A recent Commonwealth Court case upheld an award of a 5% penalty for the Defendant/Employer’s failure to timely pay an Order approving a Compromise and Release Agreement. Although the facts of the case are quite unique, the Court ultimately concluded that settlement proceeds should be paid as soon as practically possible following receipt of the Order approving the settlement.

In Mercer Lime, a Compromise and Release Agreement was approved by the Workers Compensation Judge in an order circulated on October 18, 2004. On November 5, 2004, the employer sent the Claimant a check for the required amount; however, the check did not have an authorized signature and therefore was not negotiable. Claimant's Counsel received the unsigned check on November 8, 2004 and promptly returned it to the employer’s insurer. The insurance carrier received the check on November 10, 2004. On November 18, 2004 the Claimant filed a Penalty Petition with the Bureau. Upon receiving a copy of the Penalty Petition, employer's counsel directed the insurance carrier to issue the Claimant's replacement check. The original check issued to the Claimant was signed and sent to the Claimant on November 22, 2004. The Claimant cashed the check the following day, November 23, 2004.

On the Penalty Petition, the Claimant, Defense Counsel and the claims adjuster testified. The adjuster testified that upon the advice of Defense Counsel, a replacement check was not to be issued until the Claimant executed a resignation. Defense Counsel testified that he instructed the adjuster to withhold the signed and reissued check in the hopes that it would speed up the process of having the Claimant sign the letter of resignation.

The Workers' Compensation Judge found that the employer and the insurer applied economic pressure to the Claimant in order to procure a resignation letter and imposed a 5% penalty (totaling $5,000). The Appeal Board and the Commonwealth Court affirmed the Judge's decision. The Commonwealth Court held that an employer's obligation to pay compensation benefits under an award is immediate; the Act and the regulations do not provide for any grace period, 30 days or otherwise. The Court acknowledged that the employer and insurer will not be in default if an appeal is taken and supersedeas is requested. However, where an award is not appealed or supersedeas is not sought, it is clear that prompt payment must take place to avoid being found in default.