Tag Archives: administrative law judge

The Bizarre Decision on Oklahoma Option

On Friday, February 26, 2016, the Oklahoma Workers’ Compensation Commission (WCC) offered one of the most bizarre decisions in the history of any such tribunal in the world. The agency, which sits within the executive branch of the state’s government, resorted to a tactic traditionally reserved for the judiciary by pronouncing portions of a state statute unconstitutional—a move that has sent shock waves throughout the workers’ compensation (WC) industry nationwide. This essay is provided to explain how and why such an unprecedented and unexpected event took place.

Although scheduling constraints required the publication of this piece before we at WorkersCompensationOptions.com could incorporate the feedback of Attorney Mark Blongewicz (of Hall-Estill), Mark’s insights are so valuable that we have inserted them in text boxes throughout this updated version of the essay (which first appeared in Insurance Thought Leadership, without such text boxes, on 2/29/16).

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What Does a WCC Do?

The Oklahoma WCC was born in February, 2014. It employs dozens of people and performs numerous governmental agency tasks, but when its three commissioners hear appeals of occupational injury cases, they are referred to as sitting en banc. To our knowledge, all states, territories and the federal government have similar tribunals. Over the past two years, the Oklahoma commissioners sitting en banc have heard dozens of appeals. All of those cases—up until last week—were of the fact-based WC variety.[i] Prior to last Wednesday’s hearing,[ii] the WCC was never in the business of offering opinions on the constitutionality of any laws; it simply, methodically and impressively played an administrative (rather than an interpretive) role.

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Vasquez v. Dillard’s: Background

In September of 2014, Jonnie Yvonne Vasquez claimed that she had injured her shoulder and neck while moving boxes as an employee in the Dillard’s shoe department in Shawnee, Oklahoma. Ultimately, Dillard’s denied the claim, pointing to evidence of a pre-existing medical condition. The commissioners en banc routinely review such disputes to determine whether a denial should be upheld or overturned.

Under traditional WC in Oklahoma, Vasquez’ appeal would have gone first to an administrative law judge (ALJ), next to the WCC en banc and finally, if necessary, to the Oklahoma Supreme Court.

However, because Dillard’s had, prior to the claimed occurrence, become a Qualified Employer per the Oklahoma Employee Injury Benefit Act (OEIBA—think Oklahoma option), the process for appealing this denial followed a different path. One of the hallmarks of opt-out is to avoid litigation,[i] and to that end Dillard’s provided Vasquez an appeals committee—which is similar to what happens across the country in disputes regarding ERISA-governed benefits (e.g., major medical, long-term disability, etc.). The denial of Vasquez’ claim was upheld through the appeals committee process.

Section 211 of the OEIBA stipulates that the next forums for appeal after the appeals committee are the WCC en banc followed by the Oklahoma Supreme Court (mirroring the second and third steps of the appeals process under WC).[ii]

Hence, Vasquez appealed to the commissioners en banc. Dillard’s, however, relying on an ERISA argument which has long been promulgated by Bill Minick of PartnerSource,[iii] attempted to remove the case to the federal level (as ERISA is a federal law). In September, 2015, Judge Stephen Friot of the U.S. District Court for the Western District of Oklahoma remanded the case back to the WCC in no uncertain terms:

The court concludes that the [OEIBA] is part of Oklahoma’s statutory scheme governing occupational injuries and workplace liability; in other words, the OEIBA is part of Oklahoma’s statutory scheme governing workmen’s compensation.[iv]

Since this was the second of two cases that the federal court system drop kicked back to the state level, it seemed to put the argument concerning ERISA’s governance of occupational accidents under the Oklahoma option on the back burner for the foreseeable future. So after this high-profile and unnecessary federal detour, the case came back to the Oklahoma state agency known as the WCC.

