Use of Common Law Defense of Misrepresentation in Workers Compensation
As previously reported on August 5, 2011, the Alabama Court of Civil Appeals held in the case of Cascaden v. Winn-Dixie Montgomery, LLC that an employer need not rely upon an employee’s misrepresentation of his physical or mental condition in order to prevail on the misrepresentation defense contained in § 25-5-51 of The Alabama Workers’ Compensation Act. In Cascaden, the Court recognized that Alabama law actually provides for two separate defenses that involve an employee’s misrepresentation of his or her physical or mental condition: (1) a judicially created defense arising out of the Alabama Supreme Court’s decision in Ex parte Southern Energy Homes, Inc., 603 So.2d 1036 (Ala.1992), and (2) the defense created by § 25-5-51. According to the Court in Cascaden, the judicial misrepresentation defense applies only if the employer has relied on the false representation when making the decision to hire the employee, while the statutory misrepresentation defense, on the other hand, does not expressly require reliance on the part of the employer.
While the § 25-5-51 statutory defense relieves the employer of its obligation to pay compensation benefits (indemnity and vocational benefits), the Alabama Courts have not directly addressed whether medical benefits must still be paid when the employer successfully asserts the judicially created misrepresentation defense. However, based on the judicial history of that defense, it only stands to reason that medical benefits would not be owed. To arrive at this conclusion, we need to look no further than the Court’s opinion in Ex parte Southern Energy Homes. In that case, the employer’s core argument was that the Court should extend to cases involving accidental injuries the application of the workers’ compensation statute providing that an employee who misrepresents his physical condition regarding an occupational disease is barred from recovering all benefits. That statute, which is currently codified at § 25-5-115, is clear that an employee who falsely represents to his employer that he has never been compensated for an occupational disease will be barred from recovering compensation or other benefits under the Act or at common law. The Court in Ex parte Southern Energy Homes reasoned that it would not be a usurpation of the legislature to extend this defense to accidental injury cases, since it has long been a part of the common law that fraud in the inducement is a good defense to an action on a contract by one of the contracting parties, and that workers’ compensation is founded on the contractual relationship of the employer and employee. From this, one can infer that the Court found that when the employee is guilty of fraud in the inducement to the employment relationship (i.e., misrepresents his physical condition and he would not have been hired but for the misrepresentation), the employment contract between the employer and employee is voidable by the employer. Since The Alabama Workers’ Compensation Act only applies to employers and their employees, as those terms are defined in § 25-5-1, no benefits of any kind would be owed if there is no employer-employee relationship.
This of course leads to other interesting scenarios. Notwithstanding an employee’s misrepresentation providing a defense for the employer, an employer could also assert the employee’s fraud as a counterclaim to a lawsuit against the employer or even pursue that claim as a stand-alone action. While The Alabama Workers’ Compensation Act provides that an action for benefits is to be decided by a judge, an employer can demand a jury trial on its fraud claim. Additionally, in an action for fraud, punitive damages may even be available if a jury finds that the employee acted in a willful manner with the intent to defraud the employer.
MY TWO CENTS:
When facts are discovered that support a misrepresentation defense, it is important to determine, early on, whether or not the employer relied on the fraudulent representation. Although the § 25-5-51 affirmative defense, with no reliance element, is easier to prove, the common law defense offers more potential reward.