Minnesota Statutes § 176.1812, subdivision 1(a) (2002), does not authorize preclusion of judicial review.
The workers' compensation claim is not preempted by federal law.
Exclusion of legal counsel in the early stages of a workers' compensation alternative dispute resolution process violates Minn. Stat. § 176.1812, subd. 4 (2002).
There is no inherent bias and conflict of interest in the selection of the arbitrator or approval of his compensation.
Heard, considered, and decided by the court en banc.
The opinion of the court was delivered by: Page, Justice.
Dissenting, Hanson, J., and Blatz, C.J.
This workers' compensation matter comes before this court by certiorari upon the relation of Jeffrey Kline. Kline seeks review of a decision of the Workers' Compensation Court of Appeals (WCCA) reversing an arbitrator's denial of benefits and remanding for reconsideration. Concluding that Kline is entitled to a new arbitration, we affirm as modified.
On May 8, 2001, Jeffrey Kline sustained a work-related injury to his right lower abdomen while employed as a carpenter for Berg Drywall, Inc. The injury occurred as Kline was lifting a piece of sheetrock that buckled.
On May 17, 2001, Kline sought medical treatment at Park Nicollet Medical Center (PNMC), complaining of right groin pain and pain in the lower quadrant. Dr. Thomas Lohstreter diagnosed a right inguinal hernia or internal ring strain and allowed Kline to return to work with a 20-pound lifting restriction. Dr. Kevin Ose at PNMC examined Kline on May 24 and May 31, 2001, and diagnosed a right groin strain with no evidence of an inguinal hernia. Dr. Ose advised Kline to avoid lifting and strenuous activity. On June 4, 2001, Dr. Robert Gorman at PNMC examined Kline and also diagnosed a right groin strain. Dr. Gorman extended the lifting restrictions and ordered an ultrasound, which showed a normal abdominal wall with no evidence of a hernia. At a follow-up visit with Dr. Gorman on July 3, 2001, the doctor diagnosed a right groin strain and a right adductor thigh strain. On August 15, 2001, Kline returned to Dr. Gorman for further follow-up on his right groin and thigh complaints. During this visit, Kline stated that over the last few weeks he had felt more depressed, lacked interest in usual activities, lacked concentration, and struggled with feelings of guilt and worthlessness. Dr. Gorman diagnosed a chronic right groin strain and right adductor thigh strain and prescribed Paxil for depression. Dr. Gorman recommended an MRI scan and continued restrictions of 20 to 40 pounds of lifting, with limited bending, twisting, and sitting, and the ability to change positions as needed. An MRI scan of Kline's right hip on August 22, 2001, was normal.
On September 18, 2001, Kline saw Dr. Ali Ahmad Hamidi at PNMC with continued complaints of groin pain. Dr. Hamidi found no swelling, but noted severe tenderness over the medial aspect of the inguinal area and tenderness in the groin, testicle, and cords. Dr. Hamidi diagnosed right groin and testicle pain due to the work injury. On October 16, 2001, Kline returned to see Dr. Gorman. The doctor's diagnosis was unchanged and he continued the same restrictions. Dr. Gorman increased Kline's daily Paxil dosage and suggested that Kline contact the mental health department for further evaluation and treatment. At a follow-up visit on November 15, 2001, Dr. Gorman concluded that Kline had reached maximum medical improvement and found no permanent partial disability. However, Dr. Gorman continued lifting restrictions and, in a March 6, 2002, report, Dr. Gorman concluded the May 8, 2001, accident caused a permanent injury to Kline's right lower quadrant. In the same report, Dr. Gorman indicated the work-related injury aggravated Kline's depression.
Berg Drywall and its workers' compensation liability insurer, American Compensation Insurance Co./RTW, accepted liability for the injury. Subsequently, a dispute arose over the nature, extent, and duration of Kline's injury and disability. Pursuant to the collective bargaining agreement between Kline's union and Berg Drywall, work-related-injury disputes were to be resolved through an alternative dispute resolution system permitted under Minn. Stat. § 176.1812 (2002). Under the terms of the agreement, work-related-injury disputes are addressed through the Rules and Regulations of the Union Construction Crafts Workers' Compensation Fund (Fund). The Fund is not an insurance provider or program, but a claim dispute administration service. The Fund is made up of a 12-person board consisting of six members chosen by labor and six members chosen by management. Kevin Gregerson is the administrator and dispute resolution facilitator of the Fund. The rules of the Fund provide for a three-step process for resolving disputes: facilitation, mediation, and arbitration. Fund R. 3.1 (2001).
