Procedural Fairness, Return to Work, and the Decision to Dispute in Workers' Compensation

Employee Responsibilities and Rights Journal, Vol. 10, No. 3, 1997

Procedural Fairness, Return to Work, and theDecision to Dispute in Workers' Compensation

Karen Roberts1 and Willard Young1

This study investigates how injured workers evaluate the fairness of the workers'compensation claims process and how that evaluation affects the decision to formallydispute their claim. Survey and administrative data are used to test a model whereindividuals are hypothesized to base their overall impression of the fairness of theprocess based on dimensions of procedural justice criteria. They are then hypothesizedto decide whether to formally dispute the claim based on a combination of proceduralfairness concerns and whether or not they returned to work with the same employer.The implications of the results for structuring the workers' compensation claims processare then discussed.

KEY WORDS: procedural justice; fairness; workers' compensation; disability; dispute; return to work.

INTRODUCTION

Work-related illness and injuries constitute a significant cost to employers. Ac-cording to the Bureau of Labor Statistics Survey of Occupation Illnesses and Inju-ries, there were 6.7 million work-related illnesses or injuries in 1993. In the sameyear, 8.5 out of every 100 full-time workers experienced lost work time due to oc-cupational injuries and illnesses. The U.S. Department of Health and Human Serv-ices estimated that employers spent approximately $53.1 billion on Workers'Compensation insurance in 1993 (Wyatt Corp., 1994). Workers' compensation, theprimary benefit program for work-related disabilities, was originally designed as aninsurance system to replace tort remedies. The hope was that the workers' com-pensation claims process would be relatively uncontentious; however, this has notbeen the case. A significant number of claims are contested—over 20% in Michiganwhere the study described in this article was carried out. Contested cases are usuallymore costly because they last longer, involve attorneys' fees, and risk resulting inpotentially higher awards (Boden & Victor, 1994). In addition, they almost alwayssour the employment relationship (Roberts & Gleason, 1994).

1School of Labor and Industrial Relations, Michigan State University, East Lansing, Michigan 48824.

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0892-7545/97/0900-0193$ 12.50/0 C 1997 Plenum Publishing Corporation

While the high costs of disputes are commonly recognized, there is little researchon the nature of disputes that has clear policy implications for employers. The re-search on disputes in workers' compensation is sparse in part because disputes areprocesses rather than events and as such are difficult to research. Disputes typicallyhave an incubation period where they evolve from some experience that is perceivedas injurious by at least one party. However, an injurious experience is not automat-ically a dispute: Once an experience is perceived as injurious, it must be transformedinto a grievance where some party is blamed; some redress must be requested andthen refused for a dispute to occur (Felstiner, Abel, & Sarat, 1980-81). Most of theresearch on disputes in workers' compensation begins at this final stage when a for-mal dispute has been articulated. Conflict is only identified as such when it reachesthe point of becoming a formally contested case where third-party intervention, inthe form of mediation or adjudication, is required. The difficulty with this approachfrom a policy perspective is that it provides little guidance for the actors who havethe most control over the process, employers and insurers.

The research reported in this article attempts to fill this gap by examining theclaims process from the perspective of the injured worker to determine what mo-tivates injured workers to formally dispute their claims. The framework used in thisstudy is based on procedural justice theory, which is useful for evaluating the work-ers' compensation claims process in two ways. First, the literature on proceduraljustice divides people's perceptions of fairness into several dimensions that can bevaluable in the formulation of policy. Second, it is frequently asserted in the pro-cedural justice literature that perceptions of fairness about the decision-makingprocess can affect one's reactions to the decisions generated by that process(Thibaut & Walker, 1975; Tyler, 1988). Specifically, for any given outcome, peopleare more likely to abide by a decision that they think was generated by a fair process(Folger & Greenberg, 1985; Eskew, 1993; Youngblood, Trevino, & Favia, 1992).While disputes around disability issues have been a relatively minor workplace con-cern in the past, the combined effects of the rising costs of workers' compensationand the passage of the Americans with Disabilities Act have made them more im-portant. With ADA, employers are going to experience more disability-related con-flict as they confront issues of reasonable accommodation mandated by the law.

This research is designed to address three questions that have implications fordisability policy. The first question is, When people describe the workers' compensa-tion claims process as fair, what do they mean? This can be restated as, Which di-mensions of fairness are most important to claimants? Second, how does the fairnessof the claims process relate to the likelihood of an injured worker returning to thesame employer? Specifically, does the injured worker's evaluation of the fairness ofthe claims process affect his/her likelihood of continuing the preinjury employmentrelationship? And finally, how do fairness perceptions affect the decision to contestthe claim, directly through the individual dimensions and/or the global perceptionsof the fairness of the claims process, or indirectly through the return to work outcome?

In the next section of the article is a brief description of the workers' com-pensation claims process, followed by a review of the fairness framework used inthis article. This is followed by an empirical analysis. The article concludes with adiscussion of the results and their implications for employers.

