By Thomas R. Lee, Professor of Law, Brigham Young University, and Dennis V. Lloyd, Chief Legal Counsel, Workers Compensation Fund (Utah)
(Editor's note: To read part one of this article, click here . Also, for an uncondensed version of the full article – including legal citations and references – click here .)
Part Two
Federal Preemption of Workers' Compensation Benefits
Even where illegal aliens are initially eligible for workers' compensation under state law, federal immigration law – specifically, the Immigrations Reform and Control Act (IRCA) – may impose some limitations on benefits. 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: “Allowing the [NLRB] to award backpay to illegal aliens would … encourage the successful evasion of apprehension by immigration authorities, condone prior violations of immigration laws, and encourage future violations.”
After the U.S. Supreme Court's decision in Hoffman Plastic Compounds , the key question is whether and to what extent federal immigration law may preempt workers' compensation benefits in three key categories: reimbursement for medical expenses, wage replacement, and rehabilitation/reemployment.
Medical Expenses
Reimbursement for medical expenses is the least controversial, as 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 and, in at least one instance, a court that denied coverage for an illegal alien's wage replacement ruled that the employer was responsible to pay for “reasonable and necessary medical treatments.”
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.” However, no court has extended Hoffman to broadly preempt all wage-replacement benefits under workers' compensation statutes. While wage-replacement benefits have not been 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 deemed capable of returning to work, whether in his original position or in a “modified” or “light duty” capacity.
Under such circumstances, 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. 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, 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.”
Rehabilitation and Retraining
Finally, IRCA and Hoffman Plastic have important implications for workers' compensation regulations that call for rehabilitation and retraining of injured illegal workers. Under ICRA, it is unlawful for a person or other entity . . . to refer for a fee, [an illegal alien] for employment in the United States.” “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, they could be violating federal law.
With this concern in mind, the courts have started to identify some IRCA limitations on rehabilitation under workers' compensation statutes. Some courts allow reemployment plans only if they are aimed at evaluating jobs that would be available “but for” the worker's illegal status. Others allow vocational benefits only if they are aimed at putting the worker into a job outside the United States.
Conclusion
There is no straightforward, simple answer to the question whether and to what extent illegal aliens may recover workers' compensation benefits. As to the threshold question of eligibility, there is a multitude of approaches in the various state statutes that deal with this issue. Even where illegal workers are covered by state law, their ability to recover benefits may be limited by federal immigration law.
Difficult problems arise when an employer seeks to reduce its wage-replacement obligations based on the worker's alleged ability to return to work, as in a “light duty” capacity. The principal response adopted by the courts is to allow “hypothetical” proof of an illegal worker's ability to return to work “but for” his illegal status. Yet this approach also has its difficulties. Hypothetical “light duty” jobs create the “phantom job” concern raised by some courts—that some employers might have a perverse incentive to conjure up hypothetical jobs that they would never offer in the real world.
This problem 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.
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