Alternative Workers' Comp Plans Take A Legal Hit

Almost every state has a carefully regulated workers’ compensation system funded by employer-paid insurance premiums. Workers’ comp can be very expensive for employers, many of whom have long sought a less costly, alternative system.

Enter recent legislation in several states that allows employers to opt out of their state workers’ comp system in favor of private, parallel systems.

For example, a 2013 Oklahoma law let employers write their own workers’ comp plans, which could limit the doctors workers were allowed to see, the injuries that were covered and how disputes were settled.

Other states, including Tennessee, South Carolina, Georgia, Mississippi, West Virginia, Wisconsin and Illinois, followed suit with proposals of their own. All the while, they were watching the Oklahoma experiment.

It just suffered what might be a fatal blow in an Oklahoma Supreme Court case involving Dillard’s Department Stores. The chain had opted out of Oklahoma’s traditional state system and created its own workers’ comp plan.

The case involved a shoe department employee who claimed to have hurt her neck and back while lifting shoeboxes. Dillard’s initially paid her medical bills under its alternative plan, but then began arguing that a preexisting condition was to blame for her lingering pain.

She sued, alleging that because she would clearly have received continued benefits under the regular workers’ compensation system in Oklahoma, she was being singled out for different treatment because her employer had opted out.

The Oklahoma Supreme Court agreed, citing big differences between the state plan and the company plan. For example, under Dillard’s plan, employees had to report any injuries by the end of the day instead of having 30 days under the regular workers’ comp system. Dillard’s employees could only appeal their claims to a board consisting of company employees, rather than an independent state agency.

Result: The court scrapped the Oklahoma law and sent the woman’s case to be decided through the regular workers’ comp system.

Time will tell if this case marks the beginning of the end of alternative worker’s compensation systems.

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