On Tuesday the Austin Court of Appeals handed down a decision in a case challenging the validity of the Division of Workers’ Compensation’s rules that specify eligibility requirements for supplemental income benefits (SIBs) for injured employees searching for employment.
Appellant, Texas Department of Insurance, Division of Workers’ Compensation//Cross-Appellants, Accident Fund Insurance Company of America and Texas Cotton Ginners’ Trust v. Appellees, Accident Fund Insurance Company of America and Texas Cotton Ginners’ Trust//Cross-Appellee, Texas Department of Insurance, Division ofWorkers’ Compensation (No. 03-21-00074-CV) originated as a declaratory judgment action brought by the insurance carriers against DWC challenging the validity and applicability of an agency rule governing eligibility for SIBs. In 2005 the Legislature amended § 408.1415, Labor Code, to require the commissioner of insurance to adopt compliance standards for SIB recipients that require each recipient to demonstrate an active effort to obtain employment. The statute requires “a recipient to provide evidence satisfactory to the division of: (1) active participation in a vocational rehabilitation program conducted by the Department of Assistive and Rehabilitative Services or a private vocational rehabilitation provider; (2) active participation in work search efforts conducted through the Texas Workforce Commission; or (3) active work search efforts documented by job applications submitted by the recipient.” The statute goes on to direct the commissioner to adopt rules regarding the level of activity the recipient should have with TWC or DARS, the number of job applications required to be submitted by a recipient to satisfy the work search requirements, and the factors that affect the availability of employment.
DWC subsequently amended its rules to implement the statute, requiring an injured employee to demonstrate an active effort to obtain employment in at least one of several ways: (1) return to work in a position that is commensurate with the employee’s ability to work; (2) active participation in a vocational rehabilitation program; (3) active participation in work search efforts through TWC; (4) performance of active work search efforts documented by job applications; or (5) provision of a narrative report from a doctor explaining how the injury causes a total inability to work. 28 TAC § 130.120(d), (f). The carriers challenged (4), asserting that it allowed injured employees to search independently outside of TWC “to count any ‘work search contact’—an umbrella term used by TWC to refer to a list of activities that count toward eligibility for unemployment compensation benefits,–as a ‘work search effort,’ which is the term used in the Statute, without having to document with job applications as the legislature intended to require” (i.e., by requiring job applications “submitted by the recipient”). They argued further that the rule conflated the terms “job application” and “work search contacts,” a much broader term that went beyond the statutory mandate.
By contract, DWC argued that the statute when read as a whole does not limit job-search activities solely to three categories but grants the agency discretion to take into account market factors when establishing job-search criteria. The agency further asserted that it has discretion to define “job application” and that defining that term as a “work search contact” in accordance with TWC is consistent with the statutory mandate. The trial court agreed with the carriers and enjoined DWC from enforcing those rules. On appeal, however, the court of appeals held that while the statute “unambiguously creates three categories of ‘work search efforts’ that an injured employee may engage in, in order to satisfy the ‘work search efforts’ requirement,” the rule requiring an employee to perform active work search efforts documented by job applications neither “contravenes the statutory language,” violates the general objectives of the statute, or “imposes additional burdens, conditions, or restrictions in excess of or inconsistent with the relevant statutory provisions.” In reaching this conclusion, the court construed the term “job application” according to its ordinary meaning, which does not change by appending or omitting “submitted by the recipient.” As the court noted, the carriers “true complaint” was that DWC applied the rule to situations in which a work search contact may not constitute a job application. The problem with that position, however, was that the carriers brought a facial challenge to the rule, not an “as-applied” challenge in specific cases. As written, consequently, the rule was valid. Moreover, DWC’s “determination that a job application includes asking for a job by phone or in person rather than only by a written document” is consistent with the statutory mandate that injured employees get on with finding another job in order to remain eligible for SIBs.
