A Practical Explanation of Major Changes to the Michigan Worker’s Compensation Disability Act

We’re here to help our clientele understand the latest developments in worker’s compensation. Last month, the Michigan Worker’s Compensation Disability Act underwent significant changes  which will have an impact on the handling of your ongoing Michigan worker’s compensation claims. In this comprehensive memo, we outline the 16 major changes to the Act and the practical application these changes will have on your handling of claims. Please do not hesitate to contact our office for further assistance determining the impact of this legislation on your claim management.

For additional reference, you are also welcome to download the full Amended_WC_Act, dated Dec. 19, 2011. (download size 2.5 MB). If you’d like to print out a copy of our summary, download this PDF: WC Act Changes Memo.

1. MEDIATORS (Section 223)

Section 223 of the Act was deleted, which had called for the mediation of claims and the establishment of mediators to handle smaller matters. Normally smaller claims, medical bill disputes and claims involving employees proceeding without benefit of counsel, were initially handled through the mediation process. On minor claims it was not uncommon for the adjuster to deal directly with the mediator and the employee in the initial stages.

Practical Application

The elimination of the mediators and mediation process will likely result in a minor increase in smaller claims being filed by way of Application going directly to the magistrate level. Therefore, once any such minor claims are identified, counsel should be informed as quickly as possible so steps can be taken to attempt to resolve the issue prior to engaging in extensive and protracted litigation at the hearing level. By taking such proactive steps, the employer/ carrier can continue to resolve these claims as quickly as possible without extensive expense.

The Agency has indicated it will utilize Directors and initially screen out cases where the employer is uninsured or the employee is not represented by counsel. These cases will be handled telephonically with the Director making contact with the parties. Therefore, situations may arise where your employer/insured may be contacted directly where the employee is not represented and coverage issues exist. If any direct contact is made with your employer/insured by the Director, counsel should be informed immediately so appropriate action can be taken.

2. ELIMINATION OF TERM LIMITS (Section 213)

Previously the Act indicated magistrates could not serve longer than three terms, or approximately 12 years. Those term limits have been eliminated and magistrates will now be evaluated on an annual basis by the Executive Director of the Michigan Administrative Hearing System and the Chair of the Worker’s Compensation Board of Magistrates.

Practical Application

It would appear as if more attention is being given to productivity and competence of the magistrates as it relates to ongoing retention of their positions. The Governor will have the ability to remove a magistrate upon recommendation following these reviews.

3.             MENTAL DISABILITIES (Section 301/401)

The Act previously indicated that to be compensable a mental disability must arise out of actual events of employment, not unfounded perceptions. The Act has been clarified to indicate that Umental disabilities are compensable if arising out ofactual events of employmentl not unfounded perceptions thereot and !1 the employee’s perception of the actual event is reasonably grounded in fact or reality.II

Practical Application

The standard for establishing a compensable mental disability has been made a bit more difficult. More focus will be placed on the actual events of employment and whether or not the employee’s perception of those events is accurate. Therefore, early identification of appropriate witnesses as to the events of employment, in order to ascertain whether or not the employee’s version is “grounded in fact or reality” is imperative to determining whether or not a claim is sustainable.

Please note that there has been no change to the standard of compensability, which indicates that in order for a mental disability to be compensable it must have been contributed to or aggravated or accelerated by the employment in a “significant manner.”

4.             AGGRAVATIONAL LIABILITY/MEDICALLY IDENTIFIABLE CONDITION (Section 301/401)

Under the prior Act, the issue of aggravationalliability and what actual medical evidence was necessary to prove such exposure was unclear. Under the Rakestraw standard the Courts had established that in order for an employee to prove that a work injury or activity had aggravated a condition to the point of disability, it was necessary that the work injury or activity had caused a “medically identifiable condition.”

The new Act clarifies that standard and indicates that such injury is compensable if the work “aggravates pathology in a manner so as to create a pathology that is medically distinguishable from any pathology that existed prior to the injury.” This clarification resolves the issue of whether or not actual”pathologic” change is necessary as opposed to a mere increase in symptomatology.

