California Workers’ Comp Centennial: Thought Leaders Speak the Truth About the Social Bargain and Constitutional Goals

Karen C. Yotis, Esq., Feature Resident Columnist of the LexisNexis Workers’ Compensation eNewsletter, provides insights into workplace issues and the nuts and bolts of the workers' comp world.

FACING THE TOUGH QUESTIONS

The centennial celebration of workers' compensation in California 1914-2014—coming as it does in the midst of the prolonged and difficult implementation of SB863—provides a convenient opportunity to take a long look back, a careful look forward, and ask some tough questions about the last 100 years of supposed progress and reform in the Golden State. So that’s exactly what we did. With a big assist from Robin E. Kobayashi, the editor of this LexisNexis Workers’ Compensation eNewsletter California Edition, we approached a diverse group of California workers’ comp thought leaders to survey what they really thought about the performance of California’s social bargain between workers and employers and the progress of its constitutional goals for workers’ compensation. We also asked how these individuals would improve the system and what they thought about the future of workers’ compensation in California.

Our group of California thought leaders was incredibly generous with their time, and they all had a LOT to say. So although their excerpted statements are included throughout this article, everyone who subscribes to the LexisNexis Workers’ Compensation eNewsletter California Edition is granted exclusive access to the full text responses submitted by Pamela Foust, Julius Young, Suzanne Guyan, Barry Bloom, Melissa C. Brown, David Bryan Leonard, Barry Lesch, and Mark Webb. The link to the survey document will be included in the March 10, 2014 issue of the eNewsletter.

Author’s tip: If you haven’t subscribed yet to the free LexisNexis Workers’ Compensation eNewsletter California Edition, now would be the time to rectify that oversight. Sign up here to receive your free weekly eNewsletter.

SOME HISTORICAL PERSPECTIVE

Although the beginnings of the injured workers’ safety net began in Germany when Chancellor Bismarck established the German Employers’ Liability Law in 1871 and the Workers’ Accident Insurance in 1884, to provide a modicum of social protection for workers in key industries such as railroads, mining, quarries, and factories, one of the greatest challenges in the principles of law in 1884 California—which like Germany was wrought by the factory system and the railroads—was in relation to the liability of employers for injuries received by their workmen. The California Commissioner of Labor Statistics in his first biennial report of the Labor Statistics Bureau recommended in 1884 that California look to some of the European industrial acts to see if similar legislation should be enacted, but California employers rarely assumed liability for workers’ injuries and practically never suggested assuming liability by special contract. Employers hung their felt derbies and top hats on the unholy trinity of defenses—assumption of the risk, the fellow servant doctrine, and contributory negligence—and went so far as to require that workers sign documents releasing an employer of all liability for any injuries as a pre-condition for hire.

An amalgam of events occurred over the next 30 years that brought the concept of California’s social bargain between injured workers and employers and the constitutional goals of the workers’ compensation act to the forefront. The Industrial Revolution and urbanization moved farmers and craftsmen to factories and construction jobs. Crystal Eastman conducted the Pittsburgh Survey by interviewing families of injured workers and men killed on the job to show how survivors bore the economic brunt of accidents that were in large part the employer’s fault. And the Triangle Shirt Waist Fire in which 146 workers on the eighth and ninth stories of a factory building jumped to their deaths—during a blaze that could have been ignited by any one of a laundry list of obvious fire and safety hazards—because fire ladders reached only to the sixth floor.

This was a time of wildly divergent ideological extremes. It was the Lochner Era, when the United States Supreme Court by a vote of 5-4 called a New York law limiting the number of hours a baker could work in a week an “unreasonable, unnecessary and arbitrary interference with the right and liberty of the individual to contract.” Lochner v. New York, 198 U.S. 45 (1905). But it was also the Progressive Era, when the growth of mass circulation newspapers and magazines helped forge a national movement for workers’ safety and health, and authors such as Upton Sinclair, Lewis Hine, and Crystal Eastman drew attention to those laboring in hazardous jobs and industries.

