Texas Workers’ Compensation Non-Subscriber System: Suing Your Employer

In Texas, a workers’ compensation non-subscriber is a private employer that has chosen not to carry workers’ compensation insurance, which Texas uniquely allows. About 25% of private-sector employers in the state make that choice.¹ If you’re hurt on the job while working for one, you don’t file a workers’ comp claim. You sue for negligence, and state law strips your employer of most of the defenses it would normally use to fight back.

How to Tell If Your Employer Is a Non-Subscriber

Under Texas Labor Code Section 406.005, every employer has to tell new hires at the time of employment whether the company carries workers’ compensation coverage.² Non-subscribers must also post a notice in conspicuous locations throughout the workplace, including any personnel office. TDI-DWC rules require the posted notice to appear in English, Spanish, and any other language common to the workforce.³

If you never saw a posting and were never told, that’s a problem for the employer, not for you. It doesn’t change the legal framework that applies after an injury.

Your Right to Sue and the Defenses the Employer Loses

This is the core tradeoff. Under standard workers’ compensation, an injured employee gets benefits regardless of fault but cannot sue the employer. When the employer opts out, you can sue, and Texas Labor Code Section 406.033 removes three common-law defenses from the employer’s arsenal:⁴

Contributory negligence. The employer cannot argue that you were partly at fault to reduce your recovery.
Assumption of risk. The employer cannot claim you knew the job was dangerous and accepted the danger.
The fellow-servant rule. The employer cannot blame a coworker for causing your injury.

You still have to prove the employer was negligent. That usually means showing it failed to maintain equipment, failed to train, or ignored a known hazard, and that the failure caused your injury. But once you make that showing, the employer can’t shift blame onto you or your coworkers to escape paying.

What the Employer Can Still Argue

Section 406.033(c) leaves two defenses intact: that you intentionally caused your own injury, or that you were intoxicated at the time.⁴ Other common-law defenses not listed in the statute also remain available, though the three big ones are gone.

In practice, intoxication is the defense non-subscribers raise most. Expect a post-accident drug or alcohol test, and understand that a positive result can seriously damage your case even if the substance had nothing to do with the injury. Evidence that the employer knew about the hazardous condition, or that the injury would have happened regardless, helps counter this.

Waivers: Pre-Injury Void, Post-Injury Restricted

Some non-subscribers ask employees to sign away their right to sue as a condition of employment. Texas law makes those pre-injury waivers completely unenforceable. Section 406.033(e) states that any agreement to waive a negligence claim before the injury occurs is void.⁴

After an injury, a waiver can be valid, but only if every one of these conditions is met:

You voluntarily agree with full knowledge of the waiver’s effect.
The waiver is signed no earlier than the tenth business day after you initially reported the injury.
Before signing, you received a medical evaluation from a non-emergency-care doctor.
The waiver language is conspicuous on the face of the agreement, in larger type or contrasting colors.⁴

If any of those pieces is missing, the waiver fails. The ten-business-day wait exists to keep employers from pressuring workers to sign releases while they’re still in pain, medicated, or unsure how serious the injury is. If someone hands you release paperwork in the days right after an accident, that document is almost certainly void.

Alternative Benefit Plans

Many non-subscribers offer what TDI calls “alternative occupational benefit plans,” in-house or outsourced programs that pay medical costs, wage replacement, or other benefits after a workplace injury. TDI-DWC does not regulate these plans.⁵ That means benefits can fall well short of what workers’ comp would guarantee.

TDI’s most recent employer survey found that roughly 67% of non-subscribers offering these plans pay medical benefits as long as medically necessary, and about 47% pay some form of wage replacement.⁵ Common exclusions include chiropractic care, acupuncture, treatment from non-approved providers, and injuries not reported the same day. Some plans exclude occupational diseases and repetitive-trauma injuries entirely. Only about 13% include burial benefits.

Accepting plan benefits does not automatically waive your right to sue. The plan may ask you to sign paperwork, but any pre-injury negligence waiver is void, and post-injury waivers must satisfy the strict rules above. Read anything you’re asked to sign carefully.

You Have Two Years to File

Texas gives you two years from the date of injury to file a negligence lawsuit against a non-subscribing employer. In a workplace death case, the two-year clock starts on the date the injured person dies, not the date of the accident.⁶

Miss the deadline and the court will dismiss the claim no matter how strong the evidence is. Two years sounds like plenty of time until you add up medical treatment, recovery, evidence gathering, and negotiation. Starting the legal process early protects your ability to file if talks stall.

Building the Case

A non-subscriber claim rises or falls on what you can prove. Write down the date, time, and location of the incident while it’s fresh. Get the names and contact information of every witness. Coworkers move on and memories fade, so lock this in early.

Keep every piece of medical documentation: ER records, physician notes, imaging, prescriptions, therapy notes, and bills. If the employer has an internal injury report, complete it and request a signed copy. Photograph the scene the day of the accident. Broken equipment, wet floors, missing guardrails, and blocked exits often get fixed within days. Save all correspondence about any benefits offered through an alternative plan, what you signed, and what was paid.