194 Roberts and Young

The Setting: The Workers' Compensation Claims Process

Injured workers are entitled by law to wage replacement benefits and full medi-cal care plus rehabilitation if the injury appears to be resulting in long-term orpermanent disablement.2 In most workers' compensation cases, there are three pri-mary actors who make decisions about an injured workers' claim: the employer,the claims examiner, and the evaluating physician who assesses worker readinessto return to work. In a simple claim the employer, acting on behalf of the employee,files the claim by reporting the accident or injury to the carrier. The claim is ad-ministered by a claims examiner from the employer's insurance company, who ismeant to act on behalf of the employer. Administering a claim entails investigation,monitoring, benefits and medical bill payment, and approving medical and reha-bilitation treatments. For most claims, the insurer pays wage replacement and medi-cal benefits, and the employee returns to work as soon as sufficiently recovered.

Either party can dispute some aspect of the claim. There is a standing Boardof Magistrates, all attorneys by training, who hear the case. Formal rules of evidenceapply in these hearings, and usually both sides have attorneys present. There is anAppeal Board which can review the hearing-level decisions.

The range of benefits available under workers' compensation is fairly circum-scribed by statute and largely nonnegotiable. Injured workers receive partial wagereplacement and the medical and rehabilitation costs associated with the disabilityare paid. There is no compensation for pain and suffering.3 Even for those casesthat are settled by a lump-sum payment and the amount is negotiated, the settle-ment is meant to be based on statutorily set benefit levels. Most disagreementsabout claim outcomes thus tend not to be over amounts of money but rather overother aspects of the case.

There are formally only two legitimate reasons in the Michigan workers' com-pensation system for an employer to deny a claim or to terminate benefits: If aninjury or disability is not work-related or if a reasonable job offer is refused afterthe injured worker has reached maximum medical improvement (State of Michigan,1988, p. 21). In reality, these criteria are often subjectively determined. Disputesover whether the disability is caused by work range from whether the person gothurt somewhere else but claimed it occurred at work (the "Monday morning" in-juries) or to more sophisticated problems such as whether work exacerbated anexisting condition. In Michigan, the employer employs the worker "as is," and witha few exceptions is fully liable if the work contributed to an existing condition thatresults in disability.

The fundamental problem for evaluating the reasonableness of a job offer isthat disability is an inherently ambiguous status, and assessing the extent of dis-

2The description presented here is the workers' compensation system in Michigan, where this study wasconducted. Although every state program is different, the basic claims process is fairly universal.

3Some states award impairment benefits designed to compensate for a permanent impairment.Depending on their structure, these benefits may resemble pain and suffering awards. Michigan lawincludes a schedule of payments for a very limited set of losses. However, even for states that provideimpairment benefits, these are usually based on limits set by statute, and big, hit-the-jackpot awardsare virtually unheard of in workers' compensation.

Perceptions of Fairness 19S

ability, the degree of recovery, and even the legitimacy of a disability can be difficult(Gleason & Roberts, 1993; Stone, 1984). The thrust of the job offer reasonabilitycriterion is that the employee is physically able to do the job. Because it is some-times difficult to sort out when a good faith offer is made and when a refusal islegitimate, workers' compensation claims often end with termination (26% of thissample did not return to work with the employer where the injury occurred).

Ideally, returning to work is a straightforward decision making process aboutwhen and in what capacity; however, there is anecdotal evidence that this processis not perceived as neutral by injured workers (Roberts & Gleason, 1994). For ex-ample, injured workers frequently complain that once they make a workers' com-pensation claim, they are labeled as troublemakers by employers and co-workers. Itis also common for injured workers to note that employers, supervisors, and co-workers often do not want them back at work unless they are "100%." In addition,in cases of prolonged disability, injured workers report that their employers terminatethem as a way to end benefits. Under these sorts of circumstances, inability to returnto work is likely to be perceived as the outcome of an unfair decision-making process.One recourse under workers' compensation is to formally contest the claim.

The Analytical Framework: Procedural Fairness

People appear to care about fairness and apply it as a yardstick in their evalu-ation of a variety of decision-making processes (Tyler, 1989). The research on fair-ness makes a distinction between two types of fairness: distributive and procedural.Distributive justice is the perceived fairness of the outcomes of a decision-making,resource allocation, or dispute resolution process; and procedural justice is the per-ceived fairness of the process that generated that outcome (Barrett-Howard & Tyler,1986; Folger & Konovsky, 1989; Folger, 1977; Greenberg, 1987; Sheppard & Minton,1986). The study reported here addresses procedural justice concerns. The focus ofthe research on procedural justice has been on differentiating among the variousdimensions individuals use to evaluate the fairness of a process, under what condi-tions these different dimensions appear to be important, and how perceived fairnessaffects various behaviors (Bies & Shapiro, 1988; Eskew, 1993; Folger & Konovsky,1989; Greenberg, 1986, 1987; Leventhal, Karuza, & Fry, 1980; Lind & Tyler, 1988;Shapiro & Brett, 1993; Tyler, 1989; Youngblood, Trevino, & Favia, 1992).

