Workers’ Compensation History in the United States

Workers’ Compensation, formerly known as Workmen’s Compensation before receiving a gender-neutral name change, is a state-based workers’ compensation system.

Most states utilize some form of workers’ compensation for almost all employers, typically compulsory and depending on the organization’s features, except Texas as of 2018. However, companies may voluntarily purchase insurance, including Part One for compulsory coverage and Part Two for non-compulsory coverage, regardless of compulsory requirements.

Every state initiated a Workers’ Compensation system by 1949.

In 1884, Otto von Bismarck developed a Workers’ Accident Insurance system and used it as a model within Europe and the United States. As a result, US policymakers, journalists, and social scientists became convinced of the need for a compensation law. Still, they disagreed on adopting the German or British system in the late 19th and early 20th centuries.

The German system revolved around insurance and eliminated employees’ right to sue. In contrast, the British system preserved employees’ right to sue. As a result, the United States bargained for employees’ injuries through litigation but ultimately chose the German system.

The compensation law developed an “unholy trinity” of tort defenses for employers, including contributory negligence, risk assumption, and the fellow servant rule. Therefore, injured employees or families of a killed employee typically lose workplace injury lawsuits.

Georgia and Alabama passed the Employer Liability Act in 1855. Then, between 1855 and 1907, 26 other states passed similar acts. As a result, injured employees could sue their employer with early laws and prove negligence or omission. Britain’s 1880 Act developed a similar regulation.

New York in 1898, Maryland in 1902, Massachusetts in 1908, and Montana in 1909 passed statewide Workers’ Compensation laws. Federal employees received their first law in 1906. However, these laws were determined unconstitutional. Wisconsin was the first state to pass an unchallenged statute in the courts in 1911. Then, by 1949, every state enacted a Workers’ Compensation program.

Workers’ Compensation laws varied within the states in the early 20th century, mandated as either voluntary or required. As a result, some states chose to follow compensation laws, but not following them would increase the risk of employee injury lawsuits. In addition, employers argued that compulsory participation laws violated the 14th amendment in courts, requiring due process before depriving a person or entity of property.

The United States Supreme Court in New York Central Railway Co. v. White resolved the employer’s due process issue by stating that mandatory Workers’ Compensation compensation did not impede them in 1917. As a result, each state created varying threshold requirements, leading to compensation changes for workplace accidents.

For example, compensation would no longer require the worker to show the employer’s fault and cannot be denied if the employee’s negligence contributed to the injury. Therefore, employers must have insurance to cover payments for (1) medical costs of an employee’s occupational injuries and some illnesses; and (2) indemnity: partial replacement of lost wages. Unfortunately, an early compensation law side effect included employee incentives to fire or refuse employment with a worker with disabilities or health conditions, causing increased expenses, such as having only one eye.

Most injured employees receive medical care in response to workplace injuries and sometimes monetary compensation for the resulting disabilities in the United States. However, injuries that occur en route to the workplace do not qualify for Workers’ Compensation benefits. Some exceptions include employees with responsibilities at multiple locations or after work hours.

Employers must comply with their obligation to provide Workers’ Compensation coverage by following two methods. First, vast organizations and governments may “self-insure” by obtaining permission from the Workers’ Compensation agency to make claim payments without carrying insurance. In contrast, smaller organizations must purchase Workers’ Compensation insurance policies to cover work-related injury obligations, and self-insured organizations may also choose this option. In addition, some self-insured organizations may use a “hybrid” approach, paying the claims out of pocket after hiring an investigative insurance company to review the claims.

A self-insured organization differs from an uninsured company. Self-insured organizations have state agency permission not to carry Workers’ Compensation insurance because they are large enough and with enough assets to cover the claims. Nearly every state enforces severe penalties, punishable by fines and imprisonment, for having employees without self-insurance authorization or carrying Workers’ Compensation insurance.

Commercial insurance companies provide employers with insurance policies. However, if an excessive risk to insure at market rates, an organization may purchase coverage through assigned-risk programs. In addition, many states have public uninsured employer funds available to pay benefits to employees working at organizations that fail to buy insurance legally.

Various state and national Workers’ Compensation systems organizations direct educational and guidance resources to Workers’ Compensation administrators and adjudicators, including the American Bar Association (ABA), the International Association of Industrial Accident Boards and Commissions (IAIABC), the National Association of Workers’ Compensation Judiciary (NAWCJ), and the Workers’ Compensation Research Institute.

Workers’ Compensation expenses represent 1.6% of the employer’s overall spending, according to the Bureau of Labor Statistics 2010 National Compensation Survey within the United States. However, rates vary across industry sectors. For example, workers’ Compensation accounts for 4.4% of construction industry employer spending, 1.8% in manufacturing, and 1.3% in services.

Workers’ Compensation patients who undergo upper extremity surgery have worse clinical outcomes than those with non-workers’ compensation. In addition, the patients have longer healing times and return to lower-paying jobs. Factors include strenuous upper extremity physical demands and potential financial gain when reporting post-operative disabilities.

Dr. Nakul Karkare

I am fellowship trained in joint replacement surgery, metabolic bone disorders, sports medicine and trauma. I specialize in total hip and knee replacements, and I have personally written most of the content on this page.

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