California: Cases About Carve-Outs

Decades ago, the workers’ compensation system was “carved out of” the personal injury litigation system. More recently, starting in 1993, and pursuant to legislation (Labor Code §§ 3201.5(b)(2) and 3201.7(b)(2)), certain unions and employers were allowed to carve-out their own “alternative dispute resolution” (ADR) programs from the already established California workers’ compensation system.

These ADR programs came to be known as “carve-outs,” and required certain injured workers to exhaust the remedies provided by these “carve-outs” programs, before entering the Workers’ Compensation Appeals Board (WCAB) adjudication system.

Although these programs have been in existence for well over 10 years, many practitioners are still not familiar with the rules for these programs, often to the detriment of their clients. Set forth below are several recent Noteworthy Panel Decisions (NPD) illustrating how this system operates in practice.

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I. Due Process Reigns Supreme

Regardless of the extent of “informality” of the carve-out’s ADR program, the parties’ fundamental right to access to due process (i.e., notice and an opportunity to be heard) is still enforced. This concept was explained in depth in the NPD of McKenzie v. Sukut Construction, 2016 Cal. Wrk. Comp. P.D. LEXIS 664.

As stated above, injured workers who are subject to a carve-out ADR process must exhaust their remedies under that process before proceeding to the WCAB. If they do not do so, the WCAB does not have jurisdiction over their case, resulting in a dismissal by the Workers’ Compensation Judge (WCJ).

The WCJ in the McKenzie case issued a dismissal because he was convinced the matter was subject to the “carve-out” system. However, he did not set the matter for a hearing to allow the parties to offer evidence and make a record on the issue of whether or not the ADR process applied. On appeal, the WCAB explained:

“…[I]n Hamilton v Lockheed Corporation, (2001) 66 Cal Comp Cases 473 (WCAB en banc), ‘the WCJ is charged with the responsibility of referring to the evidence in the opinion on decision, and of clearly designating the evidence that forms the basis of the decision.’”

In order to provide due process to the parties, the Judge must set the matter for hearing and ensure an adequate trial record is created with the Stipulations and Issues set forth. Exhibits (as appropriate) must be properly marked and admitted into evidence. At that point, the Judge is free to issue a set of Findings, Award and/or Order, along with an opinion on decision, wherein specific reference is made to the evidence in the record. Since the Judge did not do this, CIGA’s Petition for Reconsideration was granted. The WCAB returned the matter to the trial level so that the WCJ could schedule a hearing on the merits, in accordance with their rights of due process.

II. The ADR “carve-out” Arbitrator is Permitted to Develop the Record

If a party who is required to participate in a “carve out” program is not satisfied with the decision of the ADR’s arbitrator, the party must file a Petition for Reconsideration or Removal directly with the WCAB to be handled by the Commissioners, and not with a local WCAB district office to be heard by a WCJ. (See 8 Cal. Code Reg. § 10865.) The WCAB commissioners will review the petition and determine the appropriate course of action.

In the case of Valladares v. Servicon Systems, 2017 Cal. Wrk. Comp. P.D. LEXIS 318, the applicant objected to the determination of the carve-out arbitrator, which was that applicant “did not sustain either a cumulative trauma from April 2011 to April 2016 on an industrial basis or specific industrial injury on March 7, 2016.”

In this case, the arbitrator found the applicant’s testimony lacked credibility. Therefore, he denied the industrial injuries without the benefit of medical evidence discussing whether the mechanism of injury was consistent with the applicant’s claim. The arbitrator explained that a medical evaluation was not needed since “it was a question of fact, not of medicine, if an industrial injury occurred.”

The WCAB viewed the matter differently. The WCAB agreed with the arbitrator that applicant’s lack of credibility as to the specific injury would be fatal to that claim. However, the WCAB disagreed with the arbitrator as to the cumulative trauma claim, as the Kaiser records indicated possible “work-related orthopedic complaints.” They found that medical evidence was a key element in determining whether or not an injury was industrial, citing Peter Kiewit Sons v. IAC (McLaughlin) (1965) 234 Cal. App. 2d 831, 30 Cal. Comp. Cases 188.

The WCAB held that, “[i]n the context of a cumulative trauma claim, the law does not require an injured employee to comprehend the existence of an ongoing injury without confirmation by a physician.” Therefore, the applicant’s Petition for Reconsideration was granted and returned to the arbitration level to allow for development of the medical record.

