Can a New Jersey State Employee Resign After Accepting a Workers' Compensation Settlement?

Legal requirement to resign

In New Jersey, a state employee does not have to resign to collect a workers' compensation settlement. The system separates wage‑replacement benefits from employment status, so a settlement can be paid while the employee remains on the payroll, unless the employer specifically conditions the payment on resignation, which is generally prohibited.

How workers' compensation works for state employees

State workers are covered by the same statutory scheme that applies to private‑sector workers. When a claim is approved, the employee may receive weekly benefit payments, medical reimbursements, and, if a settlement is negotiated, a lump‑sum payment for past and future losses. These benefits are funded through the state's workers' compensation insurance pool, not through the employee's salary.

When resignation becomes a factor

Resignation may enter the discussion in two scenarios:

• Settlement agreement language – Some employers draft settlement clauses that include a release of future claims only if the employee is no longer employed. This is a contractual choice, not a legal mandate, and can be negotiated.
• Return‑to‑work restrictions – If the employee is unable to perform essential functions, the agency may place them on a leave of absence or transition them to a different role. In such cases, resignation might be a practical step, but it is not required for the settlement itself.

Protecting your rights

Before signing any settlement, consider these steps:

• Review the agreement with an attorney familiar with New Jersey workers' compensation law.
• Confirm that the settlement does not condition payment on resignation unless you voluntarily agree.
• Ask for a written statement that your benefits will continue regardless of employment status.

Potential tax and benefit implications

A lump‑sum settlement may be partially taxable, especially for compensation that replaces lost wages. However, amounts allocated for medical expenses are generally non‑taxable. Resigning could affect other state benefits, such as pension accruals or health coverage, so weigh those consequences separately from the settlement.

Key differences between settlement and ongoing benefits

Conclusion

New Jersey state law does not force an employee to resign to receive a workers' compensation settlement. The critical factor is the language of the settlement agreement. By reviewing the terms, consulting legal counsel, and understanding tax and benefit impacts, an employee can secure the settlement while maintaining employment if desired.