Author’s tip: For additional information about the historical underpinnings and early development of workers’ compensation in the State of California, see the following:

State Compensation Insurance Fund 100th Anniversary, History

RAND Monograph Reports, MR-919, The History of Workers’ Compensation in California

Teferi, Elias, A Study of the History and Transformation of the California workers’ Compensation System and the Impact of the New Reform Law: Senate Bill 899 June, 2010, Pepperdine University Graduate School of Education and Psychology, dissertation submitted June, 2010

Boynton Act: 100 Year History of CA Workers’ Compensation, presentation given by Glenn Shor, Ph.D., California Department of Industrial Relations, UC Berkeley Center for Occupational and Environmental Health (COEH), at the 2014 California Division of Workers’ Compensation Educational Conference.

CALIFORNIA GETS WITH THE PROGRAM

Before 1911, California had been nothing short of backwards in legislating for the welfare of its workers. But after the Triangle fire, the California legislature adopted the State’s first workers’ compensation law, known as the Roseberry Act, Stats. 1911, ch. 399, § 3. As explained in the Hanna treatise:

“This Act abolished the common-law defenses, except the defense of contributory negligence, which was materially modified, and imposed liability for compensation ’without regard to negligence’ for injuries accidentally sustained by an employee while ’performing service growing out of and incidental to’ his or her employment. Under the Act, the employer was not liable for compensation if the injury was caused by the employee's own willful misconduct. When the injury resulted from the employer's personal gross negligence, willful misconduct, or violation of any statute designed for the protection of the employee from bodily injury, the injured employee was permitted to choose between workers' compensation and a common-law action for damages. In all other cases, the right to recover compensation was the employee's exclusive remedy against the employer. The Roseberry Act was elective in character, and relatively few employers chose to become subject to its provision.” Hanna, California Law of Employee Injuries and Workers’ Compensation, Ch. 1, § 1.01[3][b] (Lexis Store) (lexis.com) (Lexis Advance).

In 1913, the California legislature enacted the first compulsory workers’ compensation law, known as the Boynton Act. Stats. 1913, ch. 176. According to the Hanna treatise:

“The Boynton Act was made applicable to all but a few specifically designated employments. Jurisdiction over industrial injuries was removed from the civil courts except as to (1) excluded employments, (2) uninsured employers against whom injured employees might seek damages as well as compensation, and (3) injuries or death caused by the employer's gross negligence or willful misconduct, in which event the employee had the choice of compensation or a suit for damages. The factor of negligence was eliminated, except as it was involved in these instances. The Boynton Act further provided that the employer was not liable for compensation if the injury was caused by the employee's intoxication or willful misconduct. It strengthened the powers of the Industrial Accident Commission, extended greater control over compensation insurers, and authorized the Commission to prescribe safety regulations for employers.” Hanna, California Law of Employee Injuries and Workers’ Compensation, Ch. 1, § 1.01[3][c] (Lexis Store) (lexis.com) (Lexis Advance).

The Boynton Act also established the State Compensation Insurance Fund, “a self-supporting, non-profit enterprise that provided workers’ compensation insurance to California employers at cost, with no financial obligation to the public….[T]he State Fund’s mission was to provide an available market for workers’ compensation insurance at fair rates, and to serve as a model for all carriers.” State Compensation Insurance Fund 100th Anniversary, History

Thus, January 1, 1914, the effective date of the Boynton Act, marked the beginning of a workers’ compensation system in California.

Following somewhat on the heels of the Boynton Act, the legislature adopted the Workmen's Compensation, Insurance and Safety Act of 1917. Stats. 1917, ch. 586. The Hanna treatise explains:

“The stated purpose of this Act was to provide a complete system of workers' compensation to relieve employees and their dependents from the consequences of any injury incurred by an employee in the course of his or her employment irrespective of the fault of any party. This Act reenacted many provisions of the 1913 law, but rendered the status of uninsured employers sufficiently burdensome so that coverage was practically compulsory.” Hanna, California Law of Employee Injuries and Workers’ Compensation, Ch. 1, § 1.01[3][d] (Lexis Store) (lexis.com) (Lexis Advance).

Since 1917, California's workers' compensation law has been regularly amended, most recently in 2012 with the SB863 reforms, which contained key provisions that took effect on January 1, 2013, as well as on January 1, 2014, which, ironically, was the 100th anniversary of workers’ compensation in the State.

