Wisconsin Employer’s Guide to Beating an ‘Unreasonable Refusal to Rehire’ Penalty Claim

The average employer is generally caught off guard to learn that its worker’s compensation insurance carrier will not provide a defense to—or coverage for—a former employee’s “unreasonable refusal to rehire” penalty claim under the Wisconsin Worker’s Compensation Act (WCA). The claim is referred to by some attorneys as a “wrongful refusal to rehire” or “wrongful discharge” claim. An employer is generally responsible for defending its own interests in such a claim and for paying any amounts awarded to the employee unless it has an employment practices liability insurance policy that provides coverage. It is not uncommon for an employee to pursue this claim while going forward with a disability discrimination claim based on an alleged failure to accommodate. It can certainly be frustrating to be sued by the same employee in multiple forums over what is essentially the same underlying adverse employment action.

Legal Standard

Section 102.35(3) of the WCA provides that an employer that, without reasonable cause, refuses to rehire an employee after he has sustained an industrial injury when suitable employment is available within the employee’s physical and mental limitations is exclusively liable to pay the employee the wages lost during the period of refusal, not to exceed one year’s wages. In an “unreasonable refusal to rehire” penalty claim, the employee has the initial burden of proving that:

(1) He was an employee.

(2) He sustained a compensable work injury.

(3) He was denied rehire or discharged.

If the employee is unable to demonstrate that the underlying injury is work-related, he cannot prevail on his claim, and the employer will avoid liability. Therefore, an employer should consider whether it can defend against a claim on the basis that the underlying injury is not work-related. It may be necessary for the employer to obtain an independent medical examination before raising that defense.

Conversely, if an employee meets his initial burden, the burden shifts to the employer to show “reasonable cause” for its decision not to rehire or to discharge the employee following a work injury. The employer’s reasonable cause must be unrelated to the fact that the employee sustained a work injury. For example, an employer generally cannot count absences attributable to a work injury against an employee under its no-fault attendance policy.

Thus, even though most private-sector employees in Wisconsin are hired “at will”—i.e., their employment may be terminated at any time for any reason not prohibited by law—an employer subject to an unreasonable refusal to rehire penalty claim will be required to demonstrate “reasonable cause” for its decision not to rehire or to discharge an employee who has sustained a work injury if the employee is able to meet his initial burden.

The Wisconsin Worker’s Compensation Division will scrutinize (1) the amount of time between an employee’s initial report of a work injury and the employer’s decision to sever the employment relationship, (2) the employee’s length of service with the employer, (3) the employee’s prior performance and disciplinary record, and (4) the manner in which the employer treated similarly situated employees in the past. Because these claims are frequently decided by credibility determinations, it is important for an employer to have good supporting documentation in place before implementing its decision to terminate an employee who has recently reported a work injury. Generally, administrative agencies expect employers to have documentation for important decisions. However, that does not always happen, particularly with small employers that cannot afford a full-time HR department. In those cases, it will be necessary for the decision maker to credibly explain why the discharge decision was not related, even in part, to the employee’s work injury.

Bottom Line

An employer that violates Section 102.35(3) by unreasonably refusing to rehire or discharging an employee who has suffered a work injury will be exposed to a penalty of up to one year’s lost wages. Accordingly, employers are well-advised to seek legal counsel before terminating the employment of employees who have recently suffered a work injury or are on a worker’s comp leave of absence.