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Foreword

Welcome to the third edition of Workers’ Compensation 101: What Every Michigan State Lawmaker Should Know About Michigan’s Workers’ Compensation System. This quick reference is designed for Michigan legislators and others to learn more about one of the state’s oldest and most important statutes.

The two previously published versions of this booklet had similarly been designed to educate and advise state lawmakers on the state of workers’ compensation in Michigan. This third version provides an update to address more recent developments in Michigan’s workers’ compensation law.

What’s In This Booklet?

This booklet provides a brief history of Michigan’s workers’ compensation law and system, exploring why the workers’ compensation statute was passed and the legislative reforms to the statute in the 1980s. Section 3 explores the damage to the 1980s reforms by court decisions in the 1990s. Section 4 describes how the Supreme Court has placed the legislative reforms back on track. Section 5 provides sources of information about workers’ compensation in Michigan.

Who Produced This Booklet?

This booklet is produced on behalf of public and private sector job providers concerned about Michigan’s workers’ compensation law and system. The organizations whose cooperation made this booklet possible are: the Michigan Manufacturers Association and the Michigan Self Insurers’ Association.

For more information, please contact:

Jennifer Spike, Michigan Manufacturers Association, 517-487-8530

Gerald M. Marcinkoski, Michigan Self-Insurers’ Association, 248-433-1414

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Table Of Contents

Section 1: Executive Summary ..................................................................................................... 3

Section 2: Workers’ Compensation in Michigan .......................................................................... 4

• A Brief History

• Purpose of Workers’ Compensation Law

• Then Came 1965

• The Reforms of the 1980s

Section 3: Workers’ Compensation Decisions in the 1990s Diluted Workers’ Compensation Reforms ......................................................... 6

• Michigan: Competitive Disadvantage

• Supreme Court Rulings in the 1990s

Section 4: Workers’ Compensation Today .................................................................................... 7

• Recent Supreme Court Decisions Right the Ship

Section 5: Problems and Solutions for the Present Legislature .................................................... 8

Section 6: Sources of Information About Workers’ Comp. in Michigan ...................................... 9

• Who to Call for Information

Section 7: Workers’ Compensation Terminology ....................................................................... 10

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This booklet was produced by the Michigan Self-Insurers’ Association (MSIA) and the Michigan Manufacturers Association (MMA) on behalf of public and private sector job providers concerned with the state of Michigan’s workers’ compensation system.

Michigan’s first workers’ compensation law was approved in 1912. Its goal was to guarantee continued income and medical care to employees disabled by an occupational injury or disease without regard to fault or blame. In exchange for guaranteed benefits, workers’ compensation became the “exclusive remedy” against employers. That is, employees could not sue employers in the civil courts for damages but could rely upon certain, speedy workers’ compensation payments for their work injuries.

Michigan’s program worked well until the 1960s and 1970s when the law expanded to include lifetime benefits and court decisions extended the benefits to people who could still work post-injury at many different types of jobs; people who were laid off for economic reasons; people who voluntarily retired; and people who thought their job made them mentally ill. Workers’ compensation costs increased sharply as a result.

By the 1980s, Michigan workers’ compensation costs were among the highest in the nation. To remedy the problem, the Legislature passed reforms designed to control costs while still protecting workers. Maximum weekly rates of compensation were dramatically increased, for example, in exchange for limitations on the number of disability claimants who would qualify for this increased level of benefits. Adverse court rulings followed, however, particularly in the early and mid-1990s, and effectively gutted many of these 1980s legislative reforms. Consequently, while workers’ compensation rates increased, the pool of eligible claimants did not shrink as the Legislature had intended.

Fortunately, more recent Michigan Supreme Court decisions have overruled the faulty decisions of the 1990s and finally given effect to the Legislature’s 1980s reforms. It has taken a long time, but the Legislature’s reform of workers’ compensation is now finally realized. This development will help Michigan compete

more effectively for new jobs and businesses by ending abuses and closing loopholes that drove up workers’ compensation costs and placed our state at an economic disadvantage when competing for business. It is crucial that the recent decisions that finally give fruition to these legislative reforms be maintained.

Section 1:Executive Summary

“The goal of Michigan’s workers’ compensation system is to guarantee income and medical care for employees disabled by an occupational injury or illness without regard to fault or blame.”

