Workplace Injury Claims For Employees Whose Employers Opted Out Of The Texas Workers’ Compensation System


The Texas Workers’ Compensation Act provides an employee an exclusive remedy for any work related injury or death suffered while in the course and scope of employment for workers whose employers choose to carry workers’ compensation insurance. Texas allows for employers to choose not to carry workers’ compensation, but tries to make that choice an unattractive one. This paper focuses on the rights of employees who are injured while working for employers who are not subscribers to the Texas Workers’ Compensation Act (“non-subscribers”), as well as on the defenses non-subscribers can assert. Included in this paper is a discussion of various efforts to avoid or contain the non-subscriber’s financial exposure. Finally, the last part of the paper discusses the survivors’ ability to recover against a subscribing employer when the worker is killed. The Texas legislature has addressed employees’ rights with increasing intensity over the past four legislative sessions. It is anticipated that the 2005 legislature will also address employees’ rights for work place injuries.


The Texas Labor Code addresses claims against non-subscribers, common law defenses, and the burden of proof for those injured while working for non-subscribers. A copy of Tex. Lab. Code §406.033 is set out as an attachment to this paper, but most practitioners would generally describe a non-subscriber case as:

  1. Requiring the employee to prove the non-subscribing employer was negligent;
  2. Eliminating the employer’s traditional common law defenses of contributory negligence, assumption of the risk, and fellow-servant rule; and
  3. Allowing the non-subscribing employer to submit a “sole” cause instruction.

See Tex. Lab. Code §406.033. Prior to the 2001 legislative session, employers successfully found one alternative that would allow the employer not to pay for workers’ compensation insurance, while still eliminating the injured employee’s right to sue the non-subscriber: the pre-injury waiver.


On March 29, 2001, the Texas Supreme Court specifically approved the use of pre-injury employee elections to participate in a non-subscribing benefit plan in lieu of exercising their common law remedies. In Lawrence v. CDB Services, Inc. and Lambert v. Affiliated Foods, Inc., 44 S.W. 3d 544 (Tex. 2001), the court held that pre-injury waivers did not violate public policy.

In Lawrence, Mr. Lawrence signed the company’s plan which included the statement:

I understand that by electing to participate in the Plan, I will lose any right that I may have to sue Employer or any of its Affiliated Employers, directors, officers, shareholders, employees, and agents because of any injuries, illness, or death I sustain in my employment with Employer or any of its Affiliated Employers resulting from their negligence or any other conduct actionable under the common law of the State of Texas, the statutes of the State of Texas, or under any otherwise available equitable relief. My only remedy will be to pursue benefits under the Plan. Executing this election involves the waiver and release of valuable legal rights.

The quote above was placed in bold in the original signed by Mr. Lawrence. The court held that the Workers’ Compensation Act did not prohibit non-subscribers from offering a plan different from the workers’ compensation scheme, and specifically allowed those non-subscribers to assert the pre-injury waiver as a defense to any claim.

The court-approved “loophole” was quickly closed by the 77 th Legislature effective June 17, 2001, when Section 406.033(e) was amended, specifically voiding pre-injury waivers:

A cause of action described in Subsection (a) may not be waived by an employee before the employee’s injury or death. Any agreement by an employee to waive a cause of action or any right described in Subsection (a) before the employee’s injury or death is void and unenforceable.

Tex. Lab. Code §406.033(e).

After considering the public policy concerns which led to the enactment of the Texas Workers’ Compensation system almost a century ago, the legislature declared void and unenforceable the pre-injury waiver of an injured employee’s claims against his or her non-subscribing employer. However, the language in these plans may provide a benefit to other entities which may have been involved in the worker’s injuries.


If you have a case where the worker signed a pre-injury waiver, the pre-injury waiver form should not be totally ignored. Co-defendants of the non-subscriber should request all employment agreements, benefit agreements, and the insurance file of the injured or deceased worker. These agreements may provide a non-employer co-defendant with complete protection from or waiver of the employee’s claims.

For example, in March, 1999, Charles Pratt, Jr. was working for a non-subscribing employer, B&C Concrete, which offered its employees voluntary participation in an Occupational Accident Employee Welfare Benefit Plan. Part of the plan stated as follows:

As a result of the Company not having workers’ compensation insurance coverage, you may have certain rights under the common laws of Texas for damages arising out of work-related illness or injury. If, however, you chose to participate in the Company’s Occupational Accident Employee Welfare Benefit Plan by requesting the benefits provided by the Plan, you hereby agree to accept the Plan benefits as the only benefits you are entitled to receive in the event of a work-related injury and to waive any and all other causes of action, claims, rights, and demands that you could make against the Company, its successors, assigns, employees, officers, directors, shareholders, agents and clients.

