WORKER’S COMPENSATION UPDATE 2015
By
WILLIAM R. SACHSE, JR.
PETERSON, JOHNSON & MURRAY, S. C.
wsachse@pjmlaw.com
Updated April 6, 2015
GOV. WALKER PROPOSES MAJOR REORGANIZATION OF WORKER’S
COMPENSATION PROGRAM IN WISCONSIN
INTRODUCTION:
The administration of Wisconsin Governor Scott Walker proposed reorganizing Wisconsin’s worker’s compensation system by amending the Worker’s Compensation Act of Wisconsin in the budget bill released on February 3, 2015. Styled 2015 Senate Bill 21, the bill proposes breaking up the current Worker’s Compensation Division of the Department Workforce Development and moving its adjudicatory functions to the Department of Administration, Office of Hearings and Appeals, and placing the insurance regulation, customer service and claims management functions under the Office of Commissioner of Insurance.
1. THE PROCESS:
Current Law: Since the creation of the Worker’s Compensation Act of
Wisconsin in the early 20th Century, amendments to the law have been proposed
by a committee representing labor and employers throughout the state. Currently called the “council on worker’s compensation” in Wis. Stat. Sec. 102.14(2), and better known as the Worker’s Compensation Advisory Council, the committee proposed amendments to the Act every other year. Its proposed amendments often included changes recommended by the sitting governor’s administration. In most years, the Legislature ratified the council’s proposals and those amendments became law.
Proposed Changes: The impetus to change the worker’s compensation
structure and law appears to have originated in the Department of Administration’s Division of Executive Budget & Finance, according to budget bill drafting instructions released to the public. The administration department also received suggestions from the insurance commissioner and secretary of the Department of Workforce Development’s office. The advisory council, and the Worker’s Compensation Division’s management and staff were not consulted. It
is unclear as to whether any members of the public were aware of the proposed changes in advance. Most, if not all, worker’s compensation attorneys were unaware of the proposed changes. The advisory council has not approved the proposed changes.
Likely Impact: This could be the end of the advisory council’s role in amending
the Worker’s Compensation Act of Wisconsin. While the bill does not amend provisions in the current law regarding the council’s authority, its credibility has been badly damaged by the unilateral action taken by the current administration. It is perceived by labor advocates as a Republican power play. In order for the advisory council’s bipartisan recommendations to become law, legislators must defer to the council’s recommendations. Such deference is only viable if the majority party in the legislature recognizes it. In the past, no political party has attempted to fashion a majority to overrule the council and impose its will on the worker’s compensation system. That likely arises from a fear that the opposing political party, when it takes control, will exact payback and amend the Act to serve its constituents’ interests. Wild swings in legislation lead to instability. Instability usually increases costs. Employers, insurers and employees prefer stability so that they may order their affairs over the long term. If the current Republican majority in the Legislature enacts the changes proposed by the administration, it jeopardizes the comity that exists between the Legislature, the advisory council and, ultimately, the conflicting factions advocating for labor and employers. It is possible that when Democrats take control of the Legislative and Executive branches that they will seek to roll back the current pro-employer changes and enact their own pro-employee policy preferences into law.
The administration touts as examples of model worker’s compensation laws the states of Illinois, Texas and Florida. Claims professionals who work in both Wisconsin and Illinois frequently describe Illinois as more litigious, less predictable and more expensive than Wisconsin. Texas’ law allows employers to withdraw from the worker’s compensation system, forcing employees into the unpredictable civil justice system to obtain relief from work injuries. That leads to “jackpot justice,” where some employees receive windfall judgments while others are denied any compensation and are left to fend for themselves in the social welfare system. Florida’s law was recently declared unconstitutional by a judge for failing to deliver adequate benefits to injured employees. Wisconsin is regularly cited as a model state with relatively reasonable costs and an efficient provision of compensation. The current administration has not identified any major problem with the Wisconsin worker’s compensation system that would justify the wholesale dismantling of the current agency while jeopardizing the bipartisan law making that has produced such an enviable system.
