Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. The tradeoff between assured, limited coverage and lack of recourse outside the worker compensation system is known as "the compensation bargain".
While plans differ among jurisdictions, provision can be made for weekly payments in place of wages (functioning in this case as a form of disability insurance), compensation for economic loss (past and future), reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment (functioning in this case as a form of life insurance).
General damage for pain and suffering, and punitive damages for employer negligence, are generally not available in workers' compensation plans, and negligence is generally not an issue in the case. These laws were first enacted in Europe and Oceania, with the United States following shortly thereafter.
Statutory compensation law
Workers' compensation statutes are designed to ensure that employees who are injured or disabled on the job are not required to cover medical bills related to their on-the-job injury, and are provided with monetary awards to cover loss of wages directly related to the accident, as well as to compensate for permanent physical impairments. The intent of these statutes is to eliminate the need for litigation by having employees give up the potential for pain- and suffering-related awards in exchange for not being required to prove tort (legal fault) on the part of their employer.
These laws also provide benefits for dependents of those workers who are killed because of work-related accidents or illnesses. Some laws also protect employers and fellow workers by limiting the amount an injured employee can recover from an employer and by eliminating the liability of co-workers in most accidents. State statutes [in the United States] establish this framework for most employment. Federal statutes [in the United States] are limited to federal employees or those workers employed in some significant aspect of interstate commerce.
The fairness of workers' compensation statutes is highly controversial, with the claimants (injured workers) and claimant attorneys arguing the need for greater benefits, and the employer/insurance carrier side arguing that excessive fraud in the system causes unnecessary and inappropriate costs.
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Workers' compensation fraud
Fraud is a problem which plagues workers' compensation systems in every country, with billions of dollars being spent in unnecessary litigation, surveillance, legal fees, and settlements worldwide. Workers' compensation fraud is committed by doctors, lawyers, employers, insurance company employees and claimants, and occurs in both the private and public sectors.
The topic of workers' compensation fraud is highly controversial, with claimant supporters arguing that fraud by claimants is rare - as low as one-third of one percent, others focusing on the widely reported National Insurance Crime Bureau statistic that workers' compensation fraud accounts for $7.2 billion in unnecessary costs, and government entities acknowledging that "there is no generally accepted method or standard for measuring the extent of workers' compensation fraud ... as a consequence, there are widely divergent opinions about the size of the problem and the relative importance of the issue."
According to the Coalition Against Insurance Fraud, tens of billions of dollars in false claims and unpaid premiums are stolen in the U.S. alone every year.
The most common forms of workers' compensation fraud by workers are:
- Remote injury. Workers get injured away from work, but say they were hurt on the job so that their workers' compensation policy will cover the medical bills.
- Inflating injuries. A worker has a fairly minor job injury, but lies about the magnitude of the injury in order to collect more workers' compensation money and stay away from work longer.
- Faking injuries. Workers fabricate an injury that never took place, and claim it for workers' compensation benefits.
- Old injury. A worker with an old injury that never quite healed claims it as a recent work injury in order to get medical care covered.
- Malingering. A worker stays home by pretending the disability is ongoing when it is actually healed.
- Failure to Disclose. A worker knowingly, or unknowingly, makes a false statement or representation about their injury.
The most common forms of workers' compensation fraud by employers are:
- Underreporting payroll. An employer reports that workers are paid less than they actually are in order to lower their premiums.
- Inflating experience. An employer claims workers are more experienced than they actually are in order to make them seem less risky and therefore less expensive to cover.
- Evasion. An employer fails to obtain workers' compensation for their employees when it is required by law. Workers are often deceived into thinking they are covered when they are not.
Workers' compensation by nation
Australia
As Australia experienced a relatively influential labour movement in the late 19th and early 20th century, statutory compensation was implemented very early in Australia. Each territory has its own legislation and its own governing body.
A typical example is WorkSafe Victoria, which manages Victoria's workplace safety system. Its responsibilities include helping employees avoid workplace injuries occurring, enforcement of Victoria's occupational and safety laws, provision of reasonably priced workplace injury insurance for employers, assisting injured workers back into the workforce, and managing the workers' compensation scheme by ensuring the prompt delivery of appropriate services and adopting prudent financial practices.
Compensation law in New South Wales has recently (2013) been overhauled by the state government. In a push to speed up the process of claims and to reduce the amount of claims, a threshold of 11% WPI (whole person impairment) was implemented.
