Large employers push opt-out legislation

North Carolina could be the next state where a group of large employers pushes for legislation that would allow employers to opt out of the workers' compensation system to create a benefits system more to their liking.

Walmart, Best Buy, Lowes, Kohl's, and Nordstrom, among others, are behind efforts to create an alternative comp system in Tennessee and South Carolina, along the lines of what exists in Texas and Oklahoma. The employers are members of the Texas-based Association for Responsible Alternatives to Workers' Compensation (ARAWC), which has said it sees several southeastern states as fertile territory receptive to its opt-out alternative.

ARAWC's campaign did not get very far in Tennessee this year, and in South Carolina legislation was introduced late in the legislative session. To date, only Texas and Oklahoma allow employers the option of not carrying state-mandated workers' compensation coverage. According to reports in the trade press, ARAWC has hired a lobbyist in North Carolina but its website only highlights its efforts in Tennessee and South Carolina.

The group says its goal is not to do away with workers' compensation protections but to give employers an alternative to state-mandated coverage, thereby introducing competition which would bring down costs. Indeed, recent opt-out legislation introduced in Tennessee and South Carolina emphasizes that injured workers would receive benefits "comparable" to what they currently receive under state-mandated coverage.

But as critics have pointed out, such assurances barely cover the tremendous implications of a system expressly set up by employers according to their preferences. Mother Jones, the liberal but well-regarded publication, pointed out that although employers are still required to provide some semblance of workers' compensation, they can write their own rules governing when, for how long, and for which reasons an injured employee can receive medical benefits and wages.

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In Texas, for instance, Walmart has written a plan that allows the company to select the arbitration company that hears claims disputes. In Oklahoma, Dillard's requires workers to report injuries before the end of their shift to be eligible for workers' comp.

Similarly, the Center for Justice & Democracy at New York Law School also noted the enormous discretion employers enjoy under opt-out plans: An employer can decide whether a worker qualifies for any benefits.  It can refuse to approve any treatment.  It can completely deny compensation for certain kinds of disability. 

"Depending on the law, an employee may retain the right to sue an employer for negligence.  However, as a condition of employment, the employer can force the employee to sign a contract so all cases are resolved through an employer-designed, secret arbitration system rather than in court," the center notes.

Opt-out legislation introduced in late spring in South Carolina may be instructive. For one, the bill makes it clear its intention is to set up a separate, independent workers' compensation system that would have little to do with the system in place. A employer who opts out would have considerable discretion in setting up a benefits program, and House bill 4197 specifies "except as otherwise expressly provided, an administrative agency of this state may not promulgate rules or procedures related to design, documentation, implementation, administration, or funding of a qualified employer's benefit plan."

Also, "this act must be strictly construed. A conflict between this act and another law must be resolved in favor of the operation of this act." In addition, an employer may choose when to opt-out of the workers' compensation system and when to opt in, and in any event the insurance department "shall provide the employer a reasonable time after the withdrawal or denial to secure workers' compensation insurance coverage."

The bill does not address how employees would be protected if they are injured during the period their employer is without comp coverage or in between the two systems. Indeed, it may well be practically every substantive element of the new system would have to be litigated before it is clear how its provisions and regulations would apply to workplace injuries.