In
2013 battle lines were drawn. Finding the Union no longer to their liking, a
small but powerful band withdrew from the world of workers’ compensation and
sought to form a new system and alliance. Like the shots at Fort Sumter in
1861, the enactment of the Oklahoma Opt-Out was a shot heard round the workers’
compensation world. For three years battles have raged, and many in workers’
compensation have watched, mesmerized, waiting for the next bit of news from
the frontlines.
On
Friday (02.26.16) the workers’ compensation world began a series of phone calls
and emails. Rumors came from the front, that the Oklahoma Workers’ Compensation
Commission had ruled that the Oklahoma Opt-Out is unconstitutional. There were
various somewhat vague “confirmations,” from those who knew someone, that knew
someone that was there, but no one had the order, and the “what if” conversations
continued through the afternoon.
WorkersCompensation.com and WorkCompCentral.com
each broadcast the confirmatory news late in the day. I received a copy of the
order about 4:30. It is an interesting decision. I am certain that the analysis
and discussion of this will consume many people’s first workweek of March.
The
“Oklahoma Opt Out” entered our workers’ compensation vernacular in 2013. It was
a curiosity and generated a great deal of conversation. I recall industry
insiders reaction of disbelief and curiosity. It caused some to question
the reality of workers’ compensation’s future. Many great minds scratched
their heads, asked questions, and prognosticated on where this could or would or
should lead. The buzz was deafening at times.
Texas
has been a voluntary workers’ compensation system for years. In Texas an
employer can elect to subscribe to workers’ compensation or not. The employer’s
benefit of subscribing is “exclusive remedy,” a protection or immunity from
tort liability. The Texas employer may elect instead not to participate and
forego exclusive remedy, thus taking its chances in the tort system.
The
Oklahoma Opt-Out is not the same as Texas’. Under the Oklahoma statute, an
employer may opt-out of workers’ compensation and yet retain the protection of
exclusive remedy. As one industry expert said to me, the Oklahoma opt-out
allows the employer to “have its cake and eat it too.” A worker’s
compensation regulator told me in 2014 that the “Oklahoma opt-out is too good
to be true for employers; you know what they say about things that are too good
to be true?”
Oklahoma
enacted this opt-out as part of a workers’ compensation reform effort. There
were many changes in this reform, including the end of the Court of
Compensation Claims. A new administrative hearing process for workers’
compensation claims was created, and benefits were changed with the
Administrative Workers’ Compensation Act, or “AWCA.” See, Coates v. Fallin, 316 P.3d 924 (Okla. 2013). And for the last three
years the old litigation process, now called the “Court of Existing Claims,”
has diminished as the new administrative law process has grown. That process
also has not been without friction, but is for another day.
Much
was changed by reform. And as a result there are a number of constitutional
challenges being prosecuted regarding various aspects of it. Constitutional
challenge has, in the perception of some, become a cottage industry in
Oklahoma.
Since
Oklahoma enacted this new AWCA process and the opt-out, the opt-out has been
discussed in a myriad of venues. Workers’ compensation educational programs
across the country have presented the experts and perspectives. The champions
and critics have been heard from sea to shining sea. At the 32nd WCRI Annual
Issues & Research Conference in March, there are presentations focused
on this scheduled yet again. One industry analyst Friday suggested to me that
the March WCRI Conference just became a “must see,” in light of Friday’s
decision in Oklahoma. WCRI seems the incidental beneficiary of timing in this
event.
The
Association for Responsible Alternatives to Workers’ Compensation (ARAWC) has championed the opt-out
in Oklahoma and has since pursued an Oklahoma style opt-out in other states.
The subject has been debated in Tennessee extensively for two years. It was
mentioned in South Carolina briefly also. Each of these states has seen the
filing of legislation, but neither has come close to passing an Oklahoma style
opt-out. There has been ample discussion of the perceived reasons that the
legislation has not moved in either state. There have also been rumors and
innuendo of the probability or potentiality of such legislation in other
states.
Friday’s
case is Vasquez v. Dillard’s Inc.,
heard by the Oklahoma Workers’ Compensation Commission. It was argued on
February 25, 2016 and the decision was rendered February 26, 2016. There is parallel
litigation apparently being pursued in the courts.
Explaining the conflict,
the Oklahoma Commission said “Dillard's chose to take advantage of the benefits
of the Opt-Out Act (EIBA)to become a ‘Qualified Employer’ by ‘opting-out’ of
the provisions of” Oklahoma workers’ compensation. Dillard’s prepared its own
workers’ compensation substitute, a plan “governed under the provisions” of “the
Employee Retirement income Security Act (ERISA).”
Ms.
