Workers' compensation for work-related injuries and illnesses

Workers' compensation is the oldest social insurance program in the U.S. Because it developed in the early 20th century when federal law had not developed to expand the scope of federal interventions, it is almost entirely a state-based system. The state systems have similarities, but to understand the system in depth you have to know the specific state system. The following materials provide a basic description, but when you are working with either employers or injured workers, it is essential to know the specifics of the state. There are also a limited number of federal compensation programs. These include compensation for federal employees, programs designed to address specific disease such as coal miners' pneumoconiosis (black lung), and compensation under the Longshoremen's Act.

ORIGINS OF WORKERS' COMPENSATION

Before 1910, the laws determining employers’ responsibility for industrial injuries had been handed down from pre-industrial England.  Under these laws, an injured worker’s recourse for injury was through a highly theoretical lawsuit against his or her employer.  Three defenses made these cases particularly difficult:

Fellow-servant doctrine: If fellow employees caused the injury, then the employer was not responsible
Assumption-of-risk: If the injuries were caused by common hazards or by unusual hazards of which workers were aware, the workers were deemed to have assumed the risk.
Contributory negligence:  If employees were seen as having contributed to the injury in any way, the employer would prevail.
The rate of injury and death in industry in the late 19th and early 20th century was horrific, particularly in the railroad and mining industries.  Injured workers were highly visible, and states convened commissions to address the problem.  Employer Liability Acts were the first legislative response to what was increasingly viewed as a crisis.  These statutes did not create new systems of liability, but rather attempted to restore some workers to positions no worse than that of  strangers injured by the negligence of an employer or his employees.  For example, an 1855 Georgia statute eliminated the fellow servant rule, but for railroad companies only.  By 1907, 26 states had enacted some form of employer liability act, with most abolishing the fellow-servant rule, while a few limited the assumption of risk and contributory negligence doctrines as well.

These statutes, reflecting tort law at the time, continued to base liability on personal fault.  The problem in part was that the injuries were often the result of the regular method of carrying out a business – albeit very dangerous businesses.  It was therefore very difficult to prove negligence, in the classic sense.  Without more, injured workers continued to carry the costs of these injuries:  workers had neither job security nor any possibility of compensation.  Uncompensated accidents led, not surprisingly, to destitution, as the worker and his/her family were forced to seek relief through meager and often demeaning charities.

Efforts to develop a broad compensation system in the U.S. lagged behind equivalent efforts in some countries in Europe.  Bismarck developed a system of social insurance in Germany in the 1880s; Britain passed the British Compensation Act in 1897.  Interest in a no-fault system of compensation grew in the U.S.  It was fueled by three phenomena:  larger verdicts for workers in the early years of the 20th century, despite the continuing legal barriers; the broad social movements of the time; and the growth of labor organizations.  Support for compensation laws ultimately came from both labor unions and large industrial trade organizations like the National Association of Manufacturers. 

By 1908, despite growing support for the concept, there was still no law that provided compensation.  Remember the context:  Lochner was decided in 1905.  Major industrial disasters were occurring with some regularity.  President Theodore Roosevelt urged passage of an act for federal employees in January 1908, and Congress passed a compensation law later that year – it was not a very good law, but it was the first to establish a compensation program for American workers. 

In 1910, New York became the first state to adopt a worker’s compensation act of general application.  In 1911, in Ives v. South Buffalo Railway Company, 94 N.E. 431 (N.Y. 1911), the Court of Appeals of New York held this act unconstitutional on grounds of deprivation of property without due process of law.  This case turned out to be the last gasp of judicial opposition, but it had lasting effect, as state legislatures attempted to pass laws that they believed would survive constitutional challenges.  At the same time, many state courts became more accepting of these compensation systems.  The 1911 Wisconsin law was the first that was passed and remained in effect. 