2. STRUCTURE OF WORKER’S COMPENSATION SYSTEM
Current Law: Pursuant to Wis. Stat. Sec. 102.14(1), all matters concerning worker’s compensation are administered by the Department of Workforce Development, Worker’s Compensation Division. That includes regulation of insurance, self-insurance, prompt and adequate compensation payments, medical expense payment disputes, and applications for formal hearing to resolve disputes between employers and employees. The Division has a staff of about 20 administrative law judges who exclusively resolve disputes at hearings. Hearings are typically two to four hours in length and usually involve testimony from the applicant and review of written records. Court reporters record testimony for a permanent record in case of appeal. Decisions are to be issued within 90 days of the close of the record. There is no formal discovery, briefs are rare and administrative law judges typically do not allow opening and closing statements by attorneys.
Division staffers also regulate worker’s compensation insurance policies and make sure that all employers required to have it are insured for work injuries. All policies must cover what is payable under the Worker’s Compensation Act. Other claims-management Division staffers assist employees, employers and insurers by answering questions about the law, monitoring the prompt and required payment of compensation, calculating compensation due to an injured employee, and resolving disputes between employers and medical providers over the cost and necessity of treatment.
Proposed Changes: All functions other than actual formal hearings will be conducted by the Office of the Commissioner of Insurance. Details are unclear, but presumably the entire claims management and insurance regulation staff from the Worker’s Compensation Division will move to the OCI. Their ultimate boss will be the insurance commissioner, not the Department of Workforce
Developmentsecretary.
The administrative law judges will move to the Department of Administration, Office of Hearings and Appeals. The hearing office already has a staff of judges who adjudicate disputes involving other state agencies, including corrections, probation and parole, some property disputes and things like that. While details are still unclear, the hearings and appeals office is likely to require the worker’s compensation judges to adjudicate non-worker’s compensation cases with worker’s compensation cases. Therefore, the judges will not be devoted to worker’s compensation. Procedures are likely to change because the hearings and appeals judges allow for briefing and lawyer arguments at hearings. Hearings are likely to take longer and to cost more because of the time necessary to argue, both in person and on paper. The scheduling process is not clear. Sources indicate that the hearings and appeals judges schedule their own hearings.
Likely Impact: This change is likely to increase the cost of worker’s compensation matters in two ways. First, results will be less predictable. The administrative law judges will have less expertise in worker’s compensation matters. There will be more judges with whom we will be less familiar. It will be difficult to predict outcomes. More appeals are likely to be taken in order for the matter to be considered at a level where there is greater worker’s compensation expertise. There may be more errors to correct. Second, hearings could take longer because lawyers will want to argue at the beginning and at the end. Many will want to file briefs. That will increase costs to the litigants in fees and delay. Without a central authority monitoring the time between application for hearing and hearing, judges who are inclined toward delay will have no disciplinary authority compelling that they move cases quickly through the system. Judges in hearings and appeals are civil servants, just like administrative law judges in worker’s compensation matters.
3. RESPONDENT MEDICAL EXAMINATIONS
Current Law: Wis. Stat. Sec. 102.13(1)(a) allows an employer or its insurance carrier to compel the applicant for worker’s compensation to be examined by a medical practitioner of its choice. Wis. Stat. Sec. 102.13(1)(c) controls when the applicant refuses to attend the exam or obstructs it. It has a two-part punishment system. After the first miss or obstruction, the Worker’s Compensation Division, usually by an administrative law judge, sends a letter to the applicant directing the applicant to attend the exam and, until the exam is conducted, Suspends any movement toward hearing. If a second exam is missed or obstructed, then any compensation that accrues between the first and second exams, if there is one, is barred.
Proposed Changes The amendment to Wis. Stat. Sec. 102.13(1)(c) places authority to determine whether the applicant has missed or obstructed the exam in the hearings and appeals office. It is unclear what procedure actually commences a request for sanctions on the applicant. The intention of the proposed changes appears to be to limit the hearings and appeals function to adjudicating disputes between the parties, not administering any other part of the Act. This is a function that is currently handled by an administrative law judge without a hearing. But if judges are in the hearings and appeals division, will there have to be a hearing on whether the applicant missed the respondent medical examination or obstructed it?