Author’s Tip: Practitioners who want to keep up with the cutting edge of SB 863 reforms should subscribe to the California WCAB Noteworthy Panel Decisions Reporter. Unlike other services that require you to wade through hundreds of cases each month to find interpretations of SB 863, we do the work for you AND provide succinct and unbiased headnotes written by California workers’ compensation experts. No other service provides anything comparable.

CONSTITUTIONAL UNDERPINNINGS

Although the principles of workers’ compensation represented a radical departure from established legal precepts, and resulted in an early judicial tendency to deem that such legislation violated various basic provisions of the federal and state constitutions (such as due process, equal protection, freedom of contract, and right to a trial by jury), the California Constitution has been amended three times in an effort to assure the validity of workers' compensation legislation. As explained in the Hanna treatise:

“The first amendment, Article XX, Section 21, was adopted October 10, 1911, to provide a constitutional basis for the elective Roseberry Act that had become effective September 1, 1911. This amendment authorized legislative action to establish a liability on the part of employers to compensate their employees for industrial injuries irrespective of the fault of either party, and to provide for the settlement of compensation controversies by one or more of several enumerated methods.

“A second amendment, Article XX, Section 17 1/2, was adopted on November 3, 1914. It authorized the legislature to provide for a minimum wage for women and minors, and for the comfort, health, safety, and general welfare of any and all employees. Its primary purpose was to validate the program of social advancement that included various laws dealing with improvement of working conditions for women and children, but it also was intended to be constitutional ratification for the measures that had already been taken to provide for safety in employment under the Industrial Accident Commission administration.

“The third and final amendment was a complete revision of Article XX, Section 21 (now California Constitution Article XIV, Section 4), adopted November 5, 1918. It was conceived as a part of the Industrial Accident Commission's program to strengthen the workers' compensation system, which program had led to the adoption of the comprehensive Workmen's Compensation Act of 1917. This amendment incorporated all of the pertinent substantive provisions of its predecessors, and provided full authorization for legislative action in respect of a complete system of workers' compensation, including all phases of insurance and safety, irrespective of the fault of any party.” Hanna, California Law of Employee Injuries and Workers’ Compensation, Ch. 1, § 1.02[2] (citations omitted) (Lexis Store) (lexis.com) (Lexis Advance).

GETTING SOME TOUGH ANSWERS

We don’t recount this historical tale to enable California to congratulate itself on a job well done. Indeed, California’s workers’ compensation legislation is perpetually unfinished and a source of unending debate. And the workers’ comp industry in general can hardly pat itself on the back for legislation enacted 100 years ago in response to horrific events when similar tragedies such as the 2012 Tazreen Fashions factory fire that killed 112 workers, followed by the even more stupefying building collapse several months later that cost the lives of 1,100 workers, continue to occur. And it begs the question about the continued viability of California’s social contract, which our California thought-leaders addressed head-on.

NOTABLE QUOTABLES

1. THE SOCIAL BARGAIN BETWEEN WORKERS AND EMPLOYERS

The first question we asked our diverse group of California thought leaders to answer was:

How do you view the performance of California's social bargain of no-fault compensation coverage for employees in exchange for elimination of employer tort liability? Are the constitutional goals of the workers' compensation act being achieved?

While most thought that the social bargain had achieved great progress, our thought leaders were almost unanimous in agreeing that the social bargain had eroded due to a variety of reasons.

Barry Bloom of The bdb Group, who had the most positive response to the social bargain question, responded that “[a]lthough the current CA workers’ compensation system is fraught with litigation and substantial ‘frictional expense,’ I believe the ‘...social bargain of no-fault coverage...’ is performing well in respects to the provision of benefits to injured workers and the exclusive remedy and the elimination of employer tort liability.”

Others, however, were more critical of how the social bargain has played over the century, especially during more recent times. Melissa C. Brown, of Farrell, Fraulob & Brown, PLC, commented that “the past 25 years of regressive legislation has resulted in public policy that has eroded the rights and benefits of injured workers and their families” and that these reforms have “resulted in more complexities, more costs paid to entities other than injured workers, more bureaucracy and inefficiencies.” According to Brown, “today’s system fails the constitutional mandate of a complete and adequate system of compensation for the benefit of injured workers, that is expeditious and without encumbrance.”

