Michigan's Worker's Disability Compensation Act

Michigan’s Worker’s Disability Compensation Act of 1969 (MCL 418.101 and following) decides who must provide benefits for a work injury, what the injured employee gets, and why the employee generally cannot sue the employer. The weekly maximum, the benefit tables and the fee schedules are reset each year, so the examples use assumed figures.

In this Act, “director” means the director of the Workers’ Compensation Agency, not the Director of the Department of Insurance and Financial Services (DIFS). The Director of DIFS appoints the board that supervises the placement facility and approves its plan of operation.

Which Employers Must Provide Benefits

Every public and private employer and every employee is subject to the Act unless the Act says otherwise (MCL 418.111).

Employer	Subject to the Act when	Source
Private, not agricultural	It regularly employs 3 or more employees at one time	MCL 418.115(a)
Private, not agricultural	It regularly employs fewer than 3, and at least 1 has worked 35 or more hours a week for 13 weeks or longer in the preceding 52 weeks	MCL 418.115(b)
Public (state, county, city, township, village, school district and similar bodies)	Always, with no minimum number of employees	MCL 418.115(c)
Agricultural	It has 3 or more regular employees paid hourly or salary, not piecework, working 35 or more hours a week for 13 or more consecutive weeks in the preceding 52. Coverage reaches only those employees	MCL 418.115(d)

An agricultural employer of one or more employees who work 35 or more hours a week for 5 or more consecutive weeks must also provide the medical and hospital coverage of MCL 418.315 under rules the director sets, for injuries the Act does not otherwise cover, and this leaves the employee’s other rights of recovery intact. The employer’s family members living in the home or on the premises are not its employees (MCL 418.115(e)). All other agricultural employers are exempt from the Act (MCL 418.115). The Michigan Supreme Court upheld these classifications in Eastway v Eisenga, 420 Mich 410 (1984).

A bakery has two bakers, and neither has worked 35 hours a week for 13 weeks. It is outside MCL 418.115(a) and (b). If one baker works 36 hours a week for 20 of the preceding 52 weeks, the bakery is covered under (b) with fewer than three employees. A township with one part-time clerk is covered under (c).

An employer outside the Act can choose to be inside it. Buying a valid compensation policy is an assumption of liability from the policy’s effective date, for as long as the policy stays in force, but agricultural and domestic employees come in only by specific endorsement (MCL 418.121). A private employer is not liable under the Act to a household domestic employed for less than 35 hours a week for 13 weeks or longer in the preceding 52, unless the employer assumes liability under MCL 418.121 (MCL 418.118(2)).

Contractors and the principal

An employer subject to the Act, called the principal, that hires a contractor who is not subject to the Act or has not secured payment under MCL 418.611 owes the contractor’s employees the compensation it would have owed had it employed them directly, and it can recover that amount from the contractor (MCL 418.171(1), (2)). Permitted subcontractors count as contractors. A client who uses subcontractors should therefore ask whether each one carries its own coverage.

Exclusive Remedy

The right to benefits under the Act is the employee’s exclusive remedy against the employer for a personal injury or occupational disease (MCL 418.131(1)). The employee gives up a lawsuit and the need to prove fault, and the employer pays benefits without regard to fault.

Section 131 names one exception, an intentional tort, and defines it narrowly: an intentional tort exists only when the employee is injured by a deliberate act of the employer and the employer specifically intended an injury. An employer is deemed to have intended injury if it had actual knowledge that an injury was certain to occur and willfully disregarded that knowledge. Whether an act is an intentional tort is a question of law for the court (MCL 418.131(1)). Carelessness, or failing to fix a known hazard, does not meet that test unless the employer knew injury was certain and willfully disregarded it.

Standard workers’ compensation policy forms generally exclude from employers liability coverage bodily injury intentionally caused or aggravated by the employer (WC 00 00 00 C, Part Two, exclusion C.5), so the policy does not stand behind an intentional-tort judgment.