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A Brief History“The old rule that the employee assumes the risk must be modified … he who is injured in your employ must be certain of some compensation.”

Hal H. Smith, secretary and general counsel Dec. 16, 1908, at a meeting of the Michigan Manufacturers Association in Detroit

One by one, they arrived at Detroit’s Hotel Pontchartrain. They were Michigan’s pioneer manufacturers, and their conference of November 30, 1910 was of extraordinary importance.

Their charge was to begin drafting a new state law to guarantee compensation for workers who were injured on the job. Workplace injuries were on the rise, an unfortunate result of the nation’s and Michigan’s booming industrial manufacturing sectors. But like most other states, Michigan had no workers’ compensation law at the time. Injured workers were forced into court to secure medical care or payment for their injuries. Unfortunately, most employees lost in court, received nothing and had to rely on charity and family for support. In those instances when an employee succeeded in court, employers were usually hit with disastrous and unpredictable damage awards that crippled their business.

Employers and the state’s major labor unions agreed that a workers’ compensation law was needed for everyone’s benefit and protection.

“Humane manufacturers can have no fault to find with legislation which will make some provisions for the maimed and the survivors of the defunct, provided only that it falls with an equal burden upon every manufacturer.”

MMA publication, January 16, 1909

In late 1910, the state’s major employers were called to a conference in Detroit. The meeting announcement called it a “Public Conference to Consider the Subject of Presenting to the Legislature Some Form of Workers’ Compensation.” On December 23, 1910, MMA Secretary and General Counsel Hal Smith, a prominent attorney of the day, presented the

first draft of a workers’ compensation law to the group of manufacturers. After several revisions, the bill was introduced in the 1911 Michigan Legislature. When lawmakers could not agree on the politically charged issue, Governor Chase S. Osborn named a commission of three employer and two labor union representatives to craft a consensus bill. And they did – unanimously.

The bill passed at a special session of the Michigan Legislature in February 1912, with the support of the MMA, the Employers Association of Michigan (now the American Society of Employers), and the Michigan Federation of Labor. It was signed into law by Governor Osborn on March 20, 1912.

Purpose Of Workers’ Compensation LawThe law was simple and straightforward. It required employers to guarantee medical care and a certain level of compensation for injured workers. In exchange, it prohibited workers’ from suing employers and co-workers in civil courts in relationship to their work injuries.

The law was based on five guiding principles:

• certainty of reasonable compensation and medical care for all injured workers;

• fair and predictable costs for employers;

• incentives for injured workers to return to the job;

• payment of compensation without litigation; and

• increased employer incentives to reduce workplace accidents.

Today, the state’s workers’ compensation law and system are administered by the Michigan Workers’ Compensation Agency, in the Department of Energy, Labor & Economic Growth. The law provides for weekly compensation, medical care, and rehabilitation services for injured workers. Essentially, all employers with one or more full-time workers are covered under the law.

Section 2:Workers’ Compensation In Michigan

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Then Came 1965The law worked well for many decades. Coverage was affordable for employers, and employees were compensated fairly. Then, in 1965, the Legislature approved a law requiring employers to pay compensation for the duration of the disability – which has become a “lifetime” in far too many cases. Until then, benefits generally ended after about 10 years.

In and of itself, this new benefits scheme did not spell disaster. But ongoing judicial developments in the 1960s and 1970s greatly accelerated costs, delayed payments to deserving workers, and threatened to capsize Michigan’s entire workers’ compensation system. Many people were receiving compensation benefits after they had voluntarily retired from their jobs. In addition, the law allowed retirees to collect both workers’ compensation and retirement benefits at the same time with no offset. The state’s relaxed definition of disability was made it difficult to move some able workers off disability compensation and back to work. There was a huge backlog of cases on appeal and skyrocketing medical and legal costs were escalating employer costs across the state.

The Reforms Of The 1980sBy the 1980s, Michigan’s costs were the highest among the Great Lakes states and fifth highest in the nation – 35 percent more than the national average.

