Thursday, April 4, 2019

Background Helpful for Understanding ERISA Issues under the New Arkansas Workers' Compensation/Opt-Out Bill

I'm reprinting commentary I wrote back in 2016 concerning the former Oklahoma opt-out bill. Although I'm just getting back into this, I think the analysis remains accurate: 

This summer, I’ve been doing a lot of work on the subject of workers’ compensation “opt-out.” Over the last couple of years or so this has been a hot topic in workers’ compensation circles, though it has cooled off recently while the Oklahoma Supreme Court deliberates in a pending case, Vasquez v. Dillard’s, Inc., implicating some of the underlying issues in this area. Essentially, opt-out is about certain folks figuring out that if you combine “regular” workers’ compensation benefits with non-workers’ compensation benefits you arguably wind up with a multi-benefit “employee welfare benefit” plan governed by ERISA (the Employee Retirement Income Security Act of 1974), a federal statute. Why does that matter? Because states have limited or no control over the substance of benefits provided by ERISA-governed “employee welfare benefit plans.” Employee welfare benefit plans need do no more than deliver what they unilaterally promise to deliver. That promise has no connection to any state-imposed benefit floor. Why would a state cede control of statutory workers’ compensation benefits? As they might say in the French Foreign Legion, “that’s a long story.”

This is not the first time the law has encountered the idea of substituting ERISA-governed plans for state-mandated employment benefits. Back in the 1990s, for example, some employers resisted New York’s efforts to require the payment of state-mandated pregnancy benefits by arguing that New York could not interfere with their ERISA-governed “multi-benefit” plans, which did not cover pregnancy benefits. The Supreme Court said to the employers, in Shaw v. Delta Airlines, “well, yes employers, you can have multi-benefit ERISA plans, but states can force you to comply with the substance of certain mandatory state benefit laws that ERISA carves out from coverage (workers’ compensation, unemployment compensation, and disability insurance).”

The matter has been complicated in recent years. Oklahoma has enacted (and other states have considered enacting) a law facilitating an ERISA multi-benefit approach without requiring that multi-benefit plans comply with traditional workers’ compensation law (significantly changing the Shaw v. Delta Airlines scenario). This state-sanctioned “opt-out” from traditional workers’ compensation law is rife with complexity. Back in 1974, Congress wanted very strict legal uniformity with respect to ERISA plans (See Fort Halifax Packing Co. vs. Coyne) because prior abuses nationwide had prevented employees from receiving benefits they thought they had earned.

In furtherance of this drive for uniformity, with very few exceptions, ERISA preempts attempts by states to regulate employee benefit plans. However, benefit plans created “solely to comply with workmen’s compensation laws” are not governed ERISA. Usually, there is a clear line of demarcation between ERISA and workers’ compensation plans. However, it is not easy to classify an “alternative benefit plan” authorized by a workers’ compensation opt-out law. Is it a plan excluded from ERISA because created to comply with a “workmen’s compensation law?” Or is it an ERISA-governed plan? . . .

I am convinced . . . that, if alternative plans are indeed ERISA-governed plans, the very law authorizing their creation is preempted, under Section 514(a) of ERISA (29 U.S.C. 1144(a)). . . . This is perhaps the one moment in workers’ compensation law when I get to utter something resembling the Heisenberg Uncertainty Principle: the moment an employee plan ceases to be a workers’ compensation plan and becomes an “alternative” plan the state opt-out law creating the alternative plan is probably instantly preempted. The rule is simple: any state law (including an opt-out law) referencing an ERISA-governed employee benefit plan is preempted. (See, e.g., District of Columbia vs. Greater Washington Board of Trade).

As I have noted, the “buzz” around opt-out appears to be on hold pending decision of Vasquez v. Dillard’s Inc. That case will likely be decided on state constitutional grounds and may do little to clarify opt-out/ERISA issues. But, I think opt-out, involving as it does the tension between ERISA and state attempts to innovate with workplace injury remedies, is merely a harbinger of things to come. The simple federal-state employee benefit model that has been in place since the mid-1970s will likely be repeatedly tested, and in the not-distant future.   

I will also note that the Arkansas bill does not repeat the Oklahoma statute's error of explicitly retaining exclusivity. There is no need for exclusivity because ERISA-governed plans are almost always immune from tort suits

I'll be doing a more detailed analysis of the Arkansas bill in the next couple of days.

Michael C. Duff

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