• The employer includes its insurer. For the exclusive remedy, “employer” includes the employer’s insurer, and a service agent of a self-insured employer, insofar as they furnish or fail to furnish safety inspections or safety advisory services (MCL 418.131(2)). An employee injured after a negligent loss-control inspection cannot sue the compensation insurer for it.
• Defenses disappear where a suit is allowed. Where an employee can still sue, the employer cannot defend on the employee’s negligence (unless willful), a fellow employee’s negligence or assumption of risk (MCL 418.141). This does not apply to an agricultural employer outside the Act (MCL 418.115(e)).
• Social and recreational injuries fall outside the Act. An injury in an activity whose major purpose is social or recreational is not covered, and a suit for it is not subject to the exclusive remedy (MCL 418.301(3)).
• An uninsured employer loses the protection. The employee of an employer that violates MCL 418.171 or 418.611 may recover damages in a civil action despite the exclusive remedy, and failing to secure payment is a misdemeanor (MCL 418.641(1), (2)).

Third parties

The exclusive remedy does not protect an outside party. A roofer hurt when a supplier’s defective scaffold collapses can collect compensation and also sue the supplier. Accepting benefits is not an election of remedies (MCL 418.827(1)). Any recovery from the third party, after deducting the expenses of recovery, first reimburses the employer or carrier for benefits paid or payable to date. The balance goes to the employee and is treated as an advance on future compensation (MCL 418.827(5)). The court apportions the expenses of recovery between the parties as their interests appear (MCL 418.827(6)).

Suppose a third-party judgment of $120,000, with $40,000 in attorney fees and other expenses of recovery. The net is $120,000 - $40,000 = $80,000. The carrier has paid $30,000 in benefits, so it is reimbursed $30,000 first. The employee receives $80,000 - $30,000 = $50,000, which counts as an advance against compensation still to come, before any court apportionment of the expenses.

What Makes an Injury Compensable

An employee who receives a personal injury arising out of and in the course of employment with an employer subject to the Act is paid compensation (MCL 418.301(1)).

Pathology. An injury is compensable if work causes, contributes to, or aggravates pathology in a manner that creates a pathology medically distinguishable from any that existed before (MCL 418.301(1)). A worker with a degenerative back who aggravates it lifting a drum can have a compensable injury.

Conditions without a single event. For a disease, or an injury not attributable to a single event, the date of injury is the last day of work in the employment in which the employee was last subjected to the conditions that caused the disability or death (MCL 418.301(1)). A repetitive-motion injury is an example of an injury without a single date.

Mental and aging conditions. Mental disabilities and conditions of the aging process, such as heart and cardiovascular conditions and degenerative arthritis, are compensable if contributed to or aggravated or accelerated by the employment in a significant manner. A mental disability must arise out of actual events of employment, not unfounded perceptions of them, and the employee’s perception must be reasonably grounded in fact or reality (MCL 418.301(2)).

An employee going to or from work on the premises, within a reasonable time before and after working hours, is presumed to be in the course of employment (MCL 418.301(3)). Intentional and willful misconduct bars compensation (MCL 418.305).

Disability and Wage Loss

Benefits for lost wages turn on disability, which the Act defines as a limitation of wage earning capacity in work suitable to the employee’s qualifications and training. A disability is total if the employee cannot earn in any job paying maximum wages in work suitable to those qualifications and training. It is partial if the employee keeps a wage earning capacity at a pay level below maximum wages in suitable work. Establishing a disability does not create a presumption of wage loss (MCL 418.301(4)(a)). The employee must show the connection between the disability and reduced wages (MCL 418.301(4)(c)).

An employee who refuses a bona fide offer of reasonable employment without good and reasonable cause, or is terminated from reasonable employment for the employee’s own fault, is treated as having left the work force and receives no wage-loss benefits, after a refusal for the period of refusal (MCL 418.301(9)(a), (b)).

How Benefits Are Computed

The waiting period

No compensation is paid for an injury that does not keep the employee from earning full wages for at least 1 week. If the incapacity runs beyond a week, compensation begins on the eighth day. If it lasts 2 weeks or longer, or if death results, compensation is computed from the date of injury (MCL 418.311). An employee out for 5 days receives no wage benefit. An employee out for 21 days is paid from the day of injury, so the first week is paid retroactively.

