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We return now to an ongoing NPR and ProPublica investigation of workers' compensation. It's a system that's long been regulated by individual states. There's a growing effort to shift workers' comp to federal control instead. That is now possible to do in Texas and Oklahoma, but NPR's Howard Berkes has found that federal law doesn't protect injured workers as promised.
HOWARD BERKES, BYLINE: Fifty-four-year-old Kevin Schiller sits in the dark in his apartment outside Dallas, holding a doctor's note addressed to police. He may seem drunk, it says, due to a head injury. Schiller was a building engineer at a Macy's department store five years ago when a mannequin fell 12 feet from a shelf.
KEVIN SCHILLER: All I heard was a loud crack, and I found myself looking up on people looking down on me. They saw the mannequin hit me in the head, and it drove my head into another shelf. And then after that, the cement.
BERKES: Stuttering, memory loss and confusion persist, along with headaches from bright light. But Macy's downplayed the injury, according to legal documents including medical records, witness statements, internal e-mails and depositions. The company's doctors said Schiller was psychosomatic or faking. Macy's implied the accident was staged.
SCHILLER: I'm next to poverty. I have made $80,000 a year at times, and I'm going to give that up to be on a Social Security check or food stamps? Who would want the life that I've got now? I sit in a dark room. I watch TV like an old 80 or 90-year-old person.
BERKES: Schiller is among 1.5 million workers in Oklahoma and Texas who are not protected by state workers' comp. Their employers complained about expensive benefits, litigation and lengthy appeals. They were allowed to dump state regulation. But workers are still protected by federal law, they say - the Employee Retirement Income Security Act, or ERISA.
BILL MINICK: ERISA comes in and says the benefits must be administered in the best interest of employees.
BERKES: Bill Minick and his company, PartnerSource, sell and service benefits plans that are alternatives to workers' comp. ERISA is key to their sales pitch as they also try to export the option to a dozen states.
BILL MINICK: And there are very detailed claim procedures that must be followed to make sure that the employee gets a full and fair review of their claim, including opportunity to appeal any denial of benefits, and then access to state and federal courts.
BERKES: But ERISA didn't help Schiller when Macy's cut off his benefits. He wasn't able to appeal to the independent Texas Workers' Comp agency because Macy's had opted out of the state system. State court was cut off by mandatory arbitration, a feature of most Texas plans we've reviewed. ERISA blocks state action, says attorney Richard Faulkner.
RICHARD FAULKNER: Because this is a federal question. ERISA says we're the federal law. We're superior. State law, you're irrelevant.
BERKES: ERISA also strictly limits the role of federal courts when they consider benefits denials according to Karen Handorf, a former ERISA official at the Labor Department.
KAREN HANDORF: You really have to show that it was irrational or contrary to the terms of the plan.
BERKES: So employers will likely prevail no matter how unfair their plans may seem, as long as they don't violate the plans. Even if workers win in federal court, they only get the benefits their employer denied. There are no multi-million dollar rewards for pain and suffering. And if they lose, they can be forced to pay the legal costs of their employers. Attorney Richard Faulkner.
RICHARD FAULKNER: Consequently, you have to think long and hard about what exposures you may be generating for a client if you attempt to pursue some of these ERISA remedies because ERISA can be incredibly dangerous for an injured worker.
BERKES: So Schiller was stuck with the Macy's appeals process, where people paid by Macy's decide whether Macy's is fair. They rejected his appeals. Employer-controlled are common in dozens of alternative injury plans in Oklahoma and Texas, where Jeffrey Dahl is an ERISA attorney.
JEFFREY DAHL: ERISA's been turned on its head, really, in my mind, because initially, it was passed for protection of workers, but it in fact has become a shield for employers that operate these ERISA plans.
BERKES: Many plans directly defy ERISA. In Oklahoma, most plans contain mandatory settlements. Employers decide when to settle claims and how much to pay. And if workers refuse, they get nothing. They also get nothing in Texas and Oklahoma if they don't report injuries right away, even if they seem minor at first or are witnessed by supervisors. Former Labor Department official Karen Handorf calls these rules -
HANDORF: An impediment to bringing claims, and really isn't what ERISA is designed to do. ERISA is based on the idea that you get your right to make the best claim you can for benefits.
BERKES: But Bill Minick of PartnerSource says employers who defy ERISA risks sanctions from federal regulators.
BILL MINICK: And the U.S. Department of labor has enforcement authority over that, so there are a variety of checks and balances in the process.
BERKES: That's if the Labor Department is paying attention. Faulkner says it isn't.
RICHARD FAULKNER: The Department of Labor has civil and criminal authority that, if it chooses to exercise it, can go in, look at these things. They could stop it.
BERKES: Labor Department officials declined to be interviewed. A spokesman says they're aware of and studying the issues we've raised. He also confirmed that the agency has never had an ERISA case involving this alternative to workers' comp. If Schiller's case made it to state court, he would have won big, says his attorney, Ted Lyon.
TED LYON: He would have worked 'til he was 65, so that's a million and a half dollars at least. In addition to that, pain and suffering damages and the egregious way that they treated him. You know, I could have easily gotten $5 million from a jury in this case.
BERKES: The case went to an arbitrator instead, who awarded $700,000. Most of it paid legal fees, arbitration expenses, medical bills and living costs, and most of it's gone. The arbitrator did find that Macy's was negligent and failed to thoroughly examine, diagnose and treat Schiller's traumatic brain injury.
SCHILLER: I'm just getting by. Thank God for Social Security Disability. And after dealing with the whole process I went through and nowhere to go, I have gotten no justice.
BERKES: If the case had gone to court, these details would be public. Arbitration is secret. It hides cases like Schiller's, and protects employers like Macy's, which did not respond to NPR. We only know about Kevin Schiller because he decided to talk about the failed promise of ERISA protection. He says he'll run out of money before he runs out of time. Howard Berkes, NPR News.