Wednesday, October 30th, 2013

Jaime W. Betbeze, Shareholder

The Alabama Supreme Court recently held that longshore workers who are eligible to bring workers’ compensation claims under either the Longshore and Harbor Workers’ Compensation Act (“LHWCA”) or the state workers’ compensation act are not preempted by federal law from bringing a retaliatory discharge claim under state law. Rodriguez-Flores v. U.S. Coatings, Inc., No. 1120099, 2013 WL 3242939 (Ala. June 28, 2013). This represents a significant setback for maritime employers because the penalties for retaliatory discharge under state law can be much more severe than under the LHWCA.

Non-vessel-operating maritime employers, such as stevedores, shipbuilders and ship repairers, have long had to grapple with the concurrent jurisdiction of the LHWCA and state workers’ compensation schemes. Since the early days of the LHWCA, courts have recognized a “twilight zone” where the water meets the shore. The 1972 amendments to the LHWCA codified the “twilight zone” by extending the situs requirement for LHWCA coverage landward to “any adjoining pier, wharf, dry dock, terminal, building way, marine railway, or other adjoining area customarily used by an employer in loading, unloading, repairing, dismantling, or building a vessel.” 33 U.S.C. § 903(a). Thus, maritime workers who become injured while working within the “twilight zone” have the option of seeking benefits under the LHWCA or under the applicable state workers’ compensation scheme. However, courts have also recognized that the exclusivity provision of the LHWCA precludes state tort claims, such as negligence, fraud and bad faith, by an injured employee against his employer.

In Rodriguez-Flores, the question arose as to whether a maritime worker injured while working in the “twilight zone” could bring a retaliatory discharge claim against his employer under state law, since that is in the nature of a traditional tort claim. The question is significant because the penalties for employers under the state law are significantly harsher than under the LHWCA. Both workers’ compensation schemes prohibit discharging an employee for bringing a workers’ compensation claim. See Ala. Code § 25-5-11.1; 33 U.S.C. § 948a. Both schemes require an employer found guilty of retaliatory discharge to reinstate the employee and pay back pay to the employee for the period of time that he was wrongfully discharged. Both schemes also impose penalties on the guilty employers, but Alabama law allows the discharged employee to obtain punitive damages against his employer, whereas the LHWCA only requires a $1,000–$5,000 fine to be paid to the Department of Labor—a penalty that is hardly satisfactory to the aggrieved employee.

Therefore, after Fernando Rodriguez-Flores was injured while working on a dry dock and subsequently discharged by his employer, he sued his employer in Mobile County Circuit Court under the Alabama Workers’ Compensation Act, seeking state workers’ compensation benefits and damages for retaliatory discharge, including reinstatement, back pay and punitive damages. His employer moved to dismiss the state retaliatory discharge claim, arguing that it was preempted by the anti-retaliatory discharge provision in the LHWCA. The Circuit Court agreed and dismissed the retaliatory discharge claim, but on appeal, the Alabama Supreme Court reversed and held that the state law retaliatory discharge claim was not preempted by the LHWCA.

Whether we like it or not, federal law takes precedence over state law. This is known as “federal preemption.” There are three ways in which federal law may preempt state law: (1) where Congress explicitly states that it intends for a law it is passing to preempt state laws; (2) where Congress implicitly indicates that it intends to occupy an entire field of regulation; and (3) where a state law actually conflicts with a federal law. In considering whether the LHWCA’s retaliatory discharge provision preempts Alabama’s retaliatory discharge provision, the Alabama Supreme Court determined that there was no express preemption clause in the LHWCA regarding retaliatory discharge claims and that the recognized “twilight zone” of concurrent jurisdiction indicated that Congress did not implicitly intend to occupy the entire field of regulation for maritime injury claims. Therefore, the court only looked at whether Alabama’s retaliatory discharge provision actually conflicted with the LHWCA’s retaliatory discharge provision.

U.S. Coatings argued, and at first blush it appears, that the two statutes are indeed in conflict, since the state act allows for punitive damages against the employer while the LHWCA does not. However, the Alabama Supreme Court reasoned that this difference in remedies did not mean that the two statutes were in sufficient conflict for preemption purposes. The court stated that “conflict preemption” occurs in two situations: (1) where compliance with both federal and state regulations is a physical impossibility for one engaged in interstate commerce; or (2) when, under the circumstances of a particular case, state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The court found that, in enacting the LHWCA, Congress did not intend to entirely displace state workers’ compensation schemes for maritime workers, but rather to provide a uniform minimum set of benefits. Since retaliatory discharge is prohibited by both the LHWCA and state law, there is nothing inconsistent with the state law providing more severe penalties for the prohibited act. Thus, Rodriguez-Flores’s retaliatory discharge claim under state law was not preempted by the LHWCA.

The upshot of all of this is that maritime employers in Alabama will not be able to rely on federal preemption as a defense to their employees’ claims for punitive damages for retaliatory discharge. This is particularly crucial since retaliatory discharge is considered an intentional tort for which insurance coverage is not available, so any punitive damage award will have to come straight off the bottom line.