TN 5 (10-09)

PR 02505.053 Washington

A. PR 09-176 Status of State of Washington sidebar agreement under worker’s compensation laws – Reply

DATE: July 9, 2009

1. SYLLABUS

This case concerns Ms. A, who received a permanent partial disability award and two lump sum payments, one on April 14, 2008 for $20,000, and the second on February 24, 2009, also for $20,000. The February 24th payment was made pursuant to a “sidebar” agreement between Ms. A and her employer/insurer. The Washington Board of Industrial Appeals refused to enforce terms of the “sidebar” agreement, finding that it was a private agreement and was not a benefit within the meaning of the Washington Industrial Insurance Act. The Board’s decision creates ambiguity regarding offset applicability for the $20,000 “sidebar” lump sum amount. However, an opinion from the Office of General Counsel in Region X, Seattle, states that amounts received under these agreements are subject to offset in the same manner as an approved WC settlement regardless of whether or not the agreement requires approval of the State WC board, or whether or not State law construes the settlement amount to be payment of weekly WC. The RO OGC states that the ultimate determination of whether the workers’ compensation offset provision is appropriate under the Social Security Act (the Act) is governed by federal, not state, law.

(The Office of Disability Programs, Office of Process Policy requested guidance from Headquarters OGC on whether “sidebar” agreements, as described above, should apply as a general rule, rather than specifically to Washington State. They responded that, although the term “sidebar” agreement may not be uniformly used to describe these agreements, HQ OGC agrees that payments made to an employee pursuant to a contract in which the employee surrenders his or her rights under WC laws in return for that payment, are controlled by federal law, thus requiring the payment be considered a substitute for periodic WC payments under section 224 of the Act. HQ OGC confirms that POMS instructions to that effect are applicable nationwide, not just to Washington State WC.)

2. OPINION

QUESTION

You asked whether a payment pursuant to a “sidebar” agreement between a Title II beneficiary and her former employer should be subject to offset under the Social Security Act.

ANSWER

The payment made pursuant to a “sidebar” agreement between a Title II beneficiary and her former employer should be subject to offset under the Social Security Act..

SUMMARY OF EVIDENCE

Ms. A was awarded disability insurance benefits in April 2009, beginning in January 2005. Ms. A had a workers’ compensation claim for an injury that occurred in February 1995, against her employer (Employer), which was self-insured. “Insurer” is Employer’s workers’ compensation insurer.

Ms. A’s worker’s compensation claim was closed on February 6, 2009, by order of the Washington State Department of Labor and Industries. Pursuant to that order, Ms. A was awarded permanent partial disability in the amount of $9,000. In addition to the permanent partial disability award, Ms. A also received two lump sum payments. The first payment, in the amount of $20,000, was received on April 14, 2008. The second payment, also in the amount of $20,000, was received on February 24, 2009.

The February 24th payment was made pursuant to a “sidebar” agreement between Ms. A and Employer/Insurer. The terms of the agreement were as follows: (1) the parties would jointly request that the State Department of Labor and Industries issue a closure order incorporating the terms of a previous closure order as to time loss and permanent partial disability; (2) Ms. A’s workers’ compensation claim would be closed without further award of time loss, loss of earning power, permanent partial disability, or pension; (3) Ms. A would make no further claim for time loss or loss of earning power; (4) Ms. A was not eligible for vocational assistance; (5) various medical impairments would be segregated from Ms. A’s workers’ compensation claim; (6) if Ms. A’s workers’ compensation claim is ever reopened for benefits, Employer/Insurer is entitled to offset any amounts paid under the agreement; and (7) Employer/Insurer would pay Ms. A $20,000 within 20 days after their receipt of the closure order.

ANALSIS

Section 224 of the Social Security Act, 42 U.S.C. § 424a, limits the combined amount of an individual’s federal Social Security disability insurance benefits and a state workers’ compensation benefits. Pursuant to the Act, an individual receiving both Social Security disability benefits and state workers’ compensation benefits on account of a disability “shall” have his or her federal benefits reduced by the amount necessary to ensure that the sum of the combined benefits does not exceed eighty percent of the individual’s pre-disability earnings. 42 U.S.C. § 424a(a); 20 C.F.R. § 404.408. This statutory provision is commonly known as the workers’ compensation offset provision.

However, not all workers’ compensation benefits are subject to offset. Rather, only “periodic benefits” arising under a state workers’ compensation program based upon the individual’s “total or partial disability (whether or not permanent)” are subject to offset. 42 U.S.C. § 424a(a)(2). A lump sum settlement qualifies as a periodic benefit when it is a “substitute” for a “periodic benefit.” 42 U.S.C. § 424a(b).

