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Employment Blog

Worker's Compensation: Opt Out in Wisconsin?

Authored by Russell W. Wilson
Posted on November 7, 2016
Filed under Employment

In 2014 Oklahoma enacted a radical change to its workers’ compensation statute, and on September 13, 2016, the Oklahoma Supreme Court held that it violates the state constitution. The case is Dillard’s, Inc. v. Vasquez, 2016 OK 89. Some version of the Oklahoma legislative plan might be considered by the Wisconsin Legislature. This article explores the structure of what the Oklahoma Supreme Court majority opinion termed the “Opt Out Act.”

Oklahoma enacted a dual workers’ compensation scheme on February 1, 2014. In doing so, the legislature repackaged its long-standing traditional workers’ compensation program to become known as the “Administrative Workers’ Compensation Act” (AWCA) and created the “Oklahoma Employee Injury Benefit Act” (referred to in the majority opinion as the “Opt Out Act” and in the main concurring opinion as the “OEIBA”). Whereas the AWAC is a traditional statutory workers’ compensation act, the Opt Out Act is an employee welfare benefit plan operated under the Employee Retirement Income Security Act of 1974 (ERISA). Under the new law Oklahoma employers were required to select one or the other. Opting out of workers’ compensation entirely was not allowed.

Generally speaking, self-funded employee welfare benefit plans under ERISA are devised so as to vest the plan sponsor with maximum discretion to establish what benefits may be eligible for award. Claims administrators are sometimes appointed to review claims submitted by the beneficiary, here, the injured worker, although in some cases the employer is the claims administrator. The “hearing” is typically a paper review, not a contested case with adverse testimony. Likewise, appeals are usually a paper review. Decisions of the appeal adjudicator are final and binding. Judicial review in state or federal court is subject to narrow review on the paper record established during the claims process with deference to the plan sponsor’s decisions. ERISA, a federal statute, preempts state laws that govern such benefits, except for those state laws enacted solely to provide workers’ compensation benefits.

Oklahoma’s Opt Out Act required certain benefit levels for work-related injuries to meet or exceed the same levels as those in the AWCA. In other words, items such as temporary total disability rates and permanent partial disability percentages under the Opt Out Act must meet or exceed those of the AWCA. The critical provision which was held to be unconstitutional provided, however, that no other provision of the AWCA defining covered injuries, medical management, dispute resolution or other process, funding, notices or penalties shall apply unless the plan sponsor expressly chose to do so. Moreover, all employers in Oklahoma under the AWCA and the Opt Out Act retained the full protection of the exclusive remedy of workers’ compensation under the dual scheme.

A Dillard’s, Inc. employee, Jonnie Yvonne Vasquez, injured her neck and shoulder while lifting a shoe box in a Dillard’s department store in the fall of 2014. Dillard’s, Inc. had selected the Opt Out Act, and it denied her claim. Ms. Vasquez sought relief before the Oklahoma Workers’ Compensation Commission. Dillard’s, Inc. attempted to remove the matter to federal district court, but the federal judge, having found that the Opt Out Act is not pre-empted by ERISA because it is a workers’ compensation statute, sent the case back to the Oklahoma Commission. The Oklahoma Commission ruled that the Opt Out Act violates Oklahoma’s constitutional prohibition against “special laws.” Dillard’s, Inc. appealed to the Oklahoma Supreme Court, which affirmed the Commission’s ruling.

The court found that the dual system creates two classes of employees, those who have work-related injuries or conditions whose employers selected statutory worker’s compensation benefits and those whose employers chose the Opt Out Act. “The core provision of the Opt Out Act . . . creates impermissible, unequal, and disparate treatment of a select group of injured workers. Therefore, we hold that the Oklahoma Employee Injury Benefit Act . . . is an unconstitutional special law under the Oklahoma Constitution . . .” (internal citations omitted).

We understand that bills to establish similar opt out schemes have been introduced in Tennessee and South Carolina. The lobbyist for opt out plans is said to be the Association for Responsible Alternatives to Workers’ Compensation (ARAWC). It is said that ARAWC has met with elected officials in the Wisconsin Legislature.