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Workers’ Comp Agency Declares Oklahoma Opt-Out Statute Unconstitutional

February 29, 2016 (12 min read)

The Oklahoma Workers’ Compensation Commission’s decision may ultimately have set up a collision between ERISA preemption and the Oklahoma State Constitution

By Michael C. Duff, Assoc. Dean of Student Programs and External Relations, and Centennial Distinguished Professor of Law, University of Wyoming College of Law

On Friday, February 26, 2016, the Oklahoma Workers’ Compensation Commission (“WCC”) declared the Oklahoma “Injury Benefit Act”—the formal title of the Oklahoma workers’ compensation “opt-out” provisions—unconstitutional. This article addresses the WCC’s findings, discusses critical portions of the decision’s rationale, and explains procedurally what is likely to happen next in the case.

Factual Backdrop and WCC’s Decision

Jonnie Yvonne Vasquez alleged that she was injured at work in the shoe department of a Dillard’s department store in September 2014, when her left shoulder and upper neck “popped” while she was lifting shoeboxes. Subsequently, she received medical treatment and was diagnosed with an aggravation of a pre-existing back condition. Dillard’s, under the Injury Benefit Act, had opted-out of the traditional Workers’ Compensation Act, the formal title of which is the “Administrative Workers’ Compensation Act,” and created an “alternative benefit plan.” Under this “alternative benefit plan,” Dillard’s denied Ms. Vasquez’s subsequent claims for wage loss and medical benefits, including requests for a diagnostic MRl. An internal appeal committee, created under the terms of Dillard’s alternative plan, upheld the denial because, it contended, the claim for benefits did not concern an “injury” as defined under the plan. Vasquez seasonably appealed to the WCC, in accord with the procedures of the Injury Benefit Act.

The WCC not only reversed the internal denial of benefits by the plan, it declared the entire Injury Benefit Act unconstitutional. The lynchpin of the WCC’s decision was its conclusion that the Injury Benefit Act permitted employers to define unilaterally the injuries they cover. Thus, while the Injury Benefit Act borrows from the Administrative Workers’ Compensation Act “standards for determination of average weekly wage, death beneficiaries, and disability,” the WCC noted that “no other provisions of the Administrative Workers’ Compensation Act defining covered injuries, medical management, dispute resolution or other process, funding, notices or penalties shall apply or otherwise be controlling under the Oklahoma Employee Injury Benefit Act, unless expressly incorporated.” The WCC accordingly found that employees of opt-out employers, like Ms. Vasquez, were treated differently than other injured workers in the state under the Injury Benefit Act, and that this creation of “a dual and differing system of compensation” of injured workers led to the conclusion that the Injury Benefit Act:

1. Violates the constitutional prohibition in Oklahoma of enactment of “special laws;”

2. Violates the Oklahoma state constitution’s due process clause (essentially under what in many jurisdictions would be considered an equal process analysis);

3. Violates the access to court requirements of the Oklahoma constitution because an employee denied coverage under the Injury Benefit Act is unable to bring a court challenge for recovery of damages since the traditional “exclusive remedy rule” utilized under the traditional “Administrative Workers’ Compensation Act” continues to be applicable under the Injury Benefit Act.

Having reached these constitutional conclusions, the WCC ordered that the Vasquez case be “referred” to a WCC Administrative Law Judge for a hearing on the merits applying the provisions of the Administrative Workers’ Compensation Act instead of the Injury Benefit Act, but staying its referral pending any appeal that might be lodged.

Because Dillard’s, as an opt-out employer, had obviously not secured workers’ compensation insurance under the Administrative Workers’ Compensation Act, the WCC found that Dillard’s liability “is limited to that of an employer who had complied with the provisions of the Administrative Workers’ Compensation Act.” Presumably this means that Dillard’s would be protected by the Exclusive Remedy Rule and not liable in tort in connection with the facts underlying the Vasquez case. Dillard’s would also be generally immune from tort suits for ninety days, by which time it would be required to have obtained insurance in compliance with the traditional Act. Finally, the WCC stated that “[the Oklahoma Supreme Court] is required to retain [an] appeal [from the Vasquez order] and must consider the case on an expedited basis.” (The portions of the Order mentioned in this paragraph parallel the requirements of Section 213 of the Injury Benefit Act).

