The Virginia practice whereby employers seeking to terminate ongoing benefits unilaterally suspend those benefits in advance of a hearing on the merits is being challenged in three cases currently before the Virginia Workers’ Compensation Commission.

The current practice

There is no statutory provision in Virginia permitting the unilateral suspension of benefits.  To challenge an existing Award, an employer or carrier must file for a hearing under the change of condition statute, § 65.2-708, Va. Code Ann.  An important provision of this statute is: “No such review shall affect such award as regards any money paid…”  The Virginia Commission promulgated rules governing the process by which employers may file an “Employer’s Application for Hearing” when it was alleged that: 1) an employee returned to work, 2) an employee had refused employment, 3) an employee had refused medical treatment, 4) an employee had refused an independent medical examination, 5) an employee had refused to cooperate with vocational rehabilitation, or 6) there was evidence that the employee’s disability was no longer causally related to the industrial accident.  The rules have always required that before the Commission will consider an employer’s application, all compensation under the outstanding award must have been paid through the date the application is filed, except under certain conditions.

In the 1968 version of what was then Rule 13 the Commission provided that “compensation may be terminated as of the date” one of the 6 circumstances mentioned previously was alleged to have occurred.  Thus began the practice of employers unilaterally suspending benefits in advance of a hearing on the merits.  In 1972, however, the Commission amended its Rule 13 and the specific language allowing termination upon filing an employer’s application was dropped from the rule.  However, since the rule still required payment up until a specified date, in practice it was treated as if the rule allowed unilateral suspension thereafter.  As will be discussed below, this practice was challenged in a case before the United States Supreme Court in 1974.  Partly in response to that Supreme Court case, the Commission amended Rule 13 again in 1981 and inserted the provision that “the Commission shall determine if the preliminary evidence filed by both parties justifies suspension of compensation pending a hearing on the merits of the claim.” (Emphasis added.)  Thus the practice of unilateral suspension prior to a hearing on the merits was sanctioned by the Commission and the practice continued.

The last significant amendment was in 1994.  In 1991 Title 65.1 of the Virginia Code Annotated was replaced by Title 65.2.  Pursuant to § 65.2-703(B) the Commission was charged with adopting rules governing discovery “conforming as nearly as practicable to Part Four of the Rules of the Virginia Supreme Court.”  In response to this mandate, the Commission re-wrote its rules and the old Rule 13 became the current Rules 1.4 and 1.5.  Once again, the specific language regarding termination or suspension of benefits was changed.  The termination provision of the 1981 version of Rule 13 was replaced by Rule 1.5(C)(1) which states: “Pending acceptance or rejection of the application, the employer may suspend or modify compensation payments as of the date for which compensation was last paid.”  In spite of this specific and limiting language, the practice of unilateral suspension prior to a hearing on the merits, arguably allowed under the prior Rule 13, continued and is the practice today.

The 1974 Dillard challenge

In 1974 the decision in Dillard v. Industrial Commission of Va., 416 U.S. 783, 94 S.Ct. 2028, 40 L. Ed. 540, was issued.  Dillard challenged the 1972 Rule 13 practice of unilateral suspension as being a violation of due process as suspension occurred prior to a hearing on the merits.  The District Court concluded that there was no due process violation, Dillard v. Industrial Commission of Virginia, 347 F. Supp. 71 (1972), but when the case came to the Supreme Court, the analysis changed. Justice Powell stated:

Although the parties have focused primarily on the due process issue, the briefs and oral arguments have indicated that under state law a claimant whose workmen’s compensation benefits have been suspended may have them reinstated by a state trial court pending a full administrative hearing on the merits of the claim.  If this is an accurate reading of state law, it is in all probability unnecessary to address any questions of federal constitutional law in this case.” Dillard, at 784.

The statute to which Justice Powell was referring was § 65.10-100, Va. Code Ann. [now § 65.2-710].  That statute provided that any party in interest could file in any Virginia Circuit Court a certified copy of an Award upon which the court was mandated to render judgment “as though such judgment had been rendered in a suit duly heard and determined by the court.”  As the statutory provision existed for an employee to enforce his or her Award in state court, and as the plaintiff in Dillard had not availed himself of this adequate state remedy, the U.S. Supreme Court concluded that the District Court would be presented with a wholly different issue than the one it decided, so the case was remanded. (It settled before any decision by the District Court on remand.)

What was and still is significant about the Dillard decision is that the U. S. Supreme Court interpreted the employer’s application for hearing process not as a mechanism to suspend the payment of benefits, but as a mechanism for the employer to get a change of condition issue docketed for hearing.  This mechanism, Rule 13, however, did not and could not prevent the claimant from availing himself or herself of the enforcement provisions of the Virginia Workers’ Compensation Act found in [then] § 65.1-100.  Even the Virginia Commission agreed with this position.  The Supreme Court quoted the Commission’s motion to dismiss before the District Court where this remarkable assertion was made:

Virginia ’s statutory framework does not authorize the termination of benefits as alleged by plaintiff, it permits only the initiation of a procedure by which benefits may ultimately be terminated.  Should plaintiff be dissatisfied with the temporary cessation of benefits pending an administrative hearing, he is entitled by the provisions of 65.1-100 to reduce his award to judgment in an appropriate court of record and compel the resumption of benefits.  It should be noted that in such a case the court has no discretion and must enter judgment against the employer or its insurer. Dillard, Id. at 794.

As noted above, following Dillard the Virginia Commission amended its Rule 13 in 1981 to specifically provide for suspension of benefits and to provide a 15-day window for employees to present evidence in opposition to the employer’s application.  The practice of unilateral suspension, however, continued up to the present.