The carriers likewise challenged the part of the rule that defines “work search efforts” and establishes the quantitative requirements necessary for the employee to meet the TWC standard of unemployment compensation benefits. They asserted that the rule permits an employee looking for a job outside the TWC to count both job applications and work-search contacts to meet the standard, in contravention of the statute’s insistence on job applications alone. The court of appeals rejected this argument and found that DWC’s interpretation of the rule as narrower than that asserted by the carriers was reasonable. As DWC argued, under the rule the injured employee must still meet the numerical requirement for job applications (which the parties agreed that DWC has statutory authority to establish) and the allowing an employee to count work-search contacts along with job applications only applies to an employee search within TWC.
The court of appeals, however, did side with the carriers on their contention that the preamble to the rule contained an invalid ad hoc rule, that is a requirement with general application that did not comply with the APA’s notice-and-comment rulemaking requirements. As long as the agency merely makes an “informal agency statement that does no more than restate its own formally promulgated rule,” it does not run afoul of the ad hoc rule problem. But here, the court found that the agency included both types of work-search efforts (contacts and applications) in a response to a public comment that concerned work searches outside of TWC, thus implying “that work-search contacts can qualify as ‘job applications’ for independent job seekers.” The response therefore impermissibly expands the rule, was not promulgated through the APA, and is thus invalid. The court made the same determination about the DWC’s Appeals Panel Decision Manual, which likewise relied on the expansive language of the preamble. It, too, was an invalid ad hoc rule.
As to the carriers’ remaining arguments that the holding of a challenged appeals decision and the SIB Application itself constituted invalid ad hoc rules, the court sided with the agency. The appeal decision only applied to the case it resolved and could not be a “rule” for APA purposes. The form, which does not explicitly require the injured employee to document an active work search by submitting job applications, also does not “contain any statement that equates job applications and work-search contacts.” Consequently, it is not inconsistent with either the statutory mandated or the DWC’s rules.
We realize that reading this summary is, except for the very few, excruciatingly dull and tedious. But the case is important for its scholarly and thorough discussion of the interaction of a statutory mandate and agency rules implementing that mandate and the boundary between properly promulgated and ad hoc rules. It is also important for another reason. This session is considering legislation to create a new statewide-elected court of appeals for administrative cases and other matters. If that bill passes, this is the kind of case that would be heard by that court. Candidly speaking, we have seen very little evidence (though we stand to be corrected) that the existing courts of appeals, including the Austin court, have so routinely misapplied administrative law principles that a separate court is needed for that purpose. It is hard to see how such a court would apply well-settled principles of administrative law any differently than the Austin or other courts of appeals have been doing for a very long time. Perhaps there are cases of such statewide import that a statewide-elected court of appeals should consider, but it seems to us that those cases are few and far between and could just as easily be handled by a direct appeal mechanism whereby SCOTX could step in and resolve them in an expeditious manner. The bottom line is that appellate courts, wherever they are or however they are elected, can make only 50% of the parties happy. The inquiry, in our view, should be focused on well-documented data showing that the existing courts of appeals get it wrong so regularly that we need another court to bail them out. To date, we have seen no such data and would eagerly welcome it.
The real problem is that court of appeals districts have never been redrawn to reflect our state’s immense growth. That is very hard to do politically, and we understand and appreciate the statewide court of appeals idea in that context. As long as we’re talking about the politics, however, we have serious concerns that adding another five statewide offices to the judicial ballot compounds the problems we already have. As things stand today, statewide judicial candidates simply cannot raise sufficient funds to run a campaign. Almost nobody who votes in judicial races knows who they are (not to mention appellate or trial court judges). Five new statewide judges will further dilute these limited resources and, God forbid, will likely divert those resources from the existing courts to the new one. And, as hard as it may be to contemplate, electorates change. The judges we think we might get in a statewide election today will probably not be the judges elected in ten, twenty, or thirty years from now. That problem is best addressed by modernizing the existing the court of appeals boundaries, making the courts better reflect the state as it looks today and modifying those boundaries as necessary to keep up with the inevitable changes. If we need to add judges in a particular district to handle growing caseloads, so be it. This would have the added benefit of reducing the necessity of docket equalization and keeping appeals closer to where the parties live, which will enhance the efficiency of the system. In any event, the Legislature will do what the Legislature does, but we hope that it looks at the problem from the standpoint of the long-term improvement of the judicial system, not a momentary expediency.