Dimensions of Procedural Fairness

Recent literature suggests that people use three types of criteria to evaluatethe fairness of a process: the degree of opportunity offered to influence the out-come, the structural aspects of the decision-making process, and the quality of theinterpersonal interactions (Bies & Shapiro, 1988; Eskew, 1993; Folger & Konovsky,1989; Greenberg, 1990; Lind, Kanfer, & Barley, 1990; Lind & Tyler, 1988; Shapiro& Brett, 1993; Tyler, 1989; Tansky, 1993).4 Procedural concerns of the first type

4The first two are often referred to as instrumental and noninstrumental criteria, respectively.


are valued for the practical effects they may have on the outcomes of the decision-making process (Lind & Tyler, 1988). It is argued that when individuals believethat the opportunity to voice one's views can have a material effect on the outcomeof a process, that process is more likely to be viewed as fair (Lind, Kanfer, & Barley,1990; Shapiro & Brett, 1993).

The structural characteristics of the process are based on the criteria hypothe-sized by Leventhal, Karuza, and Fry (1980) and refer to the procedural rules as-sociated with decision making (Eskew, 1993). Structural characteristics includeaspects such as the opportunity to present one's case, that the process is consistentlyadministered, and that the decision maker has complete information while makingthe decision (Eskew, 1993; Shapiro & Brett, 1993). Unlike the first set of criteria,these characteristics are not valued for their potential effect on the outcome, butrather for what they signal about how the participant is valued in the group orrelationship. In the work setting, a fair process would be seen as an indicator thatthe employee is valued by the employer.

The interpersonal criteria (Bies & Moag, 1986; Shapiro & Brett, 1993; Tansky,1993) refer to the quality of the interaction between the participants and the de-cision maker. More specifically, they refer to the demeanor of the decision maker,how that decision maker treats the participant, and the quality of the communica-tion between decision maker and participant (Bies & Moag, 1986). The decision-maker qualities that are evaluated include characteristics such as respectfulness,neutrality, consideration, and ethicality (Bies & Moag, 1986; Shapiro & Brett, 1993).The interpersonal criteria are similar to the structural characteristics in that theyare often interpreted as a reflection of one's standing in a group or value in arelationship (Shapiro & Brett, 1993; Tyler, 1989).

These procedural fairness criteria can be applied to a variety of decision-mak-ing and resource allocation processes. While much of the research in this area hasbeen done in laboratory settings, the field applications range from legal decisions,public policy decisions, grievance mediation and arbitration decisions, and admin-istrative decisions made in the workplace such as performance evaluation, pay, andtermination decisions (Folger & Konovsky, 1989; Greenberg, 1986; Konovsky &Cropanzano, 1991; Leung & Li, 1990; Lind, Kulik, Ambrose, & Park, 1993; Shapiro& Brett, 1993; Tyler, 1990; Youngblood, Trevino, & Favia, 1992).

The literature on procedural justice suggests that the different types of criteriaare not equally important in all situations; in other words, these criteria are notuniversally applied. In a lab study, Barrett-Howard and Tyler (1986) found thatwhich criteria were valued depended on whether the setting was competitive orcooperative and whether the decision-making process was formal or informal. One,although not the only, likely predictor of which type of criteria model will be mostimportant is whether the relationship where the dispute is occurring is long or short-term (Lind & Tyler, 1988). In a short-term relationship, individuals are thought tobe concerned with outcomes and so emphasize control dimensions of proceduralfairness. In a longer-term relationship, preserving the relationship is also an objec-tive, so that those dimensions of procedural justice that reflect one's position inthe relationship are valued. According to this criterion, therefore, a fair process isan end in itself.

Perceptions of Fairness 197

Fairness, Outcomes, and Formal Dispute Behavior

One of the policy-relevant assumptions about procedural fairness is that thedegree to which a process is perceived as fair affects participants' behaviors (Tyler,1990). The perceived fairness of a process may determine whether or not the par-ticipants abide by the decision (Mondak, 1993). Several field studies explicitly ad-dress the question of the relationship between perceptions of fairness of a processand the decision to formally dispute its outcome.

Two studies of arbitration awards reported in a paper by Lind et al. (1993)tested the hypothesis that individuals develop a global impression of whether ornot a process is fair and use that impression to determine whether or not thatauthority should be obeyed. Both studies examined litigants' reactions to arbitrationawards and the subsequent decision to go to trial. Their results suggest that pro-cedural justice may mediate the effects of an unfavorable outcome and that a globalimpression of fairness rather than the individual dimensions determines the decisionto accept the outcome of a process.