Practical Application

A review of medical testing and diagnostic studies is imperative to determine whether there has been a change in pathology caused by the work event or activity. A mere increase in symptoms, without additional evidence of a change in pathology, will not support a claim for compensability. Please note the issue will still arise as to whether or not the medical evidence supports a change in pathology absent an objective test result.

5. DEFINITION OF DISABILITY (Section 301(5))

Under the prior Act, the definition of disability had been modified by case law under Stokes, which called for a multi-step analysis to be performed to establish whether or not an employee could make an initial showing of disability. Utilization of the standard has been in place since that decision was rendered and the new Act simply codifies those requirements.

As such, in order to establish an initial showing of disability an employee must:

a. disclose their qualifications and training including education, skills and experience;

b. provide evidence as to jobs they are qualified and trained to perform within the same salary range as their maximum wage earning capacity;

c. demonstrate that the work-related injury prevents them from performing jobs up to their maximum wage earning capacity;

d. if the employee can perform maximum wage earning jobs, they must show that they cannot obtain any of those jobs and evidence “shall include a showing of a good faith attempt to procure post injury employment” at the maximum wage earning positions.

 

As before, once an employee establishes an initial showing of disability, the employer can present evidence to refute the employee’s position in regard to the availability of maximum wage earning jobs.

Practical Application

This change merely codifies the practice which was already in existence. Therefore, there will be continuation of the need for a vocational assessment by a certified expert, with follow up job search activities to determine whether or not work remains available for an employee up to their maximum wage earning capacity.

6. RESIDUAL WAGE EARNING CAPACITY (Section 301(4))

Prior to enactment of the new Act, the Agency had been directed under the Harder and Lofton cases to make a determination as to whether or not an employee retained a residual wage earning capacity, even if they were not able to perform or find work up to their maximum wage earning capacity.

The new Act, codifies this requirement by indicating that a disability is partial if the employee retains a wage earning capacity at a pay level less than their maximum wage in work suitable to their qualifications and training. “Wage earning capacity” is defined as wages the employee earns or is capable of earning at a job “reasonably available” to the employee whether or not wages are actually earned. The employee has a duty to seek work reasonably available to them even for a lesser wage earning capacity. In determining whether or not a lesser residual wage earning capacity can be established, consideration will be given to whether or not the employee engaged in good faith job efforts and whether those jobs are reasonably available.

Practical Application

The above changes clarify that the magistrate must make findings as it relates to whether the employee has retained a residual wage earning capacity, even if the employee can establish they have lost the ability to earn their maximum wage. The employee must also show an effort has been made to find lesser paying jobs, with evidence as to whether or not those jobs are available. This would require additional proofs from the vocational expert as it relates to not only maximum wage earning jobs, but also lesser paying jobs within the employee’s qualification, background and training. Although the new Act speaks in terms of “whether or not wages are actually earned,” it is doubtful the magistrates will utilize any type of hypothetical wage earning capacity when arriving at this decision. Therefore, specific focus will be necessary from the vocational expert as it relates to the lesser paying jobs and, more importantly, the availability of that work, such that a residual wage earning capacity can be imputed to an employee, when the loss of maximum wage earning capacity has been established.

7. 100 WEEK RULE (Section 301(9))

Under the prior Act, if an employee was returned to light/favored work activities for 100 weeks or less, and then lost their job ’10r whatever reason” the employee was entitled to wage benefits subsequent to that separation, regardless of the reason for separation.

Under the new Act, the 100 week rule has been eliminated. The Act states that “if an employee is terminated from reasonable employment for fault of the employee, the employee is considered to have voluntarily removed himself or herself from the work force and is not entitled to any wage loss benefits under this act.”

If the employee was employed for less than 100 weeks on light/favored work activity, and loses their job through no fault of their own, they are still entitled to receive compensation benefits based on their wage at the time of the original injury.

Practical Application

This change effectively eliminates difficult issues which arose when an employee was terminated for cause within 100 weeks of obtaining light-duty work activities. Now, regardless of the time period involved, if termination occurs due to the ’1ault of the employeen no wage loss benefits would be owing. This will continue to place a premium on early fact finding and identification of witnesses relating to the reason for discharge. In addition, it is anticipated that the magistrates will still closely review separations from light-duty employment which occur within the first 100 weeks, with great scrutiny. Therefore, documentation and development of factual evidence remains significant.

