Sunday, April 7, 2019

Workers' Compensation Opt Out and Exclusivity

In a recent post on the Arkansas opt out bill (that looks like it is going away) I mentioned that the drafters had not repeated the mistake of including exclusivity in the bill, as the Oklahoma drafters had in that state's now-struck opt-out bill. A colleague wrote and asked me to expand on the point. Here was his question:    

I understand that workers cannot sue in tort for matters relating to ERISA plans. But in these Arkansas arrangements, what about suing employers for workplace injuries? If my employer has one of these proposed Arkansas plans and I am injured at my employer’s worksite, why couldn’t I sue the employer for damages related to my work-related injury?

The exclusive remedy provided under the Arkansas workers’ compensation law limits itself to “the provisions of this chapter.” Wouldn’t that language exclude the new opt out law, which has no similar language granting exclusivity to the rights of employees under the new law? So as an employee, would I have access to the benefits provided under the ERISA plan, and also the right to sue in tort?

This is an excellent question.  Here was my response:

A few points. Damages overall would be severely limited under opt-out bills purporting to establish ERISA-governed plans. Med-Mal suits against hospitals, doctors, etc., are of course immediately knocked out by ERISA. And, if the employee accepts the plan’s indemnity and medical benefits—most employees would have no choice, truncated as those benefits may be—he/she would have to reimburse the ERISA plan from any tort recovery. Even without ERISA, damages would be folded into the medical and indemnity benefits paid under the alternative plan. The employer would argue, even under state law, that all/most damages are/will be offset, rendering settlement for the plaintiff’s lawyer a nightmare.

Then we have the Texas phenomenon. In Texas, an employee can’t even get a tort recovery with which to reimburse the ERISA plan because employment is very commonly conditioned on signing an arbitration agreement that covers tort suits. As you know, the FAA preempts states from prohibiting arbitration as a condition of hire. Whatever you get in arbitration will be much less than a traditional tort recovery, and you would still have an obligation to reimburse the ERISA plan for its outlays. I’m convinced that the grand strategy here (it's already been implemented for some time in Texas) is to create an interlocking system of alternative benefit plans and arbitration agreements in every arena of labor and employment law. You may have been following arbitration closely in the context of #MeToo. Here, I discuss the phenomenon and in the first paragraph address workers’ compensation and arbitration agreements.

So—bottom line—I think the opt-out architects are starting to realize that there is no point insisting on exclusivity in an opt-out plan (and we saw from the Oklahoma experience how bad from a public relations/political perspective the optics were–not explicitly cutting off a tort right may also take away some state constitutional arguments) because tort is already so badly hamstrung. I also don’t think it is an accident that these opt-out laws appear in states where tort reform is hot. That’s why I try to keep track of tort reform developments: the less afraid you are of tort, the more willing you might be as a rational actor to risk giving up exclusivity.

I'll add one additional point that I did not mention to my colleague. When I participated on an opt-out panel at the National Press Club a few years ago, I had the good fortune of sharing a stage with erudite Workers' Injury Law & Advocacy Group official Chuck Davoli and opt-out architect Bill Minick of Partnersource. The room was a bit tense and the views of the panel participants diverged substantially, as one would anticipate. And I left out one interesting participant: Bruce Wood of the American Insurance Association, whom my blogmate Judge David Torrey featured on this blog a couple of years ago. The AIA has been sharply critical of the opt-out model, and once you understand the vastly reduced liability created by tort reform, arbitration agreements, and ERISA opt-out plans containing no substantive benefit floors, you can see why. Heck, any employer could self-insure in this environment. All you need is a low cost third-party administrator and you are good to go. And the costs that don't get covered?  They "go" somewhere else. Get the picture?

Michael C. Duff

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