4. COMPROMISE AGREEMENTS
Current Law: Under the current version of Wis. Stat. Sec. 102.16(1), compromises between parties to a disputed worker’s compensation claim are not
valid unless approved by an administrative law judge in an order the Worker’s Compensation Division issues. Judges often deny approvals to protect employees from what they consider a “bad deal” or where the interests of private or governmental third-party interests are unresolved. Such third parties include child-support claimants, Medicare, Medicaid, health insurers and medical-care providers, which often pay benefits that are arguably the liability of the worker’s compensation payer. An applicant may ask the Worker’s Compensation Division to reopen the compromise within one year of the date of the compromise order.
Proposed Changes: Administrative law judges will no longer have to approve compromise agreements for them to have valid legal effect on the parties. The parties will be able to negotiate and conclude settlements on their own. Third parties will have to assert their rights in forums other than worker’s compensation, likely increasing litigation in civil courts. To commence the one-year review period, a party must file a compromise agreement with the Division of Hearings and Appeals. The proposed statute contemplates that the Division of Hearing and Appeals will enter “an award.” It is unclear from the statute as to what “an award” would be, but it might be an order dividing compensation in compromises between the applicant, his lawyer and certain third parties. The proposed changes do not deprive the judges of being able to approve attorney fees, so presumably an order on attorney fees would be required in all compromises.
Likely Impact: In cases without represented parties, it will probably be easier to compromise. Once drafted, the agreement can be filed and, because no attorney fee is involved, no order has to be issued. The act of filing commences the one-year review period. An employer or insurer will need proof of filing in case a review is attempted outside the required period. Judges will have to issue orders in cases involving attorney fees, but the statute seems to remove any authority they have to reject the compromise on any basis other than the payment of attorney fees. Some judges might alter the distribution of the payments between the applicant and the attorney, but that is not likely to impair the compromise itself. Compromise language is likely to stay roughly the same, especially since there is an administrative rule mandating that certain language be in every compromise agreement. There is more uncertainty as to what will happen when an employee requests to reopen a compromised case. In that an administrative law judge did not approve the compromise is the first place, it is likely that there will be more cases reopened than currently occur. Judges are likely to be more sympathetic to arguments from workers that there was an imbalance of power between the worker and the insurer in cases where the worker had no legal representation. Judges may be more sympathetic to applicants who are sued by third parties, such as health insurers, labor union funds, and certain governmental agencies, or where an insurer or attorney allegedly took advantage of the worker and did not disclose the potential liability to those parties during the compromise negotiation process. There is no
authority for an administrative law judge to direct the repayment of compromise funds in cases where matters are reopened.
5. HEARING APPLICATIONS AND OTHER PLEADINGS
Current Law: Applications for hearing are filed with the Worker’s Compensation Division. It requires that hearing applications be on paper and all evidentiary submissions are also to be on paper. Hearing exhibits are on paper. Administrative law judges conduct hearings and testimony is recorded by court reporter. Hearing transcripts are available to the parties after the hearing. Orders are mailed to the parties after the ALJ decides the case.
Proposed Changes: Hearing applications may be electronically submitted. Hearing notices and orders may be electronically issued. Court reporters will be eliminated in favor of digital recording.
Likely Impact: It is unclear what procedures will govern hearings. The Division of Hearings and Appeals handles hearings differently than the current Worker’s Compensation Division handles hearings. Hearings appear to be more detailed before the Division of Hearings and Appeals. There are opening statements and closing arguments. It is unclear whether the Division of Hearings and Appeals will prepare transcripts or simply provide the parties with copies of the recordings. If copies of the recordings are all that is provided, the parties could prepare their own transcripts that might conflict due to ambiguities in the recording. Without an official transcript, there will more be arguments over which exhibits were admitted into evidence and what was said during testimony. Different parties may hear the testimony or recording differently. It is unclear whether the current hearing scheduling process will continue. Supposedly, remote hearings will be preserved so litigants will not have to travel to Appleton, Milwaukee or Madison to have a hearing. It appears the scheduling staff was not transferred to the Division of Hearings and Appeals along with the judges, so the judges may have to schedule their own hearings. Judges may refuse to recognize current rules and may require practitioners to be in two places at the same time. The Division of Hearings and Appeals is also authorized to promulgate litigation forms, so it is possible that key forms like the WKC-16-B might be changed. It is unclear whether any hearing will be held unless a party requests it. Currently, the Worker’s Compensation Division can order a hearing on its own motion because it feels that an employer or insurer is not following the law. Under the change, only the Division of Hearings and Appeals can actually schedule a hearing. If the insurance commissioner feels an insurer should be compelled to make payment, it is unclear whether it has the authority to schedule a worker’s compensation hearing on its own. The insurance commissioner is not authorized under the statute to subpoena persons or documents to a worker’s compensation hearing.