Workers' compensation regulators for each of the states and territories are as follows:
- Australian Capital Territory - Work Safe Act
- New South Wales - Work Cover NSW
- Northern Territory - NT Work Safe
- Queensland - The Workers' Compensation Regulator (formerly Q-COMP)
- South Australia - ReturnToWork SA (from 1 July 2015)
- Tasmania - WorkCover Tasmania
- Victoria - WorkSafe Victoria
- Western Australia - WorkCover WA
Brazil
The National Social Insurance Institute (in Portuguese, Instituto Nacional do Seguro Social - INSS) provides insurance for those who contribute. It is a public institution that aims to recognize and grant rights to its policyholders. The amount transferred by the INSS is used to replace the income of the worker taxpayer, when he or she loses the ability to work, due to sickness, disability, age, death, involuntary unemployment, or even pregnancy and imprisonment. During the first 15 days the worker's salary is paid by the employer and after that by the INSS, as long as the inability to work lasts. Although the worker's income is guaranteed by the INSS, the employer is still responsible for any loss of working capacity, temporary or permanent, when found negligent or when its economic activity involves risk of accidents or developing labor related diseases.
Canada
Workers' compensation was Canada's first social program to be introduced as it was favoured by both workers' groups and employers hoping to avoid lawsuits. The system arose after an inquiry by Ontario Chief Justice William Meredith who outlined a system in which workers were to be compensated for workplace injuries, but must give up their right to sue their employers. It was introduced in the various provinces at different dates. Ontario was first in 1915, Manitoba in 1916, and British Columbia in 1917. It remains a provincial responsibility and thus the rules vary from province to province. In some provinces, such as Ontario's Workplace Safety and Insurance Board, the programme also has a preventative role ensuring workplace safety. In British Columbia, the occupational health and safety mandate (including the powers to make regulation, inspect and assess administrative penalties) is legislatively assigned to the Workers' Compensation Board of British Columbia WorkSafeBC. In most provinces the workers' compensation board or commission remains concerned solely with insurance. The workers' compensation insurance system in every province is funded by employers based on their payroll, industry sector and history of injuries (or lack thereof) in their workplace (usually referred to as "experience rating").
Germany
The German worker's compensation law of 6 July 1884, initiated by Chancellor Otto von Bismarck, was passed only after three attempts and was the first of its kind in the world. Similar laws passed in Austria in 1887, Norway in 1894, and Finland in 1895.
The law paid indemnity to all private wage earners and apprentices, including those who work in the agricultural and horticultural sectors and marine industries, family helpers and students with work-related injuries, for up to 13 weeks. Workers who are totally disabled get continued benefits at 67% after 13 weeks, paid by the accident funds, financed entirely by employers.
The German compensation system has been taken as a model for many nations.
Japan
Workers' accident compensation insurance is paired with unemployment insurance and referred to collectively as labor insurance. Workers' accident compensation insurance is managed by the Labor Standards Office.
Mexico
The Mexican Constitution of 1917 defined the obligation of employers to pay for illnesses or accidents related to the workplace. It also defined social security as the institution to administer the right of workers, but only until 1943 was the Mexican Social Security Institute created (IMSS). Since then, IMSS manages the Work Risks Insurance in a vertically integrated fashion: registration of workers and firms, collection, classification of risks and events, and medical and rehabilitation services. A reform in 1997 defined that contributions are related to the experience of each employer. Public sector workers are covered by social security agencies with corporate and operative structures similar to those of IMSS.
United Kingdom
There is no comparable workers' compensation scheme in the UK. An employee can pay for permanent health insurance or private medical plans but the UK government does not recognise the need for a rigid insurance scheme of the sort prevalent across the USA and a number of other countries. Work related safety issues in the UK are controlled by the Health & Safety Executive (HSE) who provide the framework by which employers and employees are able to comply with statutory rules and regulations.
With the exception of the following, all employers are obliged to purchase compulsory Employers Liability Insurance in accordance with the Employers Liability (Compulsory Insurance) Act of 1969. The current minimum Limit of Indemnity required is £5,000,000 per occurrence. Market practice is to usually provide a minimum £10,000,000 with inner limits to £5,000,000 for certain risks e.g. workers on oil rigs and acts of terrorism.
These employers do not require Employers Liability Compulsory Insurance:
- local authorities (other than parish councils)
- joint boards or committees whose members include members of local authorities
- police authorities
- nationalised industries or their subsidiaries
- certain bodies which are financed out of public funds
- employers of crews on offshore installations, ships or hovercraft, if they are covered instead with a mutual insurance association of ship owners or ship owners and others
- a health service body or NHS Trust
"Employees" are defined as anyone who has entered into or works under a contract of service or apprenticeship with an employer. The contract may be for manual labour, clerical work or otherwise, it may be written or verbal and it may be for full-time or part-time work.
These persons are not classed as employees and, therefore, are exempt:
- persons who are not employees (for example independent contractors who are not the employees of the person engaging them)
- people employed in any activity which is not a business (such as domestic servants)
- people who are related to the employer - husband, wife, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother sister, half-brother or half-sister
- people who are not normally resident in the United Kingdom and who are working here for fewer than 14 consecutive days.