8. 250 WEEK RULE/ ESTABLISHMENT OF NEW WAGE EARNING CAPACITY (Section 301(9))

Under the prior Act, if an employee had returned to light-duty work activities for 250 weeks or more, there was a {(presumption of wage earning capacity” established due to that employment. However, this presumption had been treated as “rebuttable.”

Practical Application

Under the new Act, if the employee was employed for 250 weeks or more of light duty work, lithe employee is presumed to have established a post injury wage earning capacity. ” This would appear to remove any issue regarding how the presumption of a new wage earning capacity is interpreted. It is still important to monitor the amount of time an employee has been on favored work in order to prove that a post-injury wage earning capacity has been established.

9. FURNISHING OF MEDICAL CARE (Section 315)

Under the prior Act, the employer had the ability to direct care for 10 days, prior to the employee receiving treatment with a physician of their choice.

Under the new Act, the employer may direct care for 28 days from the inception of medical care, prior to the employee having the right to choose a physician of their own choosing.

Practical Application

The employer now has the ability to direct care for 4 weeks after the employee initially receives medical care. This will provide additional time to obtain diagnostic studies and direct employees to specialists which will allow better control of ongoing care and treatment.

10. DEPENDENTS (Section 331/353)

Under the prior Act in the case of either death or personal injury, if a wife was living with the husband at the time of the death or injury, she was a “conclusive dependent” for purposes of establishing the right to benefits or calculation of the appropriate workers’ compensation rate.

Under the new Act, the wife is no longer considered a “conclusive dependent,” and must take the same steps to establish dependency as other alleged dependents.

Practical Application

It can no longer be presumed that the wife living with the husband at the time of death or injury is automatically a dependent for purposes of the right to benefits. Factual evidence should be obtained from the wife in order to establish that she was either wholly or partially dependent upon the husband for support.

11. SPECIFIC LOSS BENEFITS (Section 361)

Under the prior Act, specific loss benefits had been interpreted by Trammel to mean that if an employee had joint replacement surgery, and the employee could establish they had lost the industrial use of the affected limb prior to the joint replacement surgery, then specific loss benefits for the affected extremity would be payable.

The new Act, directly overturns Trammel and indicates that “the effect of any internal joint replacement surgery, internal implant, or similar medical procedure shall be considered in determining whether a specific loss has occurred. /I

Practical Application

Under Trammel, the simplistic analysis was that if an employee had undergone a joint replacement procedure, than he could be entitled to specific loss benefits. The focus was on pre-surgical status. Under the new Act, the focus is on the post-surgical result, and whether or not the replacement or implant has caused the loss of industrial use of the extremity. Since

the majority of implantations have at least some positive impact on the employee’s physical condition, specific loss benefits in this circumstance will be quite limited.

 

12. EMPLOYEE/INDEPENDENT CONTRACTOR (Section 161)

Under the prior Act, the three factors to be considered in determining whether or not an individual is an employee as opposed to an independent contractor were whether or not the alleged employee maintained a separate business, held himself or herself out and rendered services to the public and whether the employer was subject to the Act. It had been held that if any of these three conditions were applicable, then the worker would be held to be an independent contractor. However, this issue has been repeatedly litigated with a number of factors being considered.

Under the new Act, if the employer is required to withhold federal income tax for the individual, that individual is “prima facie” considered to be performing services in employment under the Act, and thus “an employee.”

Also} under the new Act} the prior factors of whether or not the individual maintains a separate business or holds himself out to the public would remain. However, effective January 2013, the employer/employee relationship in these situations will be reviewed using the 20 factor test announced by the Internal Revenue Service. (See attached List of Factors)

The new Act also provides a mechanism whereby an employer may contact the Agency and request a determination as to whether or not a worker is actually an “employee” or “independent contractor.”

Practical Application

The new Act appears to be attempting to more clearly delineate the specific factors which need to be utilized in addressing the employee/independent contractor issue. These factors should be considered in obtaining information from the employer, including employment materials and documentation which will be important in assessing this issue.

