The Supreme Court of Ohio recently invalidated a settlement agreement between an employer and an injured worker because the agreement failed to state a reason for the settlement. What makes this case particularly unsettling for Ohio employers is the fact that the settlement was entered into and approved by the Bureau of Workers’ Compensation (BWC) in 1997 – more than ten years ago.

Ohio’s workers’ compensation statute requires that all settlements be reviewed and approved by the BWC. Ohio law further states that all settlement applications “shall . . . clearly set forth the circumstances by reason of which the proposed settlement is deemed desirable.” R.C. § 4123.65. The employer in Wise v. Ryan learned these lessons the hard way.

In that case, an unrepresented injured worker agreed to settle his entire claim for $2,000 despite the fact that the medical evidence showed that he would suffer lifelong medical problems as a result of his industrial injury. The state-fund employer used the BWC’s standard “Settlement Agreement and/or Application for Approval of Settlement Agreement” form. The parties, however, left blank the section of the form that asked for the reason the proposed settlement was deemed desirable. The injured worker signed the form, and it was approved by the BWC in August 1997.

Five years later, the injured worker, through newly retained counsel, moved to vacate the settlement agreement. His motion to vacate was denied by the Industrial Commission, and the Franklin County Court of Appeals upheld the Commission’s denial. The Ohio Supreme Court, though, reversed the appellate court’s decision and held that the settlement agreement was invalid because it did not specify “the circumstances by reason of which the proposed settlement is deemed desirable,” as required by R.C. § 4123.65.

The Wise decision is significant because employers often do not specify reasons for their proposed settlements. Although this case involved a state-fund claim, nothing in the Supreme Court’s opinion appears to limit the scope of the decision to only state-fund claims. Therefore, going forward, all employers, both state-fund and self-insured, should include a reason that supports the settlement from the injured worker’s perspective in every proposed workers’ compensation settlement agreement. 

In response to Wise, the Industrial Commission issued a policy statement, Memo O3, which clarifies the duty of Staff Hearing Officers to review settlement agreements. One aspect of that Memo prohibits the frequent practice of waiving the 30-day cooling-off period. As of now, it is unclear how the Commission and the courts will treat settlements, such as the one in Wise, that were entered into years ago. We will keep you posted.