IR #98-37
Tuesday, October 20, 1998

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

Construction Industry 'Carve-outs' Continue to Show Promise

SAN FRANCISCO -- An innovative program which helps expedite resolution of workers' compensation issues and reduces litigation at construction worksites in California continues to show promise, according to a newly released California Department of Industrial Relations' report.

In its third annual report on the construction industry "carve-out" program, the department's Division of Workers' Compensation notes that the eleven programs active in 1997 continue to report comparatively low losses and relatively few cases that required formal dispute resolution.

"We're pleased that this well received program thus far seems to be accomplishing the goals that were originally set out for it," said DIR Director John C. Duncan in releasing the report. "Based on the data in this and the earlier two reports, we continue to be optimistic that this approach will develop into a good alternative to the traditional workers' compensation system that will benefit many of the state's employees and employers," he said.

The construction industry carve-out program was one of the creative initiatives that resulted from the 1993 reforms of the state's workers' compensation system, Duncan noted. It allows contractors and unions in the construction industry to establish alternative dispute resolution (ADR) programs in their

collective bargaining agreements. The programs also allow the establishment of an agreed list of medical treatment providers to help assure quality medical care for workers injured on the job, as well as joint labor-management safety committees, return to work programs, and vocational rehabilitation training provisions.

Only qualified employers and bona fide labor organizations are eligible to establish a carve-out program. Eligibility is determined by the Administrative Director of the Division of Workers' Compensation after the filing of application materials, including the labor contract.

The eleven active programs in 1997 reported a total of 10,372,459 person-hours, equivalent to approximately 5,200 full-time employees. A total of 661 workers' compensation claims were filed during the year with incurred costs totaling $6,481,564. These early reported losses appear to be lower than would be expected of other construction employers, the report said, but later data will be required before more definitive conclusions can be made.

Ten of the eleven programs had alternative dispute resolution programs in place (one consisted only of an exclusive list of medical providers.) These generally begin by making an "ombudsperson" available to help the parties informally resolve disputes.

If this fails, the matter typically moves to a formal mediation before either an outside neutral or a joint-labor management committee. If mediation is unsuccessful, the parties turn to a neutral arbitrator, frequently a retired workers' compensation referee, whose decision is appealable to the Workers' Compensation Appeals Board.

Of the 661 claims filed in 1997, a very large majority -- 419 -- were reportedly resolved before mediation, according to the report. Only four went to mediation, one was resolved at or after mediation, two claims were resolved at or after arbitration, and only one was resolved after it went to the WCAB.

The report also found that the number of applications for adjudication filed by employees subject to an ADR agreement rose to 61 in 1997, up from the ten filed the previous year. However, the vast majority of these applications were dismissed by workers' compensation referees, generally because the claim had not gone through the ADR process first.

A recent appellate court decision, Costa vs. Workers' Compensation Appeals Board, upheld such a dismissal, finding that the carve-out statute was constitutional and that the ADR process was valid and enforceable.

Data in the report is based on estimates of claims numbers, costs and litigation activity collected during the first year of claims. DIR will continue to monitor the progress of the carve-out programs as subsequent data, which is not currently required to be reported by these programs, is added.

Copies of the report may be obtained by writing to the Department of Industrial Relations, Division of Workers' Compensation, P.O. Box 420603, Suite 3160, San Francisco, CA 94142, or by calling (415) 975-0700. It may also be found at DIR website. Go to the DIR home page at, click on "What's New."

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