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 WORKER'S COMPENSATION
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Major Topics
 Overview of Workers’ Compensation

 Objectives of Workers’ Compensation Legislation

 Before Workers’ Compensation Legislation

 Workers’ Compensation Legislation

 Injuries and Workers’ Compensation

 Modern Workers’ Compensation

 Disabilities and Workers’ Compensation

 Workers’ Compensation law: Fraud and Abuse

 Controlling Rising Workers’ Compensation Costs

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 Worker's Compensation
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 The concept of worker’s compensation developed as a way to allow injured

employees to be compensated appropriately without having to take their
employer to court. The underlying rationale for workers’ compensation had two
aspects:
(1) fairness to injured employees, especially those without the resources to
undertake legal actions that are often long, drawn out, and expensive
(2) reduction of costs to employers associated with workplace injuries (for
example, legal, image, and morale costs).
Workers’ compensation represents a compromise between the needs of employees
and the needs of employers. Employees give up their right to seek unlimited
compensation for pain and suffering through legal action. Employers award the
prescribed compensation (typically through insurance premiums) regardless of the
employee’s negligence. The theory is that in the long run both employees and
employers will benefit more than either would through legal action. As you will see
later in this chapter, although workers’ compensation has reduced the amount of
legal action arising out of workplace accidents, it has not completely eliminated legal
actions.
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 Objectives of Workers’ Compensation
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Workers’ compensation laws are not uniform from state to state. In fact, there are
extreme variations. However, regardless of the language contained in the enabling
legislation in a specific state, workers’ compensation as a concept has several widely
accepted objectives:
 Replacement of income
 Rehabilitation of the injured employee
 Prevention of accidents
 Cost allocation

Replacement of Income
Employees injured on the job lose income if they are unable to work. For this reason,
workers’ compensation is intended to replace the lost income adequately and promptly.
Workers’ compensation benefits are required to continue even if the employer goes out
of business.
Rehabilitation of the Injured Employee
A major objective of workers’ compensation is to rehabilitate the injured employee. The
rehabilitation program is to provide the needed medical care at no cost to the injured
employee until he or she is pronounced fit to return to work. The program also provides
vocational training or retraining as needed. Both components seek to motivate the
employee to return to the labor force as soon as possible.
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 Objectives of Workers’ Compensation
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Prevention of Accidents
Preventing future accidents is a major objective of workers’ compensation. The theory
underlying this objective is that employers will invest in accident prevention programs to
hold down compensation costs. The payoff to employers comes in the form of lower
insurance premiums that result from fewer accidents.
Cost Allocation
The potential risks associated with different occupations vary. For example, working as a
miner is generally considered more hazardous than working as an architect. The underlying
principle of cost allocation is to spread the cost of workers’ compensation appropriately
and proportionately among industries ranging from the most to the least hazardous. The
costs of accidents should be allocated in accordance with the accident history of the industry
so that high-risk industries pay higher workers’ compensation insurance premiums than do
low-risk industries.

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 Before Workers’ Compensation Legislation
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 Before the Workers’ Compensation Legislation, Proving that an injury was or

not the result of employee negligence was typically too costly, Too difficult,
and too time-consuming.
 According to Somers and Somers, a New York commission determined that it
took from six months to six years for an injured worker’s case to work its
way through the legal system.
 Typically, injured workers, having lost their ability to generate income, could
barely afford to get by, much less pay medical expenses, legal fees, and
court costs.
 Another inhibitor was the fear factor. Injured employees who hoped to
return to work after recovering were often afraid to file suit because they
feared retribution by their employer. Employers not only might refuse to
give them their jobs back but also might blackball them with other
employers. Add to this that fellow employees were often afraid to testify to
the negligence of the employer, and it is easy to see why few injured
workers elected to take their employers to court.

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 Before Workers’ Compensation Legislation
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In courts, All the employer had to do to win a decision denying the injured any
compensation was to show that at least one of the following conditions existed at the
time of the accident:
1. Contributory negligence was a factor in the accident. Contributory negligence
meant that the injured worker’s own negligence contributed to the accident. Even
if the employee’s negligence was a very minor factor, it was usually enough to
deny compensation in the days before workers’ compensation.
2. There was negligence on the part of a fellow worker. As with contributory
negligence, negligence by a fellow employee, no matter how minor a contributing
factor it was, could be sufficient to deny compensation. This defense was known as
“the fellow servant rule.”
3. There was assumption of risk on the part of the injured employee. If an
employee knew that the job involved risk, he or she could not expect to be
compensated when the risks resulted in accidents and injuries. This defense relied
on a long-standing principle of tort law known as “assumption of risk”.

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 Workers’ Compensation Legislation
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 The first workers’ compensation law enacted in the United States did not pass until 1908, and
it applied only to federal employees working in especially hazardous jobs. The driving force
behind passage of this law was President Theodore Roosevelt, who as governor of New York
had seen the results of workplace accidents firsthand. Montana was the first state to pass a
compulsory workers’ compensation law.
 Ruling that the law was unconstitutional, the Montana courts overturned it.
 Prior to the enactment of workers’ compensation laws, employees’ only course of action, when
injured was through the courts, and the prevailing laws favored employers.
 On March 25, 1911, the building that housed the Triangle Shirtwaist Factory on its eighth floor
caught fire and burned. As a result of the fire, 149 of the company’s 600 workers died, and
another 70 were injured.
 Early workers’ compensation laws were ruled unconstitutional. The constitutional debate
continued until 1917 when the U.S. Supreme Court ruled that workers’ compensation laws were
acceptable.
 All 50 states have now workers’ compensation laws, but they vary markedly. All laws are
enacted to provide benefits, pay medical costs, provide for rehabilitation when necessary,
decrease litigation, and encourage accident prevention.