Since the new Act does provide a mechanism whereby the employer can seek a determination on this issue, if your employer/insured is adamant that the worker is an “independent contractor,” they can be directed to the Agency to request a determination on this issue. If such an issue arises, contact counsel and the necessary information can be provided for the employer to proceed with this procedure.

13. PROFESSIONAL ATHLETE (Section 360j

Under the prior Act, there were no significant limitations as to whether an athlete would receive compensation benefits while injured in Michigan.

Under the new Act, if a professional athlete is hired under a contract with an employer outside of Michigan, he would not be covered under the Act if the injury occurred while the athlete was temporarily within the state; the employer had obtained workers’ compensation insurance in another state; the other state provides coverage for athletes; and workers’ compensation laws of the other state are the exclusive remedy against the employer.

Practical Application

The new Act essentially provides an exemption for professional athletes under certain circumstances. Therefore, if any athletic claims are filed the above factors need to be taken into consideration before compensability is accepted.

14. REDEMPTION HEARINGS (Section 836)

Under the prior Act a specific redemption hearing was necessary in all cases so the magistrates could review the documentation and make specific findings that were required under the Act, prior to approving settlement.

Under the new Act, if the parties stipulate in writing to the specific requirements that the magistrate must find to approve the settlement, then the stipulation may serve as a waiver of the hearing and the magistrate may approve the redemption agreement absent conducting a hearing.

Practical Application

In some limited circumstances the redemption hearing would not be necessary where there are no issues to be dealt with at the time of a hearing. However, in the majority of cases there are specific issues involving payment of medical bills, lien satisfaction, Medicare and Medicaid obligations, and other agreements that are outside the normal documentation. In those cases, a hearing will still be necessary to clarify these issues and provide appropriate protection for the employer/carrier.

15. SUBPOENAS (Section 853)

Under the prior Act, it was necessary for any subpoenas that were being issued during the course of litigation to be approved by the magistrate, with a signature being required.

Under the new Act, the approval and signature of the magistrate is no longer necessary. As such, counsel of record have the authority to issue subpoenas on their own and without oversight by the Agency.

Practical Application

Although this will streamline the subpoena process, the employer/carrier needs to carefully monitor if any subpoenas are forwarded directly to them with requests for documentation or information. It is imperative that counsel for the employer/carrier be notified immediately if any such subpoena is provided to the employer or carrier, and that no information is provided to the employee counsel, without input from counsel for the employer/carrier.

16. TIMING FOR EFFECT OF CHANGES

All of the above changes apply to injuries that are incurred on or after December 19, 2011.

Practical Application

Any of the changes to the Act which signify a departure from prior law will only receive PROSPECTIVE application. This would be the case with the specific loss analysis under Trammel. However, wage earning capacity and disability issues which were previously being analyzed under the standards set forth in Stokes, Harder and Lofton, would still be analyzed in that fashion for injury dates prior to the enactment of the changes. Therefore, special care should be given when assessing which of these issues are applicable to only prospective dates of injury.

 

LIST OF EMPLOYEE/INDEPENDENT CONTRACTOR FACTORS

1.     INSTRUCTIONS: A worker who is required to comply with other persons’ instructions about when, where, and how he or she is to work is ordinarily an employee. This control factor is present if th person or persons for whom the services are performed have the RIGHT to require compliance with instructions.

2.     TRAINING: Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the person or persons for whom the services are performed want the services performed in a particular method or manner.

3.     INTEGRATION: Integration of the worker’s services into the business operations generally shows that the worker is subject to direction and control When the success or continuation of a business depends to an appreciable degree upon the performance of certain services, the workers who perform those services must necessarily be subject to a certain amount of control by the owner of the business.

4.     SERVICES RENDERED PERSONALLY: If the services must be rendered personally, presumably the person or persons for whom the services are performed are interested in the methods used to accomplish the work as well as in the results.

5.     HIRING, SUPERVISING, AND PAYING ASSISTANTS: If the person or persons for whom the services are performed hire, supervisor, and pay assistants, that factor generally shows control over the workers on the job. However, if one worker hires, supervises, and pays the other assistants pursuant to a contract under which the worker agrees to provide materials and labor and under which the worker is responsible only for the attainment of a result, this factor indicates an independent contractor status.

