A Brief History of Workers' Compensation

Saturday, August 12, 2006 | 0

By David DePaolo, Esq

Workers' compensation had humble beginnings and a very limited purpose. The system has grown in to the world's largest privatized social benefit program, through which nearly $100 billion a year in economic activity passes. From a simple concept - that injured workers would receive prompt medical treatment and financial assistance in exchange for employer immunity from civil suit - has arisen one of the most complex administrative systems that touches every single person that works, or employs others.

This brief history of workers' compensation will provide you with the background necessary for understanding why workers' compensation operates the way it does today, and why certain controversies cyclically arise in a quite predictable fashion.

The Industrial Revolution Workers' compensation didn't become a concept until the late 1800's, during the Industrial Revolution. Prior to workers' compensation, recompense for injuries suffered by workers was subject to common law principles of negligence, and disputes were handled in the civil courts. Then, as the case is now, disputes brought in the civil courts moved slowly - this negatively impacted the injured worker because the lack of finances to obtain medical care, and pay the daily bills, meant that many became destitute. But when an injured worker won, they won big, and the uncertainty of future civil liability was unsettling to the employer population, and occasionally disastrous for the employer facing a large jury award.

The foundation of modern workers' compensation laws dates back to the common law principles surrounding master/servant relationships. These principals began prior to modern industrialization, and took root at a time when the Americas were living an agrarian society. The master/servant relationship assumed control - the master had control over the servant in the mode and manner in which the work was to be done. The basis of workers' compensation laws are that the master has control over the servant and thus should be held liable for the consequences of his instructions to the worker.

We saw earlier that disputes between an injured worker and the employer were the subject of civil suits, and the principals of common law negligence. Negligence requires that there be a duty owed from one party to another, and that there was a breach of that duty which caused some form of injury. Negligence requires, for the most part, an application of the "every day man" principal - that is, what would the every day person do in the same or similar circumstance, and if there was a deviation from what the jury considered the every day man would have done, then there was negligence.

Also inherent in negligence were the principals of comparative fault, or comparative negligence, and assumption of the risk. Assumption of the risk said that one who entered into a hazardous situation "assumed the risk" of that situation and thus any injury incurred was their own fault. This principal didn't play well with workers who were directed by their employer to enter into that hazardous situation as a part of their job. Comparative fault evolved over time and started with contributory negligence. In the early days, if the injured person played some part in their injury, then they would be denied any recovery. This principal was refined such that there was a weighting of fault - if 40% of the injured person's damages were caused by him, then his award would be reduced by 40%.

Because there was no workers' compensation prior to the 1890's, the initial burden of proof lied with the injured worker to prove that the employer was negligent. Then the employer's task was to prove that the injured worker played some part in their own injury. All of this was prohibitively expensive and time consuming - and of course the worst part was that the parties never really knew what the ultimate outcome of a case would be until the jury issued their decision.

The Industrial Revolution brought with it monumental changes in the status of workers. Employment opportunities grew at a rapid pace as the economy raced to provide the goods and services being demanded by an ever increasing purchasing base. People left their agrarian lifestyles and moved to cities to work the factories. As a consequence of this great migration, there were huge swaths of populations that were uneducated, and untrained, being thrown into hazardous occupations.

Employer Liability Statutes

The first employer liability statutes started in Great Britain, and quickly made their way to the United States. These started out as both legislative and judicial massaging of common law principals surrounding the master/servant relationship - as society moved more towards industrialization, law makers and judges began examining the greater societal issue of an impaired employment base.

While the usual legal defenses available to employers through the common law eroded gradually via statutory modification to principals such as assumption of the risk and contributory negligence, it was the Federal government which took the first great strides towards a no-fault, guaranteed benefit system with the introduction of programs for railroad employees and seamen aboard US registered vessels. These employer liability acts addressed to some extent the imbalance that employers had long enjoyed in the courts, and employees began winning many more cases. Employers, and in particular smaller firms, soon began feeling the discomfort of continued uncertainty because a single adverse judgment could jeopardize the business' continued existence. But this did not eliminate the risk to injured workers either.

The Great Britain model of employer liability morphed in to the first workers' compensation act as employers sought to manage their risk by quantifying their liability in certain industries, and employees were seeking some guarantee that their injuries would be taken care in of exchange for the limitation in liability. The Workers' Compensation Act of 1897 outlined what would be come a model for the modern workers' compensation laws of the United States, and the rest of the world.

Surprisingly, Labor was initially opposed to workers' compensation laws for a variety of reasons. Organized labor preferred seeking statutory modification to common law principles such as comparative negligence feeling that doing so would create larger court awards and more victories. They also opposed government regulation because they felt the government couldn't be trusted since it was controlled by conservative politicians, and finally Labor Leaders felt that by capitulating they would lose the faith of their union members.

The first attempt at a work comp system in the United States was initiated by Maryland in 1902 - this was a crude system that applied to very few industries and only provided a $1000 death benefit. The system was declared unconstitutional in 1904, which caused a languishing in the early workers' compensation movement. States feared that compulsory workers' compensation systems were unconstitutional, and as a consequence, hesitated implementing such systems.

Federal Work Comp

In 1908 the Federal government again made a movement towards workers' compensation by implementing a system to care for federal employees injured on the job. While the system was limited in its application to certain classes of employees, it was a big catalyst towards change and the impetus to many states looking at workers' compensation as a viable economic system. Massachusetts followed shortly after with a voluntary plan allowing employers to participate in a workers' compensation plan, but not mandating it, because there was still concern over whether compulsory workers' compensation was constitutional.

The issue of the constitutionality of compulsory workers' compensation systems was resolved by the US Supreme Court involving New York's system in 1917. This followed a challenge in Washington state four years earlier where that Supreme Court had declared the Washington's system viable and within the bounds of the Washington state constitution. After the US Supreme Court's declaration of constitutionality, states adopted workers' compensation systems in rapid fire succession. By 1921 all but six states and the territories of Alaska, Hawaii and Puerto Rico had work comp acts. The last state to adopt a workers' compensation system was Mississippi in 1949.

Common Elements

The modern workers' compensation systems throughout the United States all have basic common elements. These are: fault is irrelevant - regardless of WHO caused the injury, so long as the injury occurred within the course and scope of employment it falls within workers' compensation jurisdiction. Medical treatment for the injury will be provided immediately and, if time is missed from work, compensation will be provided to help defray expenses. The employer's liability is limited to provision of workers' compensation benefits - the employer is not liable for anything outside of the work comp claim. As you continue your workers' compensation education, you will find variations to these basic rules, and of course exceptions to the rules. But if you go back to these basic elements, you will see that all workers' compensation systems function similarly within these confines and deviations from the basic elements are generally cultural refinements - in particular as our society moves from an industrial base to a service economy.

David DePaolo is the CEO of workcompcentral.com, Inc.

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The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.