North Carolina Appellate Court Bars Comp Recovery When Employee Lied About Prior Injuries at the Time of Hire

March 27, 2008

For the first time in North Carolina, the North Carolina Court of Appeals has ruled that an employee may be barred from recovering workers’ compensation benefits if the employee makes an intentional misrepresentation about his physical condition in the hiring process. The decision was a turnaround for the court, which only four years ago had rejected an employee’s misrepresentation as a defense to a workers’ comp claim. 

If the decision stands up on appeal, the three-part test that the Court of Appeals adopted will determine whether an employee’s misrepresentation can be grounds to reject a claim for comp benefits under North Carolina law.  In light of the case, North Carolina employers may want to examine the questions they ask their applicants in the hiring process.

The Facts of the Case

In Freeman v. J.L. Rothrock, Randy Freeman applied for a job as a truck driver that was described by the employer as a strenuous and physically demanding position. As part of his job application, Freeman filled out a medical history questionnaire in which he denied that he had ever suffered from any prior back problems, denied having any condition that might limit his ability to perform the job, and denied ever before filing a comp claim.  Freeman was also seen by a physician for the company for a physical examination, where he also denied suffering from any prior back difficulties.

In fact, Freeman had a history of back problems and work-related back injuries.  He had filed workers’ comp claims for two previous back injuries, and as a result of his most recent injury, he was assigned a permanent partial disability rating that restricted him to light-to-medium-work. Freeman later acknowledged that he intentionally made misstatements about his back condition when he was applying for work at J.L. Rothrock because he was concerned that if he told the truth he would not be hired.

About two years into his job, Freeman seriously injured his back at work while cranking a dolly.  He submitted a comp claim and began receiving total disability payments.  The employer eventually sought to terminate Freeman’s benefits. Freeman won his case before the state workers’ compensation Board, and the employer appealed.  The North Carolina Court of Appeals then reversed the Board’s decision and ruled for the employer.

The North Carolina Court of Appeals Ruling

The Court of Appeals ruled that Freeman was not entitled to workers’ comp benefits because he made intentionally false statements about his physical condition to his employer at the time he was being hired, and his employer relied on those statements in its decision to hire him. 

The court adopted a three-part test for determining whether an employee may be barred from recovering workers’ comp benefits as a result of a false statement at the time of hire.  To prevail, the employer must prove that:

  1. The employee must have knowingly and willfully made a false representation as to his or her physical condition;
  2. The employer must have relied on the false representation, and this reliance must have been a substantial factor in the hiring; and
  3. There must have been a causal connection between the false representation and the injury in question.

The court called this the “Larson test,” named after the author of a well-known treatise on workers’ compensation law.  Although the court had previously declined to adopt the Larson test, the court emphasized that several other states had already adopted the test as a defense to workers’ comp claims and stated, “we refuse to continue to countenance fraud perpetrated upon employers in our state.” 

After adopting the Larson test, the court carefully examined the evidence in the Freeman case, and ruled that each of the three required factors had been satisfied by the evidence.  In addition, the court noted that the employer had satisfied the third prong of the test – requiring a connection between the misrepresentation and the injury – by presenting expert testimony from doctors who confirmed that Freeman’s prior back injuries increased his risk of the kind of injury he suffered as an employee of J.L. Rothrock.

Impact of the Freeman Decision

The court’s decision marks a significant change in North Carolina law. If the state Supreme Court affirms the decision (or if it’s not appealed), North Carolina employers and workers’ comp insurers will have a new defense in workers’ comp cases that can bar benefits based on intentional misrepresentation, so long as the employer can carry its burden of proving each of the three elements of the Larson test.

Of course, the Freeman ruling does nothing to alter federal Americans with Disabilities Act (“ADA”) limitations, which prohibit employers from asking medical or “disability related questions” or requiring pre-employment “medical examinations” of a applicant prior to a conditional job offer.  Keeping the ADA’s restrictions in mind, and assuming the Freeman decision holds up on appeal, North Carolina employers should evaluate whether to make changes in their hiring process that will permit them to take advantage of this new defense in the event that an applicant misrepresents his or her physical or mental condition as part of the hiring process.