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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



Opinion No. 6104

October 6, 1982


Const 1963 art 1, Sec. 10--amendment of workers' disability compensation act as an impairment of contract


Prohibition upon redemption of entitlement to worker's compensation benefit

1969 PA 317, Sec. 836, which prohibits redemption of entitlement to worker's compensation benefit after January 1, 1984, does not impair contractual obligations in violation of Const 1963, art 1, Sec. 10.

The Honorable Jack E. Kirksey

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion concerning legislative authority to amend the Worker's Disability Compensation Act of 1969, 1969 PA 317; MCLA 418.101 et seq; MSA 17.237(101) et seq, to prohibit the redemption of worker's disability compensation claims. You ask whether the prohibition of redemption of claims would violate Const 1963, art 1, Sec. 10 as being an impairment of an obligation of contract.

1981 PA 198 amended 1969 PA 317, supra, by adding section 836 to provide: 'For any petition filed after the effective date of this section, entitlement to worker's compensation benefits under this act shall not be redeemed.' Under enacting section 2 of 1981 PA 198, the effective date for the above provision was established as January 1, 1984.

The basic purpose of the predecessor statute to 1969 PA 317, supra, was stated in Lahti v Fosterling, 357 Mich 578, 585; 99 NW2d 490, 493 (1959):

'The act was originally adopted to give employers protection against common-law actions and to place upon industry, where it properly belongs, not only the expense of the hospital and medical bills of the injured employee, but place upon it the burden of making a reasonable contribution to the sustenance of that employee and his dependents during the period of time he is incapacitated from work. This was the express intent of the legislature in adopting this law.'

The Michigan Supreme Court has held that provisions of the worker's disability compensation statutes are read into the contract of employment between employers and employees, City of Grand Rapids v Crocker, 219 Mich 178, 188; 189 NW 221 (1922), and that the terms of the employment contract are fixed by provisions of the statute in effect on the date of injury, Tarnow v Railway Express Agency, 331 Mich 558, 563; 50 NW2d 318 (1951). Nonetheless, the Legislature's authority to amend the remedies of the Workers' Disability Compensation Act is well settled. Lahti, supra; Allen v Kalamazoo Paraffine Co, 312 Mich 575; 20 NW2d 731 (1945).

1969 PA 317, supra, and its predecessor permitted utilization of lump sum payments or redemptions as a means of settling worker's compensation disputes. 1969 PA 317, supra, Sec. 835, as amended by 1981 PA 193, provides:

'After 6 months time has elapsed from the date of a personal injury, any liability resulting from the personal injury may be redeemed by the payment of a lump sum by agreement of the parties, subject to the approval of a hearing referee. If special circumstances are found which in the judgment of the hearing referee require the payment of a lump sum, the hearing referee may direct at any time in any case that the deferred payments due under this act be commuted on the present worth at 12% per annum to 1 or more lump sum payments and that the lump sum payments shall be made by the employer or carrier. When a redemption agreement is filed, it may be treated as a lump sum application, within the discretion of a hearing referee. The filing of a redemption agreement or lump sum application shall not be considered an admission of liability and if the hearing referee treats a redemption agreement as a lump sum application under this section, the employer shall be entitled to a hearing on the question of liability.'

While the prominent role of redemptions in the worker's compensation administrative procedure was recognized by the Michigan Supreme Court in Wehmeier v W E Wood Co, 377 Mich 176, 189; 139 NW2d 733 (1966), the court recently held in Solo v Chrysler Corp, 408 Mich 345, 352; 292 NW2d 438 (1980) (on reh), that the redemption agreement, like any other contract, may be set aside for fraud or a mutual mistake of fact.

In Lahti, supra, p 593, the court quoted with approval from the opinion of Justice Hugo L. Black:

'Even though it is a dissenting opinion, Justice Hugo L. Black in Wood v Lovett, 313 US 362, 382 (61 S Ct 983, 85 L ed 1404), correctly states the rule with respect to the contract clause:

'Societies exercise a positive control as well over the inception, construction, and fulfillment of contracts as over the form and measure of the remedy to enforce them. The accuracy of this statement cannot be questioned by one who reflects upon the extent to which contracts and agreements are a part of the daily activities of our society. For, so nearly universal are contractual relationships that it is difficult if not impossible to conceive of laws which do not have either direct or indirect bearing upon contractual obligations. Therefore, it would go far towards paralyzing the legislative arm of State governments to say that no legislative body could ever pass a law which would impair in any manner any contractual obligation of any kind. No attempt has been made to fix definitely the line between alterations of the remedy, which are to be deemed legitimate, and those which, under the form of modifying the remedy, impair substantial rights. Every case must be determined upon its own circumstances. In all such cases the question becomes, therefore, one of reasonableness, and of that the legislature is primarily the judge." (Emphasis in original.)

It is to be noted that the Michigan Supreme Court stated in McAvoy v H B Sherman Co, 401 Mich 419, 457; 258 NW2d 414, 432 (1977), that: '[t]he Legislature possesses the requisite authority to alter the method of enforcing pre-existing rights. The Legislature can elect to modify the remedies for the enforcement of a contract without violating 'impairment of contract' prohibitions.' (Emphasis in original.)

Effective January 1, 1984, 1969 PA 317, Sec. 836, supra, would preclude employees who file a petition on or after January 1, 1984 from taking a lump sum settlement in exchange for releasing the employer from all liability. Those who have, at best, a questionable claim would be precluded from compromising their claims. Currently, the redemption procedure provides an alternative remedy to the hearing process provided under 1969 PA 317, supra, Secs. 847 and 851, for the resolution of disputed compensation claims. The hearing process remains unaffected by the proposed legislation and would be available to resolve contested claims.

In 3, Larson, The Law of Workmen's Compensation, Sec. 82.42, p 15-562, Professor Arthur Larson responds to the contention that compromise (redemption) is an essential ingredient to the compensation process:

'[I]t is often argued that to permit compromises will enable claimants to get at least something in the many controversial cases where there is serious doubt whether fundamental conditions of liability can be established. But again it must be stressed that the objective of the legislation is not to see how much money can be transferred to workmen as a class; it is to ensure that those with truly compensable claims get full compensation. If there is doubt about the compensability of the claim, the solution is not to send the claimant away half-compensated, but to let the Compensation Board decide the issue. . . .'

It must be recognized that the effect of both amendatory 1981 PA 198, supra, and 1969 PA 317, supra, are the same as they relate to a modification of contractual remedies. The court in Lahti, supra, p 595, quoted from 18 NACCA Law Journal 128:

"Furthermore, these same laws which originally modified contracts of employment by substituting workmen's compensation for employers' liability did not except existing contracts from their operation, and their constitutionality has long been established. (Cite omitted.) If it is constitutional to totally deprive an employee of the right to seek unlimited damages against his employer by prohibition of common-law suits and substitution of a statutory scheme for payment of fixed benefits, surely it cannot be unconstitutional to so amend the benefit scale provisions as to insure that the amounts to be awarded remain sufficient to carry out the purpose for which the substitution was originally made."

In response to your question, it is my opinion that 1969 PA 317, Sec. 836, supra, does not impair contractual obligations in violation of Const 1963, art 1, Sec. 10 in that it constitutes an alteration of a remedy only and does not impair substantial rights.

Frank J. Kelley

Attorney General

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