A majority of the thought leaders responding to our questions generally agreed with Brown’s assessment. Pamela Foust, Vice President Claims Legal, Zenith Insurance Company, stated that “[c]ertainly we have achieved great progress when you consider that a little over a hundred years ago, a worker would be out of luck if his own carelessness contributed to the injury or he was injured doing the job he was hired to do and thereby assumed the risk.” But as Foust pointed out, “today, a hundred years later, the reality of workers’ compensation litigation bears little resemblance to the original vision.”

Suzanne Guyan, Workers’ Compensation Consultant, replied in a similar vein. While Guyan recognized that today’s workplace is much safer, she believed “employers in California pay too much in administrative expense in order to deliver benefits to injured workers” and that these higher administrative costs “do not translate into consistently superior outcomes for injured workers in California.”

According to David Bryan Leonard, Attorney at Law, the status of California’s workers’ compensation system needs to be viewed with the perspective observed by the California Supreme Court in S.G. Borello & Sons, Inc. v. Department of Industrial Relations ((1989) 48 Cal.3d 341 [256 Cal. Rptr. 543, 54 Cal. Comp. Cases 80]). “California has drifted away from protecting society from the cost of industrial injuries,” says Leonard. “The Constitutional mandate for the provision of prompt medical treatment to cure or relieve the effects of an industrial injury has significantly eroded. In addition, we are now in an environment that promotes the strong incentive to shift treatment to other available services provided by non-compensation medical plans.”

Barry Lesch, Managing Editor, California Workers’ Compensation Reporter; Of Counsel, Laughlin, Falbo, Levy & Moresi, LLP, opined that while “Article XIV, §4 of the California Constitution gives the Legislature the power to create and enable the state worker's compensation system which ’shall accomplish substantial justice in all cases expeditiously, inexpensively, and without encumbrance of any character’", 100 years later these are “empty words, at least when you're talking about litigated cases.”

Julius Young, Partner, Boxer & Gerson, LLP; http://www.workerscompzone.com/, also referred to the complexities and increased costs associated with California’s panoply of reforms when he remarked that the social contract has not been achieved. “Politicians and DWC system administrators rarely reference the constitutional requirement of adequate benefits,” explained Young. “Consensus on the subject of what constitutes adequate remains elusive. But the constitutional mandate of expeditious, inexpensive and unencumbered justice has not been met.” Young also believed that the workers’ comp system has become more complex, “requiring workers to seek treatment upon a narrowly circumscribed path.” He further observed that “there remains a tension between policymakers and stakeholders who envision a ‘cookie cutter’ justice system and those who seek to preserve a system of more individualized compensation and treatment.”

Finally, Mark Webb, Vice-President & General Counsel, Pacific Compensation Insurance Company, introduced a very different perspective on the social bargain, questioning whether it should be reevaluated now that 100 years have passed since its creation. Advocating for an updated social bargain and mentioning Oklahoma (and by implication its recently enacted opt-out legislation) as a potential sign of things to come, Webb asked us to consider what the bargain should be today. “We now have a host of social insurance programs at the state and federal levels that clearly did not exist when workers' compensation laws were initially enacted,” says Webb. “This raises the question of how much longer do we need a workers' compensation system that remains fundamentally unchanged for one hundred years? The response is that we are now seeing more and more interest by large, national firms looking to bring occupational injury and illness into the broader context of employee benefits and not have the costs associated with complying with multiple state workers' compensation systems.” Webb warned that “[t]he efforts of system participants to better align the system as it exists with the goals that were established a century ago frequently produce unintended consequences of almost Newtonian magnitude. This has been the case with every major legislative, regulatory, and judicial action for the past twenty years. And it will be the case with Senate Bill 863.”

MORE NOTABLE QUOTABLES

2. Improving the Current Workers’ Compensation System

The second question we asked our group of California thought leaders to answer was:

How would you improve the current system?

