December 11, 2015
Earlier this year, I wrote an open letter in response to an article concerning Texas nonsubscription (TXNS) and the Oklahoma option (OKO) released by ProPublica and NPR. In that letter, I included my layperson’s opinion that ERISA doesn’t apply to the occupational accident components of OKO plans—an issue I believe to be almost universally misunderstood.
The misunderstanding is widespread in part because it hasn’t yet garnered the attention of tax authorities and attorneys, and those of us who aren’t tax attorneys are reluctant to engage this subject because we fear that we will be misinterpreted as giving tax advice.
Let me be absolutely clear: Nothing in this P.S. or my original open letter should be construed as tax advice, as I am not qualified to offer such advice.
But neither are the journalists behind the ProPublica/NPR investigation—and their assumption that ERISA must govern the taxation of OKO benefits simply because it governs the taxation of TXNS benefits does not square with the law itself. Moreover, the tax issue remains unresolved despite decisions in 2015 by two federal judges for the Western District of Oklahoma that considered the jurisdiction of federal courts over on-the-job OKO-based claims and appeals processes.
To help demystify the situation, I’m teaming up with Tulsa attorney Mark Blongewicz in this postscript to explain that ERISA’s governance of the OKO has yet to be demonstrated in any way and certainly was not confirmed by those recent rulings. We could bog down in history and minutiae, but the crux of the matter is that lost income benefits paid to injured workers in TXNS are regulated by ERISA and are typically taxable, whereas similar benefits paid under workers’ compensation (WC) are not taxable.
Nevertheless, ERISA’s applicability to the OKO has always been questioned by those in the know. After all, there was never any intent in the Oklahoma legislation to have ERISA govern the OKO, and the term “ERISA” never appears—not once!—in the language of the Oklahoma law. Even more importantly, two and a half years after passage, there is zero case law to support any assertion that ERISA applies.
These revelations may be counterintuitive for industry insiders and regulators, but what should be intuitive is that state and federal court systems are in charge of ruling on state and federal laws. Consultants, employers, employees, investigative journalists, insurance carriers, brokers, attorneys, ivory tower experts, doctors, conference panelists and writers of open letters don’t get to make such calls. The judges in a position to make these determinations are the only ones whose opinions matter, and the only two federal judges known to have had the opportunity to consider any issue concerning the relationship between the OKO and ERISA concluded that they did not have jurisdiction over cases in which the employer sought to have ERISA govern employee appeals of decisions regarding their occupational OKO claims.
In April of 2015, Judge Joe Heaton of the U.S. District Court for the Western District of Oklahoma issued an Order regarding ERISA’s applicability to the occupational accident components of OKO plans in the case of Cavazos v. Harrah Nursing Center (aka Marsh Pointe):
Marsh Pointe alleges … that, pursuant to the Oklahoma [Employee] Injury Benefit Act, it has elected to be exempt from the Administrative Workers’ Compensation Act and become a “qualified employer” by meeting certain requirements including the adoption of a written benefit plan. That well may be. Nonetheless, the case [filed by the plaintiff] arose “under the workmen’s compensation laws” of the State of Oklahoma. As such it may not be removed to any district court of the United States.
Judge Heaton’s ruling was a narrow one aimed only at determining whether the federal court could exercise jurisdiction over the case before it. That case had been removed by the employer to federal court from the Oklahoma Workers’ Compensation Commission (OWCC) based on the assertion that ERISA ought to govern the employee’s pursuit of a claim against her employer’s OKO plan. The Court held that, regardless of whether ERISA applied to certain aspects of the OKO plan, the claim of the employee arose under Oklahoma’s WC laws and therefore a specific federal jurisdictional statute (28 USC §1445(c)) prevented removal of the case to federal court. Judge Heaton sent the matter back to the OWCC, and his Order made it crystal clear that such cases cannot be removed to the federal court system. In other words, ERISA (a federal law) does not give federal courts jurisdiction over the occupational accident claims of employees whose injury benefit plans are governed by the OKO (a state law)—no matter how frequently ERISA is referenced in an employer’s benefit plan and regardless of whether ERISA applies to other aspects of that benefit plan.
Cavazos was the first real opportunity we had to see whether removal of such claims to the federal courts was possible. In September, Judge Stephen Friot (from the same Western District Court of Oklahoma) followed Heaton’s logic in the case of Vasquez v. Dillards, which was our second opportunity to see whether federal court involvement in the OKO claims process was available:
The court concludes that the [Oklahoma Employee Injury Benefit Act] is part of Oklahoma’s statutory scheme governing occupational injuries and workplace liability; in other words, the OEIBA is part of Oklahoma’s statutory scheme governing workmen’s compensation.
The case before Judge Friot was a bit different procedurally, but came to the same result. In Vasquez, the employee had received an adverse decision from her employer regarding her claim for benefits under the employer’s OKO plan. She then sought review by the OWCC as provided for in the Oklahoma statute. The employer removed the case to federal court, contending that its plan was governed by ERISA and therefore that ERISA pre-empted state law on the issue and the federal court had exclusive jurisdiction. The employee moved to remand the case to the OWCC. Judge Friot sided with the employee and remanded the case, which was to be expected post-Cavazos. This ruling (which features a more detailed discussion than the one provided by Judge Heaton in Cavazos) concludes that 28 USC §1445(c) (the same jurisdictional statute relied upon by Judge Heaton) barred removal of the case to the federal court, even if, as Judge Friot specifically presumed for purposes of his ruling, the “plan under which [the employee files] claims may be … an ERISA plan.”
The explicit—and antiquated—language from the 1974 law indicates that ERISA doesn’t apply to “workmen’s compensation.” ERISA’s authors recognized a long tradition of federal deference to individual states on WC issues. While the OKO is different from traditional WC, in the only cases known to address the issue thus far, the federal court system has concluded that it cannot exercise jurisdiction over the on-the-job injury claims of OKO employees.
Die-hard ERISA champions, as it turns out, can cling just as stubbornly to obsolete ideas as WC stakeholders. But OKO supporters don’t need to win such folks over; the law is already on the side of progress. The OKO clearly seeks to stand on its own and doesn’t want ERISA as a crutch. Being free from ERISA has advantages beyond tax implications. The OKO clearly sits much closer to traditional WC than does TXNS—and as such may be regularly accepted as a replacement in the state’s important oil and gas industry. In both Texas and Oklahoma, the larger energy companies almost always require traditional WC to be held by contracted companies. That won’t change in Texas, but it very well could in Oklahoma. Moreover, these federal court orders should provide solace to the Sooner State, since they suggest that the oversight and development of this new creation will be the responsibility of Oklahomans.
 Although Daryl Davis wrote the original open letter on his own, this postscript was co-authored with Mark Blongewicz (an attorney in the Tulsa office of the Oklahoma-based law firm of Hall Estill), whose expertise and assistance were invaluable. For the sake of consistency with the letter, however, the first-person singular has been retained in some passages and refers strictly to Davis.
 The court remanded the case just two days after it was removed without seeking briefs from either party.
 To date, all three branches of the Oklahoma state government have actively or tacitly supported the OKO. At worst, the state has adopted a wait-and-see approach to this new alternative. At best, Oklahomans—sans attorneys—are eager to discover whether the incredibly promising early gains made possible through the OKO are sustainable over the long term.
At WorkersCompensationOptions.com, we’re convinced those gains are sustainable. There’s nothing theoretical about our promise of delivering superior care to employees at reduced costs to employers. We’re already doing it in Oklahoma, and we at WCO are proud to be part of this long overdue transformation.