It also appears as though the push toward a paperless system is beginning. The bill allows for the electronic filing of hearing applications and electronic delivery of hearing notices and orders. Because the current statute is silent as to whether evidence has to be in paper or electronic form, the Division of Hearings and Appeals could decide to require that all submissions be electronic, rather than on paper.
7, SUPPLEMENTAL COMPENSATION BENEFITS
Current Law: Under Wis. Stat. Sec. 102.44(1), permanently and totally disabled individuals whose injury occurred prior to January 1, 2001, receive increased compensation to account for inflation called “supplemental benefits.” The amount of the supplemental benefits is determined by the year of the injury and the average weekly wage at that time, as compared to higher wages set forth in various different versions of Wis. Stat. Sec. 102.44(1) previously promulgated. Self-insured employers and insurers are supposed to be reimbursed for supplemental benefits from the Work Injury Supplemental Benefit Fund, but the DWD several years ago suspended those reimbursements two years ago when the Fund neared insolvency. Recent amendments that increased the number of injured workers eligible for supplemental payments and also increased payment rates caused Fund payments to exceed revenues. At present, self-insured employers and insurers are paying supplemental benefits with no reimbursement.
Proposed Changes: The administration’s supplemental benefit proposal is the same as the advisory council proposed in the failed “agreed bill” from the 2013-2014 legislative session. Starting on January 1, 2016, self-insured employers and insurers would pay the supplemental benefits to employees, but would be reimbursed out of general operating funds held by the Commissioner of Insurance. That fund would be created by assessments against only the worker’s compensation insurers, not the self-insured employers.
The reimbursements apply only to injuries occurring prior to January 1, 2016. There will be no reimbursements for any injuries that occur on or after January 1, 2016. However, supplemental benefits will still have to be paid to the employees who sustain injuries on or after that date.
8. ADDITIONAL CONSIDERATIONS
A. The bill must be passed by the Legislature and signed by the governor before it becomes law. The governor indicated he wants the budget bill resolved by June 1, 2015. Provisions regarding worker’s compensation changes are
likely to be considered by labor and joint finance committees of the Legislature before the entire Legislature votes. The planned effective date of changes is January 1, 2016.
B. What is unclear in the bill is how the administrative law judges will interact with the rest of the worker’s compensation staff that remains together in the Commissioner of Insurance’s office. Currently, the legal services bureau of the Worker’s Compensation Division, which includes the judges, drives much of the Worker’s Compensation Division’s policies. The judges interpret the law and educate the claims staff on how the law ought to be applied to given situations. There are many situations that arise during daily claims handling that are not clearly resolved by statutes or rules. Worker’s Compensation Division claims management staffers assist insurers and employers in resolving some of those daily claim handling issues. If matters are complex, administrative law judges guide the claims management staff. The bill provides that three administrative law judges will transfer to the Commissioner of Insurance’s office to assist the claims management staff. Those judges will not try cases because they will be in a different agency than the hearing judges. Will the three OCI judges ultimately lose contact with changes in the law because they will not be actively involved in hearings and other litigation? It is also possible that the judges who go to the Division of Hearings and Appeals will lose their expertise over worker’s compensation law because they will be required to resolve all sorts of different disputes involving laws other than worker’s compensation. These judges will likely no longer devote their time to worker’s compensation seminars because they will need to be experts in other areas of the law. Thus, the quality of judging could deteriorate, as the judges become “jacks of all trades.”