Average weekly wage

The average weekly wage is the total wages paid in the highest-paid 39 weeks of the 52 weeks before the injury, divided by 39, including overtime and premium pay and excluding fringe benefits that continue during the disability (MCL 418.371(2)). It is rounded to the nearest dollar (MCL 418.371(7)). An employee who worked fewer than 39 weeks in the employment has the total wages divided by the weeks actually worked (MCL 418.371(3)). An agricultural employee covered under MCL 418.115(d) uses a separate formula: wages from all agricultural occupations in the prior 12 calendar months, divided by the weeks worked in agriculture.

Example: Teresa Okafor earned $30,160 in her highest-paid 39 weeks. $30,160 / 39 = $773.33, so her average weekly wage is $773. A second employee, Paul Ritter, was injured after 12 weeks on the job, having earned $7,800. $7,800 / 12 = $650.

From average weekly wage to the weekly benefit

Total disability pays weekly compensation equal to 80% of the employee’s after-tax average weekly wage, but not more than the maximum weekly rate, for the duration of the disability (MCL 418.301(7), 418.351(1)). The after-tax figure reduces the average weekly wage by the weekly amount of federal insurance contributions tax, state income tax and federal income tax, using the number of exemptions equal to the employee’s dependents plus the employee (MCL 418.313(1)). Each December 1 the director publishes tables that convert an average weekly wage directly into 80% of the after-tax average weekly wage, and those tables are conclusive (MCL 418.313(2)).

The maximum weekly rate is 90% of the state average weekly wage as of the prior June 30, adjusted to the next higher dollar, and it is reset each January 1 for injuries in that year (MCL 418.355(2)).

Suppose the table shows that Teresa’s average weekly wage of $773, with her dependents, produces an after-tax average weekly wage of $625. Her weekly benefit is 0.80 x $625 = $500, assuming the maximum weekly rate for her injury year is above $500.

Teresa is out for 21 days, so benefits run from the date of injury: 3 weeks x $500 = $1,500.

Partial disability

For partial disability with wage loss, the weekly benefit is 80% of the difference between the after-tax average weekly wage before the injury and the wage earning capacity after it, subject to the same maximum (MCL 418.301(8)). If an employee returns to work and earns less than before, the benefit is 80% of the difference between the after-tax weekly wage before the injury and the after-tax weekly wage earned afterward (MCL 418.301(9)(c)).

Suppose Teresa returns to light duty and her after-tax weekly wage is $350. The difference is $625 - $350 = $275, and the benefit is 0.80 x $275 = $220 a week.

Specific loss

For listed losses, disability is treated as continuing for a set number of weeks, paid at 80% of the after-tax average weekly wage, subject to the maximum and minimum rates (MCL 418.361(2)).

Loss	Weeks
Thumb	65
First finger	38
Second finger	33
Third finger	22
Fourth finger	16
Great toe	33
Other toe	11
Hand	215
Arm	269
Foot	162
Leg	215
Eye	162

Loss of the first phalange of a thumb, finger or toe counts as half the loss, and compensation is half the amount; loss of more than one phalange counts as loss of the whole digit (MCL 418.361(2)). An amputation 6 or more inches below the elbow is a hand, and above that point an arm.

Teresa loses her first finger. At $500 a week, 38 x $500 = $19,000. If she lost only the first phalange, she would receive half, 19 weeks x $500 = $9,500.

Total and permanent disability

Some losses are total and permanent disability by definition, such as loss of both hands, both feet or the sight of both eyes (MCL 418.361(3)). The conclusive presumption of total and permanent disability stops 800 weeks after the injury, and after that the question is decided on the facts then (MCL 418.351(1)).

Medical care

The employer must furnish reasonable medical, surgical and hospital services and medicines, and other attendance or treatment recognized by state law as legal, when they are needed, together with appliances such as crutches, artificial limbs and eyeglasses (MCL 418.315(1)). The employee may treat with a physician of the employee’s own choice after 28 days from the inception of medical care by giving the employer the physician’s name. The employer or carrier may petition to object.

A provider is paid the lesser of its usual and customary charge and the maximum charge under the Workers’ Compensation Agency’s rules (MCL 418.315(2)). Suppose a provider bills $1,800 and the schedule maximum for the service is $1,150. The carrier pays $1,150. A provider is not paid for excessive charges or unjustified treatment and must return what it collected (MCL 418.315(4)).

