Oklahoma Opt-Out Law Ruled Unconstitutional

Ed. note: Story updated 3/2/16.

The Oklahoma statute that allows some employers to opt out of the traditional workers’ comp system “denies equal protection to injured workers,” said the Oklahoma Workers’ Compensation Commission in a decision issued last week.

The case, Vasquez v. Dillard’s Inc., involved a worker for Dillard’s who was denied benefits after a work injury that was determined to be an aggravation of a preexisting injury.

As industry practitioners scrambled to determine the potential impact of the ruling and next steps, just about everyone with skin in the game agreed on one thing: This is not the final word on opt-out in Oklahoma.

The Ruling

Oklahoma became just the second state after Texas to allow employers to opt out of the traditional workers’ comp system when it implemented its new law two years ago. So far, about 62 employers have been approved as qualified employers.

The issue has become one of the most highly contentious among workers’ comp practitioners; with proponents saying it allows for a more efficient system and benefits both injured workers and employers, and opponents arguing it gives employers too much power and is unfair to injured workers.

“Within the world of states considering an opt-out provision, I think this decision puts each state on hold.” — Stuart A. Colburn, managing partner and shareholder, Downs Stanford, PC

In its ruling last week, the commission said benefit plans permitted under the Opt-Out Act create a dual system in which injured workers are treated differently from those whose employers have coverage through the traditional system. “The appearance of equal treatment under the dual system is like a water mirage on the highway that disappears upon closer inspection,” the ruling said.

Among the issues cited was the allowance for the employer to define what constitutes a covered injury.

“The Dillard’s Plan’s definition of ‘injury,’ which differs from that in the Administrative Workers’ Compensation Act, is directly related to Ms. Vasquez’s claim for benefits based on an identifiable and significant aggravation of a pre-existing condition, because the Dillard’s Plan’s definition of aggravation of a pre-existing injury is more restrictive than that under the Administrative Workers’ Compensation Act. Accordingly, the constitutionally challenged dual system has a direct effect on Claimant Vasquez’s right to benefits.”

The Commission said its decision is appealable to the state’s highest court, since state law says appeals involving the constitutionality of a law go directly to the state Supreme Court. Dillard’s has 90 days after any final decision “to secure compliance with the Administrative Workers’ Compensation Act,” the ruling stated.

The Commission did not issue a penalty for Dillard’s, saying the employer’s “liability is limited to that of an employer who had complied with the provisions of the Administrative Workers’ Compensation Act … ”

Reactions

“The case is far from over,” said the Association of Responsible Alternatives to Workers’ Compensation, an organization that is pursuing opt-out efforts in multiple states. “It is almost certain there will be further legal and legislative efforts in response to the decision.”

Proponents recently released data from a survey of opt-out employers. The 10 survey respondents are clients of PartnerSource, a Dallas-based consulting firm that is driving opt-out efforts.

“Data from the past two years reflects that the Oklahoma Option (like the Texas Option) is producing extraordinarily positive results for injured workers and employers,” said Bill Minick, president of Partner-Source. “For example, workers are receiving better benefits when they miss time from work and employers are saving money during a difficult economic time in Oklahoma.”

Minick vowed that supporters “remain committed to filling the widely-acknowledged need for an increasingly efficient and effective system that improves the lives of injured workers.”

Thomas Robinson, J.D., co-author, Larson’s Workers’ Compensation Law

Workers’ comp attorneys said the ruling leaves many unanswered questions. “There’s still a fair amount up in the air,” said Thomas Robinson, J.D., co-author of Larson’s Workers’ Compensation Law. “One of the biggest questions is did the commission have the power to do what it did?”

Robinson noted the commission devoted much of the decision to its reasoning that it did, in fact, have the proper authority.

From a practical standpoint, the ruling could have wide-ranging ramifications for other jurisdictions. “Within the world of states considering an opt-out provision, I think this decision puts each state on hold,” said Stuart A. Colburn, an Austin, Texas-based shareholder with Downs Stanford.

“To the credit of opt-out proponents, they’ve said for several months that each state should adopt a plan that works for that state. That’s not only smart from a political standpoint, it’s also smart because each state has its own legal culture. Each change has to operate within the culture of that state.”

Colburn also said the decision was likely based as much on the commissioners’ interpretation of the state constitution as their own political realities. “No one can doubt the Oklahoma Supreme Court will now have the opportunity to provide their interpretation of the Oklahoma constitution and the political realities as they see them.”

Just days following the Commission’s finding, the Oklahoma’s Supreme Court fielded a different constitutional claim against the state’s traditional workers’ comp system.

The March 1, 2016 unanimous ruling in Torres v. Seaboard Foods, LLC struck down a section of Oklahoma’s Administrative Workers’ Compensation Act that bars benefits for cumulative trauma injuries when employees have not worked for an employer for a continuous period totaling 180 days.

The high-court held that the law “violates the Due Process Section of the Oklahoma Constitution … when applied to employee because the statute’s overinclusive and underinclusive classifications are not rationally related to legitimate State interests of (1) preventing workers’ compensation fraud and (2) decreasing employers’ costs.”

The finding reversed the rulings of an administrative law judge and the state’s Workers’ Compensation Commission.