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WORKERS’ COMPENSATION AND THE UNDOCUMENTED WORKER Thomas R. Lee, Professor of Law, Brigham Young University Dennis V. Lloyd, Chief Legal Counsel, Workers Compensation Fund (Utah) Illegal immigration is a hot-button political issue that has spawned a wide range of legal and public policy questions. One set of particularly difficult questions arises in the context of a workplace injury involving an undocumented worker. A year ago, an article in this newsletter raised this important issue. The paragraphs below update and expand on that analysis. The threshold question is eligibility for workers’ compensation benefits. This is a question of state law. State legislatures have followed three general approaches: (a) some explicitly say whether illegal aliens are covered; (b) some expressly address the eligibility of aliens, but without reference to their legal status; and (c) others set forth eligibility criteria without any mention of aliens or immigration status. Even where aliens are theoretically eligible, some state courts have foreclosed their benefits on alternative grounds. The relevant statutes and case law are summarized below. The next question is whether federal immigration law places limitations on the benefits that may be afforded to illegal workers who are generally eligible to participate in a workers’ compensation scheme. Although an undocumented worker may be eligible for workers’ compensation benefits as a matter of state law, some of those benefits may run afoul of the Immigration Reform and Control Act (IRCA). As summarized below, the courts have begun to devise various strategies to try to reconcile the prohibitions of IRCA with the benefits available under workers’ compensation statutes. I. Statutory Coverage of Illegal Aliens Under Workers’ Compensation Statutes At least eight states have enacted workers’ compensation statutes that expressly address the eligibility of illegal

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WORKERS’ COMPENSATION AND THE UNDOCUMENTED WORKERThomas R. Lee, Professor of Law, Brigham Young University

Dennis V. Lloyd, Chief Legal Counsel, Workers Compensation Fund (Utah)

Illegal immigration is a hot-button political issue that has spawned a wide range of legal and public policy questions. One set of particularly difficult questions arises in the context of a workplace injury involving an undocumented worker. A year ago, an article in this newsletter raised this important issue. The paragraphs below update and expand on that analysis.

The threshold question is eligibility for workers’ compensation benefits. This is a question of state law. State legislatures have followed three general approaches: (a) some explicitly say whether illegal aliens are covered; (b) some expressly address the eligibility of aliens, but without reference to their legal status; and (c) others set forth eligibility criteria without any mention of aliens or immigration status. Even where aliens are theoretically eligible, some state courts have foreclosed their benefits on alternative grounds. The relevant statutes and case law are summarized below.

The next question is whether federal immigration law places limitations on the benefits that may be afforded to illegal workers who are generally eligible to participate in a workers’ compensation scheme. Although an undocumented worker may be eligible for workers’ compensation benefits as a matter of state law, some of those benefits may run afoul of the Immigration Reform and Control Act (IRCA). As summarized below, the courts have begun to devise various strategies to try to reconcile the prohibitions of IRCA with the benefits available under workers’ compensation statutes.

I. Statutory Coverage of Illegal Aliens Under Workers’ Compensation Statutes

At least eight states have enacted workers’ compensation statutes that expressly address the eligibility of illegal aliens. Six of those states (California, Florida, Nevada, New York, Texas, and Utah) expressly include illegal aliens in their workers’ compensation coverage. See, e.g., CAL. LAB. CODE § 3351 (2007) (defining employee as “every person in the service of an employer . . . whether lawfully or unlawfully employed, and includ[ing] aliens and minors”). Two states (Idaho and Wyoming) expressly exclude illegal aliens from their workers’ compensation regimes. See, e.g., WYO. STAT. ANN. § 27-14-102(a)(vii) (2006) (defining employee to include only those aliens “authorized to work by the United States department of justice, office of citizenship and immigration services, and aliens whom the employer reasonably believes, at the date of hire and the date of injury based upon documentation in the employer’s possession, to be authorized to work by the United States department of justice, office of citizenship and immigration services”). In this first group of states, the courts uniformly take the legislatures at their word, holding that illegal workers are covered where they are within the express terms of the statute and not covered where they are not. Farmer Bros Coffee v. Workers’ Comp. Appeals Bd., 35 Cal. Rptr. 3d 23, 26 (Cal. Ct. App. 2005) (refusing to exclude illegal aliens from the ambit of the statute); Felix v. State ex rel. Wyoming Workers’ Safety and Compensation Div., 986 P.2d 161-64 (Wyo. 1999) (holding statute to exclude undocumented workers).