In New York, a constitutional amendment was adopted, effective in 1914, which stated: 

Nothing contained in this constitution shall be construed to limit the power of the legislature to enact laws for the protection of the lives, health, or safety of employees…

Later that year, the New York legislature enacted a new workers’ compensation law.  The law abandoned the existing common law standards.  The substitute system required provision of compensation by employers for disability or death of an employee resulting from accidental personal injury arising out of and in the course of employment, without regard to fault as a cause (with some limited exceptions); it set a prescribed scale of compensation based on loss of earning power; and it measured death benefits according to the dependency of the surviving dependents.  In a case in which a widow sought compensation for the death of her husband on the railroad, the  U.S. Supreme Court upheld this second New York statute in New York Central Railroad Co. v. White, 243 U.S. 188 (1917), noting that strict liability was not an unknown concept in tort law.  The court wrote:

[I]t cannot be pronounced arbitrary and unreasonable for the State to impose upon the employer the absolute duty of making a moderate and definite compensation in money to every disabled employee, or in case of his death to those who were entitled to look to him for support, in lieu of the common-law liability confined to cases of negligence. 

Rejecting the arguments rooted in freedom of contract, the court found that the creation of this liability and compensation system was within the police powers of the state.  By 1925, 24 jurisdictions had passed state laws providing compensation for occupational injury.  It was not until 1948, when Mississippi passed its law, that workers’ compensation became universally available in the U.S. (although in Texas the insurance system has remained voluntary.)

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PRINCIPLES OF WORKERS' COMPENSATION

These laws share five principles:

All of workers’ compensation systems are “no-fault.”  This enables workers to collect compensation when they would be unable to prove negligence.  The basic test for compensability is whether the injury arose out of and in the course of employment.
Employers are protected from liability:  the benefits provided are the only liability of the employer to its employees.
The benefits are limited.  This is the ‘trade’ for making the benefits available, irrespective of fault.  Thus, wage replacement is capped; the cap varies, but is most commonly 100% of the state average weekly wage. This of course means that higher wage workers are capped well below their regular income.  Pain and suffering damages are not available. Compensation for total permanent disability is rarely paid and often capped.  Death benefits are only paid if there is a surviving dependent.
In all states (except Texas and, to some degree, New Jersey and Oklahoma), employers must either purchase insurance for this risk or must provide proof of self-insurance.  Employers that fail to “play” lose their protection from tort liability.
These laws are specifically designed to allow the risk of employee injury to become an insurable risk for the employer, with the expectation that the cost is passed on to consumers of products. 
Workers’ compensation systems are designed and administered by the states.  They vary across states in terms of what injuries are compensated, the level of benefits, what proof is required, and the financing mechanisms.  In all states, employers either pay insurance premiums based upon their industry classification and the occupational classifications of their workers, or they “self-insure.” In four states, this insurance is only available through an exclusive state-run fund; private insurance carriers do not function in the workers’ compensation ‘market’ in these states. Larger employers are also experience-rated, which results in higher or lower premiums based upon their past experience with payment of claims.  Remember that this is about claims that are paid – if injuries are not reported or claims are found to be non-compensable, then an employer may have lower rates for workers’ compensation than the true injury rate would require.

Workers’ compensation pays for medical care related to a compensable injury or disease and provides cash benefits to injured workers after an initial waiting period of three to seven days. The majority of workers’ compensation claims do not involve lost work time greater than the waiting period for cash benefits.  These “medical only” cases account for 75 percent of cases, but only about 6 percent of the benefits paid. 

Medical care is covered for the compensable injury only.  If a worker is off work (and not protected by the provisions of the FMLA), then an employer is not required to continue his or her general medical coverage (although many employers do).  This means that the worker and his or her family may find themselves unable to pay for their general medical needs during an absence caused by an occupational injury or illness.

The rest of the benefits are paid for temporary and permanent disability or death and are called “indemnity benefits”:

Temporary total disability (TTD) benefits: A worker who is temporarily unable to perform his or her pre-injury job or another equivalent job is generally entitled to TTD benefits, after a waiting period.  Most states pay TTD benefits to replace two-thirds of the worker’s pre-injury wage, subject to a maximum (most commonly 100 percent of the state’s average weekly wage).  This means, of course, that higher paid workers receive a lower percentage of their pre-injury salaries than low wage workers. The number of weeks that a worker can collect TTD benefits is sometimes capped (e.g. at 2 years). 

