An Oklahoma law that lets employers opt out of state-regulated workers' compensation has been rejected and declared unconstitutional by state regulators.
The Oklahoma Workers' Compensation Commission called the alternative workplace-benefit plans that some employers adopted under the law "a water mirage on the highway that disappears upon closer inspection."
The unanimous ruling by the commission, issued Friday, is expected to be appealed.
NPR and ProPublica have also learned that the U.S. Department of Labor is looking at whether opt-out plans in Oklahoma and Texas violate federal law.
Since 2013, employers in Oklahoma have had the ability to set up their own workplace injury plans and avoid state-regulated workers' comp benefits. An NPR and ProPublica analysis of Oklahoma's opt-out plans shows that most provide fewer benefits, make it easier for employers to deny benefits, give employers control over medical assessment and treatment, leave appeals in the hands of employers, and force workers to accept lump-sum settlements.
The ruling "stops opt-out in its tracks," says Bob Burke, an Oklahoma City attorney who has filed 17 cases challenging the law.
It stems from the case of Jonnie Yvonne Vasquez, who was injured at work while lifting boxes of shoes at a Dillard's department store in 2014. Dillard's denied benefits, citing a pre-existing condition. The company also rejected Vasquez's appeal.
Burke, who represents Vasquez, argued that the injury would have been covered under the state's workers' comp law and that the rejection by Dillard's constitutes disparate treatment of injured workers.
The Workers' Compensation Commission agreed, noting other examples in the Dillard's plan, including denial of benefits for illnesses caused by exposure to asbestos, even though those illnesses would be covered under state workers' comp law.
"The employer acts as the Legislator, by defining the 'injuries' for which benefits will be available," the commission wrote.
Bill Minick, the architect of the Oklahoma opt-out system, did not immediately respond to requests for comment from NPR and ProPublica. The Dallas lawyer and his company, PartnerSource, wrote and service most of the state's opt-out plans and are working to expand opt-out to other states.
Minick indicated he would provide a statement sometime today.
"We are extremely disappointed with the decision, but are continuing to review the ruling with our legal experts to consider our legal and legislative options," Fred Morgan, State Chamber of Oklahoma president and CEO, told The Tulsa World News.
A spokeswoman for Dillard's declined comment. The next step for Dillard's is an appeal to the Oklahoma Supreme Court.
The decision is "very vulnerable to appeal," says Michael Duff, a professor of law at the University of Wyoming and author of a textbook on workers' compensation law.
"The 'conversion' of an administrative agency to a court raises significant separation of powers and administrative law questions," Duff says.
The ruling comes as four other states have tabled consideration of similar opt-out legislation.
A measure in Tennessee is off the Legislature's schedule, and a bill in South Carolina appears to have stalled. Opt-out opponents in Mississippi and Georgia say expected legislation in those states has yet to be introduced.
The Oklahoma decision puts "a pretty serious crimp into the idea for the rest of this year," says Fred Bosse of the American Insurance Association, an industry group that opposes opt-out.
Minick and a national opt-out lobbying group, the Association for Responsible Alternatives to Workers' Compensation, have targeted a dozen states.
"This decision is not the final word." says AJ Donelson, a spokesman for ARAWC. "The case is far from over."
He also says the opt-out alternative to workers' comp provides "better medical outcomes, fewer benefit claims disputes and greater costs savings for employers."
Minick claims $1 billion in savings in a decade for his opt-out clients alone in Oklahoma and Texas, where he first introduced the concept.
Only five employers in Oklahoma have submitted opt-out plans for state approval since NPR and ProPublica began reporting on the system in October. Before the stories, nearly 60 employers had opted out.
Ten ranking Democrats on U.S. Senate and House committees have asked the Department of Labor to investigate.
"One of the starkest developments in state workers' compensation laws is the emergence of 'opt-out' provisions," wrote Sharon Block, a deputy assistant secretary of labor, in a letter last week to Sen. Sherrod Brown, D-Ohio.
"We are actively monitoring these developments," Block said, adding that the agency "has been in contact with the company cited in the ProPublica/National Public Radio report that is offering services to employers in Texas and Oklahoma" who opt out of workers' comp.
That description fits Minick's PartnerSource, which is the largest provider of opt-out plans in Oklahoma and Texas.
Opponents of the opt-out movement say the plans violate the Employee Retirement Income Security Act, which governs workplace-benefits plans.
"We are currently evaluating whether the company's plans or models contain provisions that interfere with or prevent the exercise of ERISA rights by covered employees," Block said.