Media & Other Coverage - Employer's Knowledge Of Employee Preexisting Handicaps In Workers' Compensation Cases

The Achille’s Heel:
Employer’s Knowledge Of Employee Preexisting Handicaps In Workers’ Compensation Cases

By David J. Rebein

1. Overview of the Workers’ Compensation Fund.
Kansas workers’ compensation law dates from shortly after the turn of the century. Compensating injured workers was not enough. Then, as now, concern existed for reemploying handicapped workers. It was not until 1945, however, that the Workers’ Compensation Fund, then called the Second Injury Fund, was created.

The Fund statute has but one purpose: to encourage the hiring of handicapped employees by relieving the employer of the cost of a second injury in certain instances. The 1945 statute was indeed a timid step into these waters. To qualify for reimbursement, the employer had to show: (1) previous impairment of an eye, arm, hand or foot; (2) a second injury to the same or different member of the body; (3) resulting in permanent total disability. Back injuries, cardiac disease and mental conditions did not qualify because they did not involve “specific members” of the body. It is no great surprise that the coffers of the original Second Injury Fund were not threatened.

The Workers’ Compensation Fund statute was greatly liberalized in 1961. The 1961 revisions foreshadowed the current law. No longer did an employer have to show permanent total disability, only an increase of impairment from the second injury casually related to the first. Backs, hearts and mental conditions were now covered. Even given this expansion of Fund coverage, it was over five years before there appeared a reported case involving the Fund.

In recent years, there has been a great increase in Fund litigation as a result of increased employer awareness. There are now dozens of reported cases involving the Fund and a body of law involving Fund issues has grown up. It is the purpose of this article to examine the cases involving proof of an employer’s knowledge of an employee’s preexisting condition and to suggest an approach to hiring that might reduce ambiguity in invoking Fund liability.

II. The Modern Workers’ Compensation Fund.
Any discussion of Fund law begins with the statute. K.S.A. 44—566a created the Workers’ Compensation Fund. It is administered by the Commissioner of Insurance and is funded by assessments against insurance carriers, self-insureds and a limited dip into the state general fund.

An employer will be allowed partial or total relief from a workers’ compensation award if it can be shown that:
(1) the worker is a handicapped employee; (2) the employer hired the worker with the knowledge of the preexisting impairment or retained the worker after acquiring this knowledge; (3) the worker sustains a compensable injury and the injury or resulting disability was caused by or contributed to by the preexisting impairment; and (4) the Fund has been properly impled.

The importance of this law to the employer can be seen when it is remembered that no particular standard of health is prescribed and, if an industrial accident aggravates a preexisting condition, the employer could be liable for all disability, old and new. Without the Fund, the risk of hiring an employee not in sound health is squarely on the employer. Given the risk, without Fund protection, a very real disincentive exists for hiring handicapped employees.

The purpose of the Workers’ Compensation Fund is to encourage the hiring or retention of handicapped employees. The statute is to be liberally construed in favor of the employer if a liberal construction furthers the purpose of the statute.

III. What is a Handicapped Employee?
The first step in establishing fund liability is to prove that the employee is handicapped. K.S.A. 44-566(b) defines "handicapped employee" as:
One . . . subject to any physical or mental impairment. . . whether congenital or due to an injury or disease of such character the impairment constitutes a handicap in obtaining employment or would constitute a handicap in obtaining reemployment if the employee should become unemployed and the handicap is due to any of the following diseases or conditions. . .

Following this quotation is a seventeen-item list of impairments, conditions and diseases, which, by definition, qualify as handicaps. Nowhere mentioned are two frequently encountered industrial ailments: back conditions and carpal tunnel syndrome. K.S.A. 44-566(b) (17) is a catch-all category: "Any other physical impairment, disorder or disease, physical or mental, which is established as constituting a handicap in obtaining or retaining employment."

Case law has made clear that various back conditions will be treated as handicaps under the catch-all category. Although there is not yet a published case establishing carpal tunnel syndrome as a handicap, it is assumed that given the proper evidence it would fit into the definition of "handicapped employee" found in category seventeen. A handicap may also be congenital or the result of an injury or disease.

"Handicap," as the term is used in the statute, refers to anatomical impairment. There is no requirement that the employee be handicapped as to the job done for the employer or, indeed, as to any particular job. In the parlance of the workers’ compensation attorney, "handicap" is a functional impairment.

