This chapter deals with compensation systems for disability (by injury or disease) or premature death resulting from employment. Its purpose is to explain the provisions and the diversity that are commonly found, but not to describe or itemize the systems of each nation.
Compensation may be provided by:
- a workers’ compensation system
- a broad-based social insurance or social security system
- an accident compensation system
- sick pay
- disability insurance
- employers’ liability.
PART ONE: WORKERS’ COMPENSATION
[Note on “jurisdiction”. This word is used to refer to a country or a unit within a country (such as a state or province) that operates a workers’ compensation system.]
Although traces of workers’ compensation can be found in earlier civilizations, particularly in Maritime Law, the systems that we now have were created in the latter half of the nineteenth century, or in the present century. The subject was known as workmen’s compensation, but the trend for the last twenty years has been to change this title to workers’ compensation, and that term is now in common use.
The coverage of a workers’ compensation system is usually compulsory in relation to a specified list of industries, or in relation to all industries subject to some exceptions. Mining, manufacturing, forestry, fishing, transport, construction, distribution, health care institutions and other public services are typically covered. Examples of industries that are excluded in some jurisdictions are agriculture, service industries (such as travel agencies), and domestic service. Employers’ liability (described in Part Two) may apply to industries that are excluded. Where an industry is outside the compulsory coverage, some jurisdictions allow for the coverage to apply upon application by an employer. In some jurisdictions, employers with less than a minimum number of employees (usually in the range of 3 to 20) are excluded.
Where an industry is covered, all workers in that industry are commonly included, whether regular or casual, full-time or part-time, and whether production workers or office staff. Migrant workers usually come within the defined category of people who are covered, but the coverage may be excluded on another ground. For example, they may be employed in an industry that is not covered. There is no waiting period for the coverage to apply. Officers of corporations and other management personnel are included in some jurisdictions and excluded in others. Classifications used in the laws relating to corporations or labour relations are commonly irrelevant in workers’ compensation. Some jurisdictions exclude members of an employer’s family, and some exclude workers whose earnings are above a certain level. It is also common to exclude people whose employment is of a casual nature and who are employed otherwise than for the purpose of the employer’s trade or business. Where a worker has reached the age of eligibility for a retirement pension, that does not exclude the coverage of workers’ compensation in most jurisdictions, but it is common for the benefits to be more limited.
The nationality of a worker is generally irrelevant. All people who are lawfully employed in a covered industry are generally included, and some jurisdictions also cover those who are unlawfully employed. In some others, compensation benefits are discretionary if the worker was employed under an unlawful contract. A child born with a disability arising out of the employment of one of the parents is covered in a few jurisdictions, and in some others, the law is unsettled.
The coverage generally applies to workers whose usual place of employment is within the jurisdiction. In mobile industries, such as fishing, trucking and airlines, there is usually a home port or base of the worker that is considered to be the usual place of employment of that worker. The location of the employer’s head office is generally irrelevant. It is also generally irrelevant where the payroll is administered, except that in mobile occupations, this may be part of the evidence from which to determine the home port or base of particular workers. The place of residence of a worker or dependant is generally irrelevant, though it is relevant in some jurisdictions for some purposes.
Unincorporated employers and the officers of corporations (where they are not within the compulsory coverage) may elect in some jurisdictions to be covered as workers. They then have the benefits and obligations of being a worker under the legislation as well as the benefits and obligations of being an employer.
Self-employed people (independent operators)
This term is used here to refer to people who earn a living by work, and who are neither employers nor employees.
Self-employed people are either:
- included in the compulsory coverage
- excluded from the compulsory coverage but may be covered upon application, or
- excluded entirely.
In some jurisdictions, people considered to be self-employed for other purposes are treated as employees for workers’ compensation. For example, in some jurisdictions, commercial fishermen may be treated as employees and within the compulsory coverage regardless of whether they are considered employees, for other purposes.
The distinction between an employee and an independent operator (self-employed person) is often controversial because of the incentive that an employer or employee may have to treat their relationship as an arrangement between independent contractors rather than as one of employment. Portraying the relationship in this way may avoid obligations to contribute to various public funds, and other obligations of an employer. Thus it is common to find that a relationship that is obviously one of employment in substance has been documented to appear as a relationship between independent contractors. To recognize such documentation as valid for workers’ compensation purposes would usually be incompatible with statutory requirements if the coverage is compulsory. Where one person is working exclusively, or almost exclusively, for another, that is cogent evidence that the relationship is one of employment. Similarly, where a contract has been signed to the effect that the relationship is not one of employment, that is usually cogent evidence that the relationship is one of employment.
Some jurisdictions use the workers’ compensation system to cover people who are not employees, or to cover disabilities that did not result from employment. Usually these extensions of the coverage apply to people for whom governments have some responsibility. Examples are volunteer fire-fighters and other categories of people doing voluntary work of a charitable nature. Less common examples are prisoners, students and school-children. In some jurisdictions, the coverage applies to someone who is injured while acting in the public interest by seeking to save the life of someone in danger, or to prevent a crime. The coverage of all these groups, where it applies, is usually financed out of public funds.
Some jurisdictions have a separate system for a particular industry, such as merchant seamen, the military or the public service. In federal countries, there is sometimes a system created by the federal government and limited to particular industries, while the state or provincial governments provide for the general systems.
Organization, Administration and Adjudication
Most systems of workers’ compensation fall into one of three basic organizational categories.
- The obligation to provide the benefits is placed upon employers. Insurance coverage is available, and in some jurisdictions it is compulsory. The insurance companies are usually subject to regulation and supervision by an agency of government. Some jurisdictions limit the number of insurance companies that may be involved. Adjudication is on an adversarial model in the ordinary courts, or in a specialized court or other tribunal.
- The system is one of social insurance operated by a government department, often a ministry of labour. Decisions are made within the department. Usually there is a system of review or appeal to resolve disputes, and there may be appeals to an outside body.
- The system is one of social insurance administered by a government agency, sometimes called a “workers’ compensation board”. Such an agency is (at least in theory) independent of ministerial control. The agency is responsible for adjudication and administration, as well as being the insurer. In some jurisdictions, the agency provides medical care and rehabilitation services, and in a few jurisdictions, it also exercises the regulatory functions of government in relation to occupational health and safety. Procedures may be adversarial or inquisitorial, or may have features of both. It can fairly be described as a social insurance system because it is a system of compulsory insurance administered by government, but it must be distinguished from the broad-based social insurance systems described elsewhere in this article.
A few jurisdictions use a mixture of insurance companies and a state fund. Large employers in some jurisdictions are allowed to carry their own risks, so that the insurance company plays the role only of claims administrator, or the government agency plays the roles of administrator and adjudicator, but has only a back-up role as insurer.