Once again, each of our California thought leaders provided particularly well-reasoned (and lengthy) responses to this question, which is why I once more encourage eNewsletter subscribers to take the time to read everyone’s full text responses. There’s a lot of thought-provoking stuff there for you to consider. For example, Bloom suggested ways to reduce expenses and improve the quality of medical care when he recommended “[t]ighter control on predatory practices, transformation from a paper-based system to an electronically paperless platform, and greater efficiency and speed in processing lower-level uncontested claims in a fair and complete manner is crucial.” Bloom made further recommendations for an unbiased, non-advocating workers’ compensation judiciary, and the use of “universally accepted performance metrics” to measure the success of and areas of improvement for the system.

Leonard was a little more direct when he suggested these areas of improvement: “Apportionment theory, Temporary Disability caps, and the return of the treating physician decision making authority.”

Brown provided an interesting response that includes many supporting examples to support her recommendations to “[s]crape the flawed utilization review, IMR, MPN and PQME systems.” Brown also pushed for safety and prevention and “judicial review of all matters, required by the constitution,” because it has proven “to be the best and most expeditious way to ensure due process of law to all parties.”

Guyan, however, voiced her support for IMR. “The IMR early stats are clearly showing disputes are resolved timely and more frequently than not supporting the utilization review decision, particularly with Schedule II drugs,” says Guyan. She also recommended that we “[r]educe friction in the system. Reduce the number of issues that wind up in litigation by imposing clearer/mandatory processes for resolving medical, billing and disability disputes. Focus on the right incentives and outcomes, which is return to work through quality medical care.”

Foust suggested finding ways to simplify the process and figure out how to trust each other, to some degree. She also advocated the launch of a public relations campaign to discourage inappropriate conduct. But her final idea for improvement really got down to brass tacks when she suggested putting together “a committee of appropriate individuals, which would include a couple of high school English teachers, to go through the Labor Code, cut out the dead wood, fix the inconsistencies, and translate the whole thing into plain English that anyone could understand.”

Lesch was highly critical of recent changes, which he believes will lead to further litigation. “Doubtless, there are some, perhaps many, who believe that a tweak here and a pinch there is all that's needed to make the engine purr,” says Lesch. “SB 863 was an effort to tweak some of the problems created by SB 899 and brought us independent medical review and the supposed abolition of the diminished future earning capacity portion of ratings, at least for cases under 100%, among other things, but these tweaks are now or are going to be grist for the litigation mill.”

Webb bluntly suggested that California “take workers’ compensation off its island,” and used the debate over opioid abuse as the best example of a workers’ comp cost driver that is in reality a much larger public health crisis. But Webb’s most provocative suggestions involved improving state systems by creating an effective way for disabled workers to reenter the workforce: “[U]tilize the money in the newly minted return to work program to provide early intervention, assistance, and opportunities for those who want to return to work. It would not only be more consistent with the concept of return to work…but it also will provide true mitigation of the effects of the injury in the long term.” Webb, though, recognized the challenges for his idea, noting that “as long as cash is king in this system, we will continue to fight battles—lengthy battles—over how disabled a person is without adequate regard for what the person is able to do once permanent and stationary.”

Young provided a laundry list of ideas (some big, some small) that he felt were worth looking at, including, for example: the QME panel process; tighter controls on when opioids can be prescribed, revision of UR procedures; study of treatment access problems, and revisiting the current IMR system.

BUT WAIT! THERE ARE MORE NOTABLE QUOTABLES

3. To Infinity and Beyond

The final question we asked our group of California thought leaders to answer was:

What is the future of workers’ compensation in California?

The responses from our California thought leaders on this topic ranged from awfully grim to hopefully optimistic.

Bloom’s comment was as direct and pointed as a Twitter post: “The answer is simple: if systemic change (on all sides) is not made and enforced, we will continue to have ‘more of the same.’

Leonard’s view of the future of workers’ compensation in California was similarly unadorned. He stated in no uncertain terms that: “The underlying social bargain motivating the creation of the Act is going to be forgotten.”

Brown’s equally pointed response focused on social consequences. In her view, the future of workers’ compensation in California is: “Not rosy. We are a society of workers. The loss of a job due to an injury is more than the loss of a paycheck. It is self-esteem. Injured workers want to get back to work.”

Guyan focused on another set of consequences relating to the labor market’s growing obesity: “Looking ahead as the labor market becomes more obese, the costs of treating workers’ compensation injuries may reach seven times greater than today. Until more employers incorporate wellness as part of their safety program, the future of workers’ compensation will be stretched with the health risk factors of the workforce.