In September 2001, at the request of the employer and insurer, Gregerson scheduled a dispute resolution examination with Dr. Mark H. Johnson.*fn1 Gregerson furnished the doctor with Kline's medical records, a "work comp summary" prepared by the employer's office manager, and a copy of the surveillance reports. Kline was examined by Dr. Johnson on November 6, 2001. Dr. Johnson found no medical evidence to indicate that Kline had sustained any significant work injury. He believed that, while Kline may have sustained a strain in the right inguinal area that may have taken several weeks to resolve, there was no indication of any significant damage. The doctor also believed there was symptom magnification and, perhaps, malingering, and noted a great disparity between Kline's reports of what he was able to do "and the actual observation of his physical activities." Dr. Johnson said Kline was not in need of any restrictions for his work injury and that he suffered no permanent partial disability. On November 26, 2001, the employer terminated Kline's employment.*fn2
Kline retained attorney Russell G. Sundquist to represent him at a facilitation scheduled for December 18, 2001. By letter faxed and mailed on December 17, 2001, Sundquist was provided with a copy of the Fund's rules and regulations that provide that "counsel shall not be present during the facilitation unless all parties agree." Id. at R. 3.4. Kline attended the facilitation without legal counsel. Kathy Berg, manager/owner of Berg Drywall, Kris Mitlestaedt, Berg Drywall office manager, and Mary Dennis, American Compensation Insurance Co./RTW claims representative, attended the facilitation on behalf of the employer and insurer. The facilitator's decision, terminating the employee's benefits, was apparently rendered on December 26, 2001. The parties proceeded to mediation; and when that proved unsuccessful, Kline filed an application for arbitration.
While the arbitration was pending, Gregerson scheduled a dispute resolution examination with Dr. Stephen Butzer, a psychiatrist, who examined Kline on May 22, 2002. Gregerson furnished Dr. Butzer with medical records, letters, comments from both parties, and a list of questions for the doctor's response. Dr. Butzer concluded that Kline was malingering and that any mental health problems were unrelated to the work injury.
The arbitration hearing took place on June 24, 2002, before arbitrator Jeffrey W. Jacobs, who affirmed the discontinuance of benefits. Concluding that a dispute resolution examination was to be given greater weight than a traditional independent medical examination under the Fund's arbitration rules, the arbitrator found that Kline's work injury was temporary in nature and had resolved no later than November 21, 2001. The arbitrator also concluded that Kline had not established a psychological injury. Kline appealed to the WCCA, asserting that: (1) the Fund's alternative dispute resolution (ADR) system, by prohibiting legal representation in the early stages of the process, was unconstitutional and also void under Minn. Stat. § 176.1812, subd. 4 (2002); (2) there was an inherent conflict of interest in the arbitration; (3) the arbitrator misconstrued the arbitration rules in giving greater weight to the dispute resolution examination; and (4) the neutral physician process was inherently flawed.
The WCCA rejected Kline's challenges to the ADR system and declined to rule on the constitutional claim, noting that it was not empowered to resolve constitutional issues. Kline v. Berg Drywall, Inc., 2003 WL 1917004, at *4 (Minn. WCCA Mar. 31, 2003) (citing Minn. Stat. § 175A.01, subd. 5 (2002)). The WCCA, however, agreed that the arbitrator misconstrued the Fund's rules in giving greater weight to the dispute resolution examination reports and remanded the matter for reconsideration. Id. at *7. In seeking our review, Kline reasserts his challenges to the validity of the ADR process based on the exclusion of legal counsel in the early stages of the process and also on an inherent conflict of interest. The employer and insurer and the Fund, appearing as amicus curiae, assert that this court does not have jurisdiction to hear, consider, and decide the matter.