We have found no Washington state court interpretations of whether payments pursuant to a “sidebar” agreement are considered payments pursuant to the Washington state workers’ compensation laws. The Washington Board of Industrial Appeals refused to enforce terms of a “sidebar” agreement, finding that it was a private agreement and was not a benefit within the meaning of the Washington Industrial Insurance Act. In re Alta D. Paterson, http://biia.wa.gov/significantdecisions/0515987.htm. The Board reasoned that workers’ compensation benefits were enumerated in the statute and that payments under a “sidebar” agreement were not one of those enumerated benefits. Because their enforcement powers were limited to those enumerated benefits, they could not enforce the terms of a “sidebar” agreement.

However, the determination of whether the workers’ compensation offset provision under the Social Security Act applies is an issue of federal law, not state law. Campbell v. Shalala, 14 F.3d 424, 427 (8th Cir. 1994); Krysztoforski v. Sec. of Health & Human Servs., 55 F.3d 857, 859 (3d Cir. 1994). Thus, while some deference may be paid to the Board’s interpretation of Washington workers’ compensation laws, the ultimate determination of whether a workers’ compensation offset is appropriate under the Social Security Act is governed by federal law. Krysztoforski, 55 F.3d at 859. Accordingly, while the Washington Board of Industrial Appeals analysis is instructive, it does not control the agency’s decision whether to apply the workers’ compensation offset provision in his matter.

Courts have upheld the application of the workers’ compensation offset provision to funds received as part of a settlement agreement in a workers’ compensation claim. In Black v. Schweiker, 670 F.2d 108, 109, (9th Cir. 1982), the employer agreed to pay the employee $20,000 to settle a workers’ compensation claim, despite the fact that it disputed any liability for the employee’s injury. Id. at 109. In upholding SSA’s application of the workers’ compensation offset provision to the $20,000, the court rejected the employee’s argument that under Oregon law, because the employer disputed that it had any liability for his injury, a workers’ compensation claim had not been established. “Where the right to and liability for periodic workers’ compensation benefits are thus extinguished by a voluntary settlement agreement, the settlement can only be regarded as a ‘substitute’ for the payments” under the Social Security Act. Id. at 110 (citations omitted).

Similarly, in Munsinger v. Schweiker, 709 F.2d 1212, 1217 (8th Cir. 1983), the court upheld the application of the workers’ compensation offset provision to a settlement of a workers’ compensation claim, despite the fact that under state law, “the settlement of a disputed worker’s compensation claim is not construed as a payment of weekly compensation.” The court noted that the workers’ compensation laws were the only remedy the employee had against her employer for her injury and that the settlement absolved the employer of liability. Id. The court found that to “deny the Secretary an offset of the settlement would frustrate congressional intent” of barring receipt of duplicative benefits. Id.

In this matter, we believe that application of the workers’ compensation offset provision is appropriate. By entering into the “sidebar” agreement, Ms. A and Employer/Insurer agreed to “fully and completely resolve all pending issues relating to [Ms. A’s] workers’ compensation claim.” “Sidebar” Agreement at 1. In the event that Ms. A’s workers’ compensation claim is ever reopened, payments made pursuant to the “sidebar” agreement will be offset against any future award of benefits. “Sidebar” Agreement at 2, ¶5. Thus, the basis for the “sidebar” agreement between the parties is Ms. A’s workers’ compensation claim, which has been resolved by the terms of the “sidebar” agreement.

Because Ms. A’s workers’ compensation claim was settled in exchange for the receipt of $20,000, that sum can properly be regarded as a “substitute” for periodic payments under the Social Security Act. Medical, legal, or related expenses in connection with the workers’ compensation claim are not considered to be part of a periodic payment. 20 C.F.R. § 404.408(d). However, Ms. A has the burden of establishing what part, if any, of the $20,000 is not a substitute for periodic payments under the workers’ compensation offset provision. Black, 670 F.2d at 110. Accordingly, unless Ms. A provides evidence that the $20,000 was payment for medical, legal, or other related expenses in connection with her workers’ compensation claim, the $20,000 should be offset against her Social Security benefits.

CONCLUSION

The $20,000 paid to Ms. A pursuant to the “sidebar” agreement between her and her former employer is subject to the worker’s compensation offset provision of the Social Security Act.


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PR 02505.053 - Washington - 10/20/2009
Batch run: 10/20/2009
Rev:10/20/2009