Opinion ID: 2258498
Heading Depth: 2
Heading Rank: 2

Heading: Claimant's Appeal: Equal Protection

Text: We now turn to the issue posed in the cross-appeal: whether Section 204(a) violates equal protection considerations under the Pennsylvania and/or U.S. Constitutions. This issue, which was properly preserved by Claimant, was reached by neither the workers' compensation tribunals, which lack authority over such a claim, nor the Commonwealth Court, which ruled in Claimant's favor on other grounds. Because the parties have fully briefed this purely legal subsidiary issue, and to avoid delaying a final resolution of this litigation, we will decide the issue now rather than remanding it to the Commonwealth Court for initial consideration. [11] Claimant argues that Section 204(a) violates the Equal Protection Clause of the Fourteenth Amendment of the U.S. Constitution and similar protections found in Article 1, Section 1 of the Pennsylvania Constitution. [12] Claimant avers that an unconstitutional differentiation has been made between injured and non-injured employees, as the statute only permits the latter to retain a severance payment upon layoff. [13] Claimant argues that Section 204(a) affects a fundamental righta contractually created property right in her severance paymentand thus, the legislation is subject to strict scrutiny. In the alternative, Claimant argues that Section 204(a) fails under any of the three levels of scrutiny used to analyze equal protection claims, including rational basis. Employer responds that the proper level of review of the substance of social welfare legislation is the rational basis test. Employer also notes that Claimant misstates the issue because her severance benefit was not taken from her; rather, her workers' compensation benefits (benefits her uninjured coworkers did not receive) were reduced by the amount she received as severance. Thus, Claimant received severance pay just as her co-workers did. The legislation therefore makes no distinction among workers whose jobs disappear, nor does it impede a claimant's right to receive severance pay or any contractually created property right. Employer further asserts that, when the rational basis test is applied, Section 204(a) easily passes constitutional muster because the General Assembly relied on legitimate economic reasoning in allowing a workers' compensation offset for severance benefits and the purposes of the legislation are directly furthered by the offset. Employer argues that Section 204(a) was enacted to curtail the costs of work-related injuries and to eliminate a claimant's receipt of duplicate benefits for the same loss of earnings. Employer asserts that the offset accomplishes these goals because the employer is responsible for both severance and compensation benefits. Even if an employer is privately insured, its premiums are based in part on experience, including the amount of workers' compensation benefits paid out in the past. Any reduction in the total amount paid out by the insurer, including reductions resulting from severance benefit offsets, necessarily results in lower costs for the employer. The Equal Protection Clause of the Fourteenth Amendment provides that No state shall ... deny to any person within its jurisdiction the equal protection of the laws. U.S. Const. amend. XIV, § 1. Article I, Section 1 of the Pennsylvania Constitution provides: All men are born equally free and independent, and have certain inherent and indefeasible rights, among which are those of enjoying and defending life and liberty, of acquiring, possessing and protecting property and reputation, and of pursuing their own happiness. Pa. Const. art. II, § 26. In evaluating equal protection claims under the Pennsylvania Constitution, this Court has employed the same standards applicable to federal equal protection claims, see Probst, 849 A.2d at 1143; McCusker v. Workers' Compensation Appeal Bd. (Rushton Mining Co.), 536 Pa.380, 639 A.2d 776, 777 (1994), and Claimant does not dispute that the protections are coterminous in this instance. This Court has summarized the basic principles governing equal protection review as follows: The essence of the constitutional principle of equal protection under the law is that like persons in like circumstances will be treated similarly. However ... [t]he right to equal protection under the law does not absolutely prohibit the Commonwealth from classifying individuals for the purpose of receiving different treatment and does not require equal treatment of people having different needs. The prohibition against treating people differently under the law does not preclude the Commonwealth from resorting to legislative classifications provided that those classifications are reasonable rather than arbitrary and bear a relationship to the object of the legislation. Curtis v. Kline, 542 Pa. 249, 666 A.2d 265, 267-68 (1995) (citations omitted). Turning to the merits, an initial determination must be made as to whether the statute creates a classification for the unequal distribution of benefits or imposition of burdens. McCusker, 639 A.2d at 778; Commonwealth v. Parker White Metal Co., 512 Pa. 74, 515 A.2d 1358 (1986). Claimant argues that a distinction has been drawn between non-injured and injured workers who receive severance payments. But, the legislation at hand makes no such classification. By definition, the Actincluding Section 204(a)does not address non-injured workers, but only injured workers and, on its face, it applies equally to all individuals receiving workers' compensation benefits, i.e., their compensation benefits will be offset by