Temporary partial disability (TPD) benefits: Less commonly, a worker may collect partial temporary benefits, when s/he returns to work at reduced pay or hours but anticipates a return to his or her old job. 

Permanent disability benefits: Workers with permanent impairments after they have reached maximum medical improvement are eligible for permanent disability benefits.  Permanent partial disability (PPD) benefits are paid when the worker can return to work.  It is in this area that the state laws differ most widely and this is the area of greatest controversy.  Cash benefits for PPD are generally limited to a specific duration or an aggregate dollar amount.  Methods for calculating the benefits fall into several broad categories:  scheduled benefits (for which the state statute will often list benefits to be paid for specific losses, such as the loss of a finger); impairment-based benefits (which are paid for impairment, but the worker does not receive benefits based on loss of future earnings); loss-of-earning-capacity benefits (links the benefit to the worker’s future earning ability); and wage-loss benefits (in which benefits are paid for the actual or ongoing losses that a worker incurs).  Different jurisdictions use different approaches, and the approach to calculations also varies widely.  Permanent total disability (PTD) benefits are generally paid when a worker is unable to return to the workforce.  The threshold for PTD benefits has risen over the years, and these cases are vigorously defended by insurers and self-insured employers.  At this point, awards of PTD are quite rare in most jurisdictions.

Note that in Massachusetts, workers are paid partial disabilities based on the difference between actual post-injury wages and pre-injury wages, up to a maximum number of weeks. Massachusetts workers’ comp lawyers tend to say that “we don’t have PPD”; from the national perspective, these wage replacement benefits are classified as PPD.

Fatality benefits:  Fatality benefits are paid when a worker is killed on the job or dies as a result of occupational injuries.  In theory, this should also apply to deaths resulting from occupational disease, but in fact these benefits are generally not paid in these cases.  Benefits are limited to payment to the surviving spouse and children.  If a worker dies without dependents, fatality benefits are limited to the payment of funeral expenses.

Vocational rehabilitation benefits: These benefits provide access to retraining and job placement services, and sometimes include the continuation of cash benefits.

Coverage: 

There are three ways to think about coverage.

First, what employers are covered? Every state except Texas mandates coverage for private employers. In a few places, there are still exceptions for very small employers.   

Second, what workers are covered? Independent contractors are not covered in any state.  Otherwise, coverage varies by state.  In sixteen states, in addition to Texas, farm employers are exempt from coverage, although the New Mexico Supreme Court rejected this exemption under the state constitution, based on equal protection grounds.  See Rodriguez v. Brand W. Dairy, 378 P.3d 13, 22 (N.M. 2016) .In others, household employees, very small firms, and some state and local government employees are excluded. 

Third, what conditions are covered?  This is a more complex question.  An injury that results from an “accident” that arose out of and in the course of employment is a covered event. For other conditions, the answer is more complex.  Historically, the view was these statutes were to be interpreted with liberality, and that an employer took a worker “as he found him.”  Thus, if someone had a preexisting condition that would make him or her more susceptible to injury or disease caused by work, the resulting health condition was generally compensable.  Or if the proof of causation was not crystal clear, the condition would still be compensated.  Many states have moved away from this approach, making it increasingly difficult for many injured workers to obtain benefits.  Coverage is also much more variable for conditions that involve latency periods, such as occupationally caused cancers; conditions that evolve over time, such as carpal tunnel syndrome; conditions that are caused by both work and nonwork factors. Even when such conditions are not explicitly excluded from coverage, difficulties in demonstrating work-relatedness often can be substantial barriers to compensation.

