When negotiating a settlement of a workers’ compensation claim, maximizing the lump sum payment is obviously one of the main considerations. However, a threshold issue that is often overlooked is whether the case should be settled in the first place. Whether the settlement is for $250,000 or $50,000, it will generally not be enough to sustain the individual’s cost of living for the remainder of his or her life.

Back when cases were settled via commutation of benefits, the parties would stipulate to a fictitious earning capacity for the injured worker from which a weekly partial disability rate could be derived. A supplemental agreement would then be executed in conjunction with a stipulation that would be approved by a workers’ compensation judge (WCJ). Pursuant to the stipulation, the injured worker would receive a lump sum payment equivalent to 500 weeks of the contrived partial disability rate as provided by the act. However, the whole process assumed that the claimant had a residual earning capacity. Since, under Section 316 of the Workers’ Compensation Act, the WCJ had to make a finding that the settlement was in the claimant’s best interest, unlike the modern compromise and release settlement, testimony by the claimant as to how he or she planned to achieve the fictitious earning capacity was significant.

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