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A second set of statutes expressly address aliens, but without clear reference to their legal status. In five states (Illinois, Michigan, Minnesota, North Dakota, and Ohio), for example, the workers’ compensation provisions expressly include aliens but make no express reference to their legal or illegal status. See, e.g., 820 ILL. COMP. STAT. 305/1(b)(2) (2005) (“Every person in the service of another . . . including aliens”); MICH. COMP. LAWS § 418.161(1)(l) (2007) (“Every person... including aliens.”) Where those statutes have been interpreted by the courts, they have been deemed to include illegal aliens—on the rationale that the legislature could have limited coverage to “legal” aliens if it had intended such a limitation. Sanchez v. Eagle Alloy Inc., 658 N.W.2d 510, 515-516 (Mich. Ct. App. 2003); Correa v. Waymouth Farms, Inc., 664 N.W.2d 324, 329 (Minn. 2003). In several other states (Alabama, Arizona, Colorado, Montana, North Carolina, South Carolina, and Virginia), the legislature has extended coverage to “aliens and minors” who are “legally authorized” to work. E.g., N.C. GEN. STAT. § 97-2(2) (2003). This formulation begs the question whether the “legally authorized” modifier extends to aliens or only to minors. The courts that have addressed this question generally conclude that it does not—and that all aliens (legal and illegal) are covered. See Ruiz v. Belk Masonry Co., Inc., 559 S.E.2d 249, 252 (N.C. Ct. App. 2002).

The third and largest set of statutes do not address aliens at all. Nineteen states (Alaska, Arkansas, Connecticut, Delaware, Hawaii, Iowa, Kansas, Louisiana, Maine, Massachusetts, Nebraska, New Hampshire, New Jersey, New Mexico, Oklahoma, Pennsylvania, Rhode Island, Washington, Vermont) have very broad definitions of covered workers—largely paralleling the federal definition: “an individual employed by an employer,” 29 U.S.C. § 203(e)(1). Five states (Georgia, Indiana, Kentucky South Dakota, Wisconsin) use similarly broad language, while expressly including minors. E.g., GA. CODE ANN. § 34-9-1(2) (2006). Six other states (Maryland, Mississippi, Missouri, Oregon, Tennessee, West Virginia) likewise expressly include minors within their broad definition of covered workers, while also providing that minors are covered regardless of their illegal status. E.g., MD. CODE ANN., LAB. & EMPL. § 9-202 (2006).

These formulations seem open to a construction that would either cover or decline to cover illegal aliens, depending on the legislative history or other indications of legislative intent. At least two courts, however, have found the latter two variations to encompass illegal aliens. See Continental PET Technologies, Inc. v. Palacias, 604 S.E.2d 627, 629 (Ga. App. 2004); Design Kitchen and Baths v. Lagos, 882 A.2d 817, 824-828 (Md. 2005). As for the first, a number of courts have held the statutes to include illegal aliens because the broad language indicated legislative intent to include all workers, whether legal or not, and the statute did not expressly exclude aliens. See Dowling v. Slotnik, 712 A.2d 396, 407-08 (Conn. 1998); Artiga v. M.A. Patout and Son, 671 So.2d 1138, 1139 (La. App. 1996); Fernandez-Lopez v. Jose Cervino, Inc., 671 A.2d 1051, 1053 (N.J. Super. Ct. 1996).

Even where illegal aliens are otherwise deemed to fall within a broad definition of covered workers, they are sometimes excluded on alternative grounds—such as the absence of an enforceable contract, fraud, or lack of causation. The seminal case is Granados v. Windson Dev. Corp., 509 S.E.2d 290 (Va. 1999), which was addressed in this newsletter last year. Granados held that because illegal aliens “cannot be employed lawfully in the United States,” the employment contract was void and Granados was therefore not an “employee” for purposes of the Virginia workers’ compensation statute. Id. at 293. The Virginia state legislature

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subsequently overruled this holding, however, see Va. Code Ann. § 65.2-101 (2007), and several other states have recently declined to follow Granados’ lead. See Coma Corp. v. Kansas Dept. of Labor, 154 P.3d 1080, 1087 (Kan. 2007); Design Kitchen and Baths v. Lagos, 882 A.2d 817, 824 (Md. 2005); Rajeh v. Steel City Corp., 813 N.E.2d 697, 733 (Ohio App. 2004).