"The workers' compensation system in Minnesota is based on a mutual renunciation of common law rights and defenses by employers and employees alike." Minn. Stat. § 176.001 (2002). "[A]n injured employee is guaranteed compensation from his or her employer for work-related injuries regardless of the employee's fault or the employer's lack of fault, in exchange for forfeiting the right to sue the employer in tort." Minnesota Brewing Co. v. Egan & Sons Co., 574 N.W.2d 54, 58 (Minn. 1998) (citing Lambertson v. Cincinnati Corp., 312 Minn. 114, 120-21, 257 N.W.2d 679, 684 (1977)). In most other circumstances, the employee retains his or her common law right to recover in tort from a negligent third party. Id. "Strictly speaking, the rights and liabilities created by the Workers' Compensation Act are imposed on the employment relationship pursuant to the police power, independently of any actual or implied contract." Joyce v. Lewis Bolt & Nut Co., 412 N.W.2d 304, 307 (Minn. 1987) (citing Todeva v. Oliver Iron Mining Co., 232 Minn. 422, 428, 45 N.W.2d 782, 788 (1951)).
The act originally provided that settlements for workers' compensation claims were to be in substantial accord with the statutory compensation schedule and provisions for distribution and had to be approved by a judge of the district court. Act of Apr. 24, 1913, ch. 467, § 22, 1913 Minn. Laws 685 (codified at Minn. Stat. § 8216(1) (1913)). In the case of a dispute or a failure to agree upon a claim for compensation, either party could submit the claim to a judge of the district court who was to hear and summarily determine the dispute. Id. at 686 (codified at Minn. Stat. § 8216(2) (1913)). The judge's decision was conclusive and binding, subject to a right of appeal to this court. Id. at 688-89 (codified at Minn. Stat. § 8225 (1913)).
"It soon became apparent that despite the stated amounts of compensation payable for permanent partial disability resulting from any of an array of specified disabilities, the parties were often in serious disagreement." Meath v. Harmful Substance Comp. Bd., 550 N.W.2d 275, 278 (Minn. 1996). Consequently, in 1921 the act was amended to transfer adjudication of compensation claims to the Industrial Commission in the Department of Labor and Industry. Act of Mar. 14, 1921, ch. 81, § 2, 1921 Minn. Laws 86 (codified at Minn. Stat. § 4033 (1923)); Act of Mar. 15, 1921, ch. 82, § 42, 1921 Minn. Laws 116-17 (codified at Minn. Stat. § 4302 (1923)). The legislation provided for a hearing and decision with respect to eligibility for compensation, medical expenses, and the extent of injury and disability before a referee of the Industrial Commission with a right of appeal to the Industrial Commission. Act of Mar. 15, 1921, ch. 82, §§ 42, 43, 50, 1921 Minn. Laws 116-17, 119 (codified at Minn. Stat. §§ 4302, 4303, 4310 (1923)). For error of law or on the ground that the findings of fact were unwarranted by the evidence, review by certiorari could be had in this court. Act of Mar. 15, 1921, ch. 82, § 60, 1921 Minn. Laws 122-23, amended by Act of Apr. 21, 1921, ch. 423, § 2, 1921 Minn. Laws 652-53 (codified at Minn. Stat. § 4320 (1923)). In Breimhorst v. Beckman, we held that the vesting of quasi-judicial powers in the Industrial Commission, including the power to determine facts and apply the law in workers' compensation disputes, did not violate the separation of powers under the Minnesota Constitution as long as the commission's awards and determinations are subject to review by this court on certiorari. 227 Minn. 409, 433, 35 N.W.2d 719, 734 (1949).