6.     CONTINUING RELATIONSHIP: A continuing relationship between the worker and the person or persons for whom the services are performed indicates that an employer-employee relationship exists. A continuing relationship may exist where work is performed at frequently recurring although irregular intervals.

7.     SET HOURS OF WORK: The establishment of set hours of work by the person or persons for whom the services are performed is a factor indicating control.

8.     FULL TIME REQUIRED: If the worker must devote substantially full ti me in the business of the person or persons for whom the services are performed, such person or persons have control over the amount of time the worker spends working and impliedly restrict the worker from doing other gainful work. An independent contractor on the other hand, is free to work when and for whom he or she chooses.

9.     DOING WORKING ON EMPLOYER’S PREMISES: If the work is performed on the premises of the person or persons for whom the services are performed, that factor suggests control over the worker, especially if the work could be done elsewhere. Work done off the premises of the person or persons receiving the services, such as at the office of the worker, indicates some freedom from control. However, this fact by itself does not mean that the worker is not an employee. The importance of this factor depends on the nature of the service involved and the extend to which an employer generally would require that employees perform such services on the employer’s premises. Control over the place of work is indicated when the person or persons for whom the services are performed have the right to compel the worker to travel a designated route, to canvass a territory within a certain time, or to work at specific places as required.

10.  ORDER OR SEQUENCE SET: If a worker must perform services in the order or sequence set by the person or persons for whom the services are performed, that factor shows that the worker is not free to follow the worker’s own pattern of work but must follow the established routines and schedules of the person or persons for whom the services are performed. Often, because of the nature of an occupation, the person or persons for whom the services are performed do not set the order of the services or set the order infrequently. It is sufficient to show control, however, if such person or persons retain the right to do so.

11.  ORAL OR WRITTEN REPORTS: A requirement that the worker submit regular or written reports to the person or persons for whom the services are performed indicates a degree of control.

12.  PAYMENT BY HOUR, WEEK, MONTH: Payment by the hour, week or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on § straight commission generally indicates that the worker is an independent contractor.

13.  PAYMENT OF BUSINESS AND/OR TRAVELING EXPENSES: If the person or persons for whom the services are performed ordinarily pay the worker’s business and/or traveling expenses, the worker is ordinarily an employee. An employer, to be able to control expenses, generally retains the right to regular and direct the worker’s business activities.

14.  FURNISHING OF TOOLS AND MATERIALS: The fact that the person or persons for whom the services are performed furnish significant tools, materials, and other equipment tends to show the existence of an employer-employee relationship.

15.  SIGNIFICANT INVESTMENT: If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), that factor tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship. Special scrutiny is required with respect to certain types of facilities, such as home offices.

1.     REALIZATION OF PROFIT OR LOSS: A worker who can realize a profit or suffer a loss as a result of the worker’s services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee. For example, if the worker is subject to a real risk of economic loss due to significant investments or a bone fide liability for expenses, such as salary payments to unrelated employees, that factor indicates that the worker is an independent contractor. The risk that a worker will not receive payment for his or her services, however, is common to both independent contractors and employees and thus does not constitute a sufficient economic risk to support treatment as an independent contractor.

2.     WORKING FOR MORE THAN ONE FIRM AT A TIME: If a worker performs more than de minimis services for a multiple of unrelated persons or firms at the same time, that factor generally indicates that the worker is an independent contractor. However, a worker who performs services for more than one person may be an employee of each of the persons, especially where such persons are part of the same service arrangement.

3.     MAKING SERVICE AVAILABLE TO GENERAL PUBLIC: The fact that a worker makes his or her services available to the general public on a regular and consistent basis indicates an independent contractor relationship.

4.     RIGHT TO DISCHARGE: The right to discharge a worker is a factor indicating that the worker is an employee and the person possessing the right is an employer. An employer exercises control through the threat of dismissal, which caused the worker to obey the employer’s instructions. An independent contractor, on the other hand, cannot be fired so long as the independent contractor produces a result that meets the contract specifications.

5.     RIGHT TO TERMINATE: If the worker has the right to end his or her relationship with the person for whom the services are performed at any time he or she wishes without incurring liability, that factor indicates an employer-employee relationship.