Under all three models, a worker is required to notify an injury or disease to the employer where this is possible. There are usually detailed requirements relating to such notices and to subsequent reporting. The insurer usually receives reports from the employer, the claimant and attending physicians. In some social insurance systems, an employer who fails to file a report on time is subject to a penalty or surcharge. Otherwise, such an employer is subject to prosecution. The reporting requirements of claimants are usually enforceable by the denial or suspension of benefits, but non-compliance by a claimant can often be waived, so that disqualification from benefits is not automatic. The reporting requirements of attending physicians may be enforced by suspending the payment of fees.
Traditionally, reports have been received as paper documents and the files of administering agencies have been paper files, but recently, electronic methods of communication and of information storage have been introduced.
Most jurisdictions require a claim to be filed within a specified time, though a few allow payments to commence without a claim form having been received. There is commonly a power to extend the time for filing a claim, but even so, statutory time limits can be a cause of serious injustice in some disease cases.
The initial decisions made in response to a claim are sometimes made by employers, but more commonly by insurers. Where a system is administered by insurance companies, the initial decision may be the acceptance or rejection of a claim or offer made by the claimant, or it may be an offer by the insurer that can be accepted or rejected by the claimant. Commonly, a settlement is reached by negotiation. In some jurisdictions, there are provisions to prevent an insurance company from coercing a low settlement by the withholding of periodic payments. Where there is no agreement, the case may go to a court or other adjudicating body for primary adjudication.
Where the system is one of social insurance, the adjudicating body is usually also the insurer, so that the primary decision is adjudicative. It is part of the rationale for a social insurance system that disabled workers should not have to bargain from a position of weakness. They should be entitled to a prompt adjudication of their statutory rights. If a claim is allowed but the benefits are determined to be less than the claimant feels they should be, the benefits as determined are payable while the claimant pursues any appeal.
Primary decisions are commonly based on the documents on file. Administration and adjudication are heavily centralized in insurance company systems and in some social insurance systems. Local administration and adjudication enable an adjudicator to receive evidence and argument firsthand, and to test the credibility of the evidence. For these and other reasons, some social insurance systems have decentralized.
In social insurance systems, hearings are not generally held in primary adjudication, even when expressly provided for by law, though they are held in some cases in some jurisdictions. Where a system is administered by insurance companies and is officially operating on an adversary model, a hearing in primary adjudication by a court or tribunal is normal unless the employer, or the employer’s insurer, concurs in the worker’s claim, or any dispute is settled. A few jurisdictions provide for mediation. However, to require or permit mediation when one of the parties has impaired bargaining power and needs income diminishes the right to adjudication. If a system is intended to provide for continuity of income without the need for professional advocacy, the need is for prompt adjudication. This is even more important where a delay in adjudication may delay rehabilitation.
A widespread problem in primary decision-making is the use of referral systems. Under these systems, the person who receives communications from the claimant has only limited decision-making authority, so that decisions of any complexity have to be referred to someone else who has not received the evidence and arguments first hand. Commonly, different decisions on the same claim have to be referred to different people, with consequential risks of misunderstanding, mistake, and inconsistency. Such referral systems are a major cause of delay, waste, therapeutic harm, error, injustice and damage to rehabilitation prospects.
Investigation, evidence and proof
In jurisdictions using an adversarial model, the responsibility for providing evidence about the facts, and for providing medical opinions, generally lies with the parties. In some social insurance systems, the parties are expected to produce the evidence that they have and that which it lies within their power to obtain, but the adjudicating agency commonly has a responsibility for making the inquiries necessary to produce any further evidence. Similarly, investigation to test the credibility of the evidence, or for other purposes, may be a function of the parties, the insurer or the adjudicating body. In social insurance systems, investigation may be a normal function of an adjudicator, or there may be a separate investigation unit (though that is a less efficient structure for normal investigations).
In adversarial systems, and in some social insurance systems that are not adversarial, there is a burden of proof on the worker to establish a claim, though there is sometimes a burden of proof on the employer with regard to particular issues. In other social insurance systems, there is no burden of proof on anyone except the adjudicating body. Sometimes there are legislated presumptions. There is usually no general presumption in favour of or against the worker, but there are commonly presumptions that apply in particular situations. The broadest example is that where an injury resulted from an accident that occurred in the course of employment, it is presumed to have arisen out of the employment, and conversely, where it arose out of the employment it is presumed to have arisen in the course of employment, unless the contrary is shown. Some jurisdictions provide that where a worker is found dead at a place of employment, the death is presumed to have resulted from the employment unless the contrary is shown.
The standard of proof is generally the balance of probabilities. This might also be described as the best available hypothesis. With regard to the etiology of disease and some other medical issues, however, the input of the medical profession is not always controlled by the relevant legal criteria, with the result that a higher and unlawful standard of proof is often required for a claim to be allowed. One aspect of this is that when physicians are asked for advice on etiology, there is commonly a reluctance to write a report concluding that “I do not know” even when that is clearly stated earlier in the report. Thus a negative conclusion in a medical report may reflect nothing more than an assumption of the negative applied by the advising physician in the absence of positive data. It is, therefore, a conclusion of law (sometimes erroneous), not a conclusion of medicine. Some jurisdictions include a provision that where the disputed possibilities are evenly balanced, an issue must be decided in favour of the worker or dependants. Where those provisions apply, the issue must be decided in favour of the worker or dependants unless there is contrary evidence to tip the balance against that conclusion.
In some jurisdictions, the prescribed standard of proof is not the balance of probabilities on an issue of employment causation. A claim must be denied unless the affirmative is proved to a higher degree of probability than the negative. Such provisions sometimes apply only to disease cases. Even in these jurisdictions, the balance of probabilities may still be a standard of proof for other issues, such as the existence of a disability.
Some systems include a unit to investigate abuse. This may be confined to abuse by claimants, or it may include abuse by system administrators, claimants, employers, insurance companies and the providers of health care and rehabilitation services.
The preparation and filing of claims is usually a simple matter that does not require legal talent, and some jurisdictions prohibit the charging of legal fees for these functions. Advocacy is common in disputed claims, the more so as cases reach the higher levels of decision-making. Where experience rating applies or an employer is self-insured, there may be an advocate for the worker and another for the employer. Otherwise advocacy is normal only for the worker.
In systems administered by insurance companies, the advocates in adjudicative processes are normally lawyers. In social insurance systems, an advocate may be a lawyer, a trade union official or some other lay advocate specializing in workers’ compensation cases. In some jurisdictions, the government or the compensation authority provides a group of advocates to assist workers, and in some jurisdictions, a similar group is provided to assist employers. Sometimes, a worker may also be eligible for legal assistance under a government plan of Legal Aid.