The WCC Hearing

When the commissioners took on the Vasquez case, they presumably had no predisposition to offer rulings on the constitutionality of the OEIBA, since their duties do not ordinarily require them to tackle such issues. [i]

Additionally, Vasquez’ counsel stated that ERISA (a federal law) had no applicability to Vasquez’ claim under the Oklahoma option (attempting to appear consistent with the two federal judges who had declined to exercise jurisdiction over such matters). The Vasquez camp did not even believe the WCC had the authority to rule on the constitutionality of the OEIBA (a reasonable position on its face).[ii]

Dillard’s disagreed on both counts, arguing not only that ERISA governed the Vasquez claim, but that the WCC was transformed—for the purposes of this OEIBA case—into the state court of competent jurisdiction under ERISA (29 U.S.C. §1132(d)(1)) with the power to deem statutes constitutional or unconstitutional.

This argument may well have caught the commissioners off guard, as it was completely unprecedented for the WCC. I attended the hearing and estimate that over 90% of the time was spent on esoteric legal concepts mostly unrelated to the matter of whether Ms. Vasquez really did have a pre-existing medical condition that justified the denial of her claim. This was all new territory for this state agency.

As described in more detail below, the WCC granted Dillard’s a hard-fought victory when it ruled, astonishingly, that ERISA applied to Vasquez’ claim. “By golly,” Minick can finally gloat, “we now clearly have case law demonstrating that ERISA applies to the occupational accident aspects of the Oklahoma option!”

But I doubt that Dillard’s bargained for what happened next.

A Pyrrhic Victory

The commissioners accepted the powers Dillard’s argued they had and then used them to rule the OEIBA unconstitutional, simultaneously remanding the Vasquez case to an ALJ to hear within a traditional WC framework and stripping Dillard’s of the perceived advantages of leaving traditional WC to begin with.

The commissioners accomplished this with an unexpected interpretation of Section 211 of the OEIBA. That section spells out the role of the commissioners en banc when hearing appeals. This point is extremely nuanced, so please bear with me as I provide some historical context.

In 2012, the Oklahoma legislature did not pass HB 2155—a bill co-authored by Minick and clearly drafted with the intent to have ERISA as a guiding force. In fact, HB 2155 was littered with the “ERISA” acronym, creating easy fodder for opponents, who used epithets such as “Obamacomp” to strike fear into a very Republican electorate. A year later, the attitude on the Oklahoma option had consolidated: no ERISA. SB 1062 passed with flying colors without one usage of the acronym for the federal law. That cake (SB 1062) baked by the legislature in 2013 was free of any ERISA ingredients—save for one sprinkle on top. The sole remaining vestige[i] that directly points to ERISA is found in Section 211.B.5.:

If any part of an adverse benefit determination is upheld by the committee, the claimant may then file a petition for review with the Commission sitting en banc within one (1) year after the date the claimant receives notice that the adverse benefit determination, or part thereof, was upheld. The Commission en banc shall act as the court of competent jurisdiction under 29 U.S.C.A. Section 1132(e)(1), and 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. [Emphasis added.] 

ERISA includes 29 U.S.C.A. Section 1132.

Even so, the instructions of this subsection might appear to restrict the commissioners to focus merely on the facts of such cases and not on the constitutionality of the statutes governing the cases.

However, the commissioners—feeling their oats as a temporarily recognized court of competent jurisdiction—reasoned that Vasquez’ claims for benefits were “inextricably intertwined” with constitutional challenges, and, hence, that they must address those issues in order to determine Vasquez’ rights.

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Effectively, the commissioners accepted the ERISA arguments advanced by Dillard’s, analyzed them, and then stuffed them into a missile so that they could fire a very loud—even if potentially feckless—shot across the bow of opt-out proponents.

I do not interpret this shot as being fired from a group innately opposed to opt-out. I interpret it as a warning: “Get your $*!# together!”

