Using ADR to Resolve Worker’s Compensation Claims

The utilization of ADR tools by the business community continues to increase. A variety of reasons underlie this shift from traditional court litigation of disputes. The most commonly cited reason for the shift is the markedly reduced cost incurred for resolving disputes using ADR. However, the notion of fairness as well as the freedom to fashion unique remedies also serve to distinguish ADR from litigation. Furthermore, ADR provides contesting parties with significantly greater control over the process of dispute resolution as well as determines who will serve as the neutral party in effectively resolving the dispute. This article focuses on the form of ADR known as mediation and its applicability to worker’s compensation claims.

Mediation

The California Evidence Code defines “mediation” as being a proceeding which involves a neutral person(s) who facilitates a mutually acceptable resolution of the dispute by and between the parties to the dispute.[1] Generally the mediator is an individual who employs techniques that allow the parties to readily identify viable means of resolving the dispute.

Of significant interest to those in the business community is the notion of confidentiality as it pertains to mediation. The general rule is that what is said or communicated during a mediation is treated as confidential. This confidentiality means that no participant can repeat what is said in the mediation. Therefore, one must always be cautious when discussing confidential information and be very selective as to what information is permitted to be discussed.

It should also be noted that in mediation the parties to the dispute are very participative. They generally have the opportunity to speak to each other either directly or through the mediator. Such is not the case in court litigation. Consequently, mediation permits the parties to explore the issues in a manner that leads to better understanding and optimizes the likelihood of resolution.

Very importantly, it must be also recognized that unlike the litigation process, mediation allows for more creative solutions to be posed as well as remedies best suited to the parties and the issues at hand. For example, court litigated disputes can be resolved by awarding monetary damages, specific performance, or an injunction. On the other hand, mediation has few limitations as to how the resolution of the dispute is fashioned. It generally allows the parties to resolve the dispute predicated upon any terms that participants may find acceptable. This feature of mediation also increases the likelihood that the parties will be able to reach agreement upon resolution of their dispute.[2]

Worker’s Compensation and Mediation

State administered worker’s compensation systems are essentially social insurance programs in which state law generally mandates employers’ participation. Public policy dictates that workers must be provided medical care for work-related injuries and in some instances for diseases contracted in work environments. Most of the systems also provide injured workers with some form of cash benefits.

State worker’s compensation legislation was first considered early in the twentieth century. It was designed to provide workers with appropriate medical care as well as cash benefits for their work-related injuries and to limit employer liability. Interesting to note is that the legislation incorporated a concept that was uncommon in common law. The notion of “liability without fault” was the centerpiece of state worker’s compensation legislation.[3] This provision allowed the employee to obtain appropriate medical care for work-related injuries without having to establish responsibility on the part of the employer.

Today employers and employees alike are expressing concerns about delays, increasing costs of worker’s compensation programs, and the quality of medical care that such programs provide. The recently authorized ADR-based worker’s compensation systems create not only a dispute resolution system, but also may authorize light-duty work assignments, modified job assignments, return-to-work plans, approved lists of medical providers, and may create safety committees and training programs. However, at the core of these systems are the dispute resolution and medical care components.[4]

According to Levine et al., proponents of ADR-based worker’s compensation claim that this process lower rates of injuries and worker’s compensation claims, improve medical care, minimize friction in dispute resolution, and reduce dispute resolution costs.[5] Opponents of that view point to shortfalls in due process, in access to medical care, and in the distribution to workers of ADR’s cost savings. Evidence pertinent to these conflicting views has tended for the most part to be anecdotal.

Findings regarding worker’s compensation dispute resolution in California since 2002 are mixed. On the one hand, a Rand Corporation evaluation of California’s “traditional” worker’s compensation system flagged three principal complaints: 1) courts were too slow, 2) litigation had become increasingly expensive, and 3) the court procedures were inconsistent throughout the state.[6] The Rand authors attributed these problems to funding and staffing issues rather than to anything inherent in the traditional statutory system.