Access to files
Where a system is administered by insurance companies, the file of the insurer is not usually accessible to the claimant, though if the case is litigated, certain documents may be obtainable from the insurer’s file, and the file of the court is usually accessible to both parties. Where a system is one of social insurance, the same body is commonly the insurer and the adjudicating tribunal, and in many jurisdictions, the file of that body is accessible to the claimant. In some jurisdictions, access to the file is allowed as a matter of procedural fairness, and it is then sometimes accessible also to the employer, at least to some extent in some circumstances, and this may result in a loss of confidentiality of medical information. Alternatively, access to the file by the claimant may be available under human rights legislation, or freedom of information legislation. An employer is generally not allowed access to a claim file on those grounds, but may be entitled on those grounds to access to the employer’s file relating to classification and assessments.
Employers sometimes need medical information for health and safety purposes, or for rehabilitation, but there are usually more efficient ways of meeting those needs than by access to a claim file.
Workers’ compensation differs from ordinary litigation in the courts with regard to finality. When a personal injury claim is made in the courts under the general law, the decision of the court is normally final. In workers’ compensation, there are usually provisions for decisions to be reopened in the event of some change in circumstances. The most common example is where a pension has been awarded for a permanent partial disability, and some years later, the disability has worsened (or rarely, the disability has been cured).
Where workers’ compensation is a system of social insurance, it is also normal to permit the reopening of decisions, even when there has been no change in circumstances. These provisions for reopening (or reconsideration) serve a useful purpose, but they are also vulnerable to misuse by system administrators. A common practice is to divert every complaint or appeal into a process of reconsideration. This has several negative consequences. One is delay in appellate adjudication, sometimes with consequential delay in rehabilitation. Another is that when, in primary adjudication, a claim seems doubtful or the evidence is incomplete, the claim can be denied, and then the decision can be reconsidered if the claimant complains or appeals. An inquiry to complete the evidence can then be made in the reconsideration process which ought to have been made in the first instance. The use of “reconsideration” in this way is a negative influence on the quality of primary adjudication and a cause of injustice to those who acquiesce in initial negative decisions.
Some jurisdictions require a claimant or attending physician to file a medical “certificate”. Others require the attending physician to file a “report”. A “certificate” is sometimes considered to be decisive on certain points, whereas a medical “report” is usually considered to be evidence that may be weighed in the balance with any other evidence.
Medical questions are commonly decided in the same way as other questions of fact, but some jurisdictions include special provisions for the decision of medical questions. Adjudicating agencies often have staff doctors who advise on or decide medical questions. In many jurisdictions, a claimant must submit to any medical examination arranged by the compensation authority or other insurer. In some jurisdictions, the claimant must submit to a medical examination by a physician appointed by the employer, but such provisions are controversial because of the risk of therapeutic damage and the loss of confidentiality of medical information. In fatal cases, autopsy reports are commonly used as part of the evidence relating to the causes of death. Death certificates are sometimes referred to, but they are often unreliable on the causes of death.
Medico-legal interaction involves some of the most widespread and intractable problems in the adjudication of workers’ compensation claims. Probably the most common example is the provision of medical reports by physicians who have not been informed of the legally relevant questions on which medical evidence is needed. When this happens, a “medical report” often includes, explicitly or implicitly, assumptions of background facts (which are sometimes erroneous), an opinion on law (which is commonly erroneous), as well as any medical opinion. Unravelling these components of a “medical report” requires a level of legal talent which is commonly not available in primary decisionmaking. To avoid this problem, some jurisdictions have a process whereby the legally relevant medical question is formulated before a medical opinion is sought.
In systems administered by insurance companies, it is normal for the insurer or the employer to participate in the decision of medical issues, and to have access to medical information for that purpose. Where a system is one of social insurance, one rationale for that choice is to preserve the confidentiality of medical information. Employers may be prohibited from participation in the decision of medical issues, or they may be left with no incentive to participate because the rate of assessment is one that does not vary by reference to claims cost experience. Where experience rating is used, a system becomes adversarial and medical information about a worker is commonly disclosed to the employer.
Sometimes there is also provision for an external medical referee or a medical panel to be used in some cases. In some jurisdictions, the conclusions of a medical panel or referee are final and binding. In others, the conclusions may be subject to challenge by further medical evidence or argument in the ordinary appellate process.
Where a separate structure or procedure is available for the resolution of a medical question, this requires a process to decide which questions are “medical”. The responsibility for deciding this would normally lie with those responsible for deciding the general issue. There is a broad consensus about what is a “medical” question, but there is also some diversity. For example, in cases of permanent disability in jurisdictions where the physical impairment method is used to arrive at a pension, establishing the degree (percentage) of impairment is classified as a medical question in some jurisdictions. In others, it is classified as a general question that requires an input of medical opinion.
It is normal to have a structure for appeals. Where the system is one of social insurance, the appellate structure may be completely internal, or there may be an external tribunal. Usually this is at the final level of appeal, though in some jurisdictions, it is at an intermediate level. In some other jurisdictions, appeals lie to an ordinary court, and in others to a specialized court or tribunal. In some jurisdictions, hearings are automatic in appellate adjudication. In others, hearings are held if one is requested, or if the appellate body perceives a need for a hearing. In social insurance systems, it is normal for the appellate body, and in some jurisdictions also the parties, to have access to the file that was used in primary adjudication. This avoids wasteful duplication of effort and it may also enable the appellate tribunal to see what, if anything, went wrong in primary adjudication. The information on that file may be supplemented or contradicted by fresh evidence or argument on the appeal.
Rights of appeal are commonly unrestricted in relation to monetary benefits, but may be more limited in relation to rehabilitation assistance. Appeals on questions of medical aid are usually permitted, though in many jurisdictions they are rare.
Where an appeal lies to an ordinary court, the grounds upon which an appeal may be brought are commonly narrower than when an appeal lies to a specialized court or tribunal. Also an ordinary appellate court is less likely to review the evidence, or to receive new evidence, than a specialized court or tribunal.
Complaints to an ombudsman are available in some jurisdictions, sometimes with regard to the substance of conclusions that have been reached, but sometimes limited to matters of procedure.
Where a system is one of social insurance, it is normal to have an adjudicative manual comprising the law of the system, which is used as the guidance material for adjudicators. It is commonly a synthesis of the statute law, regulations, case law, and decisions made by the adjudicating or administering body in the exercise of delegated powers. Commonly it has the title of “Policy Manual”, but that is misleading. Only portions of the manual relating to the exercise of discretionary powers can fairly be called policy. For the most part, the manual is a rule book, and a part of public law.
For decades, these manuals were treated as secret documents. Use of the word “policy” in the overall title of a manual tended to disguise the fact that it was, in substance, a body of secret law. In recent years, this has commonly been recognized, and publication of the manuals has been required by statute, or by the decisions of adjudicating or administering bodies.