Michigan employers and lawmakers came together in the early and mid-1980s to address these problems and reform the system. It was not an easy debate for any of the parties, but significant reforms passed, including:

• The legal definition of disability was changed twice in an effort to shrink the pool of eligible claimants while, at the same time, significantly increasing the weekly amount of compensation payable to those deservedly deemed “disabled.”

• Compensation payments were “coordinated,” meaning if workers were receiving other employer-financed benefits, workers’ compensation payments could be reduced. This system prevented employees from “double-dipping” and protected employers from duplicate payments.

• Limitations were placed on the availability of a weekly compensation to those workers who retired from the workforce.

• New systems were put in place to achieve resolution before disputed claims reached court. When an employer and a worker could not agree, the reforms established a medical fee dispute process, a Workers’ Compensation Board of Magistrates, and a Workers’ Compensation Appellate Commission to handle matters.

• Mental disability claims were no longer awarded just because the worker mistakenly thought his or her job caused their problems. Claims had to be based on real events, not just the perceptions of the worker.

Veteran Capitol watchers recall the 1980 workers’ compensation debates as among the most heated in modern Michigan legislative history. Though much good came from those reforms, many of the provisions were eroded by Michigan Court of Appeals and Supreme Court decisions in the 1980s and into the 1990s.

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Michigan: Competitive DisadvantageHistorically, Michigan employers have been at a competitive disadvantage compared to employers in states where their laws encourage injured workers to return to work much more quickly.

Like general assistance welfare benefits, workers’ compensation was never intended to support an individual over a lifetime. Rather, workers’ compensation was intended as a mechanism to provide a weekly wage replacement and medical care. The goal was to return injured workers to work.

Michigan can reduce workers’ compensation costs and can compete more effectively for jobs and business investments by removing incentives that encourage employees not to return to work. Michigan Supreme Court rulings in the early and mid-1990s played a large role in creating a problem in this regard.

Supreme Court Rulings In The 1990sEmployers became concerned about Michigan Supreme Court and Court of Appeals rulings in the 1990s because many of their decisions were not true to the Legislature’s 1980s efforts to reform workers’ compensation in Michigan.

For example, the Supreme Court said that the Legislature intended by its 1980 reforms to designate a person “disabled” if there was only one job the employee could not do, even though the worker could do any number of other equally well-paying jobs. The courts also approved claims for workers who were able to return to work but refused to do so because they chose to live in another state, developed mental problems from ordinary events of employment, were injured after starting fights or were intoxicated on the job.

These rulings set the stage for potential future cost increases because the lower courts and the administrative decisionmakers were bound to follow these Court decisions. Here are samples of some of the unsound rulings in the 1990s:

• Haske v Transport Leasing, Inc. (455 Mich 628, 1997). The Supreme Court said that if an employee is unable to perform any one job within his or her qualifications and training, then the employee is “disabled” even if the employee is capable of working at all other equal paying jobs suitable to his or her qualifications and training.

• In reaching this conclusion, the Supreme Court explicitly disagreed with its earlier preliminary opinion in Rea v Regency Olds/Mazda/Volvo (450 Mich 1201, 1995) that had correctly recognized this was not what the Legislature meant when it reformed “disability.”

• Gardner v Van Buren Public Schools (445 Mich 23, 1994). The Supreme Court declared that any event on the job, such as regular employment reviews or normal work assignments, can result in a compensable psychiatric disability based on the employee’s mistaken perception to the event. The Supreme Court ruled that compensability can follow even without evidence of harassment or mistreatment of the employee.

• Goff v Bil-Mar Foods, Inc. (454 Mich 507, 1997) and Layman v Newkirk Electric Associates (458 Mich 494, 1998). The Supreme Court frustrated the procedural reforms enacted in the 1980s, which were designed to streamline the appeals process in workers’ compensation and avoid backlogs which were plaguing the system. In Goff, the Supreme Court said courts can duplicate the work of the workers’ compensation administrative appeals system by reviewing for themselves the trial judge’s decision a second time. This ruling was contrary to the Supreme Court’s initial opinion in Holden v Ford Motor Co. (439 Mich 257, 1992) which gave deference to the workers’ compensation administrative review process. In Layman, the Court said that the Workers’ Compensation Appellate Commission had to send unresolved questions on appeal back to the trial judge for resolution, rather than deciding the unresolved questions on appeal for itself.

