A couple of months ago I wrote an article on the risks posed to business owners by work-related auto accidents. This month the column will be addressing the broader topic of workplace injuries. Specifically, injuries suffered by employees while on the job.
Texas, like most states, creates strong incentives for businesses to provide their employees coverage for work-related injuries by purchasing workers' compensation insurance. Workers' compensation is a state-regulated insurance program that helps people with work-related injuries and illnesses.
Although providing workers' compensation insurance is not mandated by the state of Texas, most employers in labor-intensive businesses, such as construction and manufacturing, purchase workers' compensation insurance.
However, the Texas workers' compensation insurance system has been criticized as both expensive and ineffective. For this reason, some employers have opted to not provide workers' compensation insurance, and take on what can be significant litigation risks that arise when employees are injured on the job.
When determining a business's potential liability for workplace injuries, the first question to be asked is whether the business has workers' compensation coverage. If the answer is yes, then the risk and exposure is very low and primarily related to a potential increase in workers' compensation premiums. This is because the Texas Labor Code makes the recovery of workers' compensation benefits the exclusive remedy for an employee covered by workers' compensation insurance.
This means generally that injured employees and their families cannot sue an employer for damages arising out of a workplace injury if the employee is covered by workers' compensation insurance.
There is only one exception. If the employer's gross negligence was a cause of the employee's injuries, then the employee or his surviving family (if the employee was fatally injured) can recover exemplary damages in addition to workers' compensation benefits.
For employees injured on the job, workers' compensation insurance provides payment for medical care for the treatment of the injuries. Depending on the type and severity of the injury, workers' compensation also may provide payments to replace some of an injured employee's lost income, up to time and dollar limits set by law; compensation for burial expenses for employees killed on the job; and death benefits for dependents of employees killed on the job.
Benefits for lost wages are based on a percentage of the employee's income. If the injury is severe but does not result in death, the employee's additional benefits are determined based on a medical exam and the application of a formula to the doctor's determination of percentage of impairment. Death benefits are determined based on a formula that takes into account the employee's earnings and age at the time of death.
Employee rights groups have criticized the workers' compensation system, arguing that it limits employees' access to the doctors of their choosing and the benefit payments do not adequately compensate employees. Employer-friendly groups have complained the insurance in some industries is cost-prohibitive. Both employer and employee groups have complained that the system fails to effectively treat injuries so that the employee can return to work as soon as possible.
An additional risk associated with carrying workers' compensation insurance for the employer is the potential for liability arising from what is referred to as workers' compensation retaliation. Retaliation claims can arise if an employee is terminated when they have filed or are going to file a claim for workers' compensation benefits.
Generally, Texas law does not allow employers to terminate an employee for having filed a claim for workers' compensation benefits.
Because of these problems and risks, some businesses have decided to not participate in the workers' compensation system. These businesses are commonly referred to as nonsubscribers.
Nonsubscribers are required by the state of Texas to file an annual notice with the Department of Insurance, post notices in their personnel offices and workplaces that they do not provide workers' compensation insurance, and tell each new employee in writing that they don't have workers' compensation.
From a liability standpoint, nonsubscribers have increased exposure to lawsuits by injured employees. Injured employees can sue nonsubscribers over workplace injuries. If they're sued, nonsubscribers can't argue in court that the injured employee's negligence caused the injury, another employee's negligence caused the injury or the injured employee knew about the danger and voluntarily accepted it.
Generally, injured employees seek to recover damages for lost wages, medical care and pain and suffering.
Some nonsubscribers mitigate the risk of employee suits by providing occupational insurance coverage or by providing health insurance and short-term and long-term disability coverage. For some employers, these coverages would have been provided anyway and/or can be obtained for a lower cost than workers' compensation coverage.
When these coverages are in place, they can discourage lawsuits because the employee's health care needs will be insured and, in the event of a lengthy work absence, there will be some wage replacement. When the right benefits are in place, insurance can be a more efficient method of recovering losses for the employee as well. This is so because most attorneys who file suits against nonsubscribers receive a fee of one-third to 40 percent of any recovery.
Texas is one of a minority of states that do not require employers to participate in a workers' compensation insurance system. Like all freedoms, this one involves a risk. Therefore, a careful risk/benefit analysis should be done by any employer who engages in a business where there are frequent or potentially catastrophic injuries.
If you need help weighing your options, more information about this topic is available on the Texas Department of Insurance webpage and from licensed insurance agents who specialize in selling workers' compensation insurance.