Undocumented workers:  The state courts that have addressed this issue (including courts in California, Connecticut, Georgia, Florida, Maryland, Minnesota, Pennsylvania), have held (1) that federal law does not preempt states’ right to provide compensation benefits to undocumented workers; and (2) that undocumented workers are employees within the meaning of the state workers’ compensation laws.  See e.g. Farmers Bros. Coffee v. Workers' Comp. Appeals Board, 133 Cal.App.4th 533, 35 Cal.Rptr.3d 23 (Cal.App. 2 Dist.,2005) (“Were it otherwise, unscrupulous employers would be encouraged to hire aliens unauthorized to work in the United States, by taking the chance that the federal authorities would accept their claims of good faith reliance upon immigration and work authorization documents that appear to be genuine. Other jurisdictions have come to the same conclusion with regard to their workers' compensation laws… If compensation benefits were to depend upon an alien employee's federal work authorization, the Workers' Compensation Appeals Board would be thrust into the role of determining employers' compliance with the IRCA and whether such compliance was in good faith, as well as determining the immigration status of each injured employee, and whether any alien employees used false documents. Benefits would be denied to the undocumented injured employee for the sole reason that he is undocumented. Thus, the remedial purpose of workers' compensation would take on an enforcement purpose, in direct conflict with the IRCA.”)

Occupational diseases:  Workers’ compensation laws almost universally have proved to be a weak approach to compensating occupational disease, as opposed to injury.  Some states continue to have statutes of limitation that exclude disease claims if the exposure was not within the limitation period; diseases like cancers with long latency periods are therefore often not covered at all.  In addition, many state laws exclude diseases of everyday life; some occupational diseases mirror (or are identical to) these other diseases.  Even without these barriers, causality is sometimes complex or difficult to prove.  In some instances, such as the federal Black Lung Act or the Energy Employees Occupational Illness Compensation Act, Congress has stepped in to provide compensation when state laws have been inadequate.  The Center for Public Integrity published stories regarding the limitations of occupational disease coverage in workers’ compensation.  See e.g. Jamie Hopkins, Unequal Risk: Disease Victims Often Shut Out of Workers' Comp System  (Nov. 4, 2015). The issue of coverage for infectious diseases arose as a critical issue during the pandemic, as workers were infected with Covid-19 at work. States' responses to the challenge of the pandemic varied considerably. There was a spectrum from a liberal approach (e.g. broad presumptions and awards in California) to resistance to compensation elsewhere.  

Settlement of claims:  Settlement of claims – eliminating any future payments – is common in workers’ compensation.  This is an accepted process (often referred to as “compromise and release” or “C&R” or "lump sum").  In some states, only the indemnity (wage replacement) benefits can be settled.  In others, both medical costs and indemnity can be subject to the process. Sometimes, workers waive their right to reemployment with the pre-injury employer as part of the settlement. Critics charge that these settlements may undervalue the claims and may put injured workers into destitution if they cannot return to work elsewhere. Supporters of the process argue that it is important for people to reach closure, and that dragging out payments can be a bad thing for all parties – employers, insurers and workers.  There is also an underlying problem that is rarely discussed:  claimants’ lawyers are interested in maximizing the amount of money that the claimant receives in a settlement.  This is true not only because it is good for their clients, but because fees for these lawyers is a percentage of the settlement.  Think about the effect of this on the reemployment of injured workers.

TO LEARN MORE:

The National Academy of Social Insurance publishes an annual report on trends in workers’ compensation costs and provides more data on these general issues. See https://www.nasi.org/research/workers-compensation/workers-compensation-benefits-costs-and-coverage-2022-data

The best treatise in the field is A. Larson, The Law of Workmen’s Compensation, which can be found on Lexis.

A history of the American system and an evaluation of the current system can be found in Emily Spieler, (Re)Assessing the Grand Bargain: A History of Compensation for Work Injuries in the United States, 1900-2018, 69 Rutgers L. Rev. 891 (2017).

and for more history:

Nate Holdren, Injury Impoverished: Workplace Accidents, Capitalism, and Law in the Progressive Era, (2020)

John Fabian Witt, The Accidental Republic: Crippled Workingmen, Destitute Widows, and the Remaking of American Law (2006)

Price V. Fishback & Shawn Everett Kantor, A Prelude to the Welfare State: The Origins of Workers' Compensation (2000)