A review of the list of impairments makes this point clear. If a worker has diabetes, the worker is a "handicapped employee" whether he works pouring concrete or selling
candy at a newsstand. The same is true as to non-listed impairments. An employee with the congenital defect of spinal scoliosis is a handicapped employee whether he works loading trucks or ringing up sales at a convenience store. The statutory test is whether the condition would constitute a handicap in obtaining "employment," not in obtaining manual labor jobs or "jobs of the same type and character" as that which the employee had been performing.

An employee may be handicapped by an injury and yet return to the same job at the same or even higher wage. It is not necessary for the employee to have been denied employment because of his impairment. It is not necessary that the employee’s impairment be demonstrably disabling. It is not even necessary that the employee know he has a handicap. The employee’s evaluation of his condition is not the controlling factor.

Whether or not an employee is handicapped is a question of fact and will be decided on a case by case basis. This view does not comport with the way one thinks of "handicap" and underscores the fact that "handicapped employee" is a term of art in Kansas workers’ compensation law.

IV. Employer’s Knowledge of Handicap.
It is not enough that an employee be handicapped. To obtain the protection of the Fund, the employer must show hiring or retention of the employee with knowledge of the handicap.

Misrepresentation of a preexisting condition by an employee can serve as a substitute for knowledge. The whole emphasis is upon what the employer knows; it is not necessary that the employee know or consider himself to be handicapped. An example would be the mentally retarded person.

A. What is "knowing employment or retention" of a handicapped employee?
The employer must know objective facts about an employee’s health that either impart knowledge of an impairment or which give rise to a concern in the employer’s mind that the employee may be reinjured due to the preexisting condition.

In some cases, there can be no argument of the employer’s knowledge. Certainly, the employer who hires or retains a demonstrably disabled employee in the face of such a handicap is protected by the Fund from a second injury or increased disability caused by or contributed to by the preexisting impairment. It was with these types of people foremost in mind that the statute was written.

The difficult knowledge cases arise where the worker appears outwardly healthy but has a latent defect. Often the employer will only know that the employee has had a prior injury. Knowledge of a prior injury is not in and of itself the equivalent of knowledge of an impairment.

B. Proof of Knowledge.
Knowledge of impairment may be proven by any evidence of sufficient weight to carry the employer’s burden of a preponderance of the evidence. An employer’s knowledge of preexisting impairment is a question of fact to be determined on a case by case basis.’7 A shortcut to proof of knowledge may be achieved where a notice of employment or retention (a Form 88) together with a description of the impairment has been filed with the director’s office prior to the second accident. Filing a Form 88 creates a presumption of knowledge.

1. Form 88 Filings.
The preferred method of knowledge proof is a Form 88 filing. In fact, in previous statutes, the filing of a Form 88 was mandatory. If no Form 88 was on file, no recovery against the Fund was possible. The Form 88 is a form available from the director. It consists of the employee’s name, social security number and description of impairment. The impairment description is keyed to the list of handicaps in the statute. In other words, the filer is asked to "pick a category" from the seventeen categories of impairment in the statute and describe the impairment.

2. Form 88 Cases.
Some case law has grown up around Form 88 filings. Ingenious employers have thought to file Form 88s on every part of every employee’s body. Obviously, an employee must in fact be handicapped for a Form 88 to have legal significance.

Arguments can rise that a Form 88 does not properly describe the impairment or that its description is unduly broad. These arguments should be heard in the context that the evidence is to be liberally construed in favor of the employer if to do so will further the purposes of the Fund.

It is not necessary that the employer describe the exact medical terminology of the impairment. Nor is it required that the employer specify which of the seventeen categories of handicap is applicable so long as the description provided reasonably informs the director of the fact that the employee is handicapped and the nature of the handicap. The employer’s purpose in filing a Form 88 is to demonstrate knowledge of impairment. Merely reporting injuries will not suffice. Therefore, an employer should stay away from language such as "strains, contusions or lacerations" in favor of language such as "chronic low back pain" and "tendon damage."

3. Long-Hand Proof of Knowledge.
Many times a Form 88 will not have been filed. The employer’s knowledge of impairment may still be proven. The claimant may testify that the employer knew of the preexisting impairment. The employer’s personnel file may be a source of information. Perhaps the employee revealed an impairment at the time of hire on a preemployment questionnaire or an impairment was discovered during a preemployment physical. Claims processed by the employer under the employee’s personal health care coverage may reveal impairments. Foremen and supervisors may be aware of prior health problems. Of course, previous workers’ compensation claims or settlements would tend to establish knowledge.

The knowledge must be that of the employer. A doctor’s knowledge is not imputed to the employer.

