject to the attorney-client privilege.

In Illinois, the attorney-client privilege has been extended to communications between an insurer and its insured.  The appellate court found that the insurer-insured privilege applies only when “the insured may properly assume that the communication is made to the insurer for the dominant purpose of transmitting it to an attorney for the protection of the interests of the insured.”  The court found that there was no evidence in the record that supported the conclusion that the claim file contained communications of this nature.  The court reasoned that the statements by Schwan’s employees recorded in the claim file were not made for the purpose of seeking legal advice, but instead related to Holland’s treatment and restrictions.  The court noted that at the time the statements were made, both the carrier and Schwan’s agreed that Holland’s condition was related to his workplace accident and they did not dispute that his claim was covered by the Illinois Workers’ Compensation Act.  Thus, the court concluded, the purpose of the statements in the claim file was to help Schwan’s and the carrier administer the workers’ compensation claim, not to enable Schwan’s to obtain legal counsel and that there was no evidence that the statements were made in order to deliver them to an attorney to prepare a defense to Holland’s claim, or that anyone anticipated that they would be delivered to an attorney at the time they were made.

The appellate court also affirmed the punitive damages award and found that the trial court properly submitted the punitive damages issue to the jury.  Before a jury is allowed to consider the issue of punitive damages in Illinois, the trial court must make a preliminary finding of whether the facts of the case justify submitting the issue to the jury.  In retaliatory discharge cases, punitive damages can be awarded where the retaliatory discharge is committed with fraud, malice, deliberate violence or oppression, or where the defendant acts with such gross negligence to indicate a wanton disregard for the rights of others.  The appellate court found that the trial court did not err in submitting the punitive damages issue to the jury because Holland presented sufficient evidence from which the jury could conclude that Schwan’s acted willfully and wantonly in terminating his employment.  The court found that the jury was entitled to conclude from the evidence that Schwan’s engaged in a course of conduct designed to punish Holland for exercising his rights under the Act and ultimately terminated him as its “final act of punishment.”

In reaching its conclusion, the court noted that Holland presented evidence that Schwan’s never honored his medical restrictions and did not accommodate his work schedule to allow him to obtain effective physical therapy.  Although Schwan’s claimed that it has placed Holland in its TAD program, the evidence established that his placement in the program was in name only because his job duties did not change to light duty.  The court noted that this testimony, if found credible, established that Schwan’s actions caused Holland’s injury to become worse and caused him to suffer increased pain.

Comment

There are several lessons to be learned from this decision.  First, as was noted by the dissent, the Illinois Supreme Court has refused to extend the tort of retaliatory discharge to encompass constructive discharge and has never recognized a common law tort for an injury short of an actual discharge.  Hartlein v. Illinois Power Co., 151 Ill. 2d 142 (1992); Metzger v. DaRosa, 209 Ill. 2d 30 (2004).  In other words, an employee cannot sustain a retaliatory discharge action in cases where the employee was demoted or claims to have been forced to resign because the actions of his employer were so intolerable.  Thus, had Schwan’s extended Holland a legitimate, unequivocal offer of employment, rather than discontinuing his salary and informing him that he had to reapply and be accepted for a new position, Schwan’s may have been able to establish that Holland was not terminated from his employment.

Second, this case should serve as a cautionary tale to employers and insurers when engaging in written or e-mail communications regarding an employee’s work-related injury.  Employers and those involved in administering a claim should treat every e-mail communication as if it could eventually become an exhibit at trial.  A number of unfavorable e-mails were introduced at trial that no doubt played into the jury’s finding and significant punitive damages award.  Employers and claim administrators should be careful not to make disparaging or derisive comments in e-mail communications that could demonstrate animosity towards the employee, even if there are legitimate reasons to believe that an employee is taking advantage of the workers’ compensation system.

Schwan’s may also have been better off had it been able to claim privilege as to certain communications.  The appellate court engaged in a narrow reading of the insurer-insured privilege in finding that the carrier’s claim file was admissible at trial.  There is no indication in the opinion that Schwan’s had an attorney involved in the handling of the claim at any time throughout the process.  Had an attorney been involved, an argument may have existed to exclude certain entries in the claim file under the attorney-client and/or insurer-insured privilege.  Moreover, had an attorney been involved, Schwan’s may have been able to claim privilege as to certain other damaging e-mails that were admitted at trial.

Finally, this case teaches that care should be taken in implementing transitional or light duty programs.  Schwan’s undoubtedly had good intentions and went to great effort to put into place its TAD program.  However, at least according to the employee, the program was not properly executed and resulted in the employee working beyond his restrictions.  Accommodations also were not made to the employee’s work schedule to allow him to complete his therapy.  The testimony at trial regarding these failures likely contributed to the large punitive damages award.