Youngblood, Trevino, and Favia (1992) examined how dismissed workers viewtheir termination and how they respond to third-party dispute resolution of theirunjust dismissal claim. The results show that procedural justice concerns are citedmost frequently as the reason for challenging the termination. They find that, asidefrom wanting to be reinstated, a dominant reason terminated employees turn to athird party is that they are seeking a procedurally fair decision-making process,which they feel they were denied in the workplace.

Brockner et al. (1994) examined how procedural justice attributes can affectemployee reactions to layoffs. Examining three different groups, layoff victims, sur-vivors, and lame ducks, they found that all viewed job loss as negative. However,procedural fairness perceptions affected how strenuously respondents reacted tothe bad outcome. Similar results were found by Daly and Geyer (1994) in theirexamination of employee reactions to their employer relocating. In most cases, re-location is viewed as a negative outcome. Employee intentions to stay or leave theemployer were influenced by the perceived procedural fairness of the relocationdecision. Together this research suggests that the procedural fairness of a decision-making process that results in what are generally perceived as negative outcomescan affect how individuals respond to that outcome.

METHOD

Research Questions

The three questions addressed here are: Which dimensions of procedural fair-ness are most important in injured workers' overall evaluation of the fairness ofthe workers' compensation claims process? How does procedural fairness affect re-turn to the same employer? And, How does fairness affect the decision to disputethe claim, directly through the individual and global dimensions of fairness, or in-


directly through the return to work outcome? To answer these questions, the claimis conceptualized here as three separate processes, as shown in Fig. 1.

During the first process, individuals are attempting to develop an overall im-pression of the fairness of the process in which they are participating. The empiricalquestion about this process is, Which procedural justice aspects of the claims proc-ess are significant in injured workers' overall impression of how fairly they aretreated? Theoretically, this is an open question. The research on fairness indicatesthat people value those features of a process that may let them influence or controlthe outcome, as well as those that reflect their value or standing in their relation-ships with the other disputants and/or decision makers. A key feature of the work-ers' compensation claims process is that it is an insurance process embedded in theemployment relationship (Roberts & Gleason, 1994). Because the workers' com-pensation process takes place in a work context, it is likely that injured workerswill value those aspects of the process that signify that the employee is valued bythe employer, employees would then be expected to assign relatively high weightsto their perceptions of the structural and interpersonal features of the process, thosedimensions that have implications for the long-term employment relationship (Ty-ler, 1990). However, filing a workers' compensation claim also triggers an insuranceprocess, which is typically expected to be a short-term relationship. Therefore, it ispossible that injured workers may put more weight on their opportunities to controlor influence the outcome in their overall fairness evaluation.

The second process involves the relationship between fairness of the claimsprocess and the likelihood the injured workers will return to the same employer.In this process, returning to the same employer is seen as depending on severityof injury (which may affect overall ability to work), financial hardship (which maymotivate a return to work to the same employer), and the fairness of the claimsprocess. The expectation is that if the claims process is perceived as unfair, thiswill strain the employment relationship and reduce the likelihood of return to work.

The third process involves the decision to formally dispute the claim. Here,individuals are seen as making this decision based on both the perceived fairnessof the claims process as well as the outcomes of that process. The question at thispoint is: Is fairness a factor? If so, do the individual dimensions of procedural fair-ness or overall impression directly affect the decision to dispute; or, do fairnessconcerns operate indirectly through the return to work outcome?

One study, which examined the perceived fairness of a process and whetherthe outcome was formally accepted or disputed found strong support for the im-portance of overall fairness evaluations in the decision to accept or reject court-ordered arbitration awards relative to both subjective and objective measures ofoutcome (Lind et al., 1993). The study by Youngblood et al. (1992) suggests thatindividuals who feel they have been denied procedural justice during a terminationprocess will seek that justice through an appeal to a third party. Applying theseresults to workers' compensation, the expectation would be that the overall fairnessevaluation of the claims process will significantly affect the propensity to dispute,and that the effect of fairness perceptions on dispute behavior will be mediated bythe return to work outcome.


Data Sources

The sample was drawn from claims files kept by the Michigan Bureau of Work-ers' Disability Compensation claims files. A mail survey questionnaire was then ad-ministered to collect information about each individual's perceptions of the process.To construct the sample, 759 cases were randomly selected from a slice-in-timesampling frame of all cases with dates of injury between April 1, 1984 and March15, 1985.5 The claim files included information about the injury (type of injury andbody part), worker characteristics (age, gender, job title, marital status, number ofdependents), employer characteristics (type of business, location, insurance status),benefits received (weekly amounts, duration), whether the claim was disputed, andhow it was resolved.

Questionnaires were mailed to 634 people6 to collect information regardingthe injured workers' perceptions of the disability claim process. Standard surveymail collection techniques were employed, including reminder postcards, telephonecalls to all nonrespondents, and a second mailing to all potential respondents whohad said on the phone that they would return the survey. The final sample sizewas 182, a 28.7% response rate.

