Workplace Stress Claims: The Intersection of Workers’ Compensation and Employment Practices

In response to the rise in mental health issues, there has been an increase in legislation to expand eligibility for workers' compensation (WC) benefits. Employees file stress-related claims for various reasons, such as witnessing a violent or traumatic event at work, developing depression or anxiety after a severe injury, or experiencing a work overload.

Employers may also encounter allegations of stress due to a "toxic" or "hostile" work environment, harassment, or personality conflicts with supervisors or coworkers. These subjective allegations can also be costly to defend. This article focuses on how to identify these types of claims and mitigate them by following some basic best practices.

What Are Typical Workplace Stress Allegations?

The phrase "toxic work environment" is what employees often use to describe their workplace when they are unhappy with their workplace culture. According to the American Psychological Association's 2023 Work in America workforce survey, 19% of respondents labeled their workplace as toxic, and more than one in five said their work environment harmed their mental health.

Factors that contribute to a toxic workplace include discrimination, bullying, harassment, and unreasonable workloads. Any of these factors could trigger WC and employment practices coverages to apply.

Let’s go into some detail on each of these factors.

Discrimination

Allegations of discrimination can come in many forms. Employees may allege they're being discriminated against due to age, sex, religion, disability, national origin, race, color, sexual orientation, or parental status. The example seen most often where WC is involved is discrimination involving a disability. For example, an employee may have a non-work-related disability that precludes them from doing heavy work. If the employee perceives they are being treated differently, singled out, and passed up for potential opportunities, it could become a potential stress claim.

Alternatively, if an employee already has an existing WC claim with work restrictions that need to be accommodated but feels they are being treated differently or talked about negatively by their team lead, supervisor, or coworkers, this could lead to a discrimination suit. If the employee was terminated while on WC benefits, this could also lead to a separate wrongful termination suit.

When employees file a suit alleging discrimination or wrongful termination related to their WC claim, many states have a remedy available for the employee that may increase their compensation. States like California have specific statutes that outline the offense and potential penalties: Labor Code §132a states that the employee’s compensation shall be increased by one-half, but by no more than $10,000, together with costs and expenses not in excess of $250. Any such employee shall also be entitled to reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer. In addition, the cost of defense is often not covered by the WC policy, but coverage may be triggered under an employment practices policy, subject to any applicable deductible or retention.

Bullying and Harassment

Workplace bullying and harassment occur when an employee feels threatened or intimidated by another employee, either physically or verbally. For example, there may be a situation where one employee makes disparaging remarks about another employee, perhaps about their accent or religion. The employee receiving the negative comments could report to their supervisor that they feel anxiety about working with this coworker and pursue a WC claim because of this incident.

Stress claims can arise from personality conflicts between employees, miscommunication, and sometimes from being written up for performance issues. While an employee believes they were harassed or bullied at work, it's essential to investigate what took place and what was said.

This process includes interviewing employees who may have witnessed the alleged incident(s) to better understand what happened. In California, one of the factors that needs to be considered for a compensable psyche injury is whether the injury involves actual events of employment.

Another form of harassment includes sexual harassment, defined by the Equal Employment Opportunity Commission (EEOC) as "unwelcome sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature." Making inappropriate comments about a person's sex can also constitute harassment. When an employee comes forward with a complaint, these allegations should be investigated seriously.

When Do Allegations Rise to an Actual Claim? 

Typically, if an employee requires medical treatment or has a medical diagnosis because of a work-related event, the employer is obligated to provide them with a form to file a WC claim and offer medical treatment. Each jurisdiction may have different forms, statutes, or coverage thresholds for a compensable claim, so it is important for employers to familiarize themselves with the rules in their state.

For example, in California, an employer is obligated to provide a DWC-1 claims form upon an employer's knowledge of a work-related injury. In North Carolina, a mental injury from sexual harassment itself may not be considered compensable, but mental injuries from the mishandling of the harassment complaints could be.

While not all claims are preventable, employers can mitigate them by having best practices in place. These measures include an anti-bullying and anti-harassment policy and training for all employees to understand appropriate and inappropriate conduct. Leadership and supervisor training on effective communication and handling of employee conflicts can also help create a safe working environment for all employees. A robust interactive process to address disabilities can also help prevent discriminatory practices and allegations.

Coverage for Stress-Related WC Claims and Crossover Issues

Generally, the WC system is the exclusive remedy for employees who have been hurt at the workplace. Employment practices liability (EPL) policies typically have an exclusion for WC claims. This exclusion means that an EPL policy will not cover or pay for WC benefits, including any defense or settlement amounts in connection with a WC claim.

However, WC claims in California often lead to crossover employment claims alleging violations of the California Fair Employment and Housing Act (FEHA) stemming from the same set of facts. Often, an injury on the job can lead to more than a WC case and can turn into an employment claim.

Crossover issues in specific factual scenarios can be inevitable. For instance, an employee claiming workplace sexual harassment may file a WC stress claim because of the sexual harassment they are enduring. Of course, sexual harassment is an employment claim for which there could be defense and settlement coverage for a company under EPL policies. Therefore, the company would need to address both a WC claim and an EPL claim based on the same employee from the same set of facts.

If an employee files a WC claim, the employer should evaluate the facts and circumstances to determine whether there is or may later be an employment claim that should be noticed to the employer's EPL policy.