The Oklahoma Supreme Court recently ruled that a state law permitting employers to opt out of the workers compensation system is unconstitutional. The decision is a significant setback for those hoping other jurisdictions might authorize similar alternatives.
Oklahoma enacted comprehensive workers compensation reform legislation in 2013, which also allowed certain employers to leave the workers compensation system if they created alternative injured workers programs for employees. Employers that opted out were given considerable autonomy concerning the operation, rules and structure of their substitute plans, such as essentially writing their own parameters and requirements. These alternative plans—which have been heavily criticized and scrutinized—were largely exempt from the uniform mandates, requirements and protections that otherwise apply and were governed by the federal Employee Retirement Insurance Security Act of 1974 (ERISA).
The case heard by the Oklahoma Supreme Court arose when a Dillard’s employee was denied benefits after obtaining an injury on the job and seeking benefits under the unique plan established by the department store chain. The court analyzed the 2013 law and concluded that the dual framework did not provide all workers with equal rights and protections, but instead offered “impermissible, unequal and disparate treatment” for workers employed by businesses that opted out of the traditional system. In a 7-2 decision, the court upheld an earlier Oklahoma Workers Compensation Commission opinion and ruled that the opt out law is unconstitutional.
The ramifications of this decision could extend beyond the Sooner State. Similar opt out proposals have been floated in other states by a coalition of large employers, including a Dallas-based company that designs and provides these alternative plans. These proponents seek to lessen workers compensation costs by reducing benefits and shifting costs to employees, or health plans and government programs.
These organizations identified Tennessee as their top legislative target in 2016, but their efforts in that state stalled in early February in the face of strong opposition from the independent agent community—led by the Insurors of Tennessee—and other business groups. No meaningful legislative action has occurred in any other state, and this court decision is likely to dampen the chances for further activity in the near future.
As a result of the Oklahoma ruling, Texas—which does not require employers to provide any form of workers compensation coverage—is now the only state that permits employers to offer alternative plans of this nature.
Wes Bissett is Big “I” outside senior counsel of government affairs.
