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Texas Monitor 6:4 Winter 2001, Liability Waivers

Research and Oversight Council on Workers' Compensation


Litigation Trends and the
Use of Liability Waivers by Nonsubscribing Employers

by Joseph Shields and Jon Schnautz


In Texas, participation in the workers' compensation (WC) system is voluntary for private sector employers. An employer that opts out of the WC system (referred to as a "nonsubscriber") loses the common law defenses afforded subscribers and may be sued by its employees for damages based on negligence related to an on-the-job injury. In an effort to lessen the risk of lawsuits and provide on-the-job injury benefits, some nonsubscribers (particularly large firms) purchase alternative occupational benefit insurance or establish a self-funded benefits plan to cover work-related injuries. Some nonsubscribing employers with these alternative plans ask their employees to sign waivers under which the employee relinquishes his or her right to sue the employer over a work-related injury or illness in exchange for some consideration, including perhaps participation in the nonsubscribers' occupational benefits plan or a higher level of plan benefits.

The 77th Texas Legislature, through the passage of HB 2600, outlawed these types of pre-injury liability waivers. This law went into effect on June 17, 2001. 1 This portion of HB 2600 was originally drafted by the bill's Senate sponsor, Senator Robert Duncan, who argued that Texas WC laws were not intended to allow employers protection from suit without carrying WC insurance, and that allowing these waivers would cause many subscribing employers to leave the WC system.

In an effort to update nonsubscription estimates for Texas and provide additional information about both subscribing and nonsubscribing employers (including data on related issues such as the use of liability waivers), the ROC conducted a survey of 2,808 employers between August and October 2001. Specific research questions addressed in this article include:

1) What percentage of nonsubscribing employers asked their employees to sign pre-injury or post-injury liability waivers, and what percentage of the nonsubscriber workforce is employed by such businesses?

2) What percentage of nonsubscribers offer their employees financial incentives (e.g., enhanced occupational benefits in the event of an injury) to sign liability waivers?

3) How effective are nonsubscribing employers at getting their employees to sign liability waivers?

4) How likely would subscribers be to drop their WC coverage if they were allowed to eliminate their risk of lawsuit through the use of pre-injury liability waivers?

5) What proportion of nonsubscribers have been sued by an employee regarding a work-related injury, and how comfortable are nonsubscribers with the degree of litigation risk they assume by opting out of the WC system?

Use of Liability Waivers Among Nonsubscribers
It is clear from this study that waivers of negligence, or liability waivers, are not used extensively by nonsubscribing firms in Texas. Only 7 percent of nonsubscribers indicated that they asked employees to sign liability waivers. Since waivers were used more frequently by larger firms, an estimated 18 percent of the nonsubscriber workforce was employed by firms that used liability waivers.

Considering only the larger nonsubscribing employers, however, waiver usage is considerably more common. While just 6 percent of smaller nonsubscribers (i.e., those with less than 50 employees) used liability waivers, more than a quarter (27 percent) of firms with 50 or more workers reported that they utilized waiver agreements (see Figure 7).

Of those employers that utilized liability waivers, the overwhelming majority (92 percent) indicated that the waiver was typically signed before the worker had sustained an on-the-job injury. The remaining 8 percent indicated that the agreement was typically signed by the employee at the time of the injury, or at some time after the injury had taken place.

Figure 7
Use of Liability Waivers Among Nonsubscribers by Employer Size
bar chart, key numbers in text


Source: Survey of Employer Participation in the Texas Workers' Compensation System, Research and Oversight Council on Workers' Compensation and the Public Policy Research Institute at Texas A&M University, 2001.

It also appears that the use of waivers is not a recent phenomenon. Of those businesses that have asked employees to sign waiver agreements, almost half (48 percent) reported that they had been using them for more than five years (see Figure 8).

Figure 8
Length of Time Nonsubscribers Have Been Using Liability Waivers
pie chart, key numbers in text


Source: Survey of Employer Participation in the Texas Workers' Compensation System, Research and Oversight Council on Workers' Compensation and the Public Policy Research Institute at Texas A&M University, 2001.

Of the small percentage of nonsubscribers that utilize liability waivers, the majority (76 percent) indicated that they did not offer an additional incentive (e.g., enhanced occupational benefits) for employees to sign the waivers. The remaining 24 percent said that they altered the benefit levels for employees who agreed to sign the liability waivers. This arrangement typically involves an employee receiving more comprehensive medical benefits and/or higher income (i.e., wage replacement) benefits if he or she agreed to waive the right to sue the employer over an on-the-job injury.

Even though liability waivers cannot be introduced as a condition of employment, and the majority of nonsubscribers who used waivers indicated that there is no financial incentive (e.g., more comprehensive occupational benefits) offered to employees to sign the waiver, 77 percent of the firms that used waivers estimated that more than three-quarters of their employees signed the agreement. However, a significant minority of nonsubscribers using waivers indicated that they were not very effective at getting employees to sign the waiver agreements. Twenty percent said that less than 10 percent of their workforce signed the liability waiver (see Figure 9).

Figure 9
Percentage of Employees Who Sign Liability Waiver
pie chart, key numbers in text


Source: Survey of Employer Participation in the Texas Workers' Compensation System, Research and Oversight Council on Workers' Compensation and the Public Policy Research Institute at Texas A&M University, 2001.