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For at least three reasons, I’m grateful to the WCC for the timing and meaning of this challenge to the Oklahoma option. First and foremost, as someone who doesn’t belong to the Oklahoma option-ERISA camp, I appreciate the implication that if opt-out proponents continue to rely on ERISA in Oklahoma, they will set themselves back several years by destroying the only viable alternative to WC in the country aside from Texas nonsubscription.[i] Second, the Dillard’s legal team now has time to step back, take a deep breath, and reconsider its strategy before making its case to the Oklahoma Supreme Court. Third, if the in-session legislature so chooses, the law itself can easily be improved upon. The option works, and it is not a sign of weakness but of adaptability to acknowledge that modifications are necessary (as the WCC’s order clearly indicates).

[i] Of course, ERISA is key in Texas nonsubscription. My goal is to craft the best alternatives to traditional WC programs legally possible. More and more, PartnerSource appears to share that goal only if ERISA is involved.

Although Dillard’s appealed this decision on March 17th, we hazard no guess as to what trajectory that appeal will take. As a reminder, I am not an attorney and nothing in this essay—including the remarks of Mark Blongewicz, who has generously agreed to share his expertise for educational (rather than legal) purposes—should be mistaken for legal advice. I should also mention that I do not speak for any associations or lobbyists.

Finally, I am compelled to point out once more that when WC was initially being enacted a century ago, our society was riddled with equal protection, special law and due process concerns. I suspect the Oklahoma option will take less time than WC did in maturing and adequately addressing these issues—if that is what the people of Oklahoma want.

[1] As an example of a fact-based claim, consider the case of a truck driver who lives in one state, is employed by a company with facilities (including payroll) in another and is injured in yet a third while driving on a route. All three states have different WC systems, and an argument could be made for the claim to be handled in any of the three venues. A tribunal such as the Oklahoma WCC would simply focus on the facts of the case to establish some basis to determine which is the correct and best venue.

[2] On Wednesday, Feb. 24, 2016, the WCC en banc was scheduled to hear two appeals: Vasquez v. Dillard’s at 1:30pm, and Pilkington v. Dillard’s at 2pm. The fact that all parties agreed (just six minutes into the session) to combine both cases into a single protracted hearing was only one of many head-scratching developments. All told, the event took about one hour and 45 minutes.

[3] This hallmark is also the call to arms for attorneys, judges and support staff of all stripes who are stakeholders in traditional WC.

[4] We suspect that Dillard’s used a plan from PartnerSource that calls for an employer-designated appeals committee followed by an external appeals committee. Such a two-tiered approach might be well and good in Texas nonsubscription, but it is unproven in Oklahoma. Further, we assert that reliance on any employer-designated appeals committee is unwise based on the opinions of at least two Oklahoma Supreme Court Justices (Coates v. Fallin). I am scheduled to obtain details from the WCC on Feb. 29, 2016,  and confirm the exact procedures of the Dillard’s plan.

[5] There was some ambiguity between the original law (SB 1062) and the original rules set forth by the WCC regarding the post-appeals committee process. That process clearly and statutorily changed for all occurrences after Nov. 1, 2015, thanks to the passage of SB 767—last year’s “clean up” bill. Currently, the next steps for appeal—post-appeals committee—are ALJ, followed by the commissioners en banc and, if necessary, concluded with the Oklahoma Supreme Court (mirroring all three steps from traditional WC). While this complication is relegated to footnote status in this essay, SB 767’s due process improvements are noteworthy on a going-forward basis and a reminder of the legislature’s power to improve/modify the law where appropriate.

[6] Specifically, see pp 67-72 of The Oklahoma Option: Free Market Competition for the Benefit of Injured Workers and Employers.

[7] For details, see our more thorough analysis, An Open Postscript from Daryl Davis and Mark Blongewicz Regarding the Applicability of ERISA to the Oklahoma Option. In that article, we deliberately did not address any circuit split issues between the 5th and 10th Federal Circuits, but will be happy to help explain them to readers who are interested in alternatives to traditional WC.

[8] This is not to diminish the fact that Bob Burke, counsel for Vasquez, “raised several constitutional issues” and during the hearing spent well over 20 minutes ranting about the unconstitutionality of the OEIBA as a matter of habit. The irony of this outcome is accentuated by Burke’s remark when asked if he thought the WCC could rule on the constitutionality of the OEIBA: “No, I don’t think you can. But I wish you could, because I’ve got a number of constitutionality cases in front of the Supreme Court, and I wish I could bring them to you to decide.” To be clear, it was the Dillard’s defense team that insisted the commissioners had such powers.