Death benefits

When an employee dies from a work injury, the employer pays the dependents who were wholly dependent a weekly payment of 80% of the after-tax average weekly wage, subject to the maximum and minimum rates, for 500 weeks from the date of death. A magistrate may continue payments to a dependent under 21 (MCL 418.321). At $500 a week, 500 x $500 = $250,000 over the period.

For a partial dependent, the weekly payment is the same proportion of the wholly dependent payment as 80% of the amount the employee contributed to the dependent bears to the employee’s annual earnings (MCL 418.321). If the employee earned $40,000 a year and contributed $10,000 to a partial dependent, then 0.80 x $10,000 = $8,000, and $8,000 / $40,000 = 0.20. The partial dependent receives 0.20 x $500 = $100 a week.

The employer also pays the reasonable expense of the last sickness, funeral and burial, but the funeral and burial cost cannot exceed $6,000 or the actual cost, whichever is less (MCL 418.345). A funeral that cost $8,400 is paid at $6,000, and one that cost $5,200 is paid at $5,200.

Time Limits

A proceeding for compensation cannot be maintained unless a claim, which may be oral or written, was made to the employer, or a written claim was made to the Agency, within 2 years after the later of the injury, the date disability manifests itself or the last day of employment with that employer. For a death, the claim must be made within 2 years after the death. The employee must give notice of injury to the employer within 90 days after the injury, or within 90 days after the employee knew or should have known of it, but late notice is excused unless the employer proves it was prejudiced (MCL 418.381(1)).

Occupational Disease

An occupational disease is compensated as a personal injury (MCL 418.415). For occupational disease, “personal injury” includes a disease or disability that is due to causes and conditions characteristic of and peculiar to the business of the employer and that arises out of and in the course of employment. An ordinary disease of life to which the public is generally exposed outside work is not compensable (MCL 418.401(2)(b)). Years of foundry dust causing lung disease is an example, and a cold caught by an office worker is an ordinary disease of life.

Disablement, the event of becoming disabled from the disease, is treated as the happening of a personal injury (MCL 418.411). The date of disablement is the date the worker’s compensation magistrate, who hears disputed claims, determines on hearing of the claim (MCL 418.425).

• Last employer pays. The total compensation is recoverable from the employer who last employed the employee in the employment to the nature of which the disease was due and in which it was contracted. Where there is a dispute, the employee makes claim against the last employer only (MCL 418.435).
• A false denial defeats the claim. No compensation is payable if the employee, on entering the employment or afterward, willfully and falsely represents in writing that he or she has not previously suffered from the disease (MCL 418.431).
• Apportionment. Where an occupational disease is aggravated by another disease that is not itself compensable, or contributes to disability from another cause, compensation is a proportion only, matching the share of the disease as a cause (MCL 418.431).
• Public safety presumption. For full-time police and fire department members, sheriffs and deputies, state police and certain other officers, respiratory and heart diseases that arise in active service from the duties are personal injuries, presumed work related absent contrary evidence (MCL 418.405(1), (3)).
• Discovery governs the time limit. The 2-year claim period for occupational disease runs from the date the employee, or the dependents of a deceased employee, had knowledge, or a reasonable belief, or through ordinary diligence could have discovered that the disease or death was work related (MCL 418.441).

The Second Injury Fund

The Second Injury Fund is a statutory fund, created by MCL 418.501(1), that relieves a carrier of part of the cost of a severe second disability. Under MCL 418.521(1), an employee who has a permanent disability in the form of loss of a hand, arm, foot, leg or eye and later suffers another such loss in the course of employment is, at the conclusion of the payments for the second loss, conclusively presumed totally and permanently disabled. The fund pays total and permanent disability compensation from that point, after subtracting the weeks of compensation received for both losses.

Take an employee paid for a lost hand (215 weeks) who later loses a foot at work (162 weeks). The carrier pays for the second loss itself. The two losses account for 215 + 162 = 377 weeks, and the fund then pays total and permanent compensation after subtracting those weeks.

The fund also reimburses carriers for certain benefit increases ordered after 2 years of continuous disability (MCL 418.356(1)).

How an Employer Secures Payment

Each employer subject to the Act must, subject to the director’s approval, secure payment either by being authorized as a self-insurer or by insuring with an insurer authorized to write workers’ compensation insurance in Michigan (MCL 418.611(1)). The Act calls a self-insurer or an insurer a “carrier” (MCL 418.601(c)).