However, a California Worker’s Compensation Research Institute analysis comparing some 2,200 ADR claims with 9,600 claims under the traditional system called its findings “a sobering and much-needed reality check that, to a great extent, tempers the expectations of significant savings and improved systems efficiencies promised by the [statutorily authorized] expansion of California’s ADR programs.”[7] The authors called for additional research regarding ADR based worker’s compensation systems. However, given the lack of evaluations to date, the inconclusive findings of the few existing studies and the general expansion of ADR programs in other workplace contexts [see, for example, David B. Lipsky et al., Emerging Systems for Managing Workplace Conflict, 2003], it is clear that careful consideration of the issues is warranted. Comprehensive follow-up analyses of California’s experience with these programs would provide a valuable contribution to public policy regarding worker’s compensation and ADR systems in general.

Business Community Concerns

A common concern expressed in the business community regarding ADR-based worker’s compensation systems speaks to the issue of the binding nature of mediated claims. Some take the view that a mediated worker’s compensation claim lacks the binding effect of a litigated claim. This assertion seems to be unfounded. Most often a mediated claim that is properly documented will be deemed by a court to be enforceable. For example, in Florida a claimant appealed a ruling enforcing a mediation agreement that served to settle his entire worker’s compensation claim.[8] The 1st District Court of Appeal affirmed Judge of Compensation Claims John P. Thurman’s ruling that a claimant and an employer/carrier intended to settle a worker’s comp claim by the agreement that they reached during mediation. The court concluded that the settlement was correctly enforced against the claimant.[9] In another matter, (Sponga v. Warrow, 698 So. 2d 621 (Fla. Dist. Ct. App. 1997), the court found that a party’s unilateral mistake in entering into a settlement at a worker’s compensation mediation did not justify rescinding the agreement.[10]

Carve-Out Agreements

In some instances, states have decided to allow unions and management to “carve out” through negotiation a worker’s compensation system that utilizes an ADR-based system administered by the state. In effect the ADR-based worker’s compensation system functions outside of the state statutory system.

One of the early ADR-based worker’s compensation systems was a “carve-out” program that involved Bechtel and the Pioneer Valley Building and Construction Trades Council. The program was formed through a collective bargaining agreement governing a single large construction project. The Bechtel experience was significant because worker’s compensation costs per hour fell from $2.21 to $0.98. This decline was due to fewer lost time claims, which fell from 11 claims in the eight months before the carve-out to two claims in the following eight months, even as overtime employment increased slightly.[11]

Proponents of carve-out programs expect these programs to reduce the number of disputes and to shorten resolution time by allowing employers and unions to negotiate ADR procedures. These procedures generally begin with an ombudsperson who is expected to attempt to resolve disputes quickly. Disputes that the ombudsperson cannot resolve proceed to mediation, then to arbitration. These ADR procedures are expected to be more efficient than is the state-run statutory system, which involves a lengthy and legalistic procedure for dispute resolution that confuses many workers[12]. Dispute resolution in the California system also costs employees and employers almost one-third of all disputed medical and indemnity benefits. In addition, claim resolution in the statutory system is a long process in California. Half of all permanent disability claims are unresolved three years after a given injury, and 20 percent of the claims remained unresolved five years later.[13]

A controversial component of most carve-out agreements is the exclusion of lawyers from participation at the ombudsperson and mediation stages of the dispute process. If mediation fails, a case can go to arbitration. The joint labor-management committees appoint the mediators and arbitrators who, in practice, are usually former worker’s compensation judges. In the statutory system, workers are represented by a lawyer in 80 percent of injury cases resulting in permanent disability. Many of the employers and union leaders who participate in carve-outs believe that heavy reliance on attorneys and the corresponding excessive disputes are main causes of the high cost of litigation and the delays in claim resolution.

