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Opting out of workers’ comp? You risk negligence lawsuit

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in Compensation and Benefits,Employee Benefits Program,Human Resources

The federal Employee Retirement Income Security Act (ERISA), which regulates employee benefit plans, usually covers employees' claims related to their benefits.

However, Texas employers who opt out of the state workers' compensation program may receive a nasty surprise: Even if your organization has an occupational-injury benefit plan (which is an ERISA benefit plan) in place, it could find itself facing a state court negligence lawsuit if an employee suffers a work-related injury.

That can mean a virtually unlimited damage award if the case goes to trial.

Recent case: James Woods was hurt on the job while working for Texas Aggregates. The company did not participate in the Texas Workers' Compensation system. Instead, it maintained an occupational injury benefit plan, which is under the ERISA umbrella.

Woods sued in Texas state court, claiming his employer was negligent when it didn't provide a safe workplace. He opted to sue rather than asking for benefits under the company plan. Texas Aggregates argued that Woods had to pursue his claim under ERISA in federal court.

The 5th Circuit Court of Appeals disagreed. The court concluded Woods' state law negligence claims didn't "relate to" Texas Aggregates' ERISA plan since Woods was merely seeking damages for Texas Aggregates' negligent maintenance of its workplace. Woods was free to sue in state court for negligence. (Woods v. Texas Aggregates, L.L.C., No. 05-50345, 5th Cir., 2006)

Final tip: Texas employers who opt out of the state workers' comp system should check with their attorneys to see whether it might be safer to opt in. A negligence lawsuit may prove far more expensive than the premiums.  

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