• Pulver v Dundee Cement Co. (445 Mich 68, 1994). The Supreme Court granted workers’ compensation benefits to a woman who was injured in Michigan but relocated to Florida. The Supreme Court ruled that the employee could continue to receive benefits and did not have to return to Michigan to accept a job offered by her employer that would accommodate her injury.

• Andrews v General Motors Corp. (98 Mich App 556, 1980) and Scroggins v Corning Glass (382 Mich 628, 1996). In Andrews, the Court of Appeals awarded benefits to a worker who started a fistfight while trying to enforce a work slowdown. In Scroggins, the Supreme Court awarded benefits to a man who was injured while intoxicated on the job.

Section 3:Workers’ Compensation Decisions in the Early 1990s Diluted Workers’ Compensation Reforms

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Section 4:Workers’ Compensation Today

Recent Supreme Court Decisions Right The ShipFortunately, in this decade, the Michigan Supreme Court recognized that prior court opinions frustrated legislative intent. Prior Workers’ Compensation 101 editions called attention to the older aberrant court opinions that had diluted the legislative reforms. The Supreme Court’s most recent pronouncements on matters such as what “disability” means in Michigan, how to prove “disability,” and how mental disabilities should be judged for compensation purposes are sound because they reflect the legislative intent spelled out in the 1980s reforms. Michigan’s workers’ compensation system has now largely been placed back on the right track. Much of the prior bad case law has now been rectified. The Legislature should now take care that the law does not slip back into the situation it had experienced in the 1980s and 1990s. We must not repeat the same mistakes that caused workers’ compensation woes for Michigan employers and Michigan employees. Here is a sampling of recent positive Supreme Court rulings.

• Sington v Chrysler Corp. (467 Mich 144, 2002). The Supreme Court said the Legislature, when enacting its definition of “disability” in the 1980s, meant that a person is not “disabled” if he or she can perform other available jobs which pay within his or her qualifications and training. The Supreme Court, therefore, overruled Haske and placed the law back in line with the Supreme Court’s preliminary opinion on the Legislature’s definition of disability as expressed in Rea.

• Stokes v Chrysler LLC (481 Mich 266, 2008). The Supreme Court explained how its Sington definition of disability is to be applied at the administrative level. The Supreme Court set forth a multi-step process for both claimants and employers to clearly define how each is to present proofs on whether or not the claimant is disabled. It was evident that this detail was necessary when some administrators of the system, while paying lip service to the Sington disability standard, were applying the law in essentially the same fashion as it had been applied under the overruled Haske case.

• Robertson v DaimlerChrysler Corp. (465 Mich 732, 2002). The Supreme Court gave effect to the mental disabilities provision enacted in the 1980s. The Supreme Court said that an employee’s psychological problem is not work-related simply because the employee believes so. Instead, it depends on whether a reasonable person would view the employment events as psychologically troublesome on an objective basis. In reaching this conclusion, the Supreme Court overruled Gardner, which had diluted the meaning of mental disability reform legislation.

• Mudel v Great Atlantic & Pacific Tea Co. (462 Mich 691, 2000). The Supreme Court restored the Legislature’s intent in streamlining the workers’ compensation appeals process. The Supreme Court said that the courts should not duplicate the efforts of the workers’ compensation appellate body, but defer to that body except in limited circumstances. The Supreme Court also held that the workers’ compensation appellate body need not send every case back to the trial judge where something had been overlooked if the record before the appellate body is complete and the appellate body can make the ruling itself. In reaching these conclusions, the Supreme Court overruled the aberrant decisions of Goff and Layman and placed the law back in line with the legislators’ procedural reforms as the Court had originally recognized in Holden.

Some have criticized the Supreme Court for overruling prior Supreme Court rulings but, as you can see from the above, the Supreme Court not only respected the Legislature’s intent but also respected the initial rulings.

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Given Michigan’s current economic climate, one of the worst things that could happen is to undo the progress made and return the State to the workers’ compensation quagmire that put many Michigan employers at a competitive disadvantage by increasing workers’ compensation costs.

