On May 21, 2025, the North Carolina Court of Appeals filed its decision in Nelson v. Smith, No. COA 24-646 (2025).
The plaintiff in the case was an employee of Cortech Solutions, Inc. There was allegedly extensive mold in Cortech’s workspace where the plaintiff was employed. Over time, he developed a pulmonary condition and filed a workers’ compensation claim against Cortech. The plaintiff and Cortech eventually settled the workers’ compensation claim and entered into a Compromise Settlement Agreement under which Cortech would pay the plaintiff $25,000.00 for his alleged work injuries. This settlement agreement was then approved by the North Carolina Industrial Commission. As part of the settlement, the plaintiff agreed to sign a General Release Agreement, where the plaintiff agreed “to resolve all current and future disputes concerning Plaintiff’s employment with Cortech Solutions, Inc., along with all of its affiliates and subsidiaries.”
A couple of years later, the plaintiff filed a civil complaint in Superior Court for negligence, gross negligence, and punitive damages. This complaint was filed against the owners of the building where Cortech had its offices. The owners of that building, Mr. and Mrs. Smith, were also the president and secretary/treasurer of Cortech. The defendant Smiths filed a motion to dismiss the complaint, and the Superior Court judge granted that motion. The plaintiff appealed to the North Carolina Court of Appeals.
North Carolina Court of Appeals Highlights Workers’ Compensation and General Release Pitfalls
The Court of Appeals reversed the Superior Court judge and denied the defendants’ motion to dismiss. There were two bases for the defendants’ appeal.
First, the defendants argued that they were protected by the exclusivity provision of the Workers’ Compensation Act (“Act”), which generally says that an employee cannot sue their employer in civil court for negligence and gross negligence claims. N.C. Gen. Stat. § 97-10.1. The Court held that the exclusivity provision did not protect defendants because the defendants were not the plaintiff’s employer. The defendants were sued in their capacity as owners of the building, not in their capacity as the plaintiff’s employer. The Court said the individual defendants were separate from the plaintiff’s employer, Cortech.
Second, the defendants argued that the general release the plaintiff signed should protect them from any of these claims. However, the release was very specific. It said “this release is intended to release and releases no party other than Cortech, along with all of its affiliates and subsidiaries, and its officers and employees, acting in their official capacities in the course and scope of their employment for Cortech and none other.” The Court held that the individual defendants were not “subsidiaries” of Cortech and, therefore, not protected by the release.
Additionally, the defendants argued they were “officers and employees” of Cortech and the release should protect them. However, the Court held that although the individual defendants were officers and employees of Cortech, in the context of the plaintiff’s negligence claim, “Defendants were not acting within their official duties as Cortech’s officers but were instead acting in their capacities as owners of the Property,” where Cortech had its offices. The Court further said that the names of the individual defendants were not listed in the release, and the release does not reference Cortech’s landlords as persons who were covered by the release. Therefore, the release did not protect the individual defendants, and the order dismissing the plaintiff’s claims was reversed.
Key Lessons for Drafting Settlement Agreements
This situation probably does not come up very often, but you should be aware of the principles on which this case is based. Only an employer (and co-employees under the Pleasant standard) is going to be protected by the exclusivity provision of the Act. Others are not going to be protected. If there is a question about who the employer is, you should set out multiple names for the employer in the Compromise Settlement Agreement. All of those entities should then be protected by the Compromise Settlement Agreement and by the exclusivity provision of the Act.
Best Practices for Broad and Effective General Releases
As to the General Release, that needs to be drawn up to protect as many entities as possible. All entities that are to be protected should be specifically listed in the release. The release should be as broad as possible to cover as many people/entities and as many claims as possible. In Nelson, the release was not very broad. It only protected Cortech and officers of Cortech, but only the officers in their official capacities. The release probably would have protected the individual defendants in Nelson if the release had just covered officers, whether acting in their official capacity or otherwise.