Lesch’s comments seemed to suggest that more band aids would continue to be applied to serious wounds. He predicted: “The likelihood is that we will see more tweaking and patching in the coming years, rather than anything more fundamental being done to create some equilibrium between needs and obligations of the injured worker and his or her employer and possible insurer.”

Young shared a similar view: “Near term, I foresee a cycle where there is tinkering with regulations, fee schedules, and rules over the next several years, but little fundamental change in the system.”

Webb’s comments about the future demonstrated his firm grasp of the intricacies at work in the California workers’ compensation system and clarified the factors with the most significant future impact. “There are tough times ahead,” he said. “Part of that is because we still have a great deal of uncertainty as to how SB 863 is going to be interpreted and how behaviors may or may not change given the various amendments that legislation made.” Webb noted the ongoing litigation about the lien activation fee, and the need for the Appeals Board “to clarify the nature and extent of its jurisdiction on utilization review/independent medical review disputes consistent with the lengthy expressions of intent from the Legislature.” Webb further noted that “[t]he four corners of the AMA Guides remain elastic and now that the Guzman decision has been enshrined we are waiting to see how the four corners of new Labor Code Sec. 4660.1 will be stretched as well.” Webb warned that going forward, “we must resist the temptation to look to Sacramento for yet another layer of paint to be applied to the system when SB 863 hasn't finished drying.”

But once again, Foust expressed the most fervent belief in who she calls the “brightest and best among us” to figure out a way to weather the storm, as well as the most positive outlook for the future of workers’ compensation in California when she explained the cyclic nature of legislative reforms: “[T]he Legislature enacts reforms that are designed to address perceived systemic abuses. The reforms have a life of their own and spawn unintended consequences. After a couple of years of legal haranguing and interpretation things settle down and gradually new and unforeseen problems come up. When the situation again reaches the breaking point, there is another big reform and the whole process starts all over again.” Whether or not we continue to go down this path, Foust believed that “no matter what happens, workers’ compensation will survive and the brightest and best among us will find creative ways to cope and even thrive.”

THE MORE THINGS CHANGE . . .

While the California legislature continues its annual habit of introducing new workers’ compensation legislation in every new session, providers, insurers, and attorneys from all sides of the equation continue to complain about increased complexities and costs, lack of medical care, longer claims durations, and a host of problems surrounding a claimant’s return to work. The nature of the problem—continued change resulting in very little actual improvement in the system overall—was clarified at the DWC’s 21st Annual Educational Conference in February 2014. For example, when the DWC’s Acting Administrative Director and Chief Judge led a session entitled “SB863 One Year Report Card,” the discussion became unavoidably mired in implementation details involving the QME process, physician fee schedules, and liens instead of allowing the standing-room-only crowd to hear these two workers’ comp powerhouses speak about possible regulatory paths to true progress and reform. Similarly, Chairwoman Caplane, who led the session entitled “The View from the 9th Floor: WCAB Recon Unit” spent the greater part of her presentation explaining how the increased difficulties from SB 899 and SB 863 have caused a case backlog.

California applicant’s attorney Robert Rassp (another well-known workers’ comp thought leader and LexisNexis author), who also spoke at the DWC Conference, put the issue into perspective when we asked him on the conference exhibit hall floor whether the social compact between California workers and employers was still alive. Rassp replied that the social compact is not alive, noting that “the system is too adversarial, and there is too much conflict and friction built into the system….This is just an extension of the management and labor dispute. As long as there is management and labor, there will be disputes, and injured workers are in the middle. Neither side wants to deal with that.”

So for the time being, at least in California, it appears that the more things change, the more they will continue to stay the same.

WHAT DO THE REST OF YOU THINK?

As a final note, we would like to encourage our readers to visit the Workers’ Comp Analysis Group on LinkedIn to share their own views. Click on this link for our post on LinkedIn, and let the community of over 22,500 workers’ compensation professionals hear what you think about California’s progress and performance in the workers’ compensation arena. If you haven’t already signed up for the Workers’ Comp Analysis Group on LinkedIn, click here.

© Copyright 2014 LexisNexis. All rights reserved.

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