C. The Rise of Reservation.
Knowledge of a prior injury alone is not equivalent to knowledge of a preexisting impairment or handicap since many times there is no reason to believe the employee will not heal completely.

What if the employer doesn’t know the employee is impaired; perhaps cannot put a name on the condition or point to a rating by a doctor but has reason to suspect the employee is impaired based on knowledge of objective facts? These sorts of facts coalesced in Oates v. Post & Danley Truck Lines, 3 Kan. App. 2d 337 (1979), in which the court agreed with the director that a preexisting impairment need not be demonstrably disabling so long as a reservation remains in the mind of the employer when deciding whether to hire an individual.

Such a reservation in this case served as a substitute for concrete knowledge of impairment. After Oates, the law could be summarized as follows: in order to prove a case against the Fund, an employer must show that the employee was handicapped at the time of hire or retention; that the employer knew of the impairment or had knowledge of facts about the employee’s health that gave rise to a concern in the employer’s mind that the employee may be injured.

1. The "bad back" cases.
Oates took the idea that an employer need not know the exact medical name of an impairment a step further. Now an employer could prove knowledge of impairment or show knowledge of facts about an employee’s health giving rise to a concern or reservation in the mind of the employer that the employee may be reinjured. The new theory did not take long to catch hold. Four cases appeared in quick succession to flesh out the reservation rule.

In Morgan v. Intercollegiate Press, 4 Kan. App. 2d 319 (1980), knowledge of a “bad back” sufficed for knowledge of preexisting impairment. In Grounds v. Triple J. Construction Co., 4 Kan. App. 2d 325 (1980), the court, taking a realistic approach, found that claimant’s “bad back” was a handicap and the employer’s knowledge of claimant’s trouble was sufficient knowledge of preexisting impairment.

In Spencer v. Daniel Construction Co., 4 Kan. App. 2d 613 (1980), the employer knew of a prior injury resulting in back and leg pain, the classic symptoms of disk and nerve trouble. Stating that a claimant with these symptoms would probably not be hired, the court found claimant handicapped following the first injury and further found that the foreman’s admonition to the employee to not do heavy work showed reservation. Finally, in Hampton v. Professional Security Co., 5 Kan. App. 2d 39 (1980), the Court of Appeals held that respondent’s awareness of the employee’s health history, inability to work for eight years and questioning of claimant as to ability to perform the work all reflected knowledge of the handicap. The entire award was assessed against the Fund. After the “bad back” cases, some conclusions could be drawn about the state of the law:

a. Knowledge of a “bad back” was the same as knowledge of impairment; and

b. Knowledge of a serious accident where the employee had not fully recovered and was under a doctor’s care and put on light duty showed concern as to the employee’s likelihood of reinjury and was the same as knowledge of impairment.

2. What is reservation?
The reservation cases usually involve a suspicion on the part of the employer that the employee is susceptible to reinjury. The employer’s “hunch” that the employee is impaired must be borne out in the second accident. The employee must in fact have been handicapped at the time of hire or retention.

Evidence of reservation can take many forms: questioning of the employee at the time of hire or of first injury; an attempt to restrict the worker’s duties, i.e., light duty; shorter hours of work during the healing period; or filing a Form 88 under circumstances that fall short of knowledge of permanent impairment all should qualify as reservation. In the 1987 legislative session, K.S.A. 44-567 was amended to provide that filing a Form 88 is reservation as a matter of law (H.B. 2186 and H.B. 2573, 1987 Kan. Sess. Laws, Ch. 189).

3. When is reservation required?
The statute, K.S.A. 44-566, says nothing about reservation. The early reservation cases concerned fact situations where the employer’s suspicions were aroused by something the employer knew about an employee’s health history, That knowledge and concern certainly prejudiced the employee in obtaining a job and, therefore, should be the equivalent of knowledge of impairment. Reservation in the mind of the employer was found to be a substitute for knowledge of impairment and greatly enhanced the employer’s opportunity to seek an award against the Fund for a second injury.

As matters currently stand, the uninformed employer is at a great disadvantage insofar as recovery from the Fund is concerned.

The idea that reservation is a substitute for knowledge has its limit as shown by the case of Carter v. K.G.&E., 5 Kan. App. 2d 602 (1980). Here the court found that knowledge of the two prior accidents did not import knowledge of impairment. There being no evidence of reservation in the mind of the employer, the challenge to the Fund was turned back. The court seemed concerned about the lack of evidence that the handicap affected the employee’s ability to do the job.