Employees need to establish that their employer has a legal liability to pay compensation. This will principally be a breach of a statutory duty or under the tort of negligence. In the event that the employer is insolvent or no longer in existence Compensation can be sought directly from the insurer under the terms of the Third Party Rights Against Insurers Act of 1930.
History: see: Workmen's Compensation Act 1897 & following
United States
In 1855, Georgia and Alabama passed Employer Liability Acts; 26 other states passed similar acts between 1855 and 1907. These acts permitted injured employees to sue the employer and then prove a negligent act or omission. (A similar scheme was set forth in Britain's 1880 Act.)
The first statewide worker's compensation law was passed in Maryland in 1902, and the first law covering federal employees was passed in 1906. (See: FELA, 1908; FECA, 1916; Kern, 1918.) By 1949, all states had enacted a workers' compensation program.
At the turn of the 20th century workers' compensation laws were voluntary for several reasons. An elective law made passage easier and some argued that compulsory workers' compensation laws would violate the 14th amendment due process clause of the U.S. Constitution. Since workers' compensation mandated benefits without regard to fault or negligence, many felt that compulsory participation would deprive the employer of property without due process. The issue of due process was resolved by the United States Supreme Court in 1917 when in New York Central Railway Co. v. White settled the legal issues ruling that due process was not impeded by workers' compensation. After the ruling many states enacted new compulsory workers' compensation laws.
In the United States, most employees who are injured on the job receive medical care responsive to the work-place injury, and, in some cases, payment to compensate for resulting disabilities. Generally, an injury that occurs when an employee is on his or her way to or from work does not qualify for worker's compensation benefits; however, there are some exceptions if your responsibilities demand that you be in multiple locations, or stay in the course of your employment after work hours. Texas employers have the ability to opt out of the workers' compensation system under the original state law written in 1913. However, those employers, known as non-subscribers, are exposed to legal liability in the event of employee injury. The employee must demonstrate that employer negligence caused the injury; if the employer does not subscribe to workers' compensation, the employer loses their common law defense of contributory negligence, assumption of the risk, and the fellow employee doctrine. If successful, the employee can recover their full common law damages, which are more generous than workers' compensation benefits. In recent years, the Texas Supreme Court has been limiting employer duties to maintain employee safety, limiting the remedies received by injured workers.
In 1995, 44% of Texas employers were nonsubscribers, while in 2001 the percentage was estimated to be 35%. The industry advocacy group Texas Association of Business Nonsubscription claims that nonsubscribing employers have had greater satisfaction ratings and reduced expenses when compared to employers enrolled in the workers' compensation system. A research survey by Texas's Research and Oversight Council on Workers' Compensation found that 68% of non-subscribing employers and 60% of subscribing employers - a majority in both cases - were satisfied with their experiences in the system, and that satisfaction with nonsubscription increased with the size of the firm; but it stated that further research was needed to gauge satisfaction among employees and to determine the adequacy of compensation under nonsubscription compared to subscription.
In many states, there are public uninsured employer funds to pay benefits to workers employed by companies who illegally fail to purchase insurance. Insurance policies are available to employers through commercial insurance companies: if the employer is deemed an excessive risk to insure at market rates, it can obtain coverage through an assigned-risk program.
The workers' compensation system is administered on a state-by-state basis, with a state governing board overseeing varying public/private combinations of workers' compensation systems. The names of such governing boards, or "quasi-judicial agencies," vary from state to state, many being designated as "workers' compensation commissions". By contrast, in North Carolina, the state entity responsible for administering the workers' compensation system is referred to as the North Carolina Industrial Commission
The federal government has its own workers' compensation program, subject to its own requirements and statutory parameters for federal employees. The federal government pays its workers' compensation obligations for its own employees through regular appropriations. In the vast majority of states, workers' compensation is solely provided by private insurance companies. 12 states operate a state fund (which serves as a model to private insurers and insures state employees), and a handful have state-owned monopolies. To keep the state funds from crowding out private insurers, they are generally required to act as assigned-risk programs or insurers of last resort, and they can only write workers' compensation policies. In contrast, private insurers can turn away the worst risks and can write comprehensive insurance packages covering general liability, natural disasters, and so on. Of the 12 state funds, the largest is California's State Compensation Insurance Fund.