Eligibility for Benefits
Causation in injury cases
The general principle is that compensation is payable for injuries and deaths that result from some event or circumstance of the employment. In many jurisdictions, the legislation refers to an injury “arising out of and in the course of the employment”. There is usually no requirement that an injury or accident must have occurred in the course of the employment. The essential test is employment causation. For example, suppose that during an afternoon, A places a rat in the lunch box of B (a fellow worker), perhaps maliciously, or perhaps as a practical joke. When B opens the lunch box later at home, the rat bites B, causing a significant disability. The injury did not occur in the course of employment, but there is no requirement that it should. It arose in the course of the employment (though there may still be scope for debate about whether it arose out of the employment). Some jurisdictions, however, require that an “accident” must have occurred in the course of employment.
Some other jurisdictions refer to an injury “arising out of or in the course of employment”, but there appear to be few cases in which this difference in language would make any difference to the result. Some jurisdictions do not define a compensable disability in any general words. Instead, they have a list of circumstances that will constitute a sufficient employment connection for a disability to be compensable.
In most cases in most jurisdictions, the place of occurrence of an injury is not determinative. It is merely part of the evidence on the question of employment causation. Similarly, there is usually no requirement that an injury must have occurred during stipulated working hours. Whether it did so occur is, again, part of the evidence for deciding whether it resulted from the employment. Some other jurisdictions place greater emphasis on geographical or chronological connections with the employment, and in some jurisdictions, the injury must have occurred at a place of employment, though that may include any place where the worker was supposed to be for carrying out the work.
Some jurisdictions have a requirement that the disability must have occurred within the jurisdiction, but such requirements are incompatible with the general principle that disabilities resulting from employment should be covered. Generally, it is sufficient that the usual place of employment of the worker was within the jurisdiction in which the claim is made. Thus where the employment involves international travel, a workers’ compensation claim for a disability sustained when abroad would normally be paid by the system in the home base of the worker’s employment.
The term “work-related” is commonly found in compensation literature, but it is generally inappropriate and misleading. In most jurisdictions, there is no requirement that for an injury to be compensable, it must have resulted from work (productive activity). A few jurisdictions require that for an injury to be compensable, it must have resulted from work, but in most jurisdictions, it is sufficient that it resulted from employment. For example, an injury sustained in the course of entering or leaving the employer’s premises, or during a break period, or when receiving pay, would be compensable in most jurisdictions.
Some jurisdictions specify that an injury sustained while retraining or preparing equipment for work is covered. In many others, such an injury is covered as one arising out of and in the course of the employment.
One of the eligibility requirements for compensation used to be that an injury should have been caused by an “accident”. In some jurisdictions, that word has been repealed. In others, it is generally superfluous and misleading. Regardless of whether the word “accident” is used, compensation is not generally confined to injuries that occur on a particular occasion, or by a “specific incident”. The coverage applies also to disabilities that result from strain over time, or other causes that have a gradual or cumulative impact, and the coverage includes disabilities that result from the normal routine of work. Where the word “accident” appears in the legislation, its only significance may be to cause confusion and wasteful adjudicative costs in marginal cases. Sometimes, however, an unusual event may be crucial evidence on etiology. For example, in heart attack cases, some jurisdictions look for some unusual strain or stress to determine whether the employment was a contributing cause of the heart attack, or whether it resulted solely from natural degeneration so that its occurrence in the course of employment was purely coincidental.
Many jurisdictions cover injuries that result from commuting to and from work, at least when the worker is travelling by the most direct route, and without any significant interruption for personal business that is unrelated to the needs of the journey. These jurisdictions usually have detailed rules about whether the coverage still applies in all the circumstances, such as where a worker travels by a longer route for reasons of personal pleasure, or where the worker stops for personal shopping in the course of the journey. Some of these jurisdictions also specifically include an injury that results from travel between work and a place of medical treatment if the treatment was required during working hours.
In other jurisdictions, injuries that result from commuting are not covered when a worker is travelling between home and a fixed place of employment. The theory is that since the worker has selected where to live and where to work, the worker has selected the journey to be undertaken and the risks of that journey are not, therefore, considered to be risks of the employment. If the worker does not have a fixed place of employment, but travels between home and different places designated by the employer, such journeys are in the course of the employment and injuries resulting from them are compensable. This is common in the transport and construction industries. Similarly, where a worker normally works at a fixed place of employment but is temporarily assigned to work at a different place, an injury resulting from a journey between home and the temporarily assigned place of work is compensable. Even journeys between home and a fixed place of employment are covered in some circumstances; for example, where a worker who is not on shift is called out by the employer to deal with an emergency, or where the worker is using transport provided by the employer.
Commencement and termination of the coverage
The coverage of any particular worker may apply for slightly longer than the contract of employment. For example, if a worker is injured upon entering an employer’s premises for the intended first day of work, that injury would be compensable in many jurisdictions notwithstanding that the formalities of a contract of employment have not yet been completed. Similarly, if a worker who has been dismissed from the employment is injured before leaving the employer’s premises, or sometimes before arriving home, that injury would be compensable in many jurisdictions notwithstanding that the contract of employment had terminated.
Workers’ compensation systems were designed to provide automatic compensation for industrial disabilities, and to avoid the cost and therapeutic damage of evidentiary inquiries about who, if anyone, was to blame. Hence it is usually irrelevant whether there was any fault on the part of the employer, the worker, or anyone else. Some exceptions to that principle are mentioned below.
Different views are taken about eligibility for compensation when a disability or death has resulted from a natural phenomenon. For example, if a worker is killed by a lightning strike, the death would be compensable in some jurisdictions but not in others. The test applied in some jurisdictions is whether the employment exposed the worker to a risk of that type of occurrence greater than the risk to which the public are normally exposed. The natural phenomena covered by this test include injuries caused by plants and animals.
There is more diversity among the jurisdictions in eligibility criteria for disease cases. The terms “industrial disease” or “occupational disease” are commonly used, but they are misleading and a cause of great confusion. They tend to imply that compensation is payable for and is limited to a certain category of diseases known as “industrial” or “occupational”. That is commonly not so.
In some jurisdictions, the coverage is narrowly confined. It may apply only to diseases that are specified on a closed list; but that list will not include all of the diseases commonly known as “industrial” or “occupational”. In other jurisdictions, the coverage is broadly defined so that diseases are covered to the same extent as injuries, including diseases that affect the general population and that are not known as “industrial” or “occupational”. As in injury cases, the test in these jurisdictions is whether the disease resulted from employment in the particular case, not whether the disease is of a type that usually results from employment. For example, a claim by a health care worker for tuberculosis may succeed if it is shown to have resulted from employment in the particular case, notwithstanding that the disease is prevalent in the general community.
