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Be Careful What You Wish For

May 2014

By: Robert P. Fitz-Patrick

On February 1, the Administrative Workers' Compensation Act became law. Most employers greeted the act with enthusiasm. However, with the act comes a potentially long period of uncertainty about future handling of workers' compensation claims under the commission system.

Also uncertain is how much of the act will remain after its provisions are tested in courts. While the act seems likely to reduce the costs associated with the handling of claims, employers must consider the potential effects if certain provisions are abolished by the state Supreme Court, particularly if the employer has opted out of it. 

The opt-out portion of the act allows employers to create plans to self-administer workers' compensation claims. Opting out is a radical departure from the previous workers' compensation system. The opt-out option is tempting for employers. It offers potentially greater control over workers' compensation claims and costs. That potential may not ultimately be realized, however, if the Supreme Court strikes down key portions of the option.

In December 2013, the Supreme Court decided Coates v. Fallin. Although limited in scope, guidance was offered by the court for potential problem areas of the act, particularly the opt-out option. In Fallin, the court held the act was not unconstitutional logrolling as its provisions uniformly dealt with the disposition of workers' compensation claims. While several constitutional infirmities in the act were raised, the court held it could not rule further until an actual controversy came before it - i.e., a claimant appeal raising a constitutional challenge to the act. 

Justice Douglas Combs concurred, but expressed concern that provisions of the act unconstitutionally provided for different treatment of claimants. Specifically, he believes the opt-out initial claim determination and appellate procedures are constiutionally problematic, as the claim and appeal are decided by an interested party - the employer or its representative. 

In contrast, claimants whose employers don't opt out have their claims heard by an administrative law judge and their appeal heard by the Workers' Compensation Commission. Justice John Reif also expressed this concern. Should the court ultimately decide the opt-out claim determination and/or appeal procedures are unconstitutional, it could as a practical matter eviscerate the opt-out as a viable option under the act. 

Employers need to evaluate this potential outcome as they consider opting out of the act.