Oklahoma Supreme Court Declares “Opt-Out” Unconstitutional

Written by: Brian Mallow, Esq.

Last week, in a 7-2 decision, the Oklahoma Supreme Court struck down the Oklahoma Employee Injury Benefit Act, otherwise known as the “Opt-Out Act,” holding that the Act is unconstitutional under the state’s constitution. The case, Vasquez v. Dillard’s, Inc., has been closely watched since the Oklahoma Workers’ Compensation Commission first declared the statute unconstitutional last fall. Oklahoma is one of two states with legislation that allows employers to “opt out” of the traditional workers’ compensation system and instead create their own plan. Texas has allowed employers (and employees) to opt out since its inception over a century ago. Oklahoma’s legislation was passed in 2013, and over the past few years, similar opt-out legislation has been considered in several other states, primarily in the southeast.

Proponents of opt-out legislation cite lower costs, more control, and better outcomes for employees. Opponents question the effectiveness of medical care, federal preemption, and unequal treatment, which was the downfall of the Oklahoma scheme. Oklahoma’s constitution prohibits the enactment of a “special law” where a general law is applicable. The Opt-Out Act requires benefit plans to set “dollar, percentage, and duration limits” equal to or greater than those required by the Workers’ Compensation Act, and it provides that “the standards for determination of average weekly wage, death beneficiaries, and disability” will be the same. Nevertheless, opt-out employers are not bound by any provision of the Workers’ Compensation Act for the purpose of defining covered injuries, medical management, dispute resolution or other process, funding, notices or penalties. This core provision, according to the Court, creates “impermissible, unequal, and disparate treatment of a select group of injured workers,” making the Opt-Out Act an unconstitutional special law.

It will be interesting to see what effect, if any, the Oklahoma decision will have on the opt-out movement in other states. In a press release, the Association for Responsible Alternatives to Workers’ Compensation (ARAWC) announced that while it is disappointed with the Oklahoma Supreme Court’s decision, the decision should have little impact in other states because the case rested on a unique provision of the Oklahoma state constitution. For its part, ARAWC plans to redouble its efforts in promoting opt-out legislation in other jurisdictions. Critics, however, note that other states have been hesitant to move forward with similar legislation, and they insist that the Oklahoma decision will cause the opt-out movement to lose steam.