III. Carve-Outs Not Applicable to Dependents in Death Benefit Cases

The case of Dubay (John Pillo dec’d) v. Contra Costa Electric, 2013 Cal. Wrk. Comp. P.D. LEXIS 510, dealt with how to adjudicate death benefits when a “carve-out” system is in place. In holding that the “carve-out” system is not the correct forum in which to adjudicate death benefits, the WCAB referred to the specific language of Labor Code § 3201.5(a)(1), which provides that binding collective bargaining agreements include:

“An alternative dispute resolution system ‘governing disputes between employees and employers or their insurers that supplements or replaces all or part of those dispute resolution processes contained in this division.’ It was enacted to ‘reduce the delays and expense of adjudicating workers' compensation claims through the existing system.’ (Costa v. Workers' Comp. Appeals Bd. (1998) 63 Cal. Comp. Cases 814.” (Emphasis added.)

The WCAB explained that a dependent is not an employee as referenced in Labor Code § 3201.5(a)(1).

In addition, “a dependent's right to death benefits is not derived from the rights of the deceased worker, but is ‘independent and severable from the employee's claim for disability compensation.’ (Clark v. WCAB (1991) 230 Cal. App. 3d 684, 56 Cal. Comp. Cases 331. 

Therefore, pursuant to a strict construction review of the words of the statute, Labor Code § 3201.5, a dependent’s death benefit claim is not to be adjudicated in the carve-out ADR process, but is to be dealt with in the formal workers’ compensation court system.

IV. Medical Treatment Issues

Both Labor Code § 3201.5 and Labor Code § 3201.7 include a section which states that:

“Nothing in this section shall allow a collective bargaining agreement that diminishes the entitlement of an employee to compensation payments for total or partial disability, temporary disability, vocational rehabilitation, or medical treatment fully paid by the employer as otherwise provided in this division…” (Emphasis added.) (Labor Code § 3201.5(b)(1) and Labor Code § 3201.7(b)(1).)

This section has been referenced in several cases where the issue was whether or not the benefits provided by the “carve-out” program were less than what would have been provided in the established workers’ compensation system.

One such case is Farias v. Able Building Maintenance, 2016 Cal. Wrk. Comp. P.D. LEXIS 440. In the Farias case, “the arbitrator found that applicant was entitled to self-procure treatment with Arthur Harris, M.D. from the date the claim was denied until the claim was accepted on June 30, 2015 and that on June 30, 2015, medical control was transferred to the exclusive provider network.”

The majority of WCAB commissioners affirmed the “carve-out” arbitrator’s decision in this case and held, “[t]he MPN statutes, including Section 4603.2, do not apply to medical treatment negotiated pursuant to a collective bargaining agreement. Accordingly, we will affirm the arbitrator's decision.”

WCAB Commissioner Sweeney dissented in this case and explained:

“…if the collective bargaining agreement diminishes applicant's entitlement to medical treatment, the provisions of the agreement that diminished applicant's entitlement to benefits are void. In the majority's interpretation, absent the collective bargaining agreement, applicant's employer would not be able to require applicant to change physicians, but because the agreement includes a list of agreed physicians, the employer can require the applicant to change physicians. Requiring applicant to transfer care is a diminishment of applicant's entitlement to medical benefits and, pursuant to Section 3201.5(b), that portion of the agreement is void. Accordingly, I would amend the arbitrator's order to allow applicant to continue to treat with Dr. Harris.”

V. Conclusion

The world of workers’ compensation litigation is complex and ever evolving, with new case law, new regulations and new statutes which follow each other at breakneck speed. In addition, there are areas of law such as these “carve-out” programs that apply to injured workers, and which practitioners must be keep current on in order to accurately advise clients who might be required to participate in such agreements. In addition to Labor Code §§ 3201.5 and 3201.7, governing “carve-out” programs, there is also a set of regulations setting forth the rules on how these “carve-out” programs are to operate. These regulations can be found at 8 Cal. Code Reg. §§ 10200-10204.

The DIR website has a wealth of information on these “carve-out” issues, including a free and downloadable booklet entitled, “CARVE-OUTS; A GUIDEBOOK FOR UNIONS AND EMPLOYERS IN WORKERS’ COMPENSATION.” This booklet, along with other helpful aids for the interested practitioner, can be found at this link:

http://www.dir.ca.gov/chswc/CarveOutsPage1.htm

It is strongly advised that the entire workers’ compensation community become familiar with the basics of “carve-out” programs to avoid glitches that may arise as a result of not exhausting required administrative remedies before requesting jurisdiction of the WCAB.

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