C. Taxpayer impact is also unclear. Currently, all expenses to administer the Worker’s Compensation Act are paid by the state’s employers, either directly when self-insured or through premiums to insurers. The proposed bill seems to maintain that concept, but implementing it may be difficult. First, there will be costs to move the worker’s compensation staff from one agency to two new ones. Sources indicate that the computer systems in the new agencies are not consistent with the DWD’s computer system. One estimate had the cost of that transition at millions of dollars. Moving people, desks, chairs, computers, file cabinets, files and other items will add to the transition costs. They will either come from taxpayer-funded general revenue or increased assessments on the employers and insurers, which will ultimately fall on their customers. Second, once reorganized, the worker’s compensation staff will be in agencies that do other things. If a worker’s compensation ALJ hears a probation case, will hearings and appeals pay for that or will worker’s compensation? How can that be separated? In the OCI, if a worker’s compensation insurance regulator also regulates property insurance, is her full salary charged to worker’s compensation or general revenue? Common sense suggests that accounting for worker’s compensation program costs is
much simpler when all functions were in a separate, dedicated agency, then when spread between two agencies with multiple missions.
CASE LAW UPDATE
1. American Family Mut. Ins. Co. v. LIRC, Appeal No. 2014AP999 (February 26, 2015), not recommended for publication.
The dispute involved the application of Wis. Stat. Sec. 102.11(1)(g), which creates a rebuttable presumption that an employee who sustained a work injury at age 26 or younger is entitled to the maximum average weekly wage for death benefits. To rebut the presumption, the respondent must persuade the trier of fact that it is unlikely that the injured employer would have earned the maximum wage at age 27. In this case, the deceased employee, Juan Camacho, was 17 years old when he died in a farm accident while employed by American Family’s insured Kirk Haslow. Because Camacho died without dependents, the Work Injury Supplemental Benefit Fund was entitled to death benefits pursuant to Wis. Stat. Sec. 102.49(5)(b). The Fund contended that the death benefit should be the maximum for the injury date, while American Family’s vocational expert opined that Camacho was not likely to earn the maximum wage by age 27. American Family’s expert contended that the wage should be no greater than $443.00 per week, which is what he assumed a farm worker in Wisconsin would be expected to earn at age 27. The appeals court held that American Family had to rebut the presumption with a preponderance of the evidence. It held that American Family did not meet that evidentiary test because its vocational expert had no information about Camacho’s preinjury education, talents, abilities and goals in life. Without that information, the expert could not offer a credible opinion on the wage at age 27. The court rejected American Family’s position as based on no evidence.
2. Hurt v. Cole, 2013AP2339 (July 8, 2014), not recommended for publication. Dean Hurt, sole member of Hurt’s Recylcing, L.L.C., retained five other men to demolish a building and recycle the debris. Each of the six men on the project did business as either a limited liability company or sole proprietorship. Hurt sustained injury when ducts fell onto him. He sued two of the men (Cole and Hegna), their companies and their liability insurers, alleging that they negligently caused his injury. Cole and Hegna defended by claiming they were employed by Hurt and could not be sued because Wis. Stat. Sec. 102.03(2), the so-called “exclusively remedy” provision of the Worker’s Compensation Act of Wisconsin, prohibits co-workers from suing each other. Hurt countered that Cole and Hegna could be sued because they were independent contractors under Wis. Stat. Sec. 102.07(8)(b), but Hurt later conceded that Cole and Hegna could not meet the statutory test. He tried to get the court to apply common law independent contractor rules but it refused. Hurt also contended that he was not employed by his company because he did not elect insurance coverage under Wis. Stat. Sec. 102.075(1). The court rejected that
argument, holding that sec. 102.075 governs insurance coverage, while Wis. Stat. Sec. 102.07(4)(a) determines who is an employee. Hurt qualified as an employee under the latter section because he was in the service of Hurt’s Recycling, L.L.C., a separate legal entity, at the time of injury and he performed work normally performed by an employee. Hurt’s lawsuit against Cole and Hegna was dismissed on summary judgment.
