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Alabama’s Workers’ Compensation Statute Under Fire

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By: Matt Williams, Partner, Alabama

On May 8, 2017, Jefferson County, Alabama Circuit Court Judge Pat Ballard entered an Order declaring the entire Alabama Workers’ Compensation Act unconstitutional. Specifically, Judge Ballard found two sections of the Alabama Workers’ Compensation Act unconstitutional, but because the Alabama Legislature included Section 25-5-17, a non-severability statute, into the Act in 1984, Judge Ballard’s ruling effectively rendered the entire Alabama Workers’ Compensation Act unconstitutional.

First, Judge Ballard held Section 25-5-68 of the Workers’ Compensation Act, which establishes a $220 maximum compensation cap per week on permanent partial disability benefits (enacted over thirty years ago in 1985), to be invalid under both the Alabama and United States Constitutions. Judge Ballard found the Act fails to provide an adequate remedy to injured employees in violation of the Alabama Constitution and also fails to provide equal protection to different classes of employees in violation of the United States Constitution.

In his opinion, Judge Ballard stressed that the Act impermissibly established two groups of disparately treated injured workers without a rational basis. In the first group, those entitled to Temporary Total Disability benefits and Permanent Total Disability benefits enjoy “indexed benefits” because their weekly benefits increase annually with changes in Alabama’s statewide average weekly wage. However, in the second group, those entitled to or who qualify for Permanent Partial Disability benefits do not enjoy the “indexed benefits” because Section 25-5-68 provides a maximum compensation cap payable, which shall be no more than the lesser of $220 per week or 100% of the average weekly wage.

Second, Judge Ballard held Section 25-5-90 of the Workers’ Compensation Act, which statutorily caps attorney fees to 15%, also to be invalid under both the Alabama and United States Constitution. Judge Ballard found the Act fails to afford due process rights of Alabama’s injured employees in violation of the Alabama and United States Constitution and violates the separation of powers between the legislative and judicial branch under the Alabama Constitution.

In his opinion, Judge Ballard references two recent rulings from the Florida and Utah Supreme Courts that struck legislative caps on attorneys’ fees in workers’ compensation proceedings as persuasive. The Florida Court held that the mandatory fee schedule created an irrebuttable presumption that precludes any consideration of whether the fee award is reasonable to compensate the attorney and therefore is unconstitutional as a violation of due process under both the Florida and United States Constitutions. The Utah Court held that it had the exclusive right to regulate the practice of law, and thus the right to regulate attorneys’ fees. That court also held the absence of a fee schedule will allow injured workers the flexibility to negotiate appropriate fees with their attorneys. In Alabama, Judge Ballard held the fee cap establishing that no more than 15% is enough, regardless of a myriad of potential attendant circumstances, fails to afford due process of law. Judge Ballard also held that the regulation of attorneys’ fees is a function of the judicial branch and that Section 25-5-90 constitutes legislative trespass into a function reserved to the judicial branch of government, thus violating Alabama’s constitutional guaranty of separation of powers, as well.

The Court is not blind to the magnitude or the consequences of its order. Thus, Judge Ballard’s original order stayed his ruling for 120 days to allow the Alabama Legislature an opportunity to address the constitutional issues identified. However, the Alabama Legislature did not address the order in its most recent session. Recognizing the substantial interests and concerns that have arisen as a result of his original order, Judge Ballard amended it on May 17, 2017, to a stay pending further order of his court rather than for the 120 days. In the interim, Judge Ballard said the court would continue judging any pending workers’ compensation claims in accordance with the current law. He added that any further orders could come “upon the motion of any party, upon action of the legislature, or upon this Court’s own determination that the legislature is either unwilling or unable to take legislative action on these issues, the court will make any further order deemed necessary to implement – in full – the terms of the prior order regarding the constitutional invalidity of the Alabama Workers’ Compensation Act.”

Judge Ballard concluded “Alabama’s effort at a just settlement of a difficult problem, affecting one of the most important of social relations has now eroded to the point that the method of compensation that is established as a substitute for common law rights ceded transcends the limits of permissible state action.” If not corrected by the Alabama Legislature, the impact on medical providers, insurance companies, employers and employees could be severe, if not catastrophic to some degree. Medical providers will no longer be able to bill claims to workers’ compensation insurers, employers, or self-insurance funds. Insurers will suffer by losing the workers’ compensation law because they will not be able to sell workers’ compensation insurance policies or collect premiums for workers’ compensation insurance in Alabama. Self-insurance funds will continue only on claims that pre-date this decision. Employers could face tort lawsuits through industrial action, subjecting them and co-workers of the injured to potentially compensatory and punitive damages under common law. Employees will have to rely on other sources for the provision of medical care or subsistence compensation upon suffering a workplace accident while awaiting a verdict; a burden which will ultimately fall on Alabama’s taxpayers. Therefore, to avoid a potentially devastating effect in the economy, these constitutional issues must be addressed and remedied during the Alabama Legislature’s next session.