Self-insured employers

An individual employer obtains authorization by a reasonable showing of solvency and financial ability to pay the benefits directly as they fall due. The director can require a bond or other security, which may be provided through specific or aggregate excess insurance, a surety bond, an irrevocable letter of credit or claims payment guarantees (MCL 418.611(1)(a)). The director may decline or terminate self-insurance if the employer cannot show it will meet all present and future obligations or does not maintain the required security, and the employer may request a hearing within 15 days after the notice is mailed (MCL 418.611(5)).

Self-insured groups

Two or more employers in the same industry with combined assets of $1,000,000 or more, or two or more public employers of the same type of unit, may be permitted to pool their liabilities and qualify as self-insurers (MCL 418.611(2)). A private employer in a group must sign a written agreement to assume, jointly and severally, any lawful award entered against a member of the group (MCL 418.611(2)). The Private Employer Group Self-Insurers Security Fund pays eligible claims against individual private-group members if the group cannot pay (MCL 418.501(4)).

A group that is authorized may also provide employers liability coverage for its members (MCL 418.611(2)).

The Placement Facility

An employer that cannot buy workers’ compensation insurance in the normal market has a last resort in the Michigan worker’s compensation placement facility. Every insurer authorized to write workers’ compensation insurance in Michigan must participate. The facility also exists to preserve price competition by encouraging maximum use of the normal private insurance system (MCL 500.2301). The facility’s insurance includes the security required by the Act and employers liability coverage endorsed to it (MCL 500.2303(d)).

A board of governors supervises the facility. It has five participating insurers, two policyholders, one licensed agent and one member for the public (MCL 500.2310). The plan of operation provides for the following (MCL 500.2312(2)).

• Commissions. Producing agents may be paid commissions not above 5% of total premium. On a $20,000 premium, the most a producer can earn is 0.05 x $20,000 = $1,000.
• Three rating plans. Plan A is for insureds with an accident frequency problem, a measurably adverse loss ratio over a period of years, or a demonstrated attitude of noncompliance with safety requirements. It includes a surcharge system. Plan B is for employers that are self-insured or members of a self-insurance group. Plan C is for all other insureds and has no surcharge system.

An agent authorized to solicit, negotiate or effect workers’ compensation insurance for the facility or a participating member must offer to place the insurance through the facility for any applicant who asks (MCL 500.2322(a)). An applicant or insured can ask the board for a formal hearing on an alleged improper act affecting a premium, assessment or coverage, and can appeal the ruling to the Director within 30 days (MCL 500.2350).

Lesson summary

• Private non-agricultural employers are subject to the Act with 3 or more regular employees at one time, or with fewer if one has worked 35 or more hours a week for 13 weeks or longer in the preceding 52. Public employers are always covered (MCL 418.115).
• The Act’s benefits are the employee’s exclusive remedy against the employer. Section 131’s one exception is an intentional tort, which requires a deliberate act with specific intent to injure, and an employer that fails to secure payment can also be sued (MCL 418.131, 418.641).
• An injury is compensable if work causes, contributes to or aggravates a medically distinguishable pathology, and mental and aging conditions need significant contribution from employment (MCL 418.301).
• Compensation starts on the eighth day if the incapacity lasts beyond a week, and runs from the injury if it lasts 2 weeks or more. Weekly wage-loss benefit is 80% of the after-tax average weekly wage, up to the maximum weekly rate (MCL 418.311, 418.351).
• The average weekly wage is the highest-paid 39 weeks of the preceding 52, divided by 39 and rounded to the dollar. Specific-loss schedules, death benefits over 500 weeks and a funeral cap of $6,000 complete the benefit structure.
• Occupational disease is compensated as a personal injury, and the last employer in the harmful employment pays. The claim period runs from discovery that the disease was work related (MCL 418.435, 418.441).
• The Second Injury Fund pays total and permanent disability when a worker with one qualifying permanent loss suffers a second at work (MCL 418.521).
• Employers secure payment by self-insuring, singly or in an approved group, or by buying insurance. An employer that cannot buy it normally can use the placement facility, and a producer must offer facility placement to any applicant who asks (MCL 418.611, 500.2322).