Fraud in the application

Suppose a job application for a physically demanding job asks the applicant if they’ve had any previous back injuries. The applicant lies and says no, and the company hires him. A year later he injures his back on the job and seeks workers’ comp benefits. During the investigation, the lie about the previous injury is discovered. The company invokes the only common law workers’ comp defense in existence – fraud in the application – and asserts that because of the lie, the injured worker shouldn’t be considered an “employee” and thus is ineligible to recover.

This defense was created almost out of whole cloth by the South Carolina Supreme Court in a case called Cooper v. McDevitt & Street Co. back in 1973. Two weeks ago, the Supreme Court all but overruled Cooper as being incompatible with the ADA (Americans with Disabilities Act), and the South Carolina Workers’ Compensation Law. 

While the ADA didn’t exist in 1973, workers’ comp laws did, and they provided for no such fraud in the application defense. Cooper was a 3-2 split decision by the Supreme Court with the dissenters pointing out that the majority had made up a defense to workers’ comp cases that was absent from the statute. After their recent decision in Brailey v. Michelin, it looks like the fraud in the application defense might be dead.

Cooper v. McDevitt

The hypothetical scenario outlined above mirrors the facts of Cooper. A worker injured his back at work, applied for workers’ comp, and was denied because he lied on his job application about a previous back injury. Cooper admitted that he lied because he believed if he had been honest, he would not have been hired. When Cooper’s case made it to the Supreme Court, they held that the misrepresentation about the previous injury meant Cooper was not an employee – a jurisdictional prerequisite – and therefore ineligible for workers’ comp benefits.

The majority in Cooper said that “the general rule” for the fraud in the application defense to apply requires three things: (1) the worker knowingly and willfully lied about his physical condition on his application; (2) the false statement was a substantial factor in the hiring decision; and (3) there is a causal connection between the false statement and the injury.

The dissenters in Cooper pointed out that the majority was making up a defense to workers’ comp that did not exist. And because workers’ comp laws are supposed to be liberally construed in favor of injured workers, not employers, the majority was wrong to create a new rule that benefited employers.

There have been several subsequent cases since Cooper that have continued to uphold and apply the fraud in the application defense in workers’ comp cases. See Brayboy v. WorkForce, 383 S.C. 463 (2009); Jones v. Georgia-Pacific Corp., 355 S.C. 413 (2003); Small v. Oneita Industries, 459 S.E.2d 306 (1995); Vines v. Champion Building Products, 431 S.E.2d 585 (1993); Ferguson v. RF Moore Constr. Co., 381 S.E.2d 496 (Ct. App. 1989). Because of the string of cases following Cooper, it’s no surprise that lawyers practicing in workers’ comp have accepted the validity of the fraud in the application defense instead of attacking it as having been “made up.” But the Supreme Court has a little more liberty in criticizing its own prior decisions and revisiting those decisions, even when they haven’t been explicitly asked to.

Brailey v. Michelin

After Isaac Brailey was injured at work, he was denied workers’ comp benefits by the commission. Part of the reason for the denial was that the commission believed Michelin proved that Brailey committed fraud in his job application and was therefore not an “employee” for purposes of workers’ compensation and ineligible for benefits under the fraud in the application defense created by Cooper.

The Supreme Court only held that Michelin failed to prove the three elements of the fraud in the application defense and that Brailey was entitled to benefits. But the Court went on to say much more than that. In fact, the bulk of the Court’s opinion centered around its concern with “the continued validity of Cooper.”

At the oral argument of the case, Justice Few was quite vocal in his concern about whether an employer can ever meet the Cooper test since the ADA arguably makes it unlawful for an employer to refuse to hire someone based on a prior injury. If an employer cannot refuse to hire someone based on their prior injury, they can never meet the second element – the false statement was a substantial factor in the hiring decision. If an employer cannot prove the three elements of the fraud in the application defense as articulated in Cooper consistent with the ADA, then the defense is meaningless.

Justice Few voiced two other concerns at the oral argument, both of which appeared in the Court’s opinion. First, the fraud in the application defense was “made up” and has no textual support in the Workers’ Compensation Law. Second, if a company was able to prove the three elements of the defense, Cooper dictates that the injured worker be deemed to not be an employee. But that leads to the strange result where the injured worker is free to sue the company in circuit court in a traditional tort action. This may not be the result that companies or workers want. And the entire workers’ comp scheme is premised on the idea that it’s better to resolve work injuries through workers’ comp proceedings instead of traditional tort litigation.

But none of this mattered to Brailey’s case since his misrepresentation occurred after he had already been hired. So of course Michelin couldn’t meet the second element of Cooper because the misrepresentation had nothing whatsoever to do with their decision to hire him. But now, the fraud in the application defense may be lost to them forever.

A note about dicta

“Dicta” refers to statements made by a court in its judicial opinions that are not essential to the disposition of the case. Whether parts of appellate court decisions are dicta is extremely significant because lower courts are not technically bound by dicta – though some may disagree with that claim.

As noted above, technically the Court’s decision in Brailey was quite limited – Michelin failed to meet the Cooper test. But most of the opinion ponders the continued viability of the fraud in the application defense. The Court makes three distinct criticisms of Cooper, each of which could prove fatal to it. The Court perceives the defense as inconsistent with the ADA. The Court also appears hostile to the defense since it was created by the court itself and was never authorized by the General Assembly. And finally, it criticizes Cooper for its jurisdictional treatment of the question potentially resulting in workers who lied on their applications being able to sue their employer in circuit court instead of being limited to workers’ compensation benefits.

So what are lower courts supposed to do with this decision? Brailey did not explicitly overrule Cooper. In fact, the Court mused about how the Cooper test needs to be “reworked.” With all due respect to the Court – that sort of sounds like making more stuff up. And these musings are no doubt properly classified as dicta which the lower courts are probably not bound by. But the Supreme Court sent an unmistakable signal in its Brailey decision that it is prepared to overrule Cooper when the issue is squarely presented to it.

Conclusion

It’s hard to say where the fraud in the application defense stands considering the Court’s decision in Brailey. Although my personal read of the decision is that the defense is dead, the Court didn’t say that. And it seems open to the idea of “reworking” Cooper somehow to make it consistent with the ADA. Of course, “reworking” Cooper would still be inconsistent with the Workers’ Compensation Law itself which provides for no such defense. And the Court candidly acknowledged this by extending an invitation to the General Assembly to amend the Workers’ Compensation Law to provide for such a defense.

Lawyers on both sides of workers’ comp cases would be wise to start strategizing how they are going to deal with cases in which a worker has lied on his job application about a prior injury, been given a job, and then later injured at work. But if I’m representing an injured worker, I’m likely to point to this decision as support for the argument that the Cooper defense is dead.

adam@ruffinappeals.com

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1320 Main Street, Suite 300,

Columbia, SC 29201