If you were told that your employer could choose whether to give you lunch breaks, you’d probably not expect many lunch breaks. However, in Texas and Oklahoma, the states have allowed employers to decide whether or not to participate in workers’ compensation.
Workers’ compensation is a set of laws which employers are required to abide by in nearly every state. Often called “The Grand Bargain,” workers’ compensation limits liability to employers by allowing employees to forgo their right to sue their employer and providing caps to employer liability in return for medical benefits and wage-replacement. These benefits are given on a no-fault basis and can last indefinitely.
In other words, if you’re injured and it’s your fault, you can still receive benefits for the rest of your life if necessary. These benefits are paid by the employer. The idea behind this system is that employers gain protection from being sued while employees get benefits without having to go through a long and costly legal battle. The workers’ compensation claims are handled by state government departments.
For decades, Texas has followed an opt-out approach to workers’ compensation. Texas employers allow employers to choose whether or not they want to participate in the state’s workers’ compensation program. In February 2014, Oklahoma began allowing companies to opt-out of workers’ compensation as well. Instead, employers may write their own opt-out workers’ compensation plans or purchase liability insurance.
Employer opt-out plans have recently come under attack by news sources such as NPR and Propublica. What’s more, the Oklahoma Workers’ Compensation Commission has unanimously ruled that the opt-out plans violate their State Constitution. The U.S. Department of Labor has even begun an investigation to determine whether these opt-out laws violate federal law.
Despite all this, proponents of these opt-out plans argue that they are better for both employer and employee alike. So what are the arguments for and against these programs?
The Arguments for Opt-Out Plans
Proponents of opt-out plans argue that the plans substantially lower the cost of doing business. The savings are reported to be as high as 40-90% over conventional workers’ compensation. They say that this allows businesses to create more jobs and alleviates the need to “get hung up on squeezing an employee.” In other words, the plans allow companies to be more generous with individual employees. Supporters of the plans also argue that by forgoing the liability protections of workers’ compensation, the threat of lawsuits prevents companies from mistreating employees.
The Dangers of the Opt-Out Plans for Employees
While proponents may argue that opt-out plans can be more individually generous for employees, the opposite has proved to be true in almost every aspect of the plans.
Opt-out plans generally let companies decide what constitutes a workplace injury and thus easily deny claims. The plans also fail to cover a laundry list of items that are normally covered by workers’ compensation plans, such as asbestos exposure and wheelchair vans. While workers’ compensation normally provides benefits for as long as the injury persists, the majority of Texas opt-out plans limit benefits to two-years after an injury or death of an employee.
Although it varies state to state, workers’ compensation normally provides between 2 and 30 days for an employee to report an injury. Opt-out plans often require employees to report within 24 hours or before the end of their shift or have their benefits denied. In one instance, an employee was denied for calling 27 hours after an accident. Another was denied benefits because they did not feel the effects of their accident until after their shift.
Normally, a denied workers’ compensation claim has several avenues for appeal. Opt-out plans only allow appeal through your employer.
Threat of Lawsuits Ensuring Better Plans?
Employers’ opt-out plans do not offer equivalent benefits to state-mandated workers’ compensation. However, the threat of lawsuits could potentially leave employers more safety conscious, balancing out the downsides of the opt-out plans. Unfortunately, it is unlikely that this will be the case as employers choosing to opt-out haven’t exactly been under substantial pressure from lawsuits.
A 2010 Stanford study revealed that 81% of employers saw little to no increase in litigation against them as a result of their choice to opt out of workers’ compensation. There are several explanations for these findings. First, 85% of employers’ opt-out plans require employees to arbitrate rather than sue. Arbitration generally leads to much lower payouts from employers. Another explanation for employers seeing so few lawsuits is mandatory settlement clauses in the majority of employers’ opt-out plans. These clauses state that if an employee turns down whatever offer their employer makes, they will never receive benefits of any kind.
Opt-Out Plans Shifting Costs
It is likely that the dangers of increased liability are sufficiently counteracted by the potential benefits to employers. However, how do these benefits to employers translate to the average taxpayer?
Those who slip through the cracks for workers’ compensation often end up relying on government disability benefits. As an example, 7% of new SSDI beneficiaries in New Mexico in 2010 were due to workplace injuries. If extrapolated to the rest of the country, this costs taxpayers $12B annually. These opt-out systems will leave many more employees unable to work with no access to workers’ compensation other than government disability benefits.
Thus, instead of employers paying for the costs of workplace accidents, these costs are spread across taxpayers. Ensuring a safety net for those who are rendered unable to work is important; however, allowing employers to shift their own costs to taxpayers is a bad policy. No matter how these opt-out plans are implemented, their cost will be borne by the entirety of the public.
There is little question that these opt-out plans will reduce costs to employers. These reduced costs may even lead to more available jobs. However, the cost to employees and the public at large is simply too great. Allowing employers to opt out of responsibility is not a reasonable option.
Authored by Jonathan Lurie, LegalMatch Legal Writer and Attorney at Law
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