Other jurisdictions adopt an intermediate position. The coverage is not confined to a closed list of diseases, but it falls short of the coverage in injury cases. For example, some jurisdictions require that a disease must be “peculiar to or characteristic of the employment”, or that it must be “due to the nature of” the employment. Some jurisdictions provide that no compensation (other than medical aid) is payable in a disease case unless there is both a physical impairment and a loss of earnings, even though the jurisdiction is one in which a pension would be paid for a permanent physical impairment in an injury case regardless of any loss of earnings. Some jurisdictions also have notice requirements or time limits that apply only to disease cases. Some of these time limits are unrealistic having regard to the latency periods that are common for some of the most serious diseases.
Where a disease is alleged to have resulted from exposure to contamination, evidence that the exposure of the worker to the contaminant has exceeded the maximum levels established for regulatory purposes is evidence of causation, but it is not conclusive. Evidence that the exposure of the worker was always below the prescribed limit is usually much weaker. The general principle that it is more difficult to prove a negative applies here. Exposure records of earlier years may be of unknown credibility, and they may relate to the work environment rather than to the exposure of the claimant, which could have been higher than the environmental average. Also because of variations in individual susceptibility and the scientific uncertainty behind most of the exposure limits, the disease may have resulted from the exposure of the claimant even if it always was below the prescribed limit. For these reasons, any evidence that the exposure of the worker was always below the prescribed limit is not very persuasive, and it is not a bar to a claim.
Traditionally, the lung diseases among miners and other workers in heavy industry have been prominent among the serious and fatal claims for disease. In recent years, there has been greater recognition of diseases among workers in light industry, and in office occupations, many of which are more subtle in their effects on body function. For example, it is now recognized in some jurisdictions that a claim may succeed for sealed building syndrome.
The legislation of many jurisdictions includes a schedule of diseases. It is in two columns. The first is a list of diagnoses. Opposite to each diagnosis in the second column is a type of industry, work or process that is known to cause that disease. The significance of the schedule varies in different jurisdictions. It may be:
- Exclusive and Conclusive. Only the diseases listed in the schedule are compensable. If the conditions indicated in the second column apply in a particular case, the claim is allowed. Otherwise it is denied. Evidence of etiology in the particular case is irrelevant and inadmissible.
- Exclusive and Presumptive. Only the diseases listed in the schedule are compensable. When the conditions indicated in the second column apply, the disease is presumed to have resulted from the employment. However, evidence that the disease did not result from the employment in the particular case is admissible, and so is evidence to support the presumption that it did result from the employment. Where the evidence, on balance, is sufficient to outweigh the presumption, the claim is denied. Otherwise the presumption holds and the claim is allowed.
- Presumptive, but Not Exclusive. For scheduled diseases, the position is the same as under (2) above. For an unscheduled disease, there is no presumption, but it may still be compensable. In many jurisdictions, unscheduled diseases are compensable if the evidence indicates employment causation in the particular case and the eligibility requirements relating to disease claims have been met. In some other jurisdictions, an unscheduled disease must be recognized by the adjudicating or administrating body as an industrial disease, or an occupational disease, before it is compensable, though there is no restriction on the range of diseases that may be so recognized. Recognition may be general or for the particular case. It is not a recognition that the disease fits within a preconceived category of industrial or occupational diseases. It is simply a recognition that there is no overriding policy reason why the disease should not be compensable. In some jurisdictions, unscheduled diseases are only compensable if the disability reaches a prescribed degree of impairment.
- Conclusive, but Not Exclusive. Where a disease is scheduled and the conditions in the second column apply, the claim must be allowed. Evidence of etiology in the particular cases is irrelevant and inadmissible. For unscheduled diseases, the position is the same as under (3).
In earlier years, positions 1 and 2 were commonly found, but position 3 has become more common over the last forty years. Position 4 is rare. In many jurisdictions the schedules are too limited and out of date to be of broad-scale use in relation to contemporary disabilities.
A danger of schedules that are not intended to be exclusive is that there may be a tendency, in practice, for them to become exclusive. The theory is that when a claim is made for an unscheduled disease, the evidence will be investigated to determine whether the disease resulted from employment. The danger is that this will not be done, so that in practice, the coverage tends to become confined to the scheduled diseases. Some jurisdictions seek to avoid this danger by not using a schedule at all.
It is sometimes assumed that a diagnosis is required for a disease claim, but that is usually true only in jurisdictions where compensation is confined to the diseases shown on an exclusive schedule or other closed list. In most other jurisdictions, a diagnosis is necessary for the application of any presumptive schedule, but otherwise a diagnosis is not necessary if employment etiology can be shown without one. The eligibility requirements usually relate to etiology, and if that can be shown, usually to the balance of probabilities, without a diagnosis, a disease may be compensable.
Distinction between injury and disease
Because many jurisdictions have different eligibility criteria for disease from those applicable in injury cases, it is sometimes necessary to determine whether a disability should be classified as one resulting from injury or disease. The distinction has been made pragmatically, not by reference to any principle. Hence there is no fixed rule for distinguishing between the two, but the following are common practices.
Disabilities resulting from trauma are generally classified as injuries, and any disease resulting from an injury (such as by the infection of a wound) is classified as part of the injury. Where a disease is listed, scheduled or otherwise specifically mentioned in the legislation, any such case is classified as a disease. Otherwise, disabilities that result from a specific incident are more commonly classified as injuries, while those that result from exposure over time are more commonly classified as diseases, but that is not consistently so, and there is no fixed rule to that effect. For example, sprains and strains are generally classified as injuries, whether they result from a specific incident or from exposure over time. Similarly, dermatitis is commonly classified as a disease, whether it results from a specific incident or from exposure over time, though burns caused by a single incident of chemical exposure may be classified as an injury. Hearing loss due to noise exposure is classified as an injury if it resulted from an explosion, but as a disease if it resulted from exposure over time. Disabilities caused by the gradual absorption of chemical or biological agents are classified as diseases. Allergic reactions are generally classified as diseases, whether they result from a single incident or from exposure over time.
Compensation for a physical disability generally includes all mental dimensions and consequences of the disability. Similarly, where a mental disorder that resulted from employment causes a physical disability, that disability is generally recognized as compensable. The language of the statutes is not generally confined to physical disabilities, so that there is no reason in principle why compensation should not also be payable where a mental disorder has resulted from employment with no physical disability being involved. In many jurisdictions, such cases are covered by the legislation, but there is often a reluctance to recognize the coverage in subsequent adjudication. In recent years, there has been an increase in claims for occupational stress, and in many jurisdictions, it falls within the meaning of injury or disease. Of stress claims that have been allowed, the stress has been caused sometimes by environmental conditions, such as temperature, sometimes by the behaviour of fellow workers or supervisors, such as sexual harassment, and sometimes by the systems of work, including claims for karoshi (death from overwork). In jurisdictions in which disabilities that result from commuting are compensable, the combined effects of commuting and what happened in the course of work are relevant in deciding whether the worker was disabled or killed by occupational stress.