"The workers' compensation adjudication system [has been] based to a significant extent on the judicial model of decisionmaking." Hirsch v. Bartley-Lindsay Co., 537 N.W.2d 480, 486 (Minn. 1995). Currently, a compensation judge at the Office of Administrative Hearings serves as factfinder and decisionmaker. Minn. Stat. § 176.371 (2002). The compensation judge develops all of the evidence, including that contrary to the claimant's position, through hearings and investigations, and the compensation judge issues a decision based upon relevant evidence. Minn. Stat. § 176.411 (2002). "While compensation judges are not 'constitutionally protected,' they do have a certain degree of independence from the agency in which they adjudicate disputes as they are the people who have been charged with the responsibility of ascertaining the substantial rights of the parties in a fair and objective manner." Hirsch, 537 N.W.2d at 487. Decisions of the compensation judge are appealable to the WCCA, an independent agency in the executive branch. Minn. Stat. §§ 175A.01, subd. 1, 176.421, subd. 1 (2002). Decisions of the WCCA are subject to review by this court on certiorari. Minn. Stat. § 176.471, subd. 1 (2002).
"A new and popular reform in the workers' compensation movement are laws allowing employers and unions to opt out of the state-run adjudicatory system and collectively bargain workers' compensation." Ellyn Moscowitz & Victor J. Van Bourg, Carve-Outs and the Privatization of Workers' Compensation in Collective Bargaining Agreements, 46 Syracuse L. Rev. 1, 18 (1995). Legislation allowing the privatization of workers' compensation commonly contains an ADR system, "which in most contracts includes a three stage process involving an ombudsman, mediation and arbitration." Id. at 3-4. Another "common characteristic of the contracts" is the denial of legal representation "until an ombudsman and a mediator have had an opportunity to resolve the dispute in question."*fn3 Id. at 4.
In Minnesota, the Chamber of Commerce and the AFL-CIO lobbied the legislature for the inclusion of workers' compensation in a collective bargaining agreement. Linda J. Starr, Note, Injured on the Job: Using Alternative Dispute Resolution to Improve Workers' Compensation in Minnesota, 18 Hamline J. Pub. L. & Pol'y 487, 513-14 (1997).*fn4 In 1995, the legislature adopted legislation allowing employers and unions to include in collective bargaining agreements a workers' compensation ADR system. Act of May 25, 1995, ch. 231, art. 2, § 71, 1995 Minn. Laws 2052-53 (codified at Minn. Stat. § 176.1812, subd. 1 (2002)).*fn5 All agreements must meet filing and data-reporting requirements. Id. at 2054 (codified at Minn. Stat. § 176.1812, subd. 2 (2002)).*fn6 Any agreement that "diminishes an employee's entitlement to benefits" is null and void. Id. (codified at Minn. Stat. § 176.1812, subd. 4 (2002)).*fn7
As indicated earlier, Kline's union and Berg Drywall, as part of a collective bargaining agreement, adopted an ADR system that provides for a three-step process: facilitation, mediation, and arbitration. Fund R. 3.1. At the facilitation stage, the facilitator communicates with the parties and not with legal counsel; and although a party may retain legal counsel at any time, legal counsel is excluded from the facilitation unless all parties agree otherwise. Id. at Rs. 3.2, 3.4. A party dissatisfied with the determination of a facilitator may apply for mediation. Id. at R. 3.4. At the mediation stage, either party may be accompanied by legal counsel, but the mediator communicates directly with the parties and not through legal counsel. Id. at R. 5.4. If the dispute is not resolved at the mediation stage, the dispute may proceed to arbitration. Id. at R. 6.1. Legal counsel apparently is permitted to participate in the arbitration; and attorney fees are determined by the arbitrator and paid in accordance with the Workers' Compensation Act. See id. at R. 6.3. The decision of the arbitrator may be appealed to the WCCA; but the decision of the WCCA is not appealable. Union Constr. Crafts Workers' Comp. Fund R. 6.5 (2001).
Respondents' employer and insurer and the amicus curiae maintain that we lack jurisdiction over this dispute because the Rules and Regulations of the Union Construction Crafts Workers' Compensation Fund only permit an appeal to the WCCA. The rules do not permit further appeal. Kline contends that he has a constitutional right to appeal.
In authorizing the inclusion of ADR systems in a collective bargaining agreement, the legislature required that the system had to provide for judicial oversight:
A system of arbitration shall provide that the decision of the arbiter is subject to review either by the workers' compensation court of appeals in the same manner as an award or order of a compensation judge or, in lieu of review by the workers' compensation court of appeals, by the office of administrative hearings, by the district court, by the Minnesota court of appeals, or by the supreme court in the same manner as the workers' compensation court of appeals and may provide that any arbiter's award disapproved by a court be referred back to the arbiter for reconsideration and possible modification.