In Doe v. Kansas Dept. of Human Resources, 90 P.3d 940 (Kan. 2004), the Kansas Supreme Court acknowledged that the illegal alien claimant was “legally entitled to . . . benefits” under the workers’ compensation statute, id. at 944, but concluded nonetheless that her misrepresenting her identity constituted a fraudulent and abusive act that allowed for suspension of permanent partial disability benefits. Id. at 948. It explained that “[Claimant [wa]s not being penalized based on her alien status, but for her actions in intentionally and willfully using a false identity throughout the workers compensation proceedings.” Id. at 949. This was so regardless of her employer’s actual knowledge of her status. Id. Similarly, the Michigan Court of Appeals held that while an illegal alien was an “employee” for purposes of the workers’ compensation act, Sanchez v. Eagle Alloy, Inc., 658 N.W.2d 510, 515 (Mich. App. 2003), a misrepresentation of legal status constituted a crime allowing for suspension of wage-loss benefits. Id. at 518.

The Pennsylvania Supreme Court has refused workers’ compensation benefits to an undocumented worker on causation grounds. In Reinforced Earth Co. v. W.C.A.B. (Astudillo), 810 A.2d 99 (Pa. 2002), the court held that while the claimant was entitled to the wage-replacement benefits he received, those benefits could be suspended on the grounds that the claimant’s disability was not caused by his workplace injury, but rather by his illegal status. Id. at 108. Pennsylvania courts have consistently followed this approach, see Mora v. W.C.A.B., 845 A.2d 950, 954 (Pa. Cmwlth. 2004); Morris Painting v. W.C.A.B., 814 A.2d 879, 881 (Pa. Cmwlth. 2003).

II. IRCA Preemption of Workers’ Compensation Benefits

Even where illegals are initially eligible for workers’ compensation under state law, federal immigration law (IRCA) may impose some limitations on the benefits they may be entitled to receive. The starting point for this issue is the U.S. Supreme Court’s decision in Hoffman Plastic Compounds, which was discussed at some length in last year’s newsletter.

Hoffman Plastic held that IRCA prevented “backpay” compensation to an illegal alien who was unlawfully fired for his union-organizing efforts. Since the alien could not lawfully work under IRCA, the Court held that IRCA also prohibited compensating him for work that he could now lawfully perform. The core of the Supreme Court’s analysis is the following: “[A]llowing the [NLRB] to award backpay to illegal aliens would unduly trench upon explicit statutory prohibitions critical to federal immigration policy, as expressed in IRCA. It would encourage the successful evasion of apprehension by immigration authorities, condone prior violations of the immigration laws, and encourage future violations.” Hoffman Plastic Compounds, Inc. v. N.L.R.B., 535 U.S. 137, 151 (2002).

After Hoffman, the key question is whether and to what extent federal immigration law may preempt workers’ compensation benefits. Three categories of benefits are addressed below: reimbursement for medical expenses, wage replacement, and rehabilitation / reemployment.

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A. Medical Expenses

Reimbursement for medical expenses is the least controversial. Applying the Hoffman rationale quoted above, there is little reason to suspect that this form of compensation provides any meaningful incentive for illegal immigration. We know of no court that has ever held that an illegal alien who is covered under a workers’ compensation scheme is ineligible for reimbursement of medical expenses on IRCA preemption grounds. Indeed, in at least one instance, even a court that denied coverage for wage replacement held an employer “responsible to pay for . . . reasonable and necessary medical treatments” arising out of an illegal alien’s workplace injury. Eagle Alloy, 658 N.W.2d at 518 n.6.

B. Wage Replacement

In Hoffman Plastic, the Court refused to condone a backpay award “for wages that could not lawfully have been earned, and for a job obtained in the first instance by criminal fraud.” 535 U.S. at 149. A contrary result, the court explained, would “not only trivialize[] the immigration laws,” but also “condone[] and encourage[] future violations.” Id. at 150.

Despite this forceful language, no court has extended Hoffman to broadly preempt all wage-replacement benefits under workers’ compensation statutes. Courts that hold illegal workers eligible for benefits generally conclude that the prospect of workers’ compensation is too speculative to be an inducement for illegal immigration. In fact, they reason that a denial of such benefits would create an incentive for employers to hire illegal aliens. See Earth First Grading & Builders Ins. Group/Ass’n Services v. Gutierrez, 606 S.E.2d 332, 334 (Ga. App. 2004); Coma Corp., 153 P.3d at 1087 (Kan. 2007). The courts have also noted that workers’ compensation benefits do not necessarily depend on the assumption—embraced in Hoffman Plastic, see 535 U.S. at 140—that a compensatory award will replace wages earned in an illegal job. Specifically, the courts have noted that the alien worker could subsequently attain legal status, see Escobar v. Spartan Security Service, 281 F.Supp.2d 895 (S.D. Tex. 2003), or obtain employment in his country of origin, see Balbuena v. IDR Realty LLC, 845 N.E.2d 1246, 1249 (N.Y. 2006). With this latter idea in mind, at least one court has limited wage benefits to that which the worker could have earned in his country of origin. Sanango, 788 N.Y.S.2d at 316 (deeming admissible evidence of “the wages that, but for his injuries, plaintiff would have been able to earn in his country of origin”).