Contemporary political developments, which emphasize “competitiveness” and “deregulation”, including the deregulation of overtime, have led to apprehensions about the rising incidence of occupational stress. The response in some jurisdictions has been to create a statutory bar against claims for mental stress.
In many jurisdictions, the largest volume of controversial claims in workers’ compensation are bad-back cases. Typically, the worker suffers a severe acute pain following lifting or twisting at work. Sometimes this is followed by chronic pain.
Bad-back claims are generally treated in one of three ways:
- The claim is accepted and paid in the ordinary way for the duration of the disability. This is very common because most bad backs resolve within a month.
- The claim is denied.
- The claim is accepted for an initial period, and then benefits are terminated on the ground that any continuing disability beyond that point is a result of an underlying disease condition rather than the employment. Typically, the medical reports indicate a degenerative disease in the spine, which is common in the general population.
The overriding dilemma in bad-back cases is that typically, there is no scientific way of establishing the long-term causative significance of any particular event at work, or of the ordinary pattern of work, compared with natural degeneration or other causative factors. The bad-back cases illustrate very graphically the difficulties of compensating or not by reference to the cause of a disability.
In fatal cases, there is generally no requirement that the death must occur within any particular time of the accident, injury or disease, and a death may be compensable notwithstanding that it occurs many years after termination of the employment in which it was caused. A death resulting from a self-inflicted injury is not generally compensable, but a suicide is compensable in some circumstances; for example, if a compensable injury that was not self-inflicted caused a serious depression that led to the suicide. A few claims have also been allowed for suicide resulting from the process of dealing with the compensation authority.
Multiple Causes of Disability
Controversies commonly arise when a disability has resulted from the combined effects of an event or circumstance of the employment and another event or circumstance that is unrelated to the employment. An example would be lung cancer that appears to have resulted from the combined effects of industrial contamination and smoking. In many jurisdictions, a claimant is entitled to compensation if the employment was a significant contributing cause of the disability, notwithstanding that non-employment factors were also causative. Some jurisdictions require the adjudicator to select the predominant or primary cause, but that makes the result a matter of arbitrary choice if the reality is that the disability would not have occurred in the absence of either cause, or if it is unknown whether the disability would have occurred in the absence of either cause.
In some jurisdictions, there are provisions for apportionment, so that a claimant is entitled to compensation, but only at a reduced level of benefits. Such provisions are difficult in adjudication, mainly because there is commonly no scientific way of deciding in what proportion the disability should be attributed to the different causes. Another difficulty with such provisions is that the resulting benefits may be below the level of social security (welfare) to which the claimant would be entitled if there were no workers’ compensation claim. To avoid the hassle of a disputed compensation claim, therefore, the claimant may apply for and receive social security (welfare) benefits. To the extent that this happens, the cost of occupational disability is shifted from the workers’ compensation system onto general revenue.
Where a contributing cause of a disability was a susceptibility or a pre-existing condition of the claimant, that is usually just as irrelevant to the level of compensation as it is to eligibility. This would seem fair if the wage rate on the claim is the rate that the claimant was able to earn with the pre-existing condition. However, susceptibility or a pre-existing condition may be relevant to the duration of benefits. Where a pre-existing condition is aggravated by an event or exposure of the employment, the aggravation may produce a compensable disability, but if the aggravation is temporary, eligibility for compensation will terminate on the expiry of the aggravation.
Where some circumstance of an employment had causative significance in producing a disability, it is generally compensable notwithstanding that the claimant was already allergic to that type of disability. Where some circumstance of an employment caused an allergy that the worker did not previously have, any subsequent periods of disability caused by subsequent allergic reactions are usually compensable regardless of whether a subsequent allergic reaction was triggered by anything relating to employment. Thus in allergy cases in jurisdictions in which the critical etiological requirement is that the employment should have been a significant contributing cause, it is sufficient for compensation if the employment either caused the allergy or triggered the reaction.
Subsequent Consequential Disabilities
Where a disability is compensable, any other disability that is subsequent and consequential is also compensable. For example, where a compensable injury becomes infected, any consequential disease is compensable. Where a worker sustains a compensable disability for which medical treatment is undertaken, and that treatment causes another disability, that is also compensable. For example, if a claimant falls down the stairs at a clinical rehabilitation facility when attending for treatment, any injury resulting from that fall would generally be considered compensable. However, where the connection between the original and subsequent disabilities is indirect, diverse views are taken. For example, if the second injury resulted from a motor vehicle accident when driving to a rehabilitation facility, that would be compensable in some jurisdictions, but not in others.
Where a subsequent disability is more distant in time, place, or causal connection, it may be considered too remote to be compensable. Suppose, for example, that a claimant sustained a compensable leg amputation. Ten years later, the claimant is run down by a motor vehicle when on a vacation. An argument might be made that the claimant could have avoided the second accident if it were not for the prosthesis, so that the second disability is a consequence of the first. Even if the causal connection is established as a matter of fact, it would probably be concluded that any disability resulting from the motor vehicle accident is “too remote” to be considered a compensable consequence of the amputation. Also if the leg amputation resulted in a pension measured by the degree of physical impairment, one of the factors taken into account in establishing a percentage rate is the limitation on body movement. Where that is so, if that same limitation of body movement were to produce further compensation when it has resulted in a known monetary loss, it would be arguable that the claimant is receiving compensation for the same factor twice over.
The most common types of compensable loss are economic. Thus the most common benefits are medical care and compensation for loss of income or earning capacity, but many jurisdictions also pay benefits for physical or mental impairment, and for disfigurement, regardless of the economic consequences. Property damage is generally excluded, though compensation is commonly payable for damage to eyeglasses, dentures or a prosthesis. A few jurisdictions also provide compensation for damage to clothing.
Where a claimant has two or more compensable disabilities with the same date of commencement, they are generally aggregated for the calculation of compensation, but the total payable cannot exceed what would be paid for a total disability. Where two or more compensable disabilities occurred on different occasions, they are usually treated as separate claims. Benefits are calculated separately in respect of each, and different wage rates may apply. A worker may, therefore, be eligible for benefits concurrently under two or more claims. This is normal, for example, when a worker is receiving a pension calculated by reference to the degree of physical impairment in respect of a permanent partial disability, has returned to work, and then sustains a further injury causing a temporary total disability. In some jurisdictions, there is a maximum applicable to the combined total of benefits that may be received at any one time under all claims, but not in others.
Where a claimant has two or more disabilities, not all of which are compensable, problems can arise in deciding which losses are attributable to each. This is not usually a problem where the compensable disability is the most recent. General principles normally require that compensation must be paid for loss of earnings if, prior to the compensable disability, the claimant was working with the non-compensable disability. Where compensation is supposed to be payable by reference to actual loss of earnings and the non-compensable disability is the most recent, there may be adjudicative difficulties in deciding whether the compensable disability is currently causative in relation to any absence from work.