the amount of severance benefits they have received. Any difference in the treatment of injured versus non-injured individuals of the same employer who provides severance payments is a fortuity arising from factual circumstances which are external to any classification made by the statute. Because no classification for the unequal distribution of benefits or imposition of burdens has been created, there can be no equal protection violation. Even if this Court were to assume that the external effect the statute has i.e., in creating a distinction between injured and non-injured workers in circumstances where the employer later offers severance benefit packages to multiple employeesis sufficient to create a triggering equal protection classification, it is clear that Claimant's challenge fails. First, we agree with Employer that the perceived distinction is subject to rational basis scrutiny. The determination of the appropriate level of scrutiny (effectively, the standard of judicial review) depends upon the type of interest affected by the classification. Generally speaking, there are three different types of classifications calling for three different standards of review: (1) classifications which implicate a suspect class or a fundamental right are strictly construed in light of a compelling governmental purpose; (2) classifications which implicate an important though not a fundamental right or a sensitive classification are assessed under a heightened standard of scrutiny which seeks an important governmental purpose; and (3) classifications which involve none of these classes or rights are upheld if there is any rational basis for the classification. Clark v. Jeter, 486 U.S. 456, 461, 108 S.Ct. 1910, 100 L.Ed.2d 465 (1988); Curtis, 666 A.2d at 268. Claimant argues that Section 204(a) affects a fundamental right, the contractually-created property right in her severance payment, requiring this Court to utilize strict scrutiny. But, this assertion is based upon a faulty understanding of the issue at hand. This case does not involve the deprivation of a severance payment. Claimant concedes in her own statement of the facts that she received a check from Employer in the amount of $3,355.02, representing the net amount of severance pay due to Claimant as a result of Employer's relocating its facility to Maryland. Claimant kept this payment and was never asked or required to return it. Accordingly, she was not deprived of any fundamental right to this property. Nor has Claimant argued that the classification she alleges between non-injured and injured employees is suspect. The strict scrutiny test, therefore, does not apply. Instead, the effect of the statutory offset was merely to reduce Claimant's workers' compensation benefits, an effect which plainly did not implicate a fundamental right. [14] This Court has determined that the Act confers a social welfare benefit on injured workers, McCusker, 639 A.2d at 779-80, and Section 204(a) assists in defining the appropriate amount of benefits injured workers are eligible to receive. The expectation of public benefits does not confer a contractual right to receive expected amounts. Richardson v. Belcher, 404 U.S. 78, 80, 92 S.Ct. 254, 30 L.Ed.2d 231 (1971) (involving equal protection analysis of Social Security benefits). Characterizing a legislative act as conferring a public benefit does not immunize it from constitutional scrutiny, see Richardson, 404 U.S. at 81, 92 S.Ct. 254 (public benefit legislation not immune from Fifth Amendment scrutiny), but a court's review of government regulation in the area of social welfare is deferential. McCusker, 639 A.2d at 779. A statutory classification in the area of social welfare is consistent with equal protection if it meets the rational basis test. Richardson, 404 U.S. at 81, 92 S.Ct. 254; Dandridge v. Williams, 397 U.S. 471, 487, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970); Ligonier Tavern, Inc. v. Workers' Compensation Appeal Bd. (Walker), 552 Pa.237, 714 A.2d 1008, 1011 (1998). Furthermore, a classification which is subject to rational basis scrutiny is accorded a strong presumption of validity. Leheny v. City of Pittsburgh, 183 F.3d 220, 226 (3d Cir.1999). In applying the rational basis test, this Court has employed a two-step analysis: first, we determine whether the challenged statute seeks to promote any legitimate state interest or public value; and if so, we then determine whether the legislative classification is reasonably related to accomplishing that articulated state interest. Commonwealth v. Albert, 563 Pa. 133, 758 A.2d 1149, 1152 (2000); Ligonier Tavern, 714 A.2d at 1011 (distinctions having rational basis and relating to legitimate state purpose are not forbidden). This deferential standard recognizes the legislative prerogative to define the scope and the duration of the entitlement to ... benefits, and to increase, decrease, or to terminate those benefits based on its appraisal of the relative importance of the recipients' needs and the resources available to fund the program. Bowen v. Gilliard, 483 U.S. 587, 598, 107 S.Ct. 3008, 97 L.Ed.2d 485 (1987); McCusker, 639 A.2d at 780. A state regulation in this area will not be deemed to violate equal protection merely because the classification drawn is imperfect. Dandridge, 397 U.S. at 485, 90 S.Ct. 1153; McCusker, 639 A.2d at 780. The classification need only be directed at the accomplishment of a legitimate governmental interest, and to do so in a manner which is not arbitrary or unreasonable. McCusker, 639 A.2d at 781. Under a rational basis analysis, the General Assembly need not specifically