For these reasons, Hoffman Plastic seems unlikely to be read to generally foreclose wage-replacement benefits under IRCA. Indeed, it is worth noting that the United States Supreme Court has denied certiorari in at least one case in which the court declined to extend Hoffman to preclude workers’ compensation benefits for an illegal alien. See Dowling v. Slotnik, 712 A.2d 396, 407-9 (Conn. 1998), cert. denied, Slotnik v. Considine, 525 U.S. 1017 (Nov. 30, 1998).

While wage-replacement benefits have not been deemed categorically preempted under Hoffman Plastic, the courts have struggled with the question of whether and to what extent a worker’s illegal status may affect termination or reduction of such benefits. This question arises, for example, where the wage replacement benefit is subject to reduction where the worker is

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deemed capable of returning to work—whether in his original position or in a “modified” or “light duty” capacity. An illegal worker cannot legally accept any such work under IRCA; the legal question that arises is whether the employer can still reduce its burden to pay wage replacement benefits.

It makes little sense to preclude an employer from presenting evidence of an illegal worker’s physical capacity to return to work. If an illegal worker were deemed permanently incapable of returning to work because of his illegal status, he would effectively qualify for perpetual permanent total wage-replacement benefits regardless of how minimal or temporary his injury. The state legislature can hardly be deemed to have intended to discriminate in favor of illegal workers by awarding them such a windfall. See Tarango v. State Indus. Ins. System, 25 P.3d 175, 181 (Nev. 2001) (explaining that providing benefits to an undocumented worker only because of his illegal status would be a “dangerous precedent” and “undermine the purpose behind [the State’s] workers’ compensation regime.”). Indeed, a workers’ compensation regime deemed to contemplate discriminatory favoritism of illegal aliens would create serious Equal Protection problems. See Foodmaker, Inc. v. Workers’ Comp. Appeals Bd., 67 Cal. App. 4th 74, 92 (1998)

With these concerns in mind, some courts have held that an employer can reduce its liability for wage-replacement benefits by demonstrating that the worker would be able to return to work “but for” his illegal status. In Romero v. Staffmark, 612 S.E.2d 445 (N.C. App. 2005), for example, the North Carolina Court of Appeals affirmed a ruling that an illegal worker was subject to termination of benefits based on a finding that but for plaintiff’s legal status “she would have been able to obtain [specifically identified] employment.” Similarly, in Martines v. Worley & Sons Const., 628 S.E.2d 113, 114 (Ga. App. 2006), the Georgia Court of Appeals held that an illegal alien worker who refuses to accept suitable alternative employment “based on a legal inability . . . rather than a lack of skill or physical capacity, is not justified as a matter of law.” Compare Wet Walls, Inc. v. Ledezma, 598 S.E.2d 60, 64 (Ga. App. 2004) (temporary total disability benefits still available if the worker successfully establishes that his refusal of the work stemmed not from his illegal status, but from physical inability).

A similar approach was embraced by the court in Hernandez v. SAIF Corp., 35 P.3d 1099 (Or. App. 2001). In Hernandez, an illegal alien worker injured his foot while working as a Christmas tree harvester. Id. at 1100. The employer insisted that, were it not for Hernandez’s illegal status, it would have offered him a position as a tree tallier/tier at the same pay rate and hours as his previous position. Id. at 1100, 1102. The Oregon Court of Appeals held this “hypothetical” light duty job was sufficient to defeat Hernandez’s claim for any continued wage-replacement benefits. Id. at 1101-02. See also Brambila, Chase-Walton Elastomers, Manufacturers of Massachusetts Comp. Group, 11 Mass. Workers’ Comp. Rep. 410, *5 (1997) (“[T]here is no reason why the insurer could not put forward hypothetical job offers or expert vocational testimony that used labor market information for the purposes of showing the employee’s ability to earn wages apart from his alien status, jobs availability and wage ranges.”)