Objections to Claims
The objections most commonly raised are that a claimant has not met one or more of the eligibility requirements. Even when those requirements have been met, there may still be a few grounds on which an objection can be raised. Because workers’ compensation systems were generally established to avoid evidentiary inquiries on questions of fault, any allegation that a disability resulted from the negligence of the claimant is generally irrelevant, and so is any allegation that the cause of the disability was outside the control of the employer.
A self-inflicted injury is not compensable. It is usually excluded in the definition of a compensable injury or accident, but sometimes there is an express bar. To be excluded, the injury must have been deliberately inflicted by the claimant. It is no bar to a claim that the claimant deliberately undertook the risk of injury.
Some jurisdictions provide that misconduct of a claimant is or can be a bar to a claim, but in most jurisdictions this bar can only be raised in exceptional cases. To avoid having evidentiary inquiries on questions of fault as a normal routine, this bar is confined in various ways. In some jurisdictions the bar only applies if the misconduct is criminal or gross, and in others, if it is serious and wilful. Some jurisdictions provide that the bar does not apply in fatal cases, or where a disability is serious or permanent. In some jurisdictions, it is a requirement for the bar to apply that the misconduct must have been the “sole cause” of the disability, and very few injuries are caused solely by anything.
Where misconduct bars a claim, it is usually a bar to all benefits, though some jurisdictions permit a reduction of benefits for misconduct.
One explanation for the reluctance to allow allegations of misconduct is that in serious and fatal cases, innocent dependants could suffer. In minor injury cases, allowing issues of misconduct to be raised would defeat the goal of economy in adjudicative costs. Related to this, most systems are not organized to conduct an evidentiary inquiry in primary decisions, and it would be unfortunate to allow allegations of misconduct to be raised if the system is not designed to make a fair judgement upon them.
It has sometimes happened that a claim has been barred on the ground that misconduct took the worker outside the course of the employment, but that is a very difficult ground on which to bar a claim. Unless great care is taken, it can have the effect of barring a claim for misconduct in circumstances in which the statutory limitations on that bar do not apply. The point can be illustrated by cases of injuries resulting from horseplay. A worker injured by horseplay is not outside the course of employment if the worker was an unwilling participant, or had not made any substantial deviation from productive activity, or if the horseplay was an ordinary part of human nature in the ordinary course of employment, or if it was simply a more entertaining way of doing the work. However, if the worker was completely removed from any productive activity and was an initiator or a willing participant in the horseplay, it may be legitimate to decide that the injury did not arise in the course of the employment. In other circumstances, a claim may only be barred for horseplay if the statutory criteria relating to misconduct have been met.
In some jurisdictions, a claim is barred if the disability was caused by the intoxication of the worker from alcohol or drugs. This bar may not apply to all claims. For example, it may not apply to fatal cases. In other jurisdictions, intoxication is generally irrelevant except that it may be a species of misconduct, in which case, the objection is subject to the limitations that apply to an allegation of misconduct.
In some jurisdictions, a claim may be barred if the disability resulted from non-compliance by the worker with occupational health and safety regulations, or with safety rules issued by the employer. However, this bar can tend to undermine the incentive for employers to engage in proper health and safety planning. If an employer can issue rules, or seek the issuance of regulations, requiring workers to protect themselves from hazardous conditions by appropriate behaviour, this could reduce the incentive to avoid or minimize the creation of hazardous conditions by proper planning. A related problem is that the behaviour of workers is to some extent self-initiated and to some extent conditioned by the decisions of employers. Thus it would be difficult to legislate this bar without getting into evidentiary inquiries on fault. It may be for these reasons that this bar is not widespread.
In some jurisdictions, a claim for disease may be barred because of fraudulent misstatements previously made by the worker. There are practical problems with these provisions. In particular, it would be hard to prove that a statement was made fraudulently if the worker merely signed a printed form on an occasion that was not conducive to reading and contemplation.
It is sometimes alleged that a worker was susceptible to the disability that occurred, but that is generally irrelevant.
In some jurisdictions, the parents of a child who was killed are not eligible for compensation if the child was employed contrary to the laws relating to child labour.
The availability of benefits from another source is usually irrelevant. Workers’ compensation systems are generally in the position of first payer, so that eligibility for benefits from another source is not a bar to a workers’ compensation claim. In some jurisdictions, however, there are some provisions for a reduction in workers’ compensation benefits if there is eligibility for benefits from another source.
The non-payment of assessments by an employer is not usually a bar to a claim in social insurance systems. In systems administered by insurance companies, non-payment of the premium by an employer may extinguish the liability of the insurer, leaving the claimant only with a claim against the employer.
Where an objection to a claim is valid, it is usually a total bar. However, some jurisdictions provide that certain objections may have the effect of reducing benefits. For example, a few jurisdictions provide that misconduct by a worker may have the effect of disentitling the worker from monetary benefits for an initial period of a week or two weeks.
In most jurisdictions, misconduct by the employer is irrelevant to the validity of a claim, except that it may be part of the evidence on the general question of whether a disability resulted from employment. In some jurisdictions, however, additional benefits, or higher levels of benefits, are payable where a disability resulted from misconduct of the employer. Some of these provisions are narrow, referring only to criminal misconduct, to “gross” negligence, or to serious and wilful misconduct. Others are broader, referring to negligence or a breach of occupational health and safety regulations. These provisions are part of the workers’ compensation system, and are unrelated to “employers’ liability” (discussed in Part Two). These provisions are open to the same objection as provisions relating to misconduct by workers; that is, they may require an evidentiary inquiry in the context of a system that was designed to operate, as far as possible, without evidentiary inquiries. For this reason, some jurisdictions confine the provision to cases in which the employer has been convicted in a criminal court.
In jurisdictions in which a claim may be barred because of intoxication by the worker, or a wilful failure of the worker to comply with safety rules, it is sometimes provided that the bar will not apply if fault can be shown on the part of the employer.
In some jurisdictions, disabilities resulting from employment are treated in the same way as other disabilities under a government system of medical care. In other jurisdictions, the workers’ compensation system provides the medical aid for compensable disabilities. This may be extensive, including the attendances of medical practitioners and other health care professionals, hospital care, surgery, prostheses, appliances, drugs, dental care, orthopaedic footwear and therapies required for rehabilitation. Where a claimant is entitled to a prosthesis or other appliance for a permanent disability, subsequent servicing and replacements are also provided. Medical aid is commonly provided on a full indemnity basis for all necessary services, even though monetary compensation benefits for economic losses are less than a full indemnity. Thus in some jurisdictions, the medical aid coverage in workers’ compensation is more extensive than the coverage under the general government system. In countries that have no government system of medical care, the medical aid provided in workers’ compensation cases can be a striking contrast to the medical care that is otherwise available, and to the medical insurance coverage that is otherwise available to workers. However, in some jurisdictions, there are restrictions on the medical aid that may be provided. For example, treatments that may be considered “experimental” are sometimes excluded.