Court or Arbitration

Many non-subscribers include mandatory arbitration clauses in their employment contracts, requiring workplace injury disputes to be resolved privately. Texas courts generally enforce these agreements because they change the forum for the claim, not the claim itself. Your right to sue for negligence isn’t waived, only redirected to an arbitrator, so the pre-injury waiver ban doesn’t invalidate the clause.

If you didn’t sign an arbitration agreement, the case begins with a petition filed in a Texas county or district court. Discovery follows, with document exchanges and depositions, typically lasting several months to over a year depending on the medical complexity. Many cases settle during discovery once the employer sees its exposure. In arbitration, the process is similar but usually faster and more private, governed by the rules in the agreement, and the arbitrator’s decision is usually binding with limited grounds for appeal.

What You Can Recover

Because these are civil lawsuits, not administrative claims, the full range of tort damages is on the table. There are no benefit schedules or weekly caps like the ones in workers’ compensation.

Economic damages cover measurable losses: past and future medical expenses, lost wages already missed, and loss of future earning capacity if the injury keeps you from returning to your prior work. Non-economic damages cover physical pain and suffering (both past and expected) and mental anguish, including anxiety, depression, and loss of enjoyment of life.

Texas does not cap compensatory damages in a standard negligence case. That is one of the biggest practical differences from workers’ comp, where benefits are formulaic and limited.

Exemplary Damages Cap

If the employer’s conduct was especially reckless, you may also recover exemplary (punitive) damages, but Texas caps them. Exemplary damages cannot exceed the greater of $200,000 or twice the economic damages plus up to $750,000 in non-economic damages.⁷ The cap does not apply when the conduct also amounts to certain serious felonies, such as aggravated assault or intoxication manslaughter.

Attorney Fees

Most personal injury attorneys handle non-subscriber cases on contingency, meaning they collect a percentage of the recovery rather than charging upfront. The typical range is 30% to 40% of the total settlement or verdict. The fee comes out of your award, so factor it into any settlement evaluation.

Taxes on a Settlement

Under 26 U.S.C. Section 104(a)(2), compensatory damages for physical injuries or physical sickness (including lost wages recovered as part of a personal injury claim) are excluded from gross income.⁸ The bulk of a typical non-subscriber settlement isn’t taxable.

The exceptions matter. Punitive damages are taxable as ordinary income in almost all cases.⁹ Emotional distress damages are excluded only if they stem from a physical injury; standalone mental anguish awards not tied to a physical injury are taxable. How the settlement agreement allocates money among these categories affects the tax bill directly, so discuss the structure with your attorney and a tax professional before signing.

Medicare and Your Settlement

If you’re on Medicare or expect to enroll within the next 30 months, the settlement has to account for Medicare’s interests. The Medicare Secondary Payer Act generally prevents Medicare from paying medical costs that another party has already agreed to cover. CMS hasn’t set formal rules for injury settlements outside workers’ comp, but it has stated that settlements should “reasonably consider Medicare’s interest,” and it prefers a Medicare Set-Aside arrangement to do so.

Ignore this and Medicare may refuse to cover future treatment for the injury, and CMS can seek repayment from the plaintiff, defendant, or even the attorneys. A properly structured set-aside goes into a separate interest-bearing account, gets used only for Medicare-eligible expenses tied to the injury, and is reported to CMS annually. Getting the allocation wrong can cost you your Medicare coverage for the injury, so this is an area where specialized legal advice earns its cost.

OSHA Still Applies

Opting out of workers’ comp doesn’t exempt an employer from federal workplace safety law. OSHA’s general duty clause requires every employer to provide a workplace free from recognized hazards likely to cause death or serious physical harm.¹⁰ All OSHA recordkeeping and reporting obligations stay in force regardless of insurance status.

Employers must report a workplace fatality to OSHA within 8 hours. Hospitalizations, amputations, and loss of an eye must be reported within 24 hours.¹¹ An OSHA investigation triggered by one of these reports can produce findings that carry serious weight with juries and arbitrators. If you believe your employer has underreported an incident, you can file a complaint with OSHA directly.

1
Texas Department of Insurance. Snapshot: Employer Participation in the Texas Workers’ Compensation System
2
State of Texas. Texas Labor Code 406.005
3
Texas Legislature. Non-Covered Employers
4
State of Texas. Texas Labor Code 406.033 – Common-Law Defenses; Burden of Proof
5
Texas Department of Insurance. Employer Participation in the Texas Workers’ Compensation System
6
State of Texas. Texas Civil Practice and Remedies Code 16.003 – Two-Year Limitations Period
7
State of Texas. Texas Civil Practice and Remedies Code 41.008 – Limitation on Amount of Recovery
8
Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness
9
Internal Revenue Service. Tax Implications of Settlements and Judgments
10
Occupational Safety and Health Administration. OSH Act of 1970 – Section 5 Duties
11
Occupational Safety and Health Administration. Recordkeeping