Two-thirds (67.6%) of the sample was male. The mean age of the respondentswas 43.1 years. Over one-third (35.2%) were employed in manufacturing, and one-quarter (25.8%) were in the service industry. Most, 58.2%, were in blue collar oc-cupations. Fewer than half, 41.8%, had education or training beyond high school.Mean tenure with their employer prior to the injury was 17.7 years. All were em-ployed in Michigan at the time of the injury. Comparing the sample to the totalclaims made in Michigan in 1984 (MIOSHA, 1985), there were slightly more malesin total claims (71.2%); the modal age category was the same for both groups (25-34), but our sample had fewer claimants under age 25 (6.6% compared to 17.9%).Slightly more of total claimants were employed in manufacturing (40.9%) and some-what fewer in services (14.9%). More of the total claimants were in blue collaroccupations than in the sample (69.9%).

Measures

Five scales were formed from the data collected in the mail survey by utilizingexploratory factor analysis (principal components analysis with varimax rotation).Mirroring the work of Lind et al. (1993), none of the items in the measures of the

5This time period was selected to assure that most of the claims in the sample had closed by the timethe data were collected. The sample was constructed in three stages. First a manual roster held by theBWDC of cases where claimants received other employer-paid benefits was used to select cases fromlarge employers. Second, these cases were found in a manual card file and the next case in the filewith a date of injury in the sampling period was selected to construct the smaller employer file. Third,to assure having enough disputed cases, the contested case MIS system was searched, and the first 20cases with a date of injury in the observation period was selected for each month in that period.

6Because several years had passed since the date of injury, a letter was sent to the 759 people for whomadministrative data were initially collected telling them to expect the survey. Of these letters, 125 werereturned for bad addresses.


dimensions of procedural justice contained the words "just" or "fair," and nonesought a global evaluation of the claims process.

Opportunity to Influence Outcome is a three-item scale that measured the in-jured worker's perceived level of control over the case decisions make by the em-ployer, the examiner, and the evaluating doctor. The response format ranged from1 to 3 with a smaller response indicating a greater perceived sense of control (Cron-bach's a = 0.86).

There were two measures of the structural characteristics of the process:Consistency is a two-item scale that measured the perceived consistency of the

treatment accorded the claimant by the employer and examiner with reference toother people or comparable situations, specifically, the claimant's previous experi-ence with other insurance claims or other people's workers' compensation claims.The response format ranged from 1 to 5, with a smaller response indicating agreater perceived level of consistency (correlation = 0.59).

Information accuracy is a four-item scale measuring the extent to which theinjured worker thought that the employer, examiner, and evaluating physician hadsufficient information about the claim to make accurate decisions. The responseformat ranged from 1 to 3, with a smaller response indicating a greater perceivedsense that each actor had enough information to make accurate decisions (Cron-bach's a = 0.91).

Quality of Interaction is constructed from nine items assessing the injuredworker's perceptions regarding the ethicaliry and professionalism of the behaviorof the employer, the claims examiner, and the evaluating physician during the claimsprocess. Three identical questions were asked about each of these three actors con-cerning how helpful they were, whether or not they listened, and the extent towhich they appeared to trust the employee. The response format of the items wasa 1 to 5 scale, with a smaller response indicating a greater perceived level of ethicalappropriateness (Cronbach's a = 0.86).7

Global Fairness Impression is a six-item scale measuring the global impressionof procedural fairness. Three of the items measure the injured worker's perceptionsregarding the level of honesty displayed by the employer, the evaluating doctor,and the examiner, respectively (1 = always honest; 5 = always dishonest). Theremaining three items measure how fairly the claimant thought he/she had beentreated during her/his disability by the employer, the evaluating doctor, and theexaminer, respectively (1 = very fairly; 4 = very unfairly). The scores were stand-ardized because the response ranges differed (Cronbach's a = 0.89).8 Global fair-ness is endogenous to the model.

Two variables were constructed from the data in the administrative claims re-cords and measure outcomes of the claims process.

7One set of items in the measure of quality of interaction is the extent to which each of the actorslistened to the claimant. Theoretically, these times could belong with the decision control construct asan indicator of voice. However, the factor loadings for these items were 0.79 or better on the qualityof interaction factor compared to no greater than 0.49 on the control factor.

8Third-party honesty is often cited as a dimension of quality of interaction, and that relationship wastested using factor analysis. However, the items related to honesty had factor loading of 0.79 or betteron the overall fairness scale compared to between 0.61 and 0.66 on the quality of interaction scale.



Returned to work is a dichotomous variable that measures whether or not theclaimant returned to the same employer following the disability period (1 = yes;0 = no). This was indicated on the case closure form or if the case was still openby reading case materials. Returned to work is endogenous to the model.

