Workers’ compensation laws were born from a grand bargain between employers and employees, a trade-off designed to ensure swift, no-fault benefits for injured workers while protecting employers from unpredictable litigation.

Lee R. Wickert

In exchange for giving up their right to sue, employees gained access to guaranteed medical care and wage replacement. Employers, in turn, assumed the financial burden of covering work-related injuries, including unlimited medical benefits and substantial disability payments, even when they were not at fault.

While nearly every state has since made this system mandatory for most employers, a handful once allowed businesses to opt out. Today, only Texas remains a true “opt-out” state, where private employers can still legally go “bare” and choose not to participate in the workers’ compensation system, highlighting a unique and controversial exception in the history of American workplace injury law.

Opt-out and exemption experiments

From 2013 to 2016, Oklahoma permitted employers to opt out of the state-administered workers’ compensation system under the Oklahoma Employee Injury Benefit Act. Non-subscribers could implement ERISA-based alternative occupational accident plans, but these plans were required to meet minimum benefit standards and were not under the jurisdiction of the Oklahoma Workers’ Compensation Commission.

On Feb. 26, 2016, the Oklahoma Workers’ Compensation Commission, ruling on an appeal under the provisions of the Opt-Out Act, found the act to be unconstitutional and not enforceable. The Oklahoma Supreme Court decision in Vasquez v. Dillards Inc. agreed that the Oklahoma option violated Article 2, Section 6 of the Oklahoma Constitution because it allowed disparate treatment of similarly situated injured employees, depending on whether their employer was a participant in the option or in the traditional system. As a result, the commission ruled that the Oklahoma option was "invalid under the Oklahoma Constitution.”

The entire statutory framework authorizing the option was invalidated. On April 19, 2016, the Supreme Court issued a highly anticipated ruling that held that the state’s Workers’ Compensation Commission did have the power to determine whether a provision of the state’s workers’ compensation law was unconstitutional. Oklahoma is no longer an opt-out state.

South Dakota has a limited exemption. Employers with fewer than three employees are not required to carry coverage. No alternative compensation or benefit system is required, but these “bare” employers may be exposed to tort liability.

A few other states (Alabama, Missouri and Arkansas) are not formal opt-out states, but they have exemptions for employers with few workers.

Texas’s unique nonsubscriber framework

Texas remains the only state in the nation that permits employers to opt out of the workers’ compensation system. Texas allows private employers to choose not to participate in the state’s workers’ compensation system, meaning they are not required to purchase insurance to cover workplace injuries. These employers are known as “non-subscribers” or “bare” employers. While most states require workers’ compensation coverage, some have exemptions for certain types of employers or employees.

In exchange for avoiding the cost and regulatory burdens of workers’ compensation coverage, nonsubscribing Texas employers expose themselves to significantly increased liability in the event of a workplace injury. Most notably, nonsubscribing employers forfeit several common-law defenses, including contributory negligence, assumption of risk and the negligence of fellow employees.

Additionally, the exclusive remedy provision of the Texas Workers' Compensation Act, which shields subscribing employers from civil lawsuits by injured employees, does not apply to nonsubscribers. Consequently, injured employees may file direct negligence lawsuits against bare employers, a remedy otherwise barred if the employer carried valid workers’ compensation insurance.

Supreme Court decision

On April 25, 2025, the Texas Supreme Court issued a decision in the case of In re East Texas Medical Center Athens, which addressed a nagging question about how non-subscriber lawsuits would be handled in the state. The court addressed a significant procedural and substantive issue regarding an employee’s ability to recover damages from a nonsubscribing employer under the Texas Workers’ Compensation Act.

In particular, Texas’s “responsible third party” (RTP) procedure, codified in Chapter 33 of the Texas Civil Practice and Remedies Code, was designed to ensure a fair allocation of fault in civil litigation by allowing defendants to identify other individuals or entities, even those not named as parties in the lawsuit, who may have contributed to the plaintiff’s alleged harm. The statute recognizes that a defendant should not bear financial responsibility for damages disproportionate to its actual share of fault.

