California Workers’ Compensation Reform SB 863 Analysis: Carve-Out Provisions

***WARNING: The following analysis is based on the 8/27/2012 version of SB 863. On 8/31/2012, the Legislature passed SB 863. Be sure to check the final version of SB 863 posted on the Legislature website.***

The proposed amendments in SB 863 (8/27/12 version) to Labor Code Section 3201.7 would make it clear that state employee unions have the option of negotiating carve-outs.

A carve-out is a labor-management contract that replaces some or all of the dispute resolution processes that are provided for by a state’s workers’ compensation system. In California, in order to be legally valid, a carve-out must include the ability to appeal to the Workers’ Compensation Appeals Board (WCAB) but the procedures prior to appeal are all subject to agreement by the employer and the labor group.

In addition to the right to appeal, a valid carve-out must also meet the same benefit levels, or greater, for the provision of disability benefits (temporary or permanent), medical treatment and vocational retraining as the existing workers’ compensation process.

Typically an individual called an “Ombudsman” is appointed to oversee the carve-out. The Ombudsman may be a lawyer, a nurse case manager, a retired workers’ compensation judge, or anyone else selected by agreement to fulfill this position. 

Carve-outs were started in 1994 for the construction industry only. See Labor Code Section 3201.5. In 2003, under Governor Gray Davis, carve-outs were expanded to include nonconstruction, i.e., any employer with a collective bargaining agreement. See Labor Code Section 3201.7. However, the statute did not expressly allow that participation by state employee unions.

Presently the State’s workers’ compensation claims are adjusted by the State Compensation Insurance Fund (SCIF). It remains to be seen which state employee unions feel that they could develop an alternative process by which the employee’s claims for benefits are handled more efficiently.

SB 863 does not impose a carve-out on anyone. It simply allows state employee unions the option to negotiate what other labor unions have been able to negotiate under the Labor Code.

There has been some vocal opposition to the proposal in SB 863. Some feel that should the State of California be allowed to opt-out of the workers’ compensation system, any alternative system would inherently mean limited access to treatment by the injured worker. The concern is that management would be allowed to create a small list of handpicked treating doctors who would be the only doctors that could treat the injured worker. Additionally, opponents worry that there will only be a limited number of Qualified Medical Evaluator’s (QME’s) offered to the injured worker in any alternative process. The contention is that to the only QME’s available would be those that can be agreed upon between management and labor. Finally, critics of an expanded carve-out provision argue that a carve-out might limit an injured worker’s access to legal representation.

Proponents of the measure say unions can dramatically improve member access to workers’ compensation benefits through carve-outs if the programs are set up correctly, and labor and management work together to save money that can be used in the collective bargaining agreement for other employee benefits, such as saving jobs, health and welfare and pension funds. The savings derived from carve-outs come from a reduction or virtual elimination of litigation costs, bill review costs, utilization review costs and the like. Furthermore, Labor Code Section 3201.7 does not deny any employee the right to representation by counsel at all stages during the alternative dispute resolution process.  See Labor Code section 3201.7(b)(1). SB 863 does not change this fact.

Again, it is important to remember that the option to proceed with an alternative process is entirely voluntary and subject to both management’s and labor’s agreement.

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***WARNING: The following analyses are based on the 8/24/2012 and/or 8/27/2012 version of SB 863. On 8/31/2012, the Legislature passed SB 863. Be sure to check the final version of SB 863 posted on the Legislature website.***