Critical Portions of the Decision’s Rationale

Although there will be much to discuss in Vasquez in the coming weeks and months a few portions of the decision stand out as especially notable. First, the WCC, an administrative agency, made a number of sweeping constitutional pronouncements, deeming itself entitled to do so as a court of “competent” jurisdiction. Second, the WCC, a state body, made a series of findings concerning ERISA, a federal statute that generally and aggressively preempts state law (though state and federal courts have concurrent jurisdiction in ERISA cases). Third, with respect to the merits of the constitutional claims, the WCC purported to strike the Injury Benefit Act on rational basis review in an equal protection/due process challenge, essentially finding that the enactment of the Injury Benefit Act was arbitrary and without rational foundation.

“Court” of “Competent” Jurisdiction

As the WCC noted, administrative agencies in Oklahoma (and in many other states) are not authorized to determine constitutional questions. However, the WCC contended that because the legislature had conferred authority upon it to act as a “court of competent jurisdiction” within the meaning of ERISA’s enforcement provisions, in ERISA Section 502(e), it, in effect, created a court of general jurisdiction with authority to determine state constitutional questions. Section 211(5) of the Injury Benefit Act states that on appeal of a decision by an Alternative Benefit Plan, “The administrative law judge and Commission shall act as the court of competent jurisdiction under 29 U.S.C.A. Section 1132(e)(1) . . .”

There are several interlocking questions to consider. The first question is whether, under the Oklahoma state constitution, the legislature may generally create inferior courts of general jurisdiction. Assuming that it may, an ensuing question is whether the Oklahoma legislature may also create inferior courts of limited jurisdiction, and whether it has been required to utilize particular textual language to signal clearly its intention to do so. It may be argued that the Oklahoma legislature limited the WCC’s judicial authority to much narrower matters. Section 211(5) of the Injury Benefit Act—the Denial of Claim/Appeal Rights section—states that the WCC,

. . . shall possess adjudicative authority to render decisions in individual proceedings by claimants to recover benefits due to the claimant under the terms of the claimant’s plan, to enforce the claimant’s rights under the terms of the plan, or to clarify the claimant’s rights to future benefits under the terms of the plan;

The language at least suggests a more limited focus by the WCC on rights contained and procedures utilized within or through operation of an alternative plan. The answer to the question is the touchstone of the case for all that follows depends upon the WCC’s status as a court. If the Oklahoma Supreme Court concludes the WCC acted ultra vires, it will likely remand the case to the WCC for a more plan-focused review.

Additional problems may lurk in connection with the meaning of “a court of competent jurisdiction.” The “conversion” of an administrative agency to a court raises significant separation of powers and administrative law questions. One can spend a good deal of time in an introductory administrative law class discussing the limits of legislative delegation to administrative agencies. How much greater the difficulty when analyzing delegation issues a legislature attempts to delegate to executive branch officials the authority to act as—no, to be—the judicial branch.

Dabbling in ERISA

The trouble with the WCC’s interpretation of 211(5)—and in defense of the agency a problem created by the text of the statute—is that it directly regulates what the legislature assumes and desires to be ERISA-covered alternative benefit plans. However, the Oklahoma Supreme Court may need to decide whether the Oklahoma state statute’s retained regulation of ERISA plans under Section 211(5) is sufficient on its face to invalidate the provision or even the entire Injury Benefit Act. This is a difficult issue, see District of Columbia v. Greater Washington Bd. of Trade, 506 U.S. 125 (1992) (“Under § 514(a), ERISA pre-empts any state law that refers to or has a connection with covered benefit plans . . . even if the law is not specifically designed to affect such plans, or the effect is only indirect . . . and even if the law is “consistent with ERISA’s substantive requirements . . .”), and it is unclear whether the Oklahoma legislature considered it when enacting the Injury Benefit Act. In a puzzle-like conundrum, however, if the WCC were to conclude that ERISA did not apply to Vasquez’s alternative benefit plan, it would in effect destroy its own jurisdiction. After all, Oklahoma premises the jurisdiction of the WCC and its existence as a “court” on ERISA’s applicability.

Equally puzzlingly, after finding ERISA applicable, the WCC, citing AETNA Health, lnc. v. Davila, 542 U.S. 200 (2004), concluded that the ERISA enforcement provisions of Section 502, of which the WCC is purportedly a part, did not completely preempt the imposition of a state law remedy, including a declaration that the ERISA plan in question is unconstitutional under state law. This conclusion is likely to be challenged since Davila represents Justice Thomas’s earnest attempts to underscore the preemptive force of Section 502.

