Workers’ compensation as we know it in the United States is a relatively new mandate, but its origins go back thousands of years. Present-day workers’ compensation insurance pays for medical care, lost wages, and rehabilitation services when an employee is injured while performing work duties. How exactly does this differ from the original forms of workers’ compensation insurance?
Early Origins in Sumer
Sumer, the earliest known civilization, is where the history of workers’ compensation most likely begins. In approximately 2050 B.C., the king of the city-state of Ur wrote a law that provided monetary compensation if a worker received a specific injury that included fractured bones. This law was based on schedules of loss that granted the worker a predetermined amount based on the type and severity of the injury.
Schedule: In insurance, the term “schedule” usually refers to a list. You may have heard it used with property insurance, where a policyholder might schedule property that’s more valuable than the standard limits. For workers’ comp, schedule usually refers to a list of injuries and their value.
Later Hammurabi’s code provided workers with a similar set of rewards for permanent injuries that led to permanent impairments. This law is dated around 1750 B.C. and holds similar scheduled concepts as the Sumerian laws as did laws in many early civilizations, including the Greek, Roman, Chinese, and Arab. For example, Arab schedules determined that:
- The loss of a thumb at the joint was half the value of a person’s finger.
- If a person lost their penis, the compensation was based on the length lost.
- The total value of an ear was defined by its surface area.
These early schedules did not differentiate between impairment, or a loss of function in a specific body part, and disability, or the inability to perform certain tasks. Recognizing how each impacts workers means we now create schedules that address each situation better.
The horrible working conditions during the first Industrial Revolution in Europe gave rise to plenty of legal battles over workplace injuries. Unfortunately, this era also saw the rise of three principles developed that made it nearly impossible for workers to see any compensation:
- Contributory negligence: If employees contributed to their injuries in any way, the case could be dismissed.
- Fellow servant: If another worker was found to be at fault for an employee’s injuries, then the case could be dismissed and liability transferred to the other worker.
- Assumption of risk: Essentially, employees know what they’re getting into when they take on hazardous jobs. By agreeing to the position, they’ve assumed the risk and responsibility.
While these common law principles held sway through much of Europe, Germany became the first European country to adopt an accident insurance code in 1884 that provided up to 13 weeks of compensation to injured workers. The German system was also the first to establish the idea of workers’ compensation as an “exclusive remedy.” Essentially, that means employees who receive compensation could not sue their employer for their injuries—a concept that many states continue to follow.
Common law: This term refers to laws established through precedent as opposed to legislation.
England followed Germany slightly more than a decade later with the Workmen’s Compensation Act of 1897. This law established compensation for injured employees whether or not the employer was negligent. Unlike the German law, however, this law did not require employers to share the risk of compensating employees through insurance.
The ‘Grand Bargain’
Many industry experts refer to the enactment of US workers’ compensation laws as the “grand bargain” because it struck a deal between employers and workers. On the one hand, employees receive no-fault benefits for a work-related illness or injury from their employers. In exchange for those benefits, they give up their right to sue their employers in most cases.
Previous to its development, injured workers’ court cases fell under the tort system that forced them to prove wrongdoing on the part of the employer. Employers, for their part, could defend themselves using the three common law principles we mentioned early: contributory negligence, fellow servant, or assumption of risk. These principles so thoroughly protected employers that some called them the “unholy trinity” of defenses. This entire system placed the burden on the worker and made it very difficult to get any type of restitution.
Tort: In common law, a tort is a “wrongdoing” that causes someone to suffer a loss.
The grand bargain started with federal laws passed in 1906 and 1908 that soften the rules that allowed the contributory negligence defense. Then in 1916, Congress passed the Federal Employees’ Compensation Act (FECA) that provided protections similar to the earlier German model of social insurance. This workers’ compensation system covers federal employees and is overseen by the Secretary of the US Department of Labor. FECA was a start but only affected a small percentage of US workers and was not seen as an end-all solution.
Why Is Workers’ Compensation a State Program?
Workers’ compensation programs ultimately fell to the states because workers’ rights was considered a social problem. Few federal social programs existed at the time because social problems were typically handled at the state level. So, instead of making workers’ compensation a federal mandate, the federal government left it to the states to create programs that directly impacted state workers. The first to do so was Wisconsin in 1911. Other states followed suit, with the last being Mississippi passing laws in 1948.
Then and now, workers’ compensation laws vary by state, but most ultimately landed on a “no-fault” system. This means a workers’ injury is covered under most circumstances regardless of who is at fault—the employee or the employer. Additionally, employers are protected from employee lawsuits if they provide workers’ comp benefits that the injured employee accepts.
A Challenge to State-run Workers’ Compensation Programs
The states only saw one serious challenge to their right to run workers’ compensation, and that came from the National Commission on State Workmen’s Compensation Laws. The 15-member group gathered under the umbrella of the Occupational Safety and Health Act of 1970 to determine whether the states’ workers’ compensation laws were effective to provide for the adequate coverage of work-related injuries and illnesses.
The Commission’s final report described the workers’ compensation protections provided by the states as “inadequate and inequitable” and listed 84 recommendations. Of those, 19 were deemed essential. These essential recommendations can be split into three broad categories:
- Who is covered: The first two recommendations state that workers’ compensation should be “compulsory” and that there shouldn’t be exemptions for employers “because of the number of their employees.”
- What injuries are covered: Workers’ compensation coverage includes work-related injuries, but the Commission also wanted “full coverage for work-related diseases.”
- What benefits should be paid: The report lists maximum weekly benefits for total permanent and temporary disability as well as death benefits. It also said that there should be “no limit to the amount paid in medical care or rehabilitation services.”
According to a report from the Department of Labor written during President Barack Obama’s administration, states were urged to comply with the essential recommendations by 1975. However, early enthusiasm for compliance dwindled, and most states have not implemented all of the Commission’s recommendations.
Workers’ Compensation Today
Today, every state―with the exception of Texas―requires employers to provide workers’ compensation insurance to employees, but there is some variation to when the requirement kicks in and who might be exempt from coverage. While some states exempt employers until they have three or more employees, most states require coverage with the first employee.
Workers’ comp policies are still considered no-fault coverage and pay for an injured employee’s medical care, rehabilitation, and lost wages, but there are instances where an employee may be denied coverage. These vary but often include if the employee is engaging in horseplay, willingly violates safety rules, or is doing something illegal when injured. Additionally, employers are still protected from an employee suing over workplace injuries except in unique cases, such as acts of gross negligence or intentional harm.