3. Adams v. Northland Equipment Co., Inc., 2014 WI 79, 356 Wis. 2d 529, 850 N.W.2d 272
Russell Adams, who sustained a work injury, sued a third party Northland Equiptment Co., alleging that its negligence caused his injury. Pursuant to Wis. Stat. Sec. 102.29(1), the worker’s compensation insurer, League of Wisconsin Municipalities Mutual Insurance Company, which had paid Adams $148,322 in Worker’s Compensation benefits, joined in the lawsuit. Northland offered $200,000 to settle and the League accepted, but Adams refused the offer. The League then asked a circuit court judge to compel Adams to accept the offer and the court agreed. Adams appealed, arguing that by compelling him to settle, the circuit court judge violated Adams’ right to a jury trial under Article I, Sec. 5 of the Wisconsin Constitution. Adams also argued that the judge’s order violated his procedural due process rights. The Wisconsin Supreme Court held by a 5-2 majority that because the right to bring a third party tort claim under sec. 102.29 is “shared,” the circuit court has the power to resolve any dispute between the employee and the insurer that arises “during the prosecution of their claim, including those disputes involving settlement.” The Court further held that Adams’ right to a jury trial was not violated because sec. 102.29(1) “is not the counterpart of a cause of action at law recognized at the time of the adoption of the Wisconsin Constitution.” Moreover, his procedural due process was not violated either because “judicial resolution is part of the statutory claim.” Lastly, the Court held that the circuit court “appropriately exercised its discretion by defining the dispute, taking stock of the relative positions of the parties and considering matters that impacted the fairness of the settlement.” The Court noted that the standard the circuit court should use when deciding whether to compel a party to accept settlement is one that “evaluates whether the settlement is reasonably fair to both parties.”
4. Central Contractors Corp. v. Hawkeye Security Ins. Co., 2014 AP205, 2014AP635 and 2014AP636 (Feb. 4, 2015), not recommended for publication.
The appeals court decided three cases consolidated for appeal involving how much permanent partial disability compensation is required under Wis. Adm. Code Sec. DWD 80.32 for workers with two separate surgeries involving insertion and replacement of joint prostheses. The question is whether the worker gets the minimum PPD rating each time procedure is performed, or whether the minimum applies to the end result. For instance, in one case, the worker had two surgeries. The first surgery inserted a new knee joint and the second surgery replaced the first
prosthetic joint with a new one. The minimum PPD for knee replacements per rule is 50%, so the issue in that case was whether the worker got 50% PPD at the knee (the end result) or 100% at the knee (50% per procedure times two). In each case, the court ruled for the worker and “stacked’ the PPD per procedure. In the knee case, it awarded 100%. The court held that the LIRC’s interpretation of the rule to “stack” the PPD per procedure is a reasonable interpretation of the statute.
5. Martini v. American Security Corp., WC Claim No. 2011-025408 (LIRC Aug. 28, 2013)
Employee worked as a security guard and was required to travel throughout the state to various work sites. He claimed compensation for an injury he sustained while driving his personal vehicle from his home in Stevens Point to a job site in Marshfield, a trip of about 35 miles. He was not paid a wage while traveling, nor was he reimbursed for travel expenses. The employer required him to be in uniform, not to use the phone except to call the office while en route to the job, to have his vehicle insured, not to carry a gun, and to take 40 copies of an employment document with him. A co-worker and friend gave him directions to the site, but the applicant lost his way and the accident occurred while he was lost and supposed to be at the work site. The Worker’s Compensation Division found that he was performing services at the time of injury and awarded compensation. On appeal, the respondent argued this case was controlled by McRae v. Porta Painting, Inc., 2009 WI App 89, 320 Wis. 2d 178, 769 N.W.2d 74, and the LIRC agreed. It rejected the applicant’s argument that the injury happened because he was given incorrect directions by a co-worker. The LIRC ruled, “The fact that the applicant took a wrong turn was not the result of any employer behavior. Instead the applicant was given incorrect directions by a friend who also happened to work for the employer.” Second, the applicant contended that the “employer controlled his commute in various ways” but the LIRC found that “driving his own car to the work site d[id] not transform a personal commute into the use of his car for business purposes.” Therefore, the LIRC found the applicant was simply commuting to work at the time of the accident and thus the applicant’s injuries were not compensable. The McCrae case also involved commuting in a personal vehicle where the employer paid no wages or travel costs. In that case, the “commute” was about 20 miles.