(Emphasis added.) Mr. Pratt died on August 3, 2000, from injuries suffered while working for B&C on the Pilgrim’s Pride premises in Dallas. Mr. Pratt’s beneficiaries brought suit against various defendants, including Pilgrim’s Pride. Pilgrim’s Pride moved for summary judgment on the following grounds:

  1. Pilgrim’s Pride was a third party beneficiary of the waiver and release signed by Mr. Pratt; and
  2. Pilgrim’s Pride established the affirmative defense of waiver as a matter of law.

In October, 2003, the Dallas Court of Appeals affirmed the summary judgment holding that B&C Concrete did work for Pilgrim’s Pride, and as such Pilgrim’s Pride was a “client” of B&C Concrete. Because the release included B&C Concrete’s clients, the waiver and release signed by Mr. Pratt extended to Pilgrim’s Pride. “Thus, the waiver and the Agreement signed by the decedent expresses his intent to relinquish his right to sue ‘clients’ of his employer.” Pratt-Shaw v. Pilgrim’s Pride Corp., 122 S.W.3d 825 (Tex. App. –Dallas 2003, no pet.).


Another variant to limit the litigation rights of an injured employee of a non-subscriber is through the use of an arbitration clause. HEB was a non-subscriber in 1995 when James Smith injured his back. Prior to the injury, Smith had signed an HEB “Election and Agreement Form.” This form allowed Smith to choose very comprehensive coverage in the event of an accident, however, in exchange for receiving the benefits, any disputes were to be submitted to binding arbitration. Smith could have chosen a basic coverage package which did not contain an arbitration provision. Smith signed the comprehensive coverage package, thus agreeing to binding arbitration.

When Smith was injured in 1995, he file suit against HEB. The trial court stayed the litigation ordered the parties to submit to arbitration. When Smith refused to submit to arbitration, the trial court dismissed the case.

On appeal, Smith argued that the contract requiring arbitration of claims for personal injury against the non-subscriber was not enforceable because it was unconscionable and against public policy. The Beaumont Court of Appeals disagreed and held that the arbitration agreement was properly obtained, was not unconscionable, and was not against public policy. Because the arbitration agreement was properly obtained, the trial court was required to compel arbitration and stay its own proceedings. Smith v. H. E. Butt Grocery Co., 18 S.W.3d 910 (Tex. App. — Beaumont 2000, pet. denied). Thus, Smith’s only recourse against his employer was through arbitration. See also, In re H.E.B., 17 S.W.3d 360 (Tex. App. — Houston [14 th Dist.] 2000, writ denied).


There is a recent Houston First Court of Appeals opinion that establishes the possibility of a workplace compensation program that protects all traditional general contractors and subcontractors through one workers’ compensation policy. In Etie v. Walsh & Albert, Ltd., 2004 Tex. App. Lexis 640 (Tex. App. — Houston [1 st Dist.] January 22, 2004), the parties involved in the construction project included:

  • Enron Corporation – Owner
  • Clark Construction Group – General Contractor
  • Way Engineering Company, Inc. – Subcontractor
  • Walsh & Albert, Ltd. – Sub subcontractor

Enron hired the Clark Construction Group to construct Enron Building No. 2. Clark Construction took out a single workers’ compensation insurance policy to cover all subcontractors and employees who worked at Enron Building No. 2. Clark hired Way Engineering who, in turn, hired Walsh & Albert, Ltd. to perform the sheet metal work on the building.

The contract between Clark and Way required Way to buy a single workers’ compensation policy through Clark’s insurance company. Way’s contract with Walsh & Albert also provided that Walsh & Albert’s employees were covered by the same workers’ compensation policy.