Dispute is a dichotomous variable that measures whether or not the case wasdisputed (1 = yes; 0 = no). Dispute was endogenous to the model.

Two additional variables were included to control for other factors likely toaffect return to work as well as propensity to dispute:

Hospitalization is a dichotomous measure of whether the claimant was hospi-talized during the disability period (1 = yes; 0 = no). The motivation for includinghospitalization was that if an injury was severe enough to warrant in-patient care,the greater the employee's concern about recovery and future employability andtherefore lower likelihood of returning to work and greater propensity to disputean unfavorable outcome (Roberts, 1992).

Replacement Rate is a measure of the financial impact of the disability on theclaimant. It is equal to the ratio of total benefits, excluding those received in thefinal phase of the claims process, to total lost earnings due to the disability. Thesmaller the replacement rate, the greater the financial burden to the claimant dur-ing the disability period.

The mean, standard deviation, and correlational and reliability values areshown in Table I. A recursive path analysis model was used to examine the hy-potheses discussed above and illustrated in Fig. 1. The strength of each link in themodel was captured by regressing each variable on its antecedents. The path co-efficients are equivalent to standardized regression coefficients. The PATH routinein the PACKAGE computer program was used to generate the estimated structuralcoefficients (Hunter, Gerbing, Cohen, & Nicol, 1980).9

RESULTS

Fit of the Model

The reproduced and residual correlations are shown in Table II. The differ-ences between the empirical correlation matrix and the reproduced correlation ma-

9The underlying assumptions of path analysis are the same as those required for ordinary least squares(Asher, 1983). Our model risks violating these assumptions because the dependent variables aredichotomous. Ordinarily, when the dependent variable is dichotomous, nonlinear logit or probitestimation is used in order to constrain the predicted values to fall within the range of zero to one.Linear estimation with weighted least squares can be used under certain circumstances, however(Aldrich & Nelson, 1984). One simple test of the acceptability of using linear estimation is to estimatethe model using OLS and examine the extent to which the predicted values fell outside of the zero-one range. Only one of the predicted values fell outside of the acceptable range for probability ofdispute and three for return to work, indicating that linear estimation would not generate inefficientestimates with these data. Also, the stages of the model were estimated separately using both ordinarilyleast squares and weighted least squares and the results were compared. While the level of significanceincreased using weighted least squares as would be expected, the change in significance level neverexceeded 0.014 and was usually zero. It was concluded that the linear estimation used in the pathmodel will result in unbiased and efficient path estimates.

Perceptions of Fairness205


trix are not excessive. Before examining the individual error terms, however, theoverall fit of the model to the data was tested using Specht's Q x2 test (Fullagar& Barling, 1989).10 The computed x2 statistic equaled 3.70, which failed to exceedthe critical value necessary to reject the model (x2 bound was 18.475 (df = 7, p< 0.01)). To test the fit of each path, a comparison was made between the 5% alevel error variance index (which is computed with the following formula: {1.96 *[2] 1/2 * Var (e)} and the error matrix. The absolute differences between the em-pirical and the reproduced correlations in the difference (error) matrix were com-pared to the error variance index; any difference larger than the index indicatesan improperly specified path. The largest absolute difference between the empiricalcorrelations and the reproduced correlations is 0.15. This is less than the error vari-ance threshold limit of 0.169, indicating that none of the paths was misspecified.

Path Coefficients

Figure 1 shows the path coefficients. All of the variables in this model werestandardized, so that the path coefficients can be interpreted as partial p coefficients(Asher, 1983).11 As is evident, 11 of the 15 paths are significant (7 at p < 0.01, 2at p < 0.05, and 2 at p < 0.10) for the sample size (N = 140).

Three overall questions were explored. The first was which aspects of proce-dural fairness would be important in injured workers' overall impression of the fair-ness of the workers' compensation claims process.12 All of the measures ofprocedural fairness were statistically significant at the 0.01 level or better. Of thefour dimensions, quality of interaction was by far the most important determinantof the overall fairness impression (B = 0.47), close to twice as important as op-portunity to influence the outcome, the dimension with the next largest coefficient.Consistency was next in importance, followed by accuracy of information. Takentogether, these results suggest that injured workers evaluate the fairness of theclaims process using all three types of procedural criteria—opportunity to influencethe outcome, structural characteristics, and quality of interaction. However, thequality of interaction dimension is far more heavily weighted than the others.

The second question was how fairness of the claims process affected the returnto work outcome. Two exogenous variables that could also affect return to work

10The formulas for Specht's x2 statistic are:

Q = Sum Squared Errors/2[Var(e)]2

where: Var(e) = 1 — rmean2l[(N — 1)1/2] and rmean = Sum[ABS(rspecified)]/# Specified Paths and rspecifiedis the correlations for all of the specified paths.