Vasquez worked at Dillard’s, and claimed an injury at work in 2014. She
unsuccessfully sought medical benefits through the approved opt-out plan. The
Commission noted that Vazquez’ is “the first appeal from a denial of benefits
under an employee's Benefit Plan,” an “opt-out.” Because of that novelty, the
Commission discussed jurisdiction, or authority, issues extensively in Friday’s
order. It noted that Dillard’s contended that its substitute benefit plan is “governed
by the Federal Employee Retirement Income Security Act (ERISA),” and the
Commission agreed. However, this election did “not automatically leave Dillard's
‘completely free to circumvent’ Oklahoma law.”
There
are those who disagree. They contend that the preemption doctrine holds that
when the federal government acts, contrary state law must yield. This argument is
predicated upon the Supremacy Clause of the U.S. Constitution. Preemption has
been discussed before in workers’ compensation, in terms of immigration
status distinctions and other
regulatory issues. Many will be curious whether Friday’s state decision
stands against a preemption argument.
The
Commission concluded that ERISA affords “concurrent” jurisdiction, for appeals
regarding claims, to “state courts of competent jurisdiction, and district courts
of the United States.” The Commission concluded that Oklahoma, enacting its
reforms, clarified “that the Commission constituted a state court of competent jurisdiction.”
It therefor concluded that the Commission had jurisdiction or authority to hear
Ms. Vasquez’ constitutional challenge.
The
Commission concluded that it generally lacks authority regarding questions of
constitutionality. In this regard Florida is the same. The lack of authority
over constitutional issues here could result in an interesting procedural issue
if certain
potential outcomes of the current Florida constitutional challenges come to
pass. However, the Oklahoma Commission concluded that the legislative language
that labelled it a “court of competent jurisdiction” likewise rendered it
“empowered” to hear the challenge to constitutionality in the context of “a statute
that affects a Claimant's right to benefits as an injured worker.”
Ms. Vasquez asserted that the exclusive remedy set forth in Section
209 of the opt-out violated her rights to equal protection and “access to
courts.” She also claimed “that the Plan as constructed violates her right to due
process,” because it deprived her of “an independent tribunal and the right to cross-examine
witnesses and present testimony.” The Commission did not address the “due process
challenges,” disposing of the challenge on other grounds.
The Commission noted that the “Opt-Out Act requires that injured
workers under” such plans must have “benefits equal to or better than those under
the Administrative Workers' Compensation Act” (AWCA), and so facially equal
protection is assured. But, it concluded that actually, “this is decidedly not so”
in the case before it. It explained that the opt-out allows the establishment
of “a dual system under which injured workers are not treated equally.” The
Commission waxed eloquent saying that “the appearance of equal treatment under the
dual system is like a water mirage on the highway that disappears upon closer
inspection;” an interesting analogy.
The Commission next addressed Section 203 of the Act, which sets
forth requirements regarding what benefits are required to be provided by any
“benefit plan” adopted by an employer that opts-out. This section also says that
only some specific “provisions of the Administrative Workers’ Compensation Act”
apply to those whose employers have opted-out and adopted instead a Qualified
Benefit Plan (QBP). So, the Commission concluded, there is a parity of benefits
“to some extent” but employers under a QBP “can remove the right to benefits, because
under Section 203 the employer-the very party who will have to pay the compensation-is
authorized to define ‘injury.’" So, if an injury is compensable, the
benefit stream may be identical under either path, but the distinction in what
is or is not compensable may be unequal at the outset.
The Commission cited specific examples of disparity such as
asbestos exposure, which is irrelevant to the injuries alleged by Vasquez, and
then addressed the “Dillard’s Plan's definition of ‘injury,’ which differs from
that in the Administrative Workers' Compensation Act.” The distinction
regarding “aggravation” was seen as relevant; according to the Commission, the
“Dillard's Plan's definition of aggravation of a pre-existing injury is more
restrictive than that under the Administrative Workers' Compensation Act.” Because
of the difference in definitions, the Commission concluded that the Dillard’s
Plan makes “it more difficult for a claimant to be entitled to benefits.”
Having thus described the manner in which the opt-out creates a
“dual and differing system of compensation,” the Commission turned to the
Oklahoma Constitution, and its “prohibition against special laws,” which states
"that where a general law may be made applicable, no special law may be enacted."
Using a three-part test previously delineated by the Oklahoma Supreme Court,
the Commission undertook review of the opt-out and whether it violates the
“special laws” prohibition.
The Commission concluded that the “general purpose” of both the
AWCA and the EIBA (opt-out) is similar. The EIBA is not a “general law,”
according to the decision, because it addresses only a portion of injured
workers, those whose employers have opted-out. Thus, the Commission labelled
the EIBA a “special law,” (part one of the test). Finding next that a “general
law,” the AWCA, is otherwise applicable to “all injured workers,” the
Commission concluded that the second element of the test was likewise satisfied.
Concluding that a “general law” is applicable, the Commission noted that should
be the end of the analysis.