The California Constitution, Article XIV section 4, sets forth the intent of the people to establish a system of workers' compensation. This section provides the Legislature with the power to create and enforce a complete system of workers' compensation and, in that behalf, create and enforce a liability on the part of any or all employers to compensate any or all of their employees for injury or disability, and their dependents, for death incurred or sustained by said employees in the course of their employment, irrespective of the fault of any employee. Further, the Constitution provides that the system must accomplish substantial justice in all cases expeditiously, inexpensively, and without incumbrance of any character. It was the intent of the people of California when they voted to amend the state constitution in 1918, to require the Legislature to establish a simple system that guaranteed full provision for adequate insurance coverage against liability to pay or furnish compensation. Providing a full provision for regulating such insurance coverage in all its aspects, including the establishment and management of a State compensation insurance fund; full provision for otherwise securing the payment of compensation; and full provision for vesting power, authority and jurisdiction in an administrative body with all the requisite governmental functions to determine any dispute or matter arising under such legislation, in that the administration of such legislation accomplish substantial justice in all cases expeditiously, inexpensively, and without encumbrance of any character. All of which matters is the people expressly declared to be the social public policy of this State, binding upon all departments of the State government.
Underreporting of injuries is a significant problem in the workers' compensation system. Workers, fearing retaliation from their employers, may avoid reporting injuries incurred on the job and instead seek treatment privately, bearing the cost themselves or passing these costs on to their health insurance provider - an element in the increasing cost of health insurance nationwide.
It is illegal in most states for an employer to terminate or refuse to hire an employee for having reported a workplace injury or filed a workers' compensation claim. However, it is often not easy to prove discrimination on the basis of the employee's claims history. To abate discrimination of this type, some states have created a "subsequent injury trust fund" which will reimburse insurers for benefits paid to workers who suffer aggravation or recurrence of a compensable injury. It is also suggested that laws should be made to prohibit inclusion of claims history in databases or to make it anonymous. (See privacy laws.)
Although workers' compensation statutes generally make the employer completely immune from any liability (such as for negligence) above the amount provided by the workers' compensation statutory framework, there are exceptions. In some states, like New Jersey, an employer can still be held liable for larger amounts if the employee proves the employer intentionally or recklessly caused the harm, while in other states, like Pennsylvania, the employer is immune in all circumstances, but other entities involved in causing the injury, like subcontractors or product manufacturers, can still be held liable.
Some employers vigorously contest employee claims for workers' compensation payments. In any contested case, or in any case involving serious injury, a lawyer with specific experience in handling workers' compensation claims on behalf of injured workers should be consulted. Laws in many states limit a claimant's legal expenses to a certain fraction of an award; such "contingency fees" are payable only if the recovery is successful. In some states this fee can be as high as 40% or as little as 11% of the monetary award recovered, if any.
In the vast majority of states, original jurisdiction over workers' compensation disputes has been transferred by statute from the trial courts to special administrative agencies. Within such agencies, disputes are usually handled informally by administrative law judges. Appeals may be taken to an appeals board and from there into the state court system. However, such appeals are difficult and are regarded skeptically by most state appellate courts, because the point of workers' compensation was to reduce litigation. A few states still allow the employee to initiate a lawsuit in a trial court against the employer. Ohio allows appeals to go before a jury.
Various organizations focus resources on providing education and guidance to workers' compensation administrators and adjudicators in various state and national workers' compensation systems. These include 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 (WCRI).
In the United States, according to the Bureau of Labor Statistics' 2010 National Compensation Survey, workers' compensation costs represented 1.6% of employer spending overall, although rates varied significantly across industry sectors. For instance, workers' compensation accounted for 4.4% of employer spending in the construction industry, 1.8% in manufacturing and 1.3% in services.
Clinical outcomes for patients with workers' compensation tend to be worse compared to those non-workers' compensation patients among those undergoing upper extremity surgeries, and have found they tend to take longer to return to their jobs and tend to return to work at lower rates. Factors that might explain this outcome include this patient population having strenuous upper extremity physical demands, and a possible financial gain from reporting significant post-operative disability.
Privatization
In recent years, workers' compensation programs in West Virginia and Nevada were successfully privatized, through mutualization, in part to resolve situations in which the programs in those states had significantly underfunded their liabilities. Only four states rely on entirely state-run programs for workers' compensation: North Dakota, Ohio, Washington, and Wyoming. Many other states maintain state-run funds but also allow private insurance companies to insure employers and their employees, as well.
Alternate forms of statutory compensation
Employees of common carriers by rail have a statutory remedy under the Federal Employers' Liability Act, 45 U.S.C. sec. 51, which provides that a carrier "shall be liable" to an employee who is injured by the negligence of the employer. To enforce his compensation rights, the employee may file suit in United States district court or in a state court. The FELA remedy is based on tort principles of ordinary negligence and differs significantly from most state workers' compensation benefit schedules.
Seafarers employed on United States vessels who are injured because of the owner's or the operator's negligence can sue their employers under the Jones Act, 46 U.S.C. App. 688., essentially a remedy very similar to the FELA one.
Dock workers and other maritime workers, who are not seafarers working aboard navigating vessels, are covered by the Federal Longshore and Harbor Workers' Compensation Act, known as US L&H.
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