Travel costs and other expenses incurred by a claimant to receive medical aid are usually covered, but many systems restrict the level of reimbursement to the cost of using public transport unless that is unavailable or inappropriate.
Some jurisdictions have separate workers’ compensation hospitals, rehabilitation clinics, or other health care facilities. Otherwise, workers’ compensation cases are treated at the same hospitals and other places of medical treatment, and by the same personnel, as other cases. The only difference between the workers’ compensation cases and the others may relate to the sources of payment. Sometimes, however, there are also other differences. For example, a workers’ compensation authority may contract with a general hospital for additional services in workers’ compensation cases.
It is not usually a condition of eligibility for medical aid that the claimant should be impeded from work, or otherwise entitled to money payments. Thus a large proportion of workers’ compensation claims are for medical aid only. In jurisdictions that use experience rating, the pressures not to report employment injuries to the workers’ compensation authority or insurer sometimes result in medical care being provided under the general health care system rather than under the medical aid provisions of workers’ compensation.
Usually the obligation to provide medical aid is placed upon the insurer (whether a government agency or an insurance company), but there is commonly an obligation upon the employer to provide medical aid for the initial phase of an injury, such as first aid and ambulance transportation to a hospital. Usually payments for medical aid are made directly by the insurer to the provider of the treatment or service. In most jurisdictions, it is considered inappropriate to require the claimant to pay and then claim reimbursement. That could create a cash-flow problem for people whose incomes have been reduced by their disabilities. It could also facilitate overcharging by service providers, leaving claimants caught in the middle and having to bear the excess cost.
In systems administered by insurance companies and where medical care is otherwise a matter for the market, and where there are no other controls on overservicing, workers’ compensation claimants may be required to receive their care at a limited range of hospitals and other health care facilities, and their choice of attending physicians may be limited.
Some jurisdictions provide that compensation benefits may or must be suspended or terminated if a claimant unreasonably declines to accept medical treatment that is offered; but these provisions are usually relevant only in very exceptional cases where the refusal is equivalent to a self-inflicted injury. Workers’ compensation legislation was not usually intended to stifle patient choice in medical care, or to negate the basic human right to be selective in the acceptance of treatment. Also in at least some jurisdictions, compensation authorities are more concerned to prevent the overuse of drugs and surgery than to prevent their underuse.
In some jurisdictions, there are temporal or territorial limits on the provision of medical aid. In others, medical aid for a compensable disability is provided as it is needed for the lifetime of the worker and regardless of any change in the worker’s country of residence. In these jurisdictions, this feature distinguishes medical aid under workers’ compensation from the coverage under general government systems of medical care.
The calculation of monetary compensation usually begins by establishing an earnings level or wage rate for the claim. This is usually the gross level of earnings of the worker (including overtime pay) at the time of disability, or the average earnings during some preceding period, usually in the range of four weeks to three years. The rate of compensation is then set by reference to this wage rate. There are sometimes provisions for a wage rate to be established by reference to the average wage in an industry, or a national average, but such provisions only apply in exceptional situations.
Unlike the process of assessing of damages on employers’ liability claims, establishing the wage rate does not usually include any speculation about what changes to the earnings of the worker would have occurred in the future but for the disability. In relation to cases of long-term and permanent disability, however, there are commonly provisions to the effect that where a worker became disabled when a learner, apprentice or student at the early stages of a career, the wage rate will be subject to upward adjustment to the basic earnings level of that career.
Each jurisdiction usually has detailed rules relating to the calculation of previous earnings; for example, whether notional earnings should be attributed to free board and lodging provided by the employer, whether concurrent earnings from other employment or self-employment should be excluded or modified, or whether earnings from seasonal employment should be adjusted to an annual average.
Some diseases sometimes result in a gradual erosion of earning capacity as the worker moves to lighter and less rewarding employment. If a claim is not filed until a total cessation of work, it would not compensate for the loss if the immediately preceding level of earnings was used as the wage rate on the claim. To meet this problem, some jurisdictions provide for the wage rate to be set by reference to the contemporary earnings of other workers in the occupation in which the disease was contracted.
Where the coverage applies to a self-employed worker, the wage rate is usually set at the time when the coverage is arranged. In jurisdictions in which the self-employed are covered only upon application, an applicant may be allowed to nominate the wage rate, subject to a minimum and maximum, and subject to rejection of the application if the nominated rate appears to be out of line with potential earnings. The rate established at the time of coverage is then used for calculating the assessment (premium) as well as for the subsequent calculation of benefits in the event of a compensable disability.
In some jurisdictions, the wage rate remains fixed for the duration of the claim. In others, it is subject to change after a specified period. Usually the rationale for the change is that the wage rate for long-term and permanent disabilities should be changed to reflect a longer period of average earnings prior to the disability. Switching to a longer period of average earnings makes it easier to include earnings from all sources, to take account of variations in overtime, and to take account of seasonal or other variations in the continuity of employment.
Usually, the rate reflects the average gross earnings of the worker (excluding the employer’s contributions to employee benefits), but in some jurisdictions where compensation benefits are not taxable income, the wage rate is adjusted to a notional “net” earnings before the compensation rate is derived. The notional “net” is the gross amount less amounts for income tax and other payments to government funds that are deductible from earnings.
The compensation rate
Usually there is a formula for moving from the wage rate to a rate of compensation that is payable for total disability. This rate is usually a percentage of the wage rate, or of the notional “net” earnings that have been derived from the wage rate. It is usually less than a full indemnity for lost earnings. One rationale for this is the theory that the difference between the wage rate and the compensation rate represents the worker’s contribution to the cost of occupational disability. This rationale is dubious, bearing in mind that the assessment (premium) is, to some extent, an opportunity cost of labour. A more realistic rationale is that the difference between the wage rate and the compensation rate provides an incentive for an injured worker to return to work. A difference of 10% is usually considered sufficient for this purpose. This rationale has no significance in relation to disabilities that are severe and permanent.
Usually a ceiling (maximum) is prescribed, either for the wage rate or for the compensation rate. A historical rationale for a ceiling was that workers with earnings above the ceiling could, if they wished, insure those earnings by taking out their own policies of accident and sickness insurance. However, this rationale was never in accord with reality. There were no policies on the market that were available to industrial workers and that would pay benefits to compensate for the higher levels of earnings loss for the duration of a disability.
Where a ceiling applies to the wage rate, and a worker suffers a compensable disability with a loss of earnings, but still has residual earnings above the ceiling, it may be thought an injustice that the worker has suffered a loss of earnings from an occupational disability and is not receiving compensation. This problem can be avoided by applying the ceiling to the