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Opting Out: Advising Clients on Workers’ Compensation Alternatives

Fri, 06/26/2015 - 10:33 -- admin25

by Brian J. Fisher

Texas enjoys a reputation of being a little different. In the world of workers’ compensation, that reputation is well-earned. When Texas enacted its first workers’ compensation laws roughly a century ago, an employer’s participation in the State’s workers’ compensation system was optional. As other states amended their laws to mandate employer participation, Texas did not. Accordingly, an employer’s participation in the State’s system remains optional in Texas.

When advising a client considering the “nonsubscriber” option, the client should be educated on both the advantages and the challenges nonsubscribers face. Approximately one out of three Texas employers have decided to opt out of the State’s system, and that number continues to grow—however, it is not the right solution for every employer.

By developing and administering their own programs or plans, many nonsubscribers have discovered a more cost-effective approach to handling and administering on-the-job injury claims. Although an employer may simply “go bare” and not offer an alternative to the State’s system, this is never recommended.

Perhaps the most attractive benefit to nonsubscribing employers is the reduction in costs. In addition to reduced insurance premiums, nonsubscribers that administer their own plans or programs are provided increased control over how injured employees are treated and compensated, leading to lower expenses. Even with the reduced costs, the nonsubscriber can still provide injured employees with benefits that actually exceed those provided under the State’s system. With increased benefits for the employee at a decreased cost to the employer, the decision to become a nonsubscriber can be beneficial not only to the employer but also to the employee.

Nonsubscribers are also in a better position to control fraudulent claims, since they can be directly involved in claims administration. While a subscribing employer in Texas is prohibited from participating in the claims process at all, this restriction does not apply to a nonsubscriber. Therefore, nonsubscribers have greater control over selection of medical providers as well as the medical treatment received by an injured employee. A nonsubscriber may even designate specific medical providers with whom its employees may treat for work-related injuries through the program or plan. This provides the employer with the ability to work directly with providers to ensure that medical treatment rendered is reasonable and necessary and restrictions on work are closely followed.

Finally, the standard for establishing whether an injury occurred in the course and scope of employment is far more favorable to a nonsubscriber. To deny a claim as a subscriber, the employer must prove the employee was not injured during the course and scope of employment, which can be especially challenging in unwitnessed incidents. As a non-subscriber, though, the burden of proof can be shifted so that the injured employee must establish that the injury occurred in the course and scope of employment.

Although the advantages of nonsubscription are numerous, employers must also be aware of certain accompanying challenges. The most significant challenge is usually the increased risk of litigation. Since workers’ compensation benefits provided under the State system are an employee’s exclusive remedy for damages, employees are generally prohibited from bringing lawsuits against employers for on-the-job injuries. In contrast, there is no statutory provision preventing injured employees from doing so.

Additionally, when a nonsubscriber is sued, Texas law mandates that the nonsubscriber forfeits several common law defenses that would otherwise be available. Specifically, nonsubscribers are prohibited from asserting the defenses of comparative or contributory negligence, assumption of risk, or negligence of a fellow employee. Because the defenses are not available to a nonsubscriber, if a jury determines that an employer was negligent in any way – even if the injured employee’s own negligence was the more significant cause of the injury – the nonsubscriber can be on the hook for all damages awarded.

One final drawback for certain employers is the management and administration of an alternate program or plan for injured employees. Although this may be a significant concern for some small employers especially, assistance is available to nonsubscribers through third-party plan administrators at a reasonable cost.

For clients concerned with the rising cost of workers’ compensation premiums on their bottom lines, nonsubscription may be a significant money-saving option. As long as your client is aware of both the benefits and the challenges associated with nonsubscription, opting out of the State’s system is not something that should generally be feared.

Brian J. Fisher is a senior attorney at Kane Russell Coleman & Logan PC. He can be reached at bfisher@krcl.com

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