[9] In its order, the commissioners substantiated those powers with the case of Dow Jones & Co v. State ex rel Okla. Tax Commission.

[10] Some may argue that “plans” and “appeals committees” are inextricably linked to each other and to ERISA. In fact, to read some of Minick’s prose on plans, one would think that any plan ever written is governed by ERISA. University of Oklahoma football coach Bob Stoops, when writing down his game “plan” against Texas next season might consider calling PartnerSource for advice on ERISA compliance. Even industry insiders are often shocked to learn that ERISA never explicitly addresses appeals committees. The reality is that ERISA incorporates several good ideas. The still-maturing OEIBA has demonstrated that it is not at all reluctant to revise, improve upon or incorporate older ideas.

[11] Of course, ERISA is key in Texas nonsubscription. My goal is to craft the best alternatives to traditional WC programs legally possible. More and more, PartnerSource appears to share that goal only if ERISA is involved.

[12] We at WokersCompensationOptions.com apologize if, in releasing this essay the first business day after the WCC’s unexpected ruling, we haven’t quite lived up to the research and editorial standards our readers have come to expect from us. We look forward to posting a better, more thoroughly vetted and substantiated version of this piece as soon as we possibly can.

$1.25M Backpay Highlights Risks of Mismanaging Union Risks In Merger & Acquisition Deals

September’s National Labor Relations Board (NLRB) order requiring the buyer of a California nursing home to pay approximately $1.25 million in backpay and interest, rehire 50 employees and recognize the seller’s union reminds buyers of union-organized businesses of some of the significant risks of mishandling union-related obligations in merger and acquisition, bankruptcy and other corporate transactions under the National Labor Relations Act (NLRA) and other federal labor laws.

Buyer’s Obligations To Honor Seller’s Collective Bargaining Obligations
Under the National Labor Relations Act, new owners of a union facility that are “successors” of the seller generally must recognize and bargain with the existing union if “the bargaining unit remains unchanged and a majority of employees hired by the new employer were represented by a recently certified bargaining agent.” See National Labor Relations Board v. Burns Sec. Servs., 406 U.S. 272, 281 (1972).

In assembling its workforce, a successor employer also generally “may not refuse to hire the predecessor’s employees solely because they were represented by a union or to avoid having to recognize a union.” U.S. Marine Corp., 293 National Labor Relations Board 669, 670 (1989), enfd., 944 F.2d 1305 (7th Cir. 1991).

Nasaky, Inc. National Labor Relations Board Order
September’s National Labor Relations Board Order requires Nasaky, Inc., the buyer of the Yuba Skilled Nursing Center in Yuba City, California, to recognize and honor collective bargaining obligations that the seller Nazareth Enterprises owed before the sale and rehire and pay backpay and interest to make whole 50 of the seller’s former employees who the National Labor Relations Board determined Nasaky, Inc. wrongfully refused to hire when it took over the facility from the prior owner, Nazareth Enterprises.

Before Nasaky, Inc. bought the nursing home, many of the employees at the nursing home were represented by the Service Employees International Union, United Healthcare Workers West (Union). After Nasaky, Inc. agreed to buy the facility but before it took control of its operations, Nasaky, Inc. advertised in the media for new workers to staff the facility and told existing employees at the facility that they must reapply to have a chance of keeping their jobs under the new ownership.

When Nasaky, Inc. took operating control of the facility, facility operations continued as before with the same patients receiving the same services. The main difference was the workforce. The new staff included 90 employees in erstwhile bargaining unit positions, of which forty were former employees of the predecessor employer and fifty were newcomers. Nasaky, Inc. then took the position that the change in the workforce excused it from responsibility for recognizing or bargaining with the union or honoring the collective bargaining agreement between the union and seller Nazareth Enterprises.

