Lessons Learned From Texas Nonsubscription

By: | January 31, 2014 • 4 min read

Bill Minick is president of PartnerSource, a risk management consulting firm specializing in workers’ compensation alternatives. He can be reached at [email protected]

As an alternative to traditional workers’ compensation offered in Texas, nonsubscription has provided new opportunities for innovation and accountability in addressing work-related injuries. But in the absence of the normal Texas workers’ compensation dispute resolution process, nonsubscribers rely on the Employee Retirement Income Security Act (“ERISA”) and U.S. Department of Labor claim regulations to resolve benefit disputes. Any denial of nonsubscriber benefits may be appealed to a designated fiduciary, and any further challenge may be filed in state or federal district court.

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Injured workers can also pursue a tort liability claim that the nonsubscribing employer negligently caused the injury. These liability claims are subject to state law and a jury trial, unless the employer has implemented an alternative dispute resolution (“ADR”) program. The most common ADR approach for negligence claims is arbitration, which can include creative features that have helped make the Texas nonsubscriber option a nationally-recognized risk management success.

Proponents of arbitration may cite lower administrative and defense costs as advantages of arbitration over state court litigation. But Texas nonsubscribers typically choose arbitration because of process speed, as well as privacy and confidentiality of issues and parties. Well-drafted arbitration agreements have also helped nonsubscribers avoid “wildcard” jury verdicts and actually win on matters where there was no liability. Challenging the notion that arbitrators just “split the baby”, we see defense verdicts in the vast majority of cases. And, where an arbitration award is made in favor of the plaintiff, we find most of these decisions and the amounts awarded to be fair.

Nonsubscribers are also able to appropriately influence the process through careful drafting. That exercise of influence has clear boundaries prescribed by Texas and federal courts to “keep employers honest” in the development of the arbitration program. Forward-thinking employers utilize program design features such as:

  • Requiring specific arbitrator credentials. For Texas nonsubscribers, many dispute resolution programs state that the arbitrator shall be knowledgeable in the areas of personal injury and/or employment law, ensuring that the decision maker has some subject matter expertise, which supports more predictable outcomes.
  • Identifying the geographic area from which an arbitrator (or panel) shall be selected, thereby avoiding areas of the state with known bias.
  • On interstate transportation-for-hire employees who are otherwise exempt from the Federal Arbitration Act, adopting a voluntary arbitration program and offering incentives like a higher level of wage replacement benefits or a larger death benefit in exchange for an agreement to arbitrate. Alternatively, employers can draw from the employee benefits world, developing a “passive” agreement to arbitrate that requires specific employee action to opt out.
  • Using common law principles, like direct benefits estoppel, to eliminate an employee’s ability to take advantage of the generous benefits offered in the injury benefit plan, but reject the arbitration provision that is incorporated within it.

Other lessons learned:

    • Don’t get too fancy. Focus on fairness. Imposing unfair fees, skewing discovery or other features in favor of the employer, or burdensome travel requirements will backfire and benefit no one.
    • Spend resources developing an effective communication strategy. Texas law generally does not require an at-will employee’s signature to an arbitration agreement. But if an employer cannot demonstrate an employee was aware of the dispute resolution policy, they will fight it and it will be found unenforceable. Disclosure can be done with a training acknowledgement form or an electronic acknowledgement through computer-based learning.
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  • Integrate your dispute resolution program into your occupational injury plan. In a recent Texas Court of Appeals case, the court found the nonsubscribing employer’s arbitration agreement unenforceable because the injury benefit plan, which was properly communicated to the employee, did not contain any reference to the separate arbitration document intended to address negligence liability claims. The employer could not otherwise prove the employee received notice of the arbitration policy, so the Court held no valid agreement to arbitrate existed. See Big Bass Towing, Co., v. Akin, 409 S.W.3d 835 (Tex.App.-Dallas 2013, no writ).
  • Translate. If covered employees have a native language other than English, consider translating the arbitration agreement.

Texas nonsubscription has moved from the “wild west of workers’ compensation” to a widely-accepted way of doing business. Over the past two decades, this alternative to workers’ compensation has achieved better medical outcomes for hundreds of thousands of injured workers, and saved billions of dollars on occupational injury costs. Innovative dispute resolution techniques and lessons like those above have supported this success and can now be adapted to other risk management situations.

Risk Matrix: Presented by Liberty Mutual Insurance

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The R&I Editorial Team can be reached at [email protected]