The Risks of Opting Out
Employers operating in Texas often tell me about the superior claims management results obtained by opting out of the state’s traditional workers’ compensation system.
Their eagerly shared success stories explain why they would want the opportunity to opt out of workers’ comp systems
in more states, as is currently possible only in Texas and Oklahoma.
Yet, if Texas is to be held up as an example of the benefits of opting out of traditional workers’ comp mandates, it is also essential to understand an employer’s potential costs when opting out goes awry.
A Texas appeals court decision upholding an injured meat cutter’s $1 million jury award provides an opportunity to do that.
The ruling handed down recently in The Kroger Co. v. Christopher Milanes shows that companies that opt out of Texas’ workers’ comp system are exposed to considerable jury awards.
That’s an unlikely scenario under traditional workers’ comp systems with exclusive remedy protections for employers.
The Kroger case involved a meat cutter who severed three fingers while operating a saw. His injuries required three surgeries.
Kroger later fired him for insubordination while he was on light duty. Milanes argued that he declined a supervisor’s request to perform a task because of considerable pain.
He sued Kroger for negligence and the appeals court was unsympathetic to Kroger’s arguments for overturning the lower court’s jury findings.
The appeals court ruled sufficient evidence existed that there was negligence in the provision of safe equipment and safety regulations, as well as lapses in training.
Although Kroger did not have an arbitration agreement in this case, the Lone Star State allows non-subscribing employers liberal use of such agreements. Critics of opting out say this keeps disputes out of court and out of the public eye.
A 2014 Texas Department of Insurance report states that 66 percent of large non-subscribers use arbitration agreements.
But the absence of one allows the public, including other employers, insight into the potential medical, legal and jury-award costs when an employee brings a negligence suit.
Texas law particularities include the lack of exclusive remedy protection for non-subscribing employers, which could have prevented the negligence suit.
In contrast, opting-out Oklahoma employers retain that protection.
The case-specific facts and nuances of Texas law applied in Kroger don’t allow the $1 million judgment to stand as an example of what employers would face in other states that one day may sanction opting out.
How employers and employees would fare should other states allow opting out would depend on how legislation is crafted and enforced.
But whenever employers look to implement alternatives to traditional workers’ comp arrangements, they should know the risks, like those Kroger faced.
While the case’s $1 million award is an attention grabber and should make employers weigh the value of traditional workers’ comp arrangements, I don’t think I will stop hearing positive reports from large employers that have benefitted by opting out in Texas.
The 2014 Texas Department of Insurance report shows that 33 percent of the state’s employers opt out and that non-subscribers experience higher levels of satisfaction than those participating in the state workers’ comp system.