California's workers' compensation system is built on a trade-off. Employers assume liability for work-related injuries without regard to fault, and in return, employees forfeit the right to sue their employers in civil court for those injuries. This "compensation bargain" is codified in California Labor Code sections 3600 through 3601 and forms the foundation for the exclusivity rule, which shields employers and co-workers from civil liability in most workplace injury cases.
Workers' compensation claims frequently intersect with civil litigation, particularly when plaintiffs seek treatment outside the system or assert additional rights. For legal practitioners handling these cases, especially in the context of settlement, understanding the boundaries of the exclusivity rule and its exceptions is essential to managing exposure, negotiating effectively, and securing a resolution that minimizes future risk.
The Exclusivity Rule: A Legal Framework
Under Labor Code, section 3602(a), workers' compensation benefits are the "sole and exclusive remedy" for injuries arising out of and in the course of employment. This provision bars employees from bringing civil lawsuits against their employer for such injuries. The employee does not need to prove negligence, and the employers' liability is capped at the benefits prescribed by statute.
Labor Code section 3601(a) extends this protection to co-employees, who cause injury while acting within the scope of their employment. The statute provides two exceptions:
- When the injury or death is proximately caused by the willful and unprovoked physical act of aggression by another employee, or
- When the injury or death is proximately caused by the intoxication of the other employee.
The California Supreme Court has explained that this co-employee immunity prevents plaintiffs from circumventing the exclusivity rule by suing fellow employees who would then seek indemnification from the employer. In Torres v. Parkhouse Tire Service, Inc. (2001) 26 Cal.4th 995, the court stated, "The purpose of the exclusivity rule would be defeated if employees could bring actions against fellow employees acting in the scope of employment such that fellow employees' negligence could be imputed to their employers."
California courts have interpreted the exclusivity rule liberally in favor of coverage, per Labor Code §3202. In Vann v. City and County of San Francisco (2023) 97 Cal.App.5th 1013, the court held that a city-employed firefighter injured by a city bus driver was barred from suing because both worked for the same legal entity- the City of San Francisco- even though they were employed in different departments. This decision highlights how expansively courts can interpret "employer" and "co-worker" for purposes of exclusivity.
When the Exclusivity Rule Does Not Apply
While robust, the exclusivity rule is not absolute. Several statutory and judicial exceptions allow an employee to pursue civil remedies outside the workers' compensation system.
Third-Party Liability
Claims against third parties, entities or individuals who are nether the employer nor co-employees, are not barred by exclusivity. An employee may obtain damages through a civil action while still receiving workers' compensation benefits. However, any recovery from the third party typically results in a credit or offset against the employers' workers' compensation liability. (Lab. Code §3852-3856)
Statutory Exceptions
There are specific scenarios in which civil liability against the employer is permitted despite the exclusivity rule.
1. Dual Capacity Doctrine: When an employer occupies a second role independent from that of an employer, it may face tort liability. See Duprey v. Shane (1952) 39 Cal.2d 781.
2.Power Press Exception: Under Labor Code §4558, if an employer removes or fails to install a safety guard on a power press and an employee is injured, the employer may be subject to a civil suit.
3. Fraudulent Concealment: If the employer conceals the existence of a work-related injury or illness and the concealment results in a worsened condition, the exclusivity rule does not apply. Johns-Manville Products Corp. v. Superior Court, (1980) 27 Cal.3d 465.
4. Employer Assault or Ratification: Civil actions are allowed where the employer commits or ratifies a willful physical assault. Lab. Code §3602(b)(1).
5. Uninsured Employers: Employers who fail to secure workers' compensation coverage are not protected by the exclusivity rules and may face civil liability. Lab. Code §3706.
