EMPLOYER S BENEFITS AND ALTERNATIVES TO WORKER S COMPENSATION By William R. McIlhany INTRODUCTION By Gary A. Thornton Approximately 35% of the employers in Texas do not have worker s compensation insurance but have some alternative employee benefits. The Research Council for the Texas Worker s Compensation Commission indicates that the actual percentage of employees that are not covered by worker s compensation insurance in Texas is something less than 20%. Texas is the only state in the nation that allows an employer the option of not carrying worker s compensation insurance what has become referred to as nonsubscription. This past year the Governor eliminated a benefit to nonsubscribers advance waivers/releases of liability. Nonetheless, however, may proponents of nonsubscription still exist and profit from utilizing that procedure and mechanism. Bill McIlhany authored the attached paper concerning those issues. For many years, Bill has drafted ERISA plans and is one of the more creative attorneys in that area in the State of Texas. For the past decade, I have handled hundreds of nonsubscription litigation matters. Attached to this section of the seminar materials are several statutes from the Texas Labor Code which you will want to have in your file. Also attached you will find a copy of the recent legislation concerning releases/waivers, a copy of an old brochure that the State formerly used to try to push employers into the insurance system, which many feel lacks employer control, choice, and is weighted heavily in favor of employees. Many also feel that the no-fault system is the reason for the high cost of worker s compensation in Texas presently. Also attached you will find some recent charts indicating the findings of the Research Council from the Texas Worker s Compensation Commission concerning satisfaction levels.
I. Pre-Injury Releases Employee injury benefit plans generally provide medical benefits and wage replacement benefits for employees injured in the course and scope of their employment. Because the plans provide medical benefits and benefits for occupational injuries, the plans are subject to the Employee Retirement Income Security Act of 1974 ( ERISA ). Historically it was not uncommon for employee injury benefit plans to be structured so that employees affirmatively elected to participate in the plan in exchange for a release of future claims. This structure essentially functioned like workers compensation insurance coverage, that is the employee s sole remedy for a job-related injury would be benefits provided under the plan. II. Hook v. M orrison M illing Company Prior to the decision of the Fifth Circuit in Hook v. Morrison Milling Company, 38 F.3d 776 (1994 5th Cir.), there was a strong argument that a negligence claim asserted by an employee who executed a pre-injury release, was preempted by ERISA. In general, ERISA preempts any state law, including state law claims, that relate to a plan subject to ERISA. The argument supporting preemption was that the release was a part of the plan and effectively vitiated the employee s state law claim. In order for the employee to pursue its state law claim, it would have to avoid the release which meant avoiding a term of the ERISA plan. In Hook, the Fifth Circuit held that an employee s negligence claim was not preempted by ERISA even though the employee elected to participate in the plan by signing a pre-injury release. A strong dissent in Hook reasoned that the preemption issue in Hook was the same as addressed by the United States Supreme Court in FMC Corp v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 112 L.Ed.
356 (1990). In FMC, the Supreme Court held that the Pennsylvania anti-subrogation law was preempted by ERISA to the extent the law applied to an ERISA plan. In FMC the Supreme Court considered the effect on an ERISA plan of a state law that precluded any right of subrogation of a tort recovery in a motor vehicle accident. Under the plan at issue in FMC, the employee agreed to reimburse the ERISA plan for benefits paid if the employee recovered against a third party. The Supreme Court concluded that the anti-subrogation law had a connection to the ERISA plan because it prohibited plans from being structured so as to require reimbursement if there were a recovery from a third party. The dissent in Hook noted that the release, although not preempting the employee s claim, would probably be enforceable under Texas state law. III. Validity of Pre-Injury Waiver and Legislative Changes In Lawrence v. CDB Services, Inc., 44 S.W.3d 544 (Tex. 2001), the Texas Supreme Court held that a voluntary pre-injury release was valid. In an immediate response to Lawrence, the legislature amended Section 406.033 of the Texas Labor Code to add a new subsection (e) that states: A cause of action described in Subsection (a) may not be waived by an employee before the employee s injury or death. Any agreement by an employee to waive a cause of action or any right described in Subsection (a) before the employee s injury or death is void and enforceable. IV. Post-Injury Release
Although Section 406.033 voids pre-injury releases, it does not affect the validity of a postinjury release. A post-injury release is simply a contractual release executed by an injured employee after the occurrence of the injury. The validity of the release will be governed by state contract law principles. In general, to avoid a release the employee must specifically plead and prove all elements of an avoidance theory. It is well established that a unilateral mistake is not sufficient to avoid a release. A unilateral mistake is a mistake by one party to a contract, for example that the plaintiff did not understand that the document was a release is a unilateral mistake. See Schmaltz v. Walder, 566 S.W.2d 81, 85 (Tex. Civ. App. Corpus Christi, 1978, writ ref d n.r.e.) [A release cannot be avoided on the grounds that the releasor was... mistaken as to the contents of the release... ]. See also Sweeney v. Taco Bell, Inc., 824 S.W.2d 289, 291 (Tex. App. Fort Worth, 1992, writ denied); and Nationwide Mutual Ins. Co. v. Toman, 660 S.W.2d 574, 576 (Tex. App. San Antonio, 1993, no writ). McClellan v. Boehmer, 700 S.W.2d 687, 693 (Tex. App. Corpus Christi 1985, no writ). A unilateral mistake is not sufficient to set aside a release. (citing Schmaltz). Torchia v. Aetna Casualty and Surety Company, 804 S.W.2d 219, 224-225 (Tex. App. El Paso 1991, writ denied) Absent fraud in procuring the signing of a release, unilateral mistake is not grounds for rescinding or setting aside a release. (citing McClellan). Both McClellan and Torchia affirmed summary judgments recognizing that the claim at issue was barred by a release. In Harvey v. Elder, 191 S.W.2d 686, 687 (Tex. Civ. App. San Antonio, 1945, writ refused), the court stated:
We think it elementary that the bindingness of contracts or releases cannot be avoided by the simple statement of one of the parties thereto that he did not read the written instrument before it was executed and consequently did not understand its contents. Harvey at 687. In order to challenge a release, and defeat summary judgment, a plaintiff must affirmatively plead a recognized theory of avoidance and present summary judgment evidence to establish a fact issue as to all elements of the avoidance. See Jones v. Texas Pacific Indemnity Company, 853 S.W.2d 791, 795 (Tex. App. Dallas 1993, no writ). In Simmons v. Compania Financiera Labino, S.A., 830 S.W.2d 789 (Tex. App. Houston [1 st Dist.] 1992, writ denied) the court recognized that a plaintiff must affirmatively plead its bases for avoidance of a defensive plea. The court stated: When a plaintiff desires to rely on an affirmative matter in avoidance of a defense plead in the defendant s answer, he must allege it in a supplemental petition, unless it is already put in issue by the petition. Rule 94 thus imposes on the plaintiff the requirement that he plead any matter in avoidance on which he intends to rely. Simmons at 792-793. 3092854v1