Present day and the due process challenges

Dillard highlighted the due process problems with the Virginia rules.  The Virginia Commission has historically allowed an employer to suspend benefits upon a mere allegation but has not allowed an employee to reinstate benefits upon a mere allegation.  Thus it has been all too common in Virginia to see an employee’s benefits suspended by the filing of an employer’s application for hearing alleging a return to work, but the hospitalization of the employee a week after attempting to return to work would not result in the resumption of benefits unless or until so awarded such a resumption by a decision by the Commission months later.  The inequity of this approach has been justified by employers (and some members of the Commission) as the only “fair” means to protect employers from overpayments.  The irreparable harm done to the employee as a result of the suspension of benefits for months at a time is not factored into their argument, however.

No direct challenge has been made to this practice by employers since 1974, until now.  The Virginia Workers’ Compensation Commission is currently considering on review three cases all argued on the same day: September 28, 2009.  The cases are: Hodnett v. Stanco Masonry, Inc., V.W.C. File No: 230-15-49, Terry v. Blue Ridge Services, V.W.C. File No: 227-93-77, and James Blankenship v. Philip Morris USA, Inc., V.W.C. File No: 223-40-25.

When Virginia enacted Title 65.2, it changed the enforcement provision previously contained in § 65.1-100.  The new § 65.2-710 provides:

§ 65.2-710.  Enforcement, etc., of orders and awards.—Orders or awards of the Commission may be recorded, enforced, and satisfied as orders or decrees of a circuit court upon certification of such order or award by the Commission.  The Commission shall certify such order or award upon satisfactory evidence of noncompliance with the same. (1976, c. 149, § 65.1-100.1; 1991, c. 355.)

This little-used statutory provision has become the point of attack for the challenge to unilateral suspension.  Claimant’s attorneys have, when unilateral suspension occurs, provided affidavits to the Clerk of the Commission wherein their clients attest that they are under an Award and are not being paid.  The clerk would then provide the certified Award which claimant’s counsel would then record in the Circuit Court.  Once recorded, the normal collection process would be instituted through a writ of fierie facias.  Collection in this manner resulted in payments which could not be recovered by employers because of the provision of § 65.2-708,Va. Code Ann., quoted above.

The defense bar was outraged, crying foul, at this process, known informally as “Sweeny’s Revenge.”  The defense bar contends that the Rules of the Virginia Workers’ Compensation Commission allow unilateral suspension of benefits, so an employer who had suspended benefits pursuant to those rules [as the defense bar interprets them] was “in compliance” and no Award should be certified for enforcement purposes under these circumstances.  The defense bar further argued that the Commission’s prior holding that the Commission did not have to make a specific finding of noncompliance before certifying an Award was not applicable to the present.  See Black v. A.F.B. Contractors, Inc., 63 O.I.C. 14 (1984). So in the Hodnett and Terry cases, the defense sought review of the certification of an Award by the Clerk of the Commission.  In Blankenship a deputy commissioner issued the only decision on the issue, ruling that the employer was “in compliance” with the Commission’s rules when it unilaterally suspended payments upon the filing of an Employer’s Application for Hearing. Claimant’s counsel in Blankenship sought review of this decision.  As the issue was the same in Blankenship, Hodnett and Terry, all three cases were argued on the same day.

The Roaring Dissent

That the issue of due process and the Commission’s rules had come to a head within the Commission itself was revealed in the vigorous dissent of Commissioner Virginia R. Diamond in, Degarcia v. Pilgrims Pride Corp., V.W.C. File No. 228-33-41 (June 22, 2009).  Commissioner Diamond stated: “…I believe that the current procedures for suspending benefits before an evidentiary hearing is held are inconsistent with the Act and unconstitutional.” Degarcia, supra at 3. (Emphasis added.) Referring to the old Rule 13, Commissioner Diamond, citing Manchester Bd & Paper Co. v. Parker, 201 Va. 328, 111 S.E. 453 (1959), said further: “The Rule is designed to serve as a screening device for eliminating obviously unmeritorious applications for hearings filed by insurers and employers.  It is not an authorization for an employer or insurer to suspend payments with assurance that a claimant may not have them reinstated under § 65.1-100 [now § 65.2-710] of the Act.”

Reviewing the statistics of the Commission, Commissioner Diamond noted that in 2007 approximately 1,910 employer’s applications were filed but only 166 were rejected for lack of probable cause.  In 2008 1,833 employer’s applications were filed and 168 were rejected for lack of probable cause.  “Eleven percent, in my view, is relatively small, and raises doubts in my mind that the current system is fair.” Degarcia, supra at 7.

The Future Forecast

Whatever decisions the full Workers’ Compensation Commission makes in the three cases currently before it, the decisions will be split decisions prompting appeals to the Virginia Court of Appeals, the Virginia Supreme Court and, potentially, the United States Supreme Court.  Claimant’s attorneys are energized by the prospect of ending what has historically been, in their view, an unfair and slanted approach by the Virginia Workers’ Compensation Commission.  Under consideration by some is the approach of seeking a writ of mandamus requiring the Clerk of the Commission to certify Awards under § 65.2-710, Va. Code Ann. since the Commission is now referring all requests for certifications to hearing deputies, further delaying the process.  How this issue plays out in the Circuit Courts is yet to be determined as the Circuit Court for the City of Danville, Virginia, has stayed proceedings in the Hodnett case in that court until the Commission issues an interpretation of its current rules.

As this game-changing legal drama plays out in Virginia, readers will be brought up to date.