It is interesting to note that whether or not an employer offered enhanced occupational benefits to employees who signed the waiver appears to have had little impact on the percentage of employees who actually signed the agreement. 2

Liability Waivers and Propensity to Drop WC Coverage
In an effort to determine the impact that the use of liability waivers could have on subscribing employers' propensity to drop WC coverage, subscribers were asked to rate how likely they would be to opt out of the WC system if they were allowed to use pre-injury or post-injury liability waivers. 3 Almost a quarter of the subscribers (24 percent) indicated they would be likely 4 to drop coverage if they could have employees sign pre-injury liability waivers, indicating that the statutory change may result in curbing the number of employers tempted to exit the Texas WC system.

A smaller proportion of subscribing employers (18 percent) said they would be likely to drop WC coverage if they could have employees sign post-injury liability waivers, which were not specifically outlawed by HB 2600, but are rarely utilized by nonsubscribers. The fact that a substantial number of employers would be interested in dropping WC coverage and utilizing post-injury waivers may signal that this is a policy issue that could require future legislative attention.

Litigation Against Nonsubscribers
Since nonsubscribers to the Texas WC system are not afforded the same degree of protection from lawsuits as employers that carry WC coverage, measuring the degree of litigation against nonsubscribing firms is important to system stakeholders. The rate of litigation among nonsubscribers remains low and relatively unchanged since the ROC's 1996 survey of employers was conducted. As was the case in 1996, just 3 percent of nonsubscribing firms reported that they have been sued over a work-related injury during the past five years.

Not surprisingly, larger nonsubscribing employers were more likely to have had a lawsuit filed against them than smaller nonsubscribing employers. A substantial proportion (18 percent) of nonsubscribers with 100 or more employees indicated that they had been sued regarding an on-the-job injury during the past five years, compared to just 2 percent of nonsubscribers with less than 50 employees. This is not surprising because larger employers have more injuries and have more resources upon which legal claims can be made. In addition, the proportion of injuries reported that resulted in litigation might still be very minor for large firms based on the size of their workforce.

Nonsubscribers were also asked to rate their level of comfort with the risk of lawsuit their companies assumed by not carrying WC coverage. The majority of nonsubscribers (65 percent) indicated that they were comfortable with the level of risk they assumed, while only 16 percent indicated a certain degree of discomfort with the risk of lawsuit for work-related injuries. 5 The remaining 19 percent of the nonsubscribers expressed neutral feelings regarding this litigation issue.

Conclusion
During the 77th Legislative Session, a significant degree of discussion revolved around the number of nonsubscribing firms that were using liability waivers to reduce their exposure to lawsuits resulting from employees injured on the job, and how these waiver agreements were structured. This study sheds a considerable degree of light on this issue, providing reliable estimates that were not previously available.

It is clear that the use of liability waivers is fairly uncommon among the universe of nonsubscribing firms; however, more t han a quarter of larger nonsubscribing firms (i.e., those with more than 50 employees) asked their employees to sign waiver agreements, typically on a pre-injury basis. In addition, it is important to note that nonsubscribers who utilized these waivers tended to be fairly successful at getting their employees to sign them, thereby waiving their right to sue the employer for damages based on negligence in the event of an on-the-job injury.

Another much-discussed issue during the 77th Legislative Session was the impact of the potential legality of pre-injury waivers on subscription rates to the Texas WC system. Survey results indicate that almost a quarter of current subscribers would be likely to drop WC coverage if pre-injury waivers by employees of nonsubscribers were legal. A slightly smaller percentage (18 percent) said they would be likely to drop coverage if post-injury waivers were allowed. Since the pre-injury waiver option was outlawed effective June 17, 2001 (though the passage of HB 2600), the statutory change may result in fewer subscribers leaving the WC system. 6

Copies of the full report from which this article is taken, Study of Nonsubscription to the Texas Workers' Compensation System: 2001 Estimates, are available from the ROC upon request. In addition, background and analysis of the legal cases that brought the waiver issue to light can be found in Texas Monitor Volume 5, No. 1, Spring 2000, also available upon request.

Notes to pages 7-10

  1. In April 2001, the Texas Supreme Court ruled in a case involving pre-injury waivers that the Texas Labor Code did not stipulate that pre-injury waivers by employees of nonsubscribers were illegal. HB 2600 did not address the legality of post-injury waivers by employees of nonsubscribers.
  2. It is not known why workers signed the waivers regardless of benefits offered, and this is sue warrants further study. Possible explanations include a strong and/or trusting employer-employee relationship; lack of knowledge that signing was optional; or the perception that it was in the worker's best interest to do so.
  3. Employers were asked to use a five-point scale to rate how likely they would be to drop WC coverage, where 1 means "not at all likely" and 5 means "extremely likely."
  4. "Likely" is defined as indicating "4" or "5" on the previously mentioned five-point scale.
  5. "Comfortable" is defined as indicating 4 or 5 on a scale of 1 to 5 where 1 means "Not at all Comfortable" and 5 means "Extremely Comfortable." It is significant to note that half of the nonsubscribers in Texas indicated that they are "Extremely Comfortable" with the level of litigation risk they assume by opting out of the WC system. "Discomfort" is defined as indicating 1 or 2 on the 1 to 5 scale.
  6. It should be noted that while the survey of employers was conducted after the effective date of HB 2600 (which banned pre-injury waivers), it is reasonable to expect that many if not most of the respondents were not yet aware of the change in the law. ROC staff will examine this issue in preparation for its next Biennial Report in 2002.

This page was last updated on December 9, 2002.



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