11Initially, a full model was estimated that included linkages between the three outcome variables andthe global fairness measures. The path coefficients for these linkages were assumed to be equal tozero, an assumption that was supported by the empirical test.

12Each actor's contribution to overall fairness perceptions was evaluated using analysis of variance. Com-bined, the evaluation of the three actors' overall fairness explained 85.4% of the total variation ofglobal fairness (F = 45.49, p = 0.0001). Of the explained variation, 44.3% was explained by employerfairness (F = 60.31, p = 0.0001), 33.1% by examiner fairness (F = 45.05, p = 0.0001), and 22.7% byphysician fairness (F = 30.88, p = 0.0001). It should be noted that different actors may be moreprominent than others in any individual case.


were included in the model: severity of injury, as measured by whether or not theindividual was hospitalized; and the replacement rate, an inverse measure of finan-cial hardship. As expected, severity of injury reduced the likelihood of return towork. Also as expected, the greater the financial hardship from the reduction inincome due to the disability, the greater the likelihood of return to work. The nega-tive coefficient for global fairness was as expected. It should be interpreted as thefairer the claims process, the more likely a positive return to work outcome. (Thisis because the lower the fairness score, the higher the fairness evaluation.)

The third question examined the determinants of the decision to dispute theclaims outcome. The issue was, How did fairness affect the dispute outcome,through the individual dimensions of fairness, through the global perception of fair-ness, or through the return to work outcome? The measures of severity of injuryand inverse financial hardship were also included in this segment of the model.The coefficient for both of these variables were statistically significant, althoughthe sign for replacement rate was opposite from what was expected, perhaps indi-cating that dispute behavior depends in part on adequacy of financial resources.

The coefficient for return to work is large, negative, and statistically significantat the 0.01 level, indicating that a negative return to work outcome increases thelikelihood of dispute. Although the global fairness of the claims process is importantto the return to work outcome, it does not directly affect the likelihood of dispute.Comparing the insignificant model coefficient with the significant first-order corre-lation in Table I suggests that fairness does affect the likelihood of dispute but itseffect is mediated through the return to work outcome. None of the coefficientsfor the individual dimensions were statistically significant except that for informa-tion accuracy, which was significant at the 0.1 level. The positive coefficient shouldbe interpreted as indicating that the lower the perceived accuracy of the informationwith which claims decisions were made, the more likely the claim will be formallydisputed.

DISCUSSION

The results of this study suggest that injured workers do base their overallfairness evaluation of the workers' compensation claims process on all three typesof criteria, but that the quality of the interaction with decision makers is substan-tially more important than the other types of criteria. This result is consistent withseveral studies on the universality of procedural justice criteria, where different cri-teria are weighted differently depending on the nature of the outcome at issue andvarious characteristics of the dispute and dispute resolution process. Shapiro andBrett (1993) found that third-party fairness (the measure that most closely resem-bles quality of interaction in this study) accounted for between 10% and 27% ofprocedural justice evaluations of dispute resolution processes. These findings arealso consistent with those of Tyler (1989), who found that decision-maker neutrality,whether the decision-maker appeared to trust the respondent, and whether the in-dividual's rights and status were respected, were the primary determinants of fair-ness evaluations.


Opportunity to influence the outcome was the next most important variable,but its contribution was one-half that of quality of interaction. Respondents in hi-erarchical organizations where authority flows down from the top may not expectto have control. Also, most workers, who have not had much experience making aworkers' compensation claim, often find the process confusing and intimidating(Roberts & Gleason, 1994).

For consistency to be a factor in a fairness evaluation, one must have somebasis for comparison. Unless one has had a previous claim or knows someone whohas, one is not likely to have well-formed expectations about workers' compensation(Gleason & Roberts, 1993). Although the experience is analogous to filing a prop-erty claim (for example, auto insurance), there are enough differences that workers'compensation could be perceived as a completely new experience, thus explainingthe small coefficient for consistency.

The information accuracy dimension has the smallest coefficient in the overallfairness regression but is the only form of fairness to be significant in the decisionto formally contest the claim. The reason for this result may lie in the nature ofthe workers' compensation formal dispute resolution process. As described earlier,once a case becomes disputed, it closely resembles court proceedings where rulesof evidence apply. Of the types of fairness dimensions presented in this article, thatthe decision was not based on correct information is the most commonly acceptedreason for formally reviewing a decision.

The finding that the three different types of procedural fairness criteria doaffect overall fairness perceptions of the claims process has policy implications foremployers. One relationship that is increasingly documented in the fairness litera-ture has been on the relationship between procedural justice criteria and organiza-tional citizenship. Organizational citizenship refers to behaviors that arediscretionary and not part of explicit job descriptions or recognized by formal re-ward systems, but that promote organizational functioning (Eskew, 1993). This re-search has shown that procedural fairness can affect how people respond to whatmay be very negative outcomes. In Bies, Martin, and Brockner's (1993) study ofbehavior after notification of lay-off, an indisputably bad outcome, the fairness ofthe lay-off procedure significantly affected the quality of organizational citizenship.