Sheldon Etie was employed by Way Engineering when he was injured at the job site allegedly as a result of the negligence of Walsh & Albert. Walsh & Albert filed for summary judgment on the grounds that Etie’s claims were barred by the workers’ compensation act because Walsh & Albert was a subcontractor covered by the contract and the Texas Labor Code. The First Court of Appeals examined the Labor Code and found that a contractor can provide workers’ compensation insurance coverage for subcontractors and the subcontractors’ employees. The court found that the workers’ compensation pass down provision of the construction contract allowed Way Engineering to be a general contractor and Walsh & Albert to be a subcontractor. The court held:

We are persuaded that the purposes of the Act are best served by deeming immune from suit all subcontractors and lower tier subcontractors who are collectively covered by workers’ compensation insurance. We hold that the Act’s deemed employer/ employee relationship extends throughout all tiers of sub- contractors when a general contractor has purchased workers’ compensation insurance that covers all of the workers on the site. All such participating employers/ subcontractors are thus immune from suit. We further hold that the participating employees are fellow servants, equally entitled to workers’ compensation benefits and equally immune from suit.

Etie at 10-11. Thus, there appears to be a workers’ compensation bar that can apply to all of the employees at a general work site. It is advisable to obtain all insurance policies in cases such as this to evaluate the ability to recover or to assess defenses to preclude recovery.


The law is now well settled that a non-subscribing employer cannot have an employee welfare benefit plan and, when sued by a participating employee for a work related injury, remove the case to federal court based on ERISA preemption grounds. In Hook v. Morrison Milling Co., 38 F.3d 776, 781 (5 th Cir. 1994), the Fifth Circuit held that when a plaintiff presents a common law negligence suit against an employer, which alleges claims such as failure to maintain a safe workplace, then that claim does not relate to the employer’s ERISA plan and, therefore, is not preempted by ERISA. Hook, 38 F.3d at 786; see also Texas Health Enter., Inc. v. Reece, 44 F.3rd 243, 244-245 (5 th Cir. 1994) (following Hook in holding that employee’s state common law claim against his employer is not preempted by federal ERISA law).


When a employee is killed while working for a subscribing employer, the employee’s spouse and children may only recover against the employer by proving gross negligence. In the event the jury finds gross negligence, the jury is entitled to assess exemplary or punitive damages. Actual damages are not recoverable against an employer who is a subscriber to the workers’ compensation system. The right of action for exemplary damages is founded in the Texas Constitution, Art. XVI, Sec. 26.

Although actual damages are not recoverable, formerly, in a suit by a survivor against a subscribing employer, an additional question on the amount of actual damages was advisable. The plaintiff was required to show he/she was entitled to recover actual damages. Ft. Worth Elevators Co. v. Russell, 70 S.W.2d 397, 409 (Tex. 1934), disapproved by Wright v. Gifford/Hill & Co., 725 S.W.2d 712, 714 (Tex. 1987). In 1987, the Texas Supreme Court held in Wright that the plaintiff was no longer required to secure a finding of actual damages to obtain exemplary damages. This was prior to the legislative “punitive damages cap” enactment.

In Diamond Shamrock Refining Co. v. Hall, 82 S.W.3d 5 (Tex. App. — San Antonio, pet. granted), the San Antonio Court of Appeals examined the punitive damage issue as it related to the “punitive damages cap” that was introduced in the legislature in 1995 and 1997. At trial, Donna Hall was awarded $42 million in punitive damages for the death of her husband who was working as an employee of Diamond Shamrock Refining Co. During the trial, Mrs. Hall attempted to introduce evidence of actual damages, but the trial court excluded the evidence. After the jury verdict, the trial court reduced the $42 million punitive damages award to $200,000, which was the punitive damage cap that was in place under §41.008 of the Texas Civil Practice & Remedies Code. The court of appeals affirmed that the statutory punitive damages cap was constitutional, but held that the trial court abused its discretion by now refusing to allow Mrs. Hall to present evidence of actual damages in order to obtain higher punitive damages under the punitive damages cap.

The Texas Supreme Court accepted the petition for review and this case was argued to the Texas Supreme Court in October, 2003. Until then, it is advisable for the plaintiffs’ attorney to offer evidence of actual damages at trial in order to maintain an appropriate constitutional and statutory ratio to any punitive damages that are awarded.

This article was provided for informational purposes by the Houston workplace attorneys of Abraham, Watkins, Nichols, Agosto, Aziz & Stogner. As the oldest established injury law firm in Texas, our lawyers have helped individuals who have been seriously injured and families who have lost a loved one in a serious workplace accident, construction site accident, oil rig explosion or gas field accident. If you are looking for legal advice about pursuing a workplace injury claim, please contact our Houston office for a free consultation.

Our Texas trial lawyers also work with referring attorneys to secure the positive outcomes on behalf of injured workers and surviving family members.