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Torrey: An Articulate Reprise to Opt Out

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Any member of the workers' compensation community who missed the intriguing saga of the Oklahoma “opt-out” law — which culminated in the 2016 demise of the innovation — would be well-served by reading a newly-published account, Opt-Out and the Fourth Era of Workers’ Compensation: Has Industry Left the Bargaining Table?, by Daniel E. Walker. It's a brisk, readable and accurate review of the affair.  

David B. Torrey

David B. Torrey

The author, a lawyer for the Oregon State Fund, creatively characterizes the lobby of large companies, particularly retailers, for opt out, as reflecting the “fourth era” of workers’ compensation.

What were the first, second and third? The first, he says, was the early 20th century reform period when virtually all states enacted such laws. The second, meanwhile, was the 1970s and early 1980s, as the National Commission recommendations that states update their laws with liberalized coverages and rates above the poverty line led to increased premiums and other enhanced system costs.

The third was the reaction to the second — to wit, nationwide retractive reform during the 1990s and onward, aimed at lowering the costs of the system.  

Even as such retractive reforms have generally achieved their goals, the fourth (and current) era of workers’ compensation reflects employers seeking to completely escape regulation by opting out of state-run programs via the device of setting up internal, ERISA-governed plans — and obliging injured workers to arbitrate any dispute.

The fourth era unfolded with the convergence of at least two factors. Texas, on this point, played, and plays, a significant role. There, workers’ compensation has never been mandatory, and employers have long been able to decline to opt in to the system. They could, and can, avoid coverage and, as a result, expose themselves to potential tort liability.

Such avoidance of workers’ compensation costs was seemingly never a popular strategy until large Texas employers discovered the innovation of creating their own work accident plans, seemingly governed by the Employee Retirement Income Security Act (a complex concept, as ERISA excepts workers’ compensation-like programs), and, cunningly, obliging workers to arbitrate any disputes over the same.

By this device, large employers could avoid workers’ compensation liability and tort liability at the same time. The author explains:

"[T]hese arbitration agreements are possible in Texas because the Texas courts have held that 'when [what amounts to] a pre-injury waiver of common law claims is included in an arbitration agreement, the [Texas] statutory prohibition against pre-injury waivers is pre-empted by the Federal Arbitration Act (FAA).'"

As the popularity of opt out in Texas spread, employers in Oklahoma, particularly, became intrigued by the idea of freedom from both workers’ compensation and tort liability in the event of employee injury. Soon, the Legislature had passed a law authorizing an opt-out system that explicitly preserved in the employer the protections of the exclusive remedy.

Walker, after explaining this genesis, effectively recounts Vasquez v. Dillard’s Inc., the legal action that spelled the downfall of the statute. The Oklahoma Supreme Court in that case, of course, struck down the entire opt-out structure as violative of the “special law” prohibition of the state Constitution.

The author correctly states that the Vasquez drama took the wind out of the sails of the opt-out movement. He believes, however, that the fourth era of workers’ compensation — as heralded by the Texas development and its stunted Oklahoma spawn — will continue. He is, in this regard, impressed that employers are no longer interested in making workers’ compensation operate fairly through the traditional horse-trading among interest groups that was thought to generate balanced systems.

Instead, industry, which has such powerful leverage in the present day, may well have permanently left the bargaining table. 

David B. Torrey is adjunct professor of law at the University of Pittsburgh School of Law and a workers’ compensation judge with the Pennsylvania Department of Labor & Industry. This entry is republished from the Workers' Compensation Law Professors blog, with permission.

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