Opting out of the grand bargain: a pathway to poverty?

• Author: McNally, Fallon

CONTENTS INTRODUCTION I. A BRIEF HISTORY OF THE GRAND BARGAIN II. WORKERS' COMPENSATION IN OKLAHOMA III. OPTING OUT IN TEXAS IV. THE FEASIBILITY OF EMULATING OPT-OUT ACTS IN STATES WITH CONSTITUTIONAL PROVISIONS CONCLUSION INTRODUCTION

Ah early form of workers' compensation was depicted in Alexander O. Exquemelin's 1678 account of Caribbean buccaneers. (1) According to Exquemelin, the buccaneers drew up "an agreement or chasse partie" as to how to divide the loot up amongst officers, crew members, and crew members wounded during the voyage. (2) This early form of workers' compensation awarded either six hundred pieces of eight or six slaves for the loss of a right arm. (3) If a man were to lose the use of his arm he would be awarded the same amount as if the arm had been severed. (4) And for "a severe internal injury which meant the victim had to have a pipe inserted in his body [he] would earn 500 pieces of eight or five slaves in recompense." (5) The injured buccaneer's share was first withdrawn from the total amount to ensure that the injured man was cared for before the remaining loot was divided up amongst the remaining crew members. (6)

The buccaneers' early form of workers' compensation predates the American system by over three centuries. Workers' compensation programs did not arise in the United States until the Twentieth Century. (7) Workers' compensation developed support as a type of grand bargain between the employee and the employer. Under this system, an injured employee agreed to surrender their common-law right to sue for damages that fell within the scope of workers' compensation in exchange for specific guaranteed benefits. (8) Beginning in the 1980s there was an increase in legislation that was intended to curb the increasing costs of workers' compensation programs. (9) By 1997, over two-thirds of states passed legislation that tended to curb the rising costs by decreasing both the right to compensation and the amount of benefits an injured worker is entitled to receive. (10)

The call for legislative reform to traditional state-run workers' compensation programs continues today. Support has increased within the last few years for alternative "opt-out" programs in response to the perceived failings of the state-run programs regarding both rising costs and decreased benefits. (11) Oklahoma, South Carolina, Tennessee, and Florida proposed legislation that would create alternative opt-out programs to the traditional state-run programs. (12) In 2013, Oklahoma became the second state in the country to pass legislation creating an alternative to the traditional state-run workers' compensation programs. (13) Supporters like John D. Doak, the Oklahoma Insurance Commissioner, assert that alternative plans cut costs while increasing the competitiveness of the workers' compensation insurance market. (14) Proponents allege that private alternative plans decrease costs for companies. (15) In 2016, Oklahoma reported a decrease for the fourth year in a row according to the state insurance program. (16) In 2016, the National Council on Compensation Insurance in Oklahoma filed an overall loss cost decrease of 10.2% for workers' compensation. (17) Supporters credit the decrease in Oklahoma's workers' compensation costs to declines in market experience, market trend, and recent reforms to traditional workers' compensation programs. (18) A recent study by Alison Morantz, a Stanford law professor, supports the proponents' claims and found that companies saved around forty-four percent when they replaced traditional workers' compensation programs with private plans. (19)

In September 2016, the Oklahoma Supreme Court dealt, a striking blow to supporters of opt-out programs when it held that the Oklahoma Employee Injury Benefit Act (20) (OEIBA) was unconstitutional. (21) The Oklahoma Supreme Court's decision does not end the debate surrounding opt-out legislation. (22) Going forward, Texas provides a model for states looking to enact alternative programs, while Oklahoma provides a cautionary tale. Part I of this Comment focuses on a brief history of workers' compensation in the United States. Part II focuses 011 Oklahoma's system of workers' compensation and their implementation of an alternative opt-out program. Part III focuses 011 the opt-out program in Texas and how it survived constitutional challenges, while Part IV analyzes whether the opt-out programs can be emulated in states where the existing system was created by a constitutional provision.

