Basics of Nonsubscriber Employer Law in Texas

Unlike workers’ compensation laws in every other state, the Texas Worker’s Compensation Act (TWCA) allows private Texas employers to choose whether to subscribe to workers’ compensation insurance. Texas Labor Code Section 406.002(a); Lawrence v. CBD Servs., Inc., 44 S.W.3d 544, 552 (Tex. 2001). Employees of subscribing employers also have a choice: they may opt out of the system within the prescribed time and retain their common-law rights. Texas Labor Code Section 406.034.  

Although the TWCA is unique among the states in allowing private employers to choose whether to subscribe, it encourages employers to subscribe by abolishing their common-law defenses of contributory negligence, assumption of the risk, and fellow servant if they do not subscribe. Texas Labor Code Section 406.033.  

The term “nonsubscriber” effectively just means an employer who does not benefit from the protection of a statutory workers compensation insurance policy. A "nonsubscriber" is an employer in Texas that has opted out of the state's workers' compensation insurance system.  

These employers do not provide workers' compensation coverage to their employees and are not required to do so by law. In a nonsubscriber case, an employee must prove the employer was negligent, unlike in a workers' compensation case where fault is not a factor. For nonsubscribers, the most substantial legal ramification is the loss of certain common law defenses in a personal injury lawsuit filed by an injured employee. Historically, Texas law barred nonsubscribing employers from asserting defenses such as assumption of risk, contributory negligence, and the "fellow servant" rule. This effectively lowers the legal hurdle for an injured worker to prove negligence and secure damages. An attorney must carefully explain that while the employer is not strictly liable for all injuries, they are highly exposed if an employee can demonstrate some level of negligence or unsafe working conditions. This shift necessitates a robust approach to workplace safety, meticulous documentation of safety protocols, and proactive risk management to mitigate potential claims.

To manage the increased liability exposure, many Texas nonsubscribers implement their own employee benefit plans, often referred to as "nonsubscriber plans" or "occupational injury benefit plans." These are not state-regulated workers' comp plans but private contracts designed to offer specific medical and wage replacement benefits to injured employees. A key component of legal counsel in this area involves drafting plans that are compliant with the Employee Retirement Income Security Act of 1974 (ERISA). The plans must be clearly communicated to employees, outlining the benefits provided and, critically, any waivers or arbitration agreements the employee agrees to by accepting employment. Ensuring these plans are legally sound and enforceable is crucial for minimizing the financial impact of workplace injuries.

Navigating Texas nonsubscriber law successfully requires careful legal guidance and a full understanding of the intricate balance between employer flexibility and the inherent risks of managing workplace injuries outside the state-mandated system.

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