D. Corruption of the reservation rule.
After Carter, the Fund began to argue that the employer must have both knowledge of preexisting impairment and reservation about an employee’s ability to do the job before there could be an award against the Fund.

The Fund found a receptive ear in the Court of Appeals in Hines v. Taco Tico, 9 Kan. App. 2d 633 (1984). Although the director and the district court held that Taco Tico, in questioning Hines at the time of hire, had shown reservation and, therefore, set the whole award against the Fund, the Court of Appeals reversed on the basis that no one knew there was a nonunion of a prior back fusion and no reservation as to Hines’s ability to do the job of waitress and cashier had been shown.

Hines seems wrongly decided. Oates and the cases that followed made it look as though an employer could show either knowledge of impairment or reservation. Here, since the employer knew that Hines was impaired because of her fusion, a showing of reservation should not have been necessary. The Court of Appeals was apparently thrown off the scent by the nonunion of the fusion, a latent defect. Granted, Hines did not know her fusion had not taken, but an operated back, in and of itself, is a handicap. Besides, Oates made it clear that the worker’s knowledge of impairment or opinion as to handicap is not determinative.

The Hines decision got bad press from a separate Court of Appeals panel in Ramirez v. Rockwell International, 10 an. App. 2d 403 (1985). Here the court affirmed the trial court’s decision to put the whole award against the Fund, stating that Rockwell’s knowledge of a prior rating to the knee and the employee’s complaints of pain equaled knowledge of preexisting impairment. The Hines case was signaled disagreement with Hines.

A quote from Ramirez is telling:
Any employer who has knowledge that an employee or an applicant for employment has had a spinal fusion has knowledge that the person is handicapped, and common sense tells us that the employer will have serious reservations about employing or retaining that person. The idea behind the Fund is to make such a person employable. To us, the Hines case tells an employer it is unsafe to hire a handicapped employee because the employer will be responsible for any “hidden defects” in the area of the body that is handicapped.

Ramirez at p. 406.
After Ramirez, the reservation doctrine seems to be back on track. It must be borne in mind that “reservation” appears nowhere in the statute as a separate element of the employer’s burden. It is simply an alternative means of showing knowledge; an approach which lessens the employer’s burden, not increases it.

Where reservation is pertinent, the more appropriate question would be whether the employee is likely to be reinjured, not whether the employee can perform the work. A narrow interpretation of the statute such as that employed by the Hines court does nothing to encourage the hiring of handicapped employees.

The latest but presumably not the final word on the subject is the July 1987 decision of the Court of Appeals in Denton v. Sunflower Electric Cooperative, 12 Kan. App. 2d 262 (1987). The Denton Court rejected the theory that both knowledge of impairment and reservation are required. In Denton, the employer knew claimant had at least five years of back trouble. Knowledge of a “bad back” is knowledge of an impairment so no reservation evidence was required, and the Fund was responsible for a part of the award.

The Denton Court suggests that perhaps the reservation concept should be jettisoned. This solution goes too far. A better approach is: where knowledge of impairment exists, no reservation evidence is required. Where the employer has no concrete knowledge of impairment but does have knowledge of facts about an employee’s health which give rise to a concern that the employee might be reinjured, then this reservation should serve as a substitute for knowledge.

The reason reservation equals knowledge is that the employer’s concern of reinjury very much prejudices the employee and the Fund exists to encourage the hiring of handicapped workers.

V. Practice Tips.
As matters currently stand, the uninformed employer is at a great disadvantage insofar as recovery from the Fund is concerned. Employers should consider using a detailed preemployment questionnaire at the time of hire and perhaps a preemployment physical with back x-ray to ferret out impairments. The applicant should be closely quesForm 88 filing procedure should be set up to document knowledge of any impairments at the time of hire or injury.

The employer should insist on being provided with copies of all records from any treating or examining physicians at the time an employee suffers an injury. If an employee returns to work after injury with restrictions, the restrictions should be documented in the employee’s file and Form 88s filed with the director. The employer should aggressively seek knowledge of impairment. Relying on the employee to volunteer injuries and impairments will produce disappointing results for understandable reasons.

VI. Conclusion
The Workers’ Compensation Fund was created to encourage the hiring of handicapped employees and the law is to be liberally construed to achieve that end. A system which requires employers to interrogate employees and pour over medical records does not live up to its purpose. For now, however, employers must be aggressive in seeking recovery against the Fund or find themselves bearing the entire burden of having hired a handicapped worker.

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