There will no doubt be efforts to turn the clock back to the way the system had run in the 1980s and 1990s, a time when the Legislature’s reforms had not been respected. The Legislature should recognize that the recent Supreme Court opinions have greatly improved the workers’ compensation climate. Recent decisions will help maintain Michigan’s competitiveness by ending abuses and closing loopholes that drive up workers’ compensation costs.

Furthermore, some stability in workers’ compensation is absolutely necessary. The law regardin who is and who is not “disabled,” for example, has swung wildly back and forth over the last 15 years. Such instability has resulted in innumerable cases being sent back by the higher courts to the trial level for reconsideration and new proofs. This has created uncertainty and turmoil in the system. Employers cannot fairly determine when their employees are “disabled” when the criteria are

forever changing. All parties to the system need to know what the law is so they can order their affairs accordingly. Now that the Legislature’s prior reforms are solidified by court case law, the constant tinkering with the workers’ compensation statute’s major themes should stop. The system needs a rest from the turmoil.

Section 5:Problems And Solutions For The Present Legislature

“Given Michigan’s current economic climate, one of the worst things that could happen is to undo the progress made and return the State to the workers’ compensation quagmire that put many Michigan employers at a competitive disadvantage by increasing workers’ compensation costs.”

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Who To Call For InformationDetailed information about Michigan’s workers’ compensation law and system is available:

Section 6:Sources Of Information About Workers’ Comp In Michigan

Organized in 1953, the Michigan Self-Insurers’ Association (MSIA) represents the interests of Michigan job providers, including manufacturers, retailers, service companies, governments, universities and other employers with self-insured workers’ compensation programs.

Michigan Self-Insurers’ Association 600 S. Adams Road, Ste. 300 Birmingham, MI 48009-6827

Contact: Gerald M. Marcinkoski Executive Secretary 248-433-1414

In 1908, the Michigan Manufacturers Association (MMA) was the driving force behind efforts to write the state’s first workers’ compensation law, which took effect in 1912. Today the MMA represents thousands of the state’s manufacturing employers and continues to be a leader in seeking workers’ compensation reforms.

Michigan Manufacturers Association 620 S. Capitol Avenue Lansing, MI 48933

Contact: Jennifer Spike Director of Human Resource Policy 517-487-8530 spike@mma-net.org

As part of the Department of Energy, Labor & Economic Growth, the Workers’ Compensation Agency administers the state’s workers’ compensation system and law. The Agency oversees the payment of benefits, administers a vocational rehabilitation program, maintains records of insurance coverage, investigates the status of employers who are self-insured and compiles statistics and accident records.

Michigan Workers’ Compensation Agency State Secondary Complex, General Office Building First Floor, B-Wing 7150 Harris Drive Dimondale, MI 48821

Mailing address: P.O. Box 30016 Lansing, MI 48909

e-mail: wcinfo@michigan.gov

Phone: 313-456-3673

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Coordination of BenefitsA process used to determine the proper workers’ compensation benefit payment to an injured worker. The process takes into account other employer-paid benefits received by the worker. In other words, if a worker receives employer-paid disability or pension, or unemployment benefits, these benefits are used in calculating the proper workers’ compensation benefit payment.

Definition of DisabilityThe legal standard that establishes whether a worker has sustained a job-related injury and suffered a disability that precludes the worker from performing his or her job duties.

Exclusive RemedyThis is the foundation and basic premise of Michigan’s first Worker’s Compensation Act of 1912. It provides compensation to workers who are injured and disabled on the job in exchange for the guarantee that workers could not also seek civil damages against employers for the injuries. In other words, workers’ compensation is the sole – or exclusive – remedy for workers.

Self-InsurersPublic or private employers who, under state law, are qualified to meet their workers’ compensation responsibilities without having to purchase workers’ compensation insurance. These employers have met all state requirements for “self-insuring” their workers’ compensation responsibilities.

Workers’ Compensation CostsThe amount of money employers spend per employee to provide workers’ compensation protection for each worker.

Workers’ Compensation BenefitThe weekly payment to an injured worker based on the worker’s average weekly wage.

Section 7:Workers’ Compensation Terminology

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Michigan Self-Insurers’ Association 600 S. Adams Road, Ste. 300 Birmingham, MI 48009-6827

Michigan Manufacturers Association 620 S. Capitol Avenue Lansing, MI 48933