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Injuries and workers’ compensation
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 The original workers’ compensation concept envisioned compensation for

workers who were injured in on-the-job accidents.
 What constituted an accident varied from state to state. However, all
original definitions had in common the characteristics of being sudden and
unexpected.
 Over the years, the definition of an accident has undergone continual
change. The major change has been a trend toward the elimination of the
“sudden” characteristic.
 In many states, the gradual onset of a disease as a result of prolonged
exposure to harmful substances or a harmful environment can now be
considered an accident for workers’ compensation purposes.
 A harmful environment does not have to be limited to its physical
components. Psychological factors (such as stress) can also be considered. In
fact, the highest rate of growth in workers’ compensation claims over the
past two decades has been in the area of stress-related injuries.

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 Modern workers’ compensation
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According to Hammer, the U.S. Chamber of Commerce identified the following

six basic objectives of workers’ compensation:
1. To provide an appropriate level of income and medical benefits to
injured workers or to provide income to the worker’s dependents
regardless of fault.
2. To provide a vehicle for reducing the amount of personal injury litigation
(process of taking legal action) in the court system.
3. To relieve public and private charities of the financial strain created by
workplace injuries that go uncompensated.
4. To eliminate time-consuming and expensive trials and appeals.
5. To promote employer interest and involvement in maintaining a safe work
environment through the application of an experience-rating system.
6. To prevent accidents by encouraging frank, objective, and open
investigations of the causes of accidents.

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 Disabilities and workers’ compensation
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Injuries that are compensable typically fall into one of four

categories:

(1) temporary partial disability

(2) temporary total disability
(3) permanent partial disability
(4) permanent total disability

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Temporary total disability

A temporary total disability classification means the injured worker is
incapable of any work for a period of time but is expected to recover
fully. Most workers’ compensation cases fall in this classification.

Temporary partial disability

A temporary partial disability means the injured worker is capable of
light or part-time duties. Depending on the extent of the injury,
temporary partial disabilities sometimes go unreported. This practice is
allowable in some states. It helps employers hold down the cost of their
workers’ compensation premium. This is similar to not reporting a minor
fender bender to your automobile insurance agent.

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Permanent Partial Disability

Permanent partial disability is the condition that exists when an injured
employee is not expected to recover fully. In such cases, the employee will be
able to work again but not at full capacity. Often employees who are
partially disabled must be retrained for another occupation.
Permanent Total Disability
A permanent total disability exists when an injured employee’s disability is
such that he or she cannot compete in the job market. This does not necessarily
mean that the employee is helpless. Rather, it means an inability to compete
reasonably. Handling permanent total disability cases is similiar to handling
permanent partial disability cases except that certain injuries simplify the
process. In most states, permanent total disability can be assumed if certain
specified injuries have been sustained (i.e., loss of both eyes or both arms). In
some states, compensation is awarded for life. In others, a time period is
specified.

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 Workers’ Compensation law, Fraud & Abuse
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There is evidence of waste, fraud, and abuse of the system in all states that have passed
workers’ compensation laws.
 The city of Pittsfield, Massachusetts, was once overwhelmed by workers 'compensation
claims. One of the more remarkable cases concerned a city worker who was receiving
workers’ compensation benefits as the result of a back injury. While collecting benefits,
he was a star player for a local softball team. He eventually agreed to waive his right to
compensation for a lump sum settlement of $12,000 plus $3,000 for his lawyer, and city
officials considered themselves cheaply rid of him.
 A Jacksonville warehouse manager was arrested on workers’ compensation fraud
charges after collecting $166,836 from a total disability claim. Although he claimed a
forklift ran over his foot causing him to be unable to walk without assistance, investigators
obtained a videotape showing him walking his daughter down the aisle at her wedding.
 Another Pittsfield city employee in the Department of Public Works was injured and
began collecting workers’ compensation at a rate of $295.50 per week. In addition to
his job with the city, this worker owned a small diesel oil company. When his workers’
compensation benefits were called into question because he owned a business that
produced an income, the injured employee sold the Peshawar.
DME, UET, business to his son.
 Controlling Rising Workers’ Compensation Costs
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The first and best line of defense against escalating workers’ compensation costs is a
safe and healthy workplace.
However, in today’s litigious business environment, even this may not be enough. In
order to be an effective member of the team responsible for keeping workers’
compensation costs in check, safety and health professionals need to cooperate with
risk management professionals in implementing the following strategies:
1. Establish an effective safety and health program, and document it clearly and
comprehensively for the workers’ compensation underwriters.
2. Review workers’ compensation claims to ensure that they are accurate before they
are submitted to underwriters.
3. Analyze concentrations of risk by location and have comprehensive, up-to-date
plans on hand for preventing and responding to catastrophic events.
4. Advise risk management professionals on potential hazards and related risks so
they can make informed decisions concerning levels of coverage and deductibles.
5. Communicate frequently with risk management personnel—you and they are on
the same team.

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