The findings here suggest that the quality of interaction between the primaryactors and the injured employee, specifically along listening, trusting, and helpingdimensions, are important in developing a sense of overall procedural fairness. Apolicy where the employee is listened to, helped, and treated as a trusted employeewill enhance perceptions of fairness and, by extension, organizational commitment.In other words, if the individual is treated as a valued employee by the organizationand its agents, that will foster good will toward the organization during the claimsprocess.

A second result from this article is that after controlling for external conditionsrelated to a workers' compensation claim (severity of injury and financial hardship),fairness of the claims process can affect the return to work outcome. Who initiatesthe termination cannot be determined from the data used here. Anecdotal evidencesuggests that termination after filing a workers' compensation claim is more likelyto be employer initiated (Roberts & Gleason, 1994). The relationship between pro-

cedural fairness concerns and return to work is consistent with the results fromYoungblood, et al. (1992), who found that procedural fairness concerns was themost frequently cited reason for employees filing an unjust dismissal claim. Theyalso found that interaction justice concerns was an important motivator, a resultthat is similar to the finding here that quality of interaction is an important deter-minant of overall fairness perceptions.

The significant first-order correlation between fairness and dispute, coupledwith the insignificant coefficient for fairness in predicting dispute but significantcoefficient in predicting return to work, suggests that overall procedural justice af-fects dispute behavior through the return to work outcome. This outcome is con-sistent with Daly and Geyer (1994), who found that the effects of certain aspectsof process on final behaviors are mediated through perceptions of outcome fairness.In their study of employee reaction to employer decision to relocate, they foundthat the effect of how decisions were justified on employee intention to stay withtheir employer was mediated through how fair employees thought it was to relocatethe firm.

An additional explanation may be that individuals want to participate in pro-cedurally fair decision-making processes. If the return to work outcome is seen asthe culmination of an unfair process, disputing the outcome may represent an effortto initiate a decision-making process that has the procedural justice characteristicsabsent from the claims process. Youngblood et al. (1992) find that employees mak-ing unjust dismissal claims cite procedural justice objectives in their reasons forgoing to a third party, such as wanting to tell the employer how they feel.

Finally, whether the process resulted in the employee being unable to returnto the same employer is the most important factor in initiating a formal dispute.Finding ways to get an employee back on the job is a basic principle of disabilitymanagement (Tate, Habeck, & Galvin, 1986), and reasonable accommodation islegally mandated under ADA. The results of this article suggest that employersshould make every effort to return an employee with a disability to work. If, how-ever, this is not possible (it imposes an "undue hardship" to use the language ofADA), the degree to which the employee perceives the process as fair accordingto the information accuracy criterion can affect the decision to enter a formal dis-pute. In practical terms, this means that from the start of the claim employersshould engage in careful record keeping and data gathering, should ensure that thedecision-making process is open and clear to the employee with a disability, andshould make certain the claims decisions are based on accurate and full information.

Study Limitations

There are several limitations to this study. First, the sample size is relativelysmall. This may introduce some instability in the path coefficients when this modelis tested with other samples. Second, while the sample is representative of the work-ers' compensation population in Michigan, there may be important differences be-tween the respondents and the general work force that would affect these resultsif the model were applied to a different or more general dispute setting.


Third, the data are retrospective in that respondents were asked to evaluateexperiences that had occurred five years earlier. This was done in order to be certainthat the claims of all of the respondents had been completed, so that all respondentswere evaluating a completed process. Unfortunately, the cases that become formallydisputed often take as long as five years to resolution.

Another potential problem with this study is method variance, an artifact ofmeasurement that biases results when relations are explored among constructsmeasured in the same way (Spector, 1987). Common method variance has beendescribed as the overlap in variance that can be attributed to measurement methodrather than to the "true" relationship between variables (Campbell & Fiske, 1959).Two techniques were used in this study to counteract possible common methodvariance: different scale formats (Watson, 1988) and reverse-coded items (Gordon& Ladd, 1990). In addition, the dispute decision and outcome variables were de-rived from a separate data source from that used for the fairness evaluations. Onepiece of evidence that common methods bias may not be a problem with this studyis the distinctly different results for information accuracy from those for the otherprocedural justice scales.

ACKNOWLEDGMENTS

The authors would like to thank Donna Winthrop for her research contributionand Joel Cutcher-Gershenfeld, Dan Ilgen, Ed Montemayor, David Wazeter, SusanZonia, and the participants at the Institute for Public Policy and Social Researchfor their comments. This research was supported by the Fund for Research onDispute Resolution. The opinions expressed herein do not necessarily reflect theposition of the Fund.

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Procedural Fairness, Return to Work, and the Decision to Dispute in Workers' Compensation

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