When the union demanded that Nasaky, Inc. recognize the union and honor the union’s collective bargaining agreement with Nazareth Enterprises, Nasaky, Inc. refused. Instead, Nasaky, Inc. notified the union that it would not allow the union on its premises, would not honor the union’s collective bargaining agreement with the seller, and did not accept any of the predecessor’s terms and conditions of employment. The union then filed charges with the National Labor Relations Board, charging that Nazareth Enterprises had breached its obligations as a successor under the National Labor Relations Act.

After National Labor Relations Board Regional Director Joseph F. Frankl agreed and issued a complaint, California Administrative Law Judge Gerald Etchingham found all the allegations true based on a two-day hearing. He rejected all of Nasaky’s explanations for why it declined to hire most of those who had worked for the previous employer. See the Administrative Law Judge Decision. Since Nasaky, Inc did not file exceptions, the National Labor Relations Board ordered Nasaky, Inc. immediately to recognize and bargain with the union, hire the former employees and make them whole. The amount of backpay and interest is expected to approximate $1.25 million.

Managing Labor Exposures In Business Transactions
The National Labor Relations Board’s order against Nasaky, Inc. highlights some of the business and operational risks that buyers and sellers can face if labor-management relations are misperceived or mismanaged in connection with business transactions. Because the existence of collective bargaining agreements or other labor obligations can substantially affect the operational flexibility of a buyer, buyers need to investigate and carefully evaluate the potential existence and nature of their obligations as part of their due diligence strategy before the transaction. A well-considered understanding of whether the structure of the transaction is likely to result in the buyer being considered a successor for purposes of union organizing and collective bargaining obligations also is very important so that the buyer and seller can properly appreciate and deal with any resulting responsibilities.

Beyond the potential duty to recognize a seller’s collective bargaining obligations, buyers and sellers also should consider the potential consequences of the proposed transaction on severance, pension, health, layoff and recall and other rights and obligations that may arise. At minimum, the existence of these responsibilities and their attendant costs are likely to impact the course of the negotiations.

When a worksite is union-organized, for instance, additional obligations may arise in the handling of reductions in force or other transactions as a result of the union presence. For example, in addition to otherwise applicable responsibilities applicable to non-union affected transaction, the Worker Adjustment Retraining Act (WARN) and other plant-closing laws and/or collective bargaining agreements may impose special notification or other requirements before a reduction in force or other transaction related activities.

Similarly, the existence of collective bargaining agreements also may trigger obligations for one or both parties to engage in collective bargaining over contemplated changes in terms and conditions of employment, to provide severance, to accelerate or fund severance, benefits or other obligations, to provide continued health or other coverage, to honor seniority, recall or other rights or deal with a host of other special contractual obligations.

Where the collective bargaining arrangements of the seller currently or in the past have included obligations to contribute to a multiemployer, collectively-bargained pension or welfare plan, the buyer and seller also need to consider both the potential for withdrawal liability or other obligations and any opportunities to minimize these exposures in structuring the allocation of the arrangement. In this case, both parties need to recognize that differences exist between the federals for determining when successor liability results under the withdrawal liability rules than typically apply to other labor and employment law purposes.

While buyers and sellers often presume that the stock versus assets sale distinction that typically applies for many other legal purposes will apply, this can be an expensive mistake in the case of determining a buyer’s obligation to honor the seller’s collective bargaining obligations post deal. Likewise, buyers can be exposed to multiemployer successor liability from asset transactions, although it may be possible to mitigate or avoid such liabilities by incorporating appropriate representations in the sale documents or through other steps. Since these multiemployer withdrawal and contribution liabilities generally attach on a controlled group basis, both parties need to properly appreciate and address these concerns early in the transaction to mitigate their risks and properly value the transaction.

In light of these and other potential labor-related risks that may affect corporate and other business transactions, parties contemplating or participating in these transactions are urged to engage and consult with competent legal counsel with specific experience in such labor-management relations and multiemployer benefit plan matters early in the process.