Minn. Stat. § 176.1812, subd. 1(a). Respondents and amicus curiae read the "or" and "in lieu of" language as permitting limitation of judicial review. But as Kline points out, the statute also says that the arbitrator's decision shall be "subject to review" by the WCCA "in the same manner as an award or order" of a compensation judge. Decisions of the WCCA, under the Workers' Compensation Act, are subject to review by this court. Minn. Stat. § 176.471, subd. 1.
Due process, "when applied to judicial proceedings means a course of legal conduct consonant with rules and principles established in our system of jurisprudence for the protection and enforcement of private rights." Hunter v. Zenith Dredge Co., 220 Minn. 318, 326, 19 N.W.2d 795, 799 (1945). Due process requires "the right of appeal from or review of a decision regarded by a litigant as unjust." Id. The administrative procedures created to implement workers' compensation laws survived constitutional separation of powers concerns, in part, because the agency's awards and determinations were subject to review by this court. Breimhorst, 227 Minn. at 433, 35 N.W.2d at 734.
A workers' compensation claim is not a private personal injury claim against the employer and the insurance carrier. Monson v. White Bear Mitsubishi, 663 N.W.2d 534, 538 (Minn. 2003). Workers' compensation "'is social legislation, providing a measure of security to workers injured on the job, with the burden of that expense considered a proportionate part of the expense of production.'" Id. at 539 (quoting Franke v. Fabcon, Inc., 509 N.W.2d 373, 376 (Minn. 1993)):
[T]he entire compensation system has been set up and paid for, not by the parties, but by the public. The public has ultimately borne the costs of compensation protection in the price of the product, and it has done so for the specific purpose of avoiding having the disabled victims of industry thrown on private charity or public relief. To this end, the public has enacted into law a scale of benefits that will forestall such destitution.
8 Arthur Larson & Lex K. Larson, Larson's Workers' Compensation Law § 132.04(1) (2003). Accordingly, the resolution of workers' compensation disputes is not a purely private concern. Traditionally, the binding resolution of those disputes is exclusively a public function. The statutory authorization for private ADRs essentially delegates the quasi-judicial function of the agency to private parties, making actions of those parties in that capacity state action. Cf. Edmonson v. Leesville Co., 500 U.S. 614, 625 (1991) (stating, "If a government confers on a private body the power to choose the government's employees or officials, the private body will be bound by the constitutional mandate of race neutrality."); Smith v. Allwright, 321 U.S. 649, 660 (1940) (stating, "[T]he recognition of the place of the primary in the electoral scheme makes clear that state delegation to a party of the power to fix the qualifications of primary elections is delegation of a state function that may make the party's action the action of the [s]tate.").
It is important to understand that this case is not about an employee and employer, in the face of a legal problem, making a mutually voluntary decision to pursue arbitration in lieu of dispute resolution in the workers' compensation system. In the collective bargaining context, arbitrators perform functions different from those performed by courts:
The labor arbitrator's source of law is not confined to the express provisions of the contract, as the industrial common law-the practices of the industry and the shop-is equally a part of the collective bargaining agreement although not expressed in it. The labor arbitrator is usually chosen because of the parties' confidence in his knowledge of the common law of the shop and their trust in his personal judgment to bring to bear considerations which are not expressed in the contract as criteria for judgment. The parties expect that his judgment of a particular grievance will reflect not only what the contract says but, insofar as the collective bargaining agreement permits, such factors as the effect upon productivity of a particular result, its consequence to the morale of the shop, his judgment whether tensions will be heightened or diminished. For the parties' objective in using the arbitration process is primarily to further their common goal of uninterrupted production under the agreement, to make the agreement serve their specialized needs. The ablest judge cannot be expected to bring the same experience and competence to bear upon the determination of a grievance, because he cannot be similarly informed.
United Steel Workers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 581-82 (1960).
Given the unique nature of the collective bargaining process, the Court held in United Steel Workers v. ...