Disputes often require forensic doctors to report on issues related to legal questions, such as whether a given condition is work related, the extent of permanent disability, and the share of the impairment due to prior injuries. Carve-outs allow the parties to negotiate a limited list of medical evaluators whose opinions both sides respect. Numerous statutory and regulatory measures have been adopted in an effort to limit the incentive for parties to choose doctors who evaluate in a partisan manner. Much of the complexity of these regulations is in place to protect injured workers, particularly unrepresented workers who are typically less informed than are insurers regarding the selection of favorable evaluating doctors.

Carve-outs must meet two requirements: 1) They cannot diminish scheduled indemnity benefits to injured workers; and 2) They must make the final step of their dispute resolution system an appeal to the Worker’s Compensation Appeals Board for reconsideration. This board is also the last administrative law step in the standard system. Parties may appeal a Worker’s Compensation Appeals Board ruling to the State Courts of Appeal.

Conclusion

As noted early in this discussion, there is a departure from reliance upon traditional litigation to resolve worker’s compensation based disputes. The underlying reasons for the departure are compelling. A contemporary business organization would be well advised to become acquainted with the reasons driving the reforms considered in this discussion.

ADR-based worker’s compensation systems are gaining acceptance among state administrators. According to the International Association of Industrial Accident Boards and Commissions (IAIABC), approximately two dozen states are currently utilizing some form of ADR to resolve worker’s compensation claims. It seems likely that in the future, more states will implement ADR-based worker’s compensation systems or modify existing systems to comply with recommendations made by the IAIABC. Each state will have to contend with the issues differently. Some states may be able to integrate changes into their administrative rules. Other states may have to implement changes through legislation.[14]

ADR experts advocate the use of mediation as the first step in dispute resolution. If that method is unsuccessful, then they advocate the parties initiate arbitration. Litigation today is viewed as the least attractive option when there is a need to resolve a dispute.

An employer should give serious consideration to adopting an ADR-based worker’s compensation system. If employees are unionized, then such a system must be negotiated with the union. If employees are not unionized, then generally negotiation is not necessary. Use of an ADR-based worker’s compensation system can potentially yield significant cost savings and improvement in employee morale.

[1] California Evidence Code Section 1115.

[2] “Difference Between Mediation, Arbitration ADR Procedures,” San Fernando Valley Business Journal, 19 June 2006.

[3] Report of the National Commission on State Workmen’s Compensation Laws. 1972.

[4] John H. Lewis, 1972, “Improving Worker’s Compensation through Collective Bargaining,” John Burton’s Workers’ Compensation Monitor, November/December 1994; Ellyn Moscowitz and Victor J. Van Bourg, “Carve-Outs and the Privatization of Worker’s Compensation in Collective Bargaining Agreements,” Syracuse Law Review, 46:1, 1995.

[5] David I. Levine, Frank W. Neuhauser, Richard Reuben, Jeffrey S. Petersen, and Cristian Echeverria, Economics and Social Security and Substandard Working Conditions: Carve-Outs in Worker’s Compensation: An Analysis of the Experience in the California Construction Industry. (Kalamazoo Mich.: W.E. Upjohn Institute for Employment Research, 2002), 175.

[6] Nicholas M. Pace, et al., Improving Dispute Resolution for California Injured Workers, 2003.

[7] Alex Swedlow and Laura B. Gardner, California Worker’s Compensation Alternative Dispute Resolution System: Attorney Involvement Rates and Claims Costs, 2004, p. 8.

[8] Florida Worker’s Compensation Law Bulletin, 12, no. 22 (March 8, 2006).

[9] Calderon, Roberto v. J. B. Nurseries, Inc., 12 FLWCLB 267 Fla. 1st Dist. Ct. App. 2006.

[10] Sponga v. Warrow, 698 So. 2d 621 (Fla. Dist. Ct. App. 1997).

[11] Extracted from correspondence.

[12] Sum, J., and Stock, L. Navigating the workers compensation system. Berkeley: University of California 1997).

[13] Ibid.

[14] Meg Fletcher, Business Insurance, Chicago, January 16, 1989, 23, no. 3: 13