1. A BRIEF HISTORY OF THE GRAND BARGAIN

   Workers' compensation in the United States arose as a result of increasing industrialization in the Nineteenth Century and the influence of systems created in Germany and England. (23) Beginning in the early 1900s, various state commissions began investigations into workers' compensation. (24) Under the "industrial." or "grand," bargain, employees gave up the common law right to bring a negligence action against their employer in return for a predetermined amount of benefits. (25) In 1910, the Uniform Workmen's Compensation Law was drafted during a Chicago conference (26) and New York adopted a type of compulsory workers' compensation system. (27)

   In 1911, however, the Court of Appeals in Ives v. South Buffalo Railway Co., (28) held the New York system to be an unconstitutional taking by imposing liability upon employers regardless of fault. (29) In response to the Ives Court's holding, the New York legislature passed a constitutional amendment, effective January 1, 1914, which permitted a mandatory workers' compensation system. (30) The new workers' compensation law, passed after the amendment, took effect on July 1, 1914, and provided for an exclusive remedy for injured workers who, iti lieu of a jury trial, would receive a set, predetermined amount. (31) Compensation for injured workers was to be provided regardless of fault unless the injured worker intended to injure or cause the death of himself or another worker or if the injury was solely due to the injured employee being intoxicated. (32)

   The new law establishing an exclusive remedy for injured workers was challenged in N. Y. Central Railroad Co. v. White (33) as a violation of the Plaintiff's Fourteenth Amendment rights and limiting the freedom to contract. (34) In a 9 0 decision, the United States Supreme Court held that New York's law did not violate equal protection or due process of law under the Fourteenth Amendment, nor did it limit freedom of contract. (35) This ruling paved the way for the expansion of workers' compensation in other states, and forty states adopted some form of compensation acts by 1920. (36) Mississippi became the last of the then existing forty-eight states to enact a workers' compensation system in 1949. (37) In the subsequent years, workers' compensation coverage was extended by adding jurisdictions and broadening the boundaries of individual acts including people, employment, and the kinds of injury, including occupational disease. (38)

   In 1970, Congress enacted the Occupational Safety and Health Act. (39) This law created the National Commission on State Workmen's Compensation Laws. (40) The Commission was composed of fifteen members appointed by the President tasked with evaluating current programs and making recommendations for improvement. (41) The Commission submitted their final report detailing the inadequacies of existing programs in 1972. (42) The Commission made a large number of recommendations for improvement in their report, including:

   [C]ompulsory coverage in all acts; elimination of all numerical and occupational exemptions to coverage, including domestic and farm labor; full coverage of work-related diseases; full medical and physical rehabilitation services without arbitrary limits; a broad extra-territoriality provision; elimination of arbitrary limits on duration or total sum of benefits; and a weekly benefit maximum that rises from an immediate 66 2/3 percent to an ultimate 200 percent of average weekly wage in the state. (13) The Commission recommended a three year time frame for states to comply with the recommendations before federal intervention to ensure compliance would begin. (44) In the ten years following the Commission's report, state legislation on workers' compensation greatly expanded benefits, including unlimited medical benefits and occupational disease coverage, while an increasing number of employees were covered. (45) The number of covered workers expanded by at least five percentage points in almost half of states between 1968 and 1976. (46)

   Perhaps the marked increase in expanded state coverage throughout the 1970s can be attributed to the looming possibility of federal intervention in the event that the Commission's minimum recommended standards were not met. Throughout the 1970s, federal legislators introduced various bills that were designed to make states meet the Commission's minimum standard. (47) None of these bills passed through Congress, but the possibility of federal intervention lingered over states if they failed to comply. (48) By the 1980s, state focus shifted from achieving the Commission's established standards and turned toward specific problems like asbestos-related diseases. (49) In the mid to late 1980s, state focus once again shifted--this time to curtailing employers' rising costs related to workers' compensation. (50) By 1997, over two-thirds of states had enacted legislation aimed at decreasing workers' compensation costs through a variety of measures while making it more difficult for injured workers to recover for preexisting conditions, repetitive motion injuries, or stress-related cases. (51) The focus on cost reduction continues today with a rise in proposed legislation to allow employers to opt out of state-run workers' compensation programs and instead create alternative private plans. (52)

2. WORKERS' COMPENSATION IN OKLAHOMA

   Workers' compensation was...