By designating an RTP, a defendant can shift some or all liability to another person or entity, prompting the jury to consider the comparative responsibility of all actors involved. Importantly, this mechanism reflects Texas’ commitment to proportionate responsibility over joint and several liability, reinforcing the principle that parties should pay only for harm they caused. The RTP process also often arises in nonsubscriber workplace injury cases where the employer is sued directly and seeks to assign blame to third parties, including co-workers, product manufacturers or others.

Enter In re East Texas Medical Center Athens. This case arose after an employee of East Texas Medical Center Athens (ETMC), which had opted out of the workers’ compensation system, was injured and brought a negligence lawsuit against the hospital. ETMC attempted to designate a third-party EMT as a responsible third party under Chapter 33 of the Texas Civil Practice and Remedies Code. The trial court initially denied this motion, but the court of appeals reversed.

On review, the Texas Supreme Court held that nonsubscribers may invoke the proportionate responsibility provisions under Chapter 33, thereby reducing their liability by attributing fault to responsible third parties even though they cannot assert the common-law defenses barred by Labor Code § 406.033(a).

The court reaffirmed that claims against nonsubscribing employers are not claims for benefits under the state comp act, but common-law tort claims subject to standard tort principles, including negligence and causation. The court rejected the argument that such claims were effectively for benefits and should preclude proportionate responsibility or be governed by Chapter 417, which addresses third-party recoveries in the context of subscribing employers.

The court made clear that Chapter 417 is inapplicable to nonsubscribers because they do not provide benefits and are not entitled to subrogation. Thus, while a nonsubscribing employer cannot rely on employee negligence, assumption of risk or co-employee negligence as defenses under § 406.033(a), they may still reduce their exposure by pointing to others who contributed to the harm through the proportionate responsibility framework.

Legal and practical implications

This decision has important implications for lawsuits against bare employers in Texas. It underscores that although such employers give up traditional defenses as a cost of opting out, they are not wholly without procedural tools to defend themselves. The court’s ruling empowers nonsubscribers to reduce their financial exposure by designating responsible third parties, which a jury can consider when apportioning fault.

This will likely make litigation more complex for plaintiffs and reduce the strategic advantage that employees have historically enjoyed against bare employers. Plaintiffs must now prepare not only to prove the employer’s negligence, but to rebut assertions that third parties were partially or wholly at fault. As a result, claims against nonsubscribers will continue to be viable but will be subject to greater factual and procedural scrutiny, diminishing the notion that bare employers are strictly liable in all but name.

By affirming the availability of Chapter 33 to nonsubscribers, the Texas Supreme Court preserved a key defensive mechanism for employers that forgo the workers’ compensation system. This decision balances the punitive consequences of nonsubscription, such as losing major defenses, with a recognition that fault-based litigation in Texas remains subject to principles of shared liability. This creates a more nuanced and balanced litigation environment for both employers and injured employees alike, aligning legal strategy with the practical realities of workplace accidents and third-party involvement.

In a legal landscape shaped by a century-old compromise, Texas continues to chart its own course, holding fast to its unique status as the only true opt-out state while carefully calibrating the rights and remedies of employers and employees. The East Texas Medical Center Athens decision reinforces that though bare employers pay a price for opting out — namely, the loss of powerful common-law defenses — they are not stripped of all defenses. Instead, they retain the ability to level the playing field through proportionate responsibility, pointing the finger at others who may share the blame.

As Texas forges ahead with its distinctive nonsubscriber system, it walks a tightrope between deterrence and fairness, liability and justice — reminding us that in the Lone Star State, even the exceptions have rules.

Lee R. Wickert is a partner attorney in the Austin, Texas, branch office of the Matthiesen, Wickert & Lehrer law firm in Hartford, Wisconsin. This blog post is reprinted with permission.