However, the Commission proceeded to analyze the third portion
of the test: “whether the Opt-Out Act is a permissible special law.” Avoiding
inquiry into whether the separate classification is logical or smart or
desirable, the Commission addressed “whether the classification is reasonable and
pertinent to some particularity in the subject of the legislation,” and whether
there is “some distinctive characteristic upon which different treatment is reasonably
found." Doing so, the Commission concluded that the EIBA “is not a valid special
law.” The Commission noted there is (italics are quoted direct from opinion):
no rational basis upon
which to establish a separate system for providing workers' compensation
benefits under which a subclass of injured workers is subjected to a Benefit Plan
in which their employer, by defining "injury" as authorized under the
Act, can determine when it will be liable and when it will not be liable, by excluding
from the definition of injury the damages or harm to their workers for which it
will not be responsible.
The Commission concluded therefore that the EIBA is an unconstitutional
and “non-permissible, special law,” in that it creates an “impermissible, unequal,
special treatment of a select group of the class of injured workers.”
Curiously, the Oklahoma Constitution “does not have an equivalent
to the federal Equal Protection clause,” but its courts have created a “functional
equivalent.” Dillard’s defended the “rational basis” of the EIBA in this
regard, noting the “higher workers' compensation premium rates in Oklahoma;
higher permanent partial disability payments in Oklahoma, and other economic
data that workers' compensation reformers have annually trotted out for the past
decade or more.” (Emphasis added). The Commission conceded that such arguments
might well support effort to reform the AWCA, but concluded this does not likewise
support the creation of an alternate system.
In this regard, it is pertinent to note that some have
championed the EIBA concept claiming that it is a solution to perceived problems
with workers’ compensation. In response, several critics of the EIBA have
contended that instead the EIBA is abandoning workers’ compensation rather than
facing the challenges of fixing or reforming it. This illustrates a fundamental
difference of opinion regarding the reform issue.
The Commission was dismissive of arguments that the EIBA
enhances efficiency. Noting that EIBA determinations and conclusions can thereafter
be appealed to the Commission for essentially a new trial, the Commission
concluded that “as opposed to being more efficient, as Dillard's claims, under
the current statutory scheme, the entire employer-in-house adjudicatory process
may be mere prologue,” that is less efficient.
Alluding to the constitutional analysis
of delegation, the Commission concluded that the legislature, enacting the
EIBA, “defined a qualified Plan in such a manner that the employer acts as the Legislator,
by defining the ‘injuries’ for which benefits will be available.” The
Commission compared this to allowing a particular group of “tortfeasor to
define what constitutes a tort.” Finding no rational basis for this delegation
of authority, the Commission concluded it was improper.
Finally, the Commission turned to Section 6, of the Oklahoma Constitution,
which says “the courts of the State are required to be open to every person for
remedy of wrongs.” It concluded that the EIBA “create(s) a monetary barrier to access
to the courts” and establishes “a system which creates absolute barriers to seek
compensation, when the bodily harm at issue does not fall within the employer's
chosen definition of injury.”
The United States Constitution protects due process in the Fifth Amendment. However, the protection of the U.S. Constitution against state, as opposed to federal action, is in the Fourteenth Amendment, which coincidentally also protects the right of equal protection under the law. This congruence may render equal protection and due process inextricably intertwined in the event of state action.
Some may find the Commission's due process comments and conclusions unnecessary, noting the
Commission’s statement at the outset that it would not address due process,
instead disposing of the case on other grounds. Nonetheless, the Commission
discussed issues that implicate due process analysis in its closing thoughts. It
concluded that this definition of compensability creates the potential for
disparity. As such, the employer’s exclusive remedy benefit is balanced against
an uncertain benefit for injured workers, one which is subject to the employer’s
definition and grace, delegated to it by the legislature.
The one positive conclusion of the order for Dillard’s is in the
final conclusion. There, the Commission states that Dillard’s shall be treated
as if it had procured workers’ compensation coverage, as would be required had
it not opted-out, and that its “liability is limited to that of an employer who
had complied with the provisions of the Administrative Workers' Compensation
Act.” Thus, despite its attempt through the EIBA to escape the AWCA, it ultimately
remains essentially protected by the provisions of the AWCA.
With little doubt, this case will proceed next to the Oklahoma
Supreme Court for further review. Few predict that this is the battle of Sailor’s
Creek or Appomattox in the war of opt-out, or that the parties will anytime
soon meet at Appomattox Courthouse to end hostilities. But, Friday’s decision
may ultimately be viewed in retrospect as one of the significant battles of the
war of opt-out, regardless of which side eventually prevails.
Update 02.29.16
Interesting reading here from Dean Duff in Wyoming, and Bob Wilson of Sarasota, and Thomas Robinson, The WorkComp Writer, and the original decision on WorkersCompensation.com. Last fall, Judge David Torrey published a paper on opt-out generally.