Workers' Compensation Opt-Out Law Struck Down by Oklahoma Supreme Court
Author: Marta Moakley, XpertHR Legal Editor
September 16, 2016
In Vasquez v. Dillard's, Inc., the Oklahoma Supreme Court struck down a law that allows employers to opt out of the state workers' compensation system. The court held that the state Employee Injury Benefit Act (Opt Out Act) is unconstitutional because it allows for certain groups of employees to be treated differently when seeking compensation for work-related injuries. These opt-out plans have been backed by Walmart, Lowe's and Sysco Food Services as being instrumental in reducing costs, and continue to be implemented in Texas.
Workers' compensation laws evolved to protect businesses from negligence claims while ensuring workers received benefits related to on-the-job injuries. Oklahoma's 2013 workers' compensation reforms showed that the workers' compensation landscape could be changing.
Oklahoma's Opt Out Act was passed as part of the state's 2013 workers' compensation reforms. As a result, an employer could opt out of the workers' compensation provisions regarding covered injuries, medical management, dispute resolution, funding, notices or penalties.
However, the court ruled that the Opt Out Act "creates impermissible, unequal, disparate treatment of a select group of injured workers." In addition, it dismissed the employer's arguments regarding the underlying goals of the program (including providing a more effective system for identifying workplace injuries and encouraging job creation), stating that "we will not accept the invitation of employers to find a discriminatory state statute constitutional by relying on the interests of employers in reducing compensation costs."
Because a number of other challenges to the law had been stayed pending the resolution of the Vasquez case, the court instructed its decision to be given effect:
- In the cases currently being challenged before the Workers' Compensation Commission and in the appellate pipeline; and
- Prospectively to all cases after the Vasquez decision.
The Association for Responsible Alternatives to Workers' Compensation, whose members include national employers, service providers, third party administrators and industry experts, calls the ruling "a shame" on its website and maintains that the decision rested on a provision "unique to the Oklahoma state constitution."
Because the ruling involves state law, the existing system in Texas is not directly affected. The option plan in Texas has been in place since 1989, and a substantial number of employers are "nonsubscribers," opting out from workers' compensation coverage.
Despite the setback in Oklahoma, other states may soon consider similar legislation and follow Texas's lead. Tennessee and South Carolina, for example, considered opt-out legislation during the 2015 legislative session (Tennessee supporters worked on amendments during the 2016 session).