Public Policy Exceptions
Courts have recognized non-statutory exceptions to the exclusivity rule where employer conduct violates fundamental public policy and exceeds the compensation bargain. In Fermino v. Fedco, (1994) 7 Cal.4th 701, the California Supreme Court held that false imprisonment by an employer was not subject to the exclusivity bar. Other examples include:
- Sexual Harassment
- Defamation
- Discrimination under FEHA
- Wrongful termination
See Livitsanos v. Superior Court (1992) 2 Cal.4th 744; Gibbs v. American Airlines (1999) 74 Cal.App.4th 1.
Settlement Strategy: Managing Exposure and Ensuring Finality
In workplace injury litigation, settlement must account for potential overlap between civil liability and the workers' compensation system. Careful consideration should be given to how medical benefits are handled, offsets are applied, and future claims are barred.
Addressing Future Medical Care
In cases invoking both civil liability and workers' compensation claims, carefully addressing future medical expenses is essential to avoid duplicative recovery and ensure the employer or carrier's exposure is clearly defined. When settling the civil claim, defense counsel should assess whether the plaintiff is closing out future medical benefits in the workers' compensation matter through a Compromise & Release (C&R) or keeping them open via a Stipulated Award. If future workers' compensation medical benefits remain open, plaintiffs may continue to seek treatment under workers' compensation even after the civil case resolves, raising the potential for overlapping liability.
California Code of Regulations, Title 8. Section 10874 addresses Compromise and Release (C& R) agreements, which are often used by counsel to ensure future medical care claims are closed out. "A compromise and release agreement may provide for settlement of all issues, including future medical treatment." To mitigate the possibility of future medical care becoming an issue, defense counsel should consider the following:
- Determine whether the plaintiff has received workers' compensation treatment,
- Request relevant medical and claims documentation,
- Consider requiring a release or waiver of future medical treatment as part of the civil settlement, and
- Coordinate with workers' compensation defense counsel to ensure a C&R is filed and approved by the Workers' Compensation Appeals Board (WCAB). See California Workers' Compensation Practice, 2023 edition.
Labor Code §5001 provides that a compromise and release approved by the WCAB is binding and is the standard method for settling claims permanently. Without such approval, any settlement of future medical care is ineffective, and the claim can be reopened.
To mitigate this risk, defense counsel should consider including a "Future Medicals Clause" in the civil settlement agreement. This clause should explicitly state how future medical expenses will be handled, clarify that compensation for future medical costs is being paid as part of the civil settlement (if applicable), and specify that the employer or insurer retains a right to offset if the plaintiff returns to works' compensation to seek additional medical treatment for the same injury. This reinforces the importance of proactively addressing future medical expenses at the time of settlement to ensure proper allocation of liability and to protect the employer's subrogation or credit rights.
Careful planning and clear settlement terms that account for potential future treatment claims can protect all parties and reduce the risk of post-settlement disputes.
Accounting for Offsets
In cases involving third-party claims, ensure proper offsets and credits are addressed. Under Labor Code §3861, amounts recovered from third parties reduce the employer's workers' compensation liability. Settlement terms should clearly allocate these amounts to avoid disputes.
Preventing Future Claims
The civil settlement should include:
- A full release of claims "known and unknown" under Civil Code §1542.
- A declaration that plaintiff has not assigned or intends to assign any claims to third parties.
- Language indicating the resolution of all claims arising from the same set of facts, and
- Confirmation that all applicable workers' compensation benefits have been paid or closed out. California Workers' Compensation Practice (2023), chapter on Settlements and Releases
Proper documentation protects against attempts to relitigate or reopen the case under an exception to the exclusivity rule.
Looking Ahead
California's workers' compensation exclusivity rule plays a central role in governing workplace injury claims, offering significant protections to employers and co-workers while ensuring employees receive timely benefits. However, the complexity of the rule, particularly when exceptions apply or when workers receive dual treatment through workers' compensation and civil litigation, requires careful legal handling.
By understanding the statutory framework, applying a coordinated strategy in settlement negotiations, and taking steps to close out all avenues of future liability, attorneys can protect their clients' interests and resolve these cases efficiently and comprehensively.