C. Rehabilitation and Retraining

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Finally, IRCA and Hoffman Plastic have important implications for workers’ compensation remedies that call for rehabilitation and retraining of the injured illegal worker. Under ICRA, “[i]t is unlawful for a person or other entity . . . to refer for a fee, [an illegal alien] for employment in the United States.” 8 U.S.C. § 1324a(a)(1)(A). Although workers’ compensation statutes may permit or even require rehabilitation or retraining of an injured worker, any such remedies run a serious risk of running afoul of IRCA when they are extended to illegal workers. Under the governing regulations, “referral” is defined broadly to include transmitting documentation or information (such as a letter of recommendation) with the intent of helping an illegal alien get employment. A fee constitutes “remuneration whether on retainer or contingency basis.” Thus, if an employer or workers’ compensation insurer pursues rehabilitation or training aimed at putting an illegal alien back to work, it may well be contravening the prohibitions of federal immigration law.

With this concern in mind, the courts have started to identify some IRCA limitations on rehabilitation remedies under workers compensation statutes. As with wage-replacement, some courts allow reemployment plans if they are aimed at evaluating jobs that would be available “but for” the worker’s illegal status. See Gayton, 560 S.E.2d 870. Other courts state that vocational benefits may be provided only if they are aimed at putting the worker into a job outside the United States. Cf. Tarango, 25 P.3d at 179 (“we do not consider it outside the realm of possibility that appellant’s future employment lies outside the boundaries of the United States, and such vocational training could be put to use elsewhere”). Still others hold that vocational benefits aimed at reemployment outside the United States would violate equal protection because they would be more costly than local benefits, Foodmaker, Inc., 67 Cal. App. 4th 74, or would be contrary to the state priority scheme, Tarango, 25 P.3d at 180-81 (“[a]warding Tarango formal vocational training under [the Nevada workers’ compensation statute] diametrically opposes the express intent of our workers’ compensation scheme. . . . The [state scheme] was not intended as a means to expand the agency's powers to award vocational benefits beyond the borders of Nevada-let alone the borders of the United States.”); Cherokee Industries, 84 P.3d at 801 (citing state statute and explaining that “[s]ome benefits, such as vocational rehabilitation . . . may not be available to a claimant who cannot stay in this country.”).

III. Conclusion

Two sets of legal questions arise when an illegal worker is injured on the job. The threshold question is whether he is eligible for workers’ compensation benefits. Some statutes answer this question explicitly—either expressly covering or excluding illegal aliens. Under many others, the courts are left to infer the legislature’s intent from more general definitions of eligible workers. Even where illegal workers are covered, their eligibility for certain workers’ compensation benefits may be limited by federal immigration law. Covered illegal workers are always eligible for reimbursement of medical expenses, and no court has held wage-replacement benefits to be categorically preempted by IRCA. Difficult problems arise, however, when an employer seeks to reduce its wage-replacement obligations based on the worker’s capacity to return to work (with or without rehabilitation).

Legally, the employer cannot put the illegal alien back to work and cannot rehabilitate or train him for a job in the United States. But that must not mean that the illegal worker is entitled

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to perpetual permanent total workers’ compensation. Such an approach would discriminate unfairly in favor of illegal aliens—in contravention of the Equal Protection Clause and (undoubtedly) of the intent of the legislature that enacted the workers’ compensation act.

The most palatable alternative embraced by the courts is to allow “hypothetical” proof—of an illegal worker’s capacity to return to work “but for” his illegal status or of a rehabilitation plan that could help him return to work if he could do so legally. This approach also has its difficulties, however. Hypothetical “light duty” jobs create the “phantom job” concern: If an employer can reduce (or eliminate) its obligation to pay wage-replacement benefits by “offering” a job that cannot possibly be accepted, the employer will have a perverse incentive to conjure up hypothetical jobs and/or wages that it would never offer in the real world. See Hernandez v. SAIF Corp., 35 P.3d 1099, 1101 (Or. App. 2001) (acknowledging—but ultimately rejecting—claimant’s concern that an “employer could simply fabricate an ‘unavailable’ modified position having the same wage in fiction as the employer’s former position had in fact, and thereby defeat any redeemable right to” wage-replacement benefits) The problem is exacerbated where a hypothetical rehabilitation plan is introduced.

These problems may ultimately require a comprehensive legislative solution. At the federal level, immigration reform should clarify the extent to which federal law limits the availability of workers’ compensation benefits for illegal workers. At the state level, amendments to workers’ compensation acts should address the “hypothetical” or “but for” proof problems noted above. In the absence of legislative reform, there is significant risk of either leaving some deserving workers under-compensated or of discriminating in favor of illegal workers.