IR #98-29
Tuesday, August 11, 1998

Richard Stephens
(415) 975-0721
Rick Rice
(415) 972-8835

Appeals Court Rules in Favor of Workers' Compensation "Carve-Out" Programs

SAN FRANCISCO --In a closely watched court case, the state Fourth District Court of Appeal has upheld the constitutionality of alternative dispute resolution programs for workers' compensation claims that can be established in union contracts in the construction industry.

"We are pleased that this ruling will allow these important programs, commonly known as 'carve-outs,' to continue," said John Duncan, director of the Department of Industrial Relations

"The goal of the carve-outs is to achieve lower costs on public works and other construction projects, provide better medical care for workers injured on the job, and expedite resolution of disputed workers' compensation claims," he said. "Data contained in the latest reports on the programs show that they are accomplishing this."

In the court case, an injured worker, supported by a number of applicants' attorneys, claimed that the Workers' Compensation Appeals Board erred when it dismissed his application to adjudicate a claim for workers' compensation benefits. The WCAB dismissed the claim on the ground it lacked jurisdiction because the worker's union and employer agreed to handle employment-related injury claims through an ADR procedure authorized by Labor Code section 3201.5.

The appellate body upheld the WCAB action, concluding that the Labor Code section and ADR plan in question, contained in a collective agreement between the International Brotherhood of Electrical Workers and National Electrical Contractors Association, were valid and enforceable on their face. The workers' employer, Johnson-Peltier, was a signatory to the agreement.

The ability to enter into carve-out agreements was established as a result of the 1993 workers' compensation reforms. Unions and employer groups interested in establishing a program must submit their collective bargaining agreement to the Administrative Director of the Division of Workers' Compensation, who reviews the contract and certifies the parties as eligible to participate.

"To date, we are finding lower losses and a vastly reduced litigation rate in carve-outs," said Duncan. A disputed workers' compensation claim must first be submitted to an ombudsman, who will try and resolve the problem on site. If necessary, it will go through mediation and then arbitration processes before it will become a litigated case before the WCAB.

In addition, participants agree upon a list of medical providers to ensure that quality medical care will be provided to workers who experience a job related injury.

"We think that this approach can prove to be an equitable alternative to the traditional workers' compensation system for eligible participants." said Duncan. "We are happy that they have survived this court challenge and can continue to provide their benefits to construction industry workers and employers."

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