The WCC’s decision may ultimately have set up a collision between ERISA preemption and the Oklahoma State Constitution. 

Merits of Constitutional Claims

As commentators have been noting, there is simply no question that the Injury Benefit Act fails to require that identical benefits be paid by opt-out employers to their employees as those that are required under the Administrative Workers’ Compensation Act. In a nutshell, if an employee is found to have suffered a compensable injury, the employee is probably entitled to benefits under the Injury Benefit Act as those provided under the Administrative Workers’ Compensation Act. See Section 203(B) of the Injury Benefit Act referencing Sections 45, 46 and 47 of the Administrative Workers’ Compensation Act. As I have written elsewhere, however, Section 203(B) also states,

For this purpose, the standards for determination of average weekly wage, death beneficiaries, and disability under the Administrative Workers’ Compensation Act shall apply under the Oklahoma Employee Injury Benefit Act; but no other provision of the Administrative Workers’ Compensation Act defining covered injuries, medical management, dispute resolution or other process, funding, notices or penalties shall apply or otherwise be controlling under the Oklahoma Employee Injury Benefit Act, unless expressly incorporated.

As the WCC recognized, this statutory language provides employers and insurers with a potent instrument to deny claims. The WCC noted that the language could permit (and did permit in Vasquez) the denial of any injury not covered under the “standards for disability” in the Administrative Workers’ Compensation Act. In Vasquez, the entire case turned on the difficulty of establishing the compensability of a claim in which a pre-existing condition combines with a work-related incident to produce subsequent incapacity for work. Such a claim is difficult under any workers’ compensation statute but it is extremely difficult to prove under the Dillard’s plan, which requires among other things that the pre-existing condition be the “major contributing cause,” in combination of injury scenarios. The Injury Benefit Act facilitates such an outcome. (Indeed, although it is unspoken in the WCC’s decision, there is no reason why the plan would be prevented from simply denying coverage in any combination scenario).

Thus, there is little reasonable doubt that the Injury Benefit Act has created a “dual and differing system of compensation,” as the WCC put it. The constitutional question is whether differing treatment of similarly situated individuals is constitutionally permissible. When such a differing system has been demonstrated the normal route to concluding it is constitutionally objectionable is to allege it violates due process or equal protection provisions in a state or federal constitution. The WCC declined to consider a traditional due process challenge because it concluded the differing treatment of classes of injured workers violated equal protection (although, under the Oklahoma constitution, an equal protection challenge is rooted in the state’s due process clause). The WCC also restricted its analysis to state law constitutional theories. The remarkable aspect of the WCC’s “equal protection” theory was that it did not contend that the Injury Benefit Act was subject to heightened judicial scrutiny because the rights of injured workers were important or fundamental or quasi-fundamental. Instead, the WCC concluded that Dillard’s argument that the enactment of the Injury Benefit Act was not related to a legitimate governmental objective because,

studies on higher workers’ compensation premium rates in Oklahoma; higher permanent partial disability payments in Oklahoma, and other economic data that workers’ compensation reformers have annually trotted out for the past decade or more. While such arguments may support the need for reform, they have nothing to do with a rational-basis for the unequal treatment provided in the statute.

The WCC also rejected out of hand Dillard’s contention that “the dual benefit program and the Opt-Out provision resulted in a more efficient process for adjudicating workers’ injury benefits.” It seems quite plausible that while the operation of the Injury Benefit Act may render claims less successful it will not suspend them because employees will, after all, continue to suffer injury and seek redress for it. Nevertheless, it is relatively rare for statutory benefit or even tort reforms to be struck down on rational basis review. (A discussion of the WCC’s conclusion that the Injury Benefit Act violated Oklahoma’s constitutional prohibition on “special” laws or denial of access to the courts has been omitted).

Procedural Next Steps

As mentioned in the WCC’s order it appears that under Section 213 of the Injury Benefit Act, if any party to the Vasquez order appeals, the Supreme Court is required to take up the appeal on an expedited basis. It seems very doubtful that WCC’s decision would not be appealed and, in fact, great legal complexity may be occasioned if it is not.

For better or worse, it seems quite unlikely we have read the last case on the Injury Benefit Act.

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