articulate the purpose or rationale supporting its action. It is enough that some rationale may conceivably be the purpose and policy underlying the enactment. Albert, 758 A.2d at 1152; Nordlinger v. Hahn, 505 U.S. 1, 112 S.Ct. 2326, 120 L.Ed.2d 1 (1992). Thus, the courts are free to hypothesize reasons why the legislature created the particular classification at issue and, if some legitimate reason exists, the provision cannot be struck down, even if its soundness or wisdom might be deemed questionable. Albert, 758 A.2d at 1153; Curtis, 666 A.2d at 268. In the absence of an explicit statement of legislative purpose, Employer suggests that the General Assembly enacted Section 204(a) to curtail the costs of work-related injuries, and to eliminate a claimant's receipt of duplicate benefits for the same loss of earnings. See Brief for Employer, at 16 (citing Twp. of Lower Marion v. Workers' Compensation Appeal Bd. (Tansey), 783 A.2d 878 (Pa.Cmwlth.2001)). Employer cites to expressions of concern about the rising costs of workers' compensation in Pennsylvania and the competitive burden these costs place on businesses in Pennsylvania. [15] In Employer's view, Section 204(a) not only reduces the cost of workers' compensation to benefit the employer, but it does so in a particularly sensible fashion because the offset arises only where other employment-related income is being made available to the claimant by that employer. Claimant concedes that the legislative goals identified by Employer are legitimate state interests as a general matter, and we have no doubt that the Section 204(a) offset is designed to promote legitimate state interests. The general purpose of the Act is remedial in nature, as it is designed to compensate workers and their dependents who have suffered economic loss from work-related injuries. Hannaberry, 834 A.2d at 528 (quoting Peterson, 597 A.2d at 1120 (collecting cases)). At the same time, however, the Act balances competing interests: while offering the prospect of certain recovery to workers irrespective of fault on the part of their employers, the Act also offers employers relative cost-certainty in the form of limited exposure in the event of a work injury. See, e.g., Thompson v. Workers' Compensation Appeal Bd. (USF & G Co.), 566 Pa.420, 781 A.2d 1146, 1153 (2001). Reasonable workers' compensation cost containment for employers, and the concomitant competitive benefit such cost containment offers for Pennsylvania businesses, unquestionably is a legitimate state concern. The disputed point is whether the legislation at issue accomplishes its salutary purpose, i.e., whether the severance pay offset bears a rational relationship to controlling workers' compensation costs. Leheny, 183 F.3d at 226. In this regard, Claimant repeats an argument she forwarded on Employer's appeal contending that the goal of reducing insurance costs is not achievable via the severance benefit offset because the calculation of workers' compensation insurance premiums, a process which is regulated by the Pennsylvania Insurance Department, does not include a consideration of severance payments. Claimant further argues that the goal of eliminating double recovery cannot be achieved because workers' compensation benefits and severance payments are made to compensate different losses. We cannot agree. In the case of a self-insured employerand in reviewing the constitutionality of the severance benefit offset, we cannot lose sight of that circumstancethe offset directly reduces the employer's costs. Moreover, there is nothing irrational or arbitrary in offsetting severance benefits, irrespective of whether the employer is self-insured or privately insured. The worker experiences only one loss of earnings at a time, even if there is a prospect of compensation for that loss from multiple sources. The offset does not disadvantage the injured worker vis a vis his uninjured colleagues who also receive severance benefits because those workers do not receive a double benefit, in the form of workers' compensation payments, from the employer. Because the employment relationship is the basis for providing both severance payments and workers' compensation benefits (whether or not the compensation is paid through an outside insurer), the employer can avoid paying duplicate benefits for the same loss of earnings by using the offset. We conclude that the severance benefit offset bears a rational relationship to achieving the legislative goals. Furthermore, as we have already concluded in resolving Employer's appeal, in the case of employers with private insurance, rates are based at least in part on past payment experience. If the insurer pays a claimant less for workers' compensation because the employer made severance payments to the claimant, which the insurer then offset against the compensation benefit, there is a prospect of reduced rates in the future. It is of no moment how efficiently the goal of cost reduction is accomplished because it is not this Court's task, in conducting a rational basis review, to say whether the statute is the wisest or best means to accomplish the legitimate legislative purpose. McCusker, 639 A.2d at 781. Accordingly, we agree with Employer that the subject legislation serves a legitimate state interest in reducing the cost of workers' compensation benefits in Pennsylvania by allowing employers to avoid paying duplicate benefits for the same loss of earnings. Because the subject legislation is reasonably related to accomplishing that interest, the legislation passes equal protection scrutiny under the rational basis test and is constitutionally sound.