Overview of Workers’ Compensation
Prior to the advent of the modern workers’ compensation system, workers who were injured, became ill, or died on the job could bring lawsuits against their employers to recover economic and non-economic losses. However, while employers could be held legally liable for losses associated with employment-related injuries, illnesses, and deaths, they were armed with the common-law defenses of “contributory negligence,” “assumption of risk,” and the “fellow-servant doctrine” which often made it difficult for workers to prevail in employment injury and illnesses cases. While this system generally favored employers, employees who were successful in suits against their employers could be awarded non-economic damages that could prove costly to employers. In addition employers had to bear the legal costs of defending themselves against suits from workers, even if these suits ultimately proved unsuccessful.
Workers’ compensation is commonly referred to as “the grand bargain” between employees and employers. Employees receive compensation for economic losses associated with employment-related injuries, illnesses, and deaths, without regard to fault. In exchange for this no-fault coverage, workers are prohibited from suing their employers for damages related to covered injuries, illnesses, or deaths, giving employer’s protection from large judgments for non-economic losses such as pain and suffering or punitive damages.
Principles of Workers’ Compensation
- No-Fault Coverage
Workers’ compensation in the United States, including workers’ compensation provided to federal employees under FECA, is a no-fault system. As a no-fault system, employees are compensated for covered injuries, illnesses, and deaths regardless of who is at fault or whether or not fault can be determined.
- Exclusive Remedy
Workers’ compensation is an exclusive remedy for workplace injuries, illnesses, and deaths. Employees are generally not permitted to sue their employers for compensatory or punitive damages relating to covered injuries, illnesses, and deaths. In some cases, suits by employees may be brought against employers for intentional harms and against third parties who may share in the liability for the covered injury, illness, or death.
The exclusive remedy and no-fault coverage principles are intended to create a workers’ compensation system that is largely non-adversarial. Many workers’ compensation systems, including FECA, use administrative rather than judicial proceedings to resolve disputes over claims and benefits. However, despite the desire of the creators of workers’ compensation to remove cases involving work injuries from the courts, the 100-year history of workers’ compensation in the United States has been marked by what historian Edward Berkowitz has termed a “persistence of litigation” as both employees and employers dispute workers’ compensation claims decisions or appeal the decisions of administrative bodies to the courts. In nearly all states, but not the FECA system, workers’ compensation disputes and litigation can result in lump-sum settlements that release employers from all future responsibilities related to settled cases.
- Universal Coverage of Employees
Workers’ compensation systems generally do not exclude certain classes of employees because of the dangerous nature of their jobs or their increased risk of injury, illness, or death. While state workers’ compensation laws vary in exactly who is covered, one of the general principles of workers’ compensation systems is universal, or near-universal, coverage. For example, several of the recommendations issued in 1972 by the National Commission on State Workmen’s Compensation Laws created by the 1970 Occupational Safety and Health Act relate to bringing states towards universal workers’ compensation coverage of public and private-sector employees, regardless of risk or size of Employer.
The National Academy of Social Insurance estimates that nearly 97% of all workers covered by the unemployment insurance system are also covered by workers’ compensation. Coverage of Employment-Related Injuries, Illnesses, and Deaths Only Workers’ compensation only provides compensation for injuries, illnesses, and deaths that occur in the course of employment. Generally, this means that an employee must be at a work site when the injury, illness, or death was caused and the injury, illness, or death must have been caused by a situation related to the employee’s job. Injuries, illnesses, and deaths that occur outside of work hours or while commuting to or from work or that are caused by acts unrelated to employment, such as working on personal projects in the workplace, are generally not covered by workers’ compensation.
- Compensation for Medical Care
Workers’ compensation provides all of the costs of medical care associated with a covered injury or illness. Covered medical costs include necessary treatments, procedures, and medications and in some states and under FECA, certain costs associated with travelling to receive medical services. Employees are not required to contribute to the cost of this care through their own private insurance or through deductibles or coinsurance. Medical coverage under workers’ compensation is limited only to the covered injury or illness and is not intended to provide for the general healthcare needs of the worker. Workers’ compensation systems vary on the rights of workers to choose their treating physicians.
- Compensation for Disability and Death
Workers’ compensation is intended to compensate workers for economic losses associated with employment-related injuries and illnesses and their families for economic losses associated with employment-related deaths. This compensation is provided in the form of cash disability benefits which are intended to replace a portion of a worker’s wages, or wage-earning capacity, lost due to a covered injury, illness, or death. Total disability benefits are paid when a worker is unable to work or otherwise totally disabled and in most systems are based on a standard benefit of two-thirds of the worker’s pre-disability wage. Benefits for partial disabilities may be based on statutory or regulatory schedules which assign benefit amounts to specific conditions, such as the loss of a limb, or on other measures of partial disability such as wage-earning capacity, functional capacity, or overall level of impairment. Disability benefits are generally subject to system-specific minimum and maximum levels which are often based on average wages in a state. Benefits generally last for the duration of disability; however, some systems do limit the duration of benefits or have age limits for the receipt of disability benefits.
If a worker dies on the job or from an employment-related injury or illness, his or her survivors are entitled to benefits to partially replace his or her capacity to provide for the family. Workers’ compensation systems often also provide benefits to partially cover the costs of a workers’ funeral.
Pursuant to Section 104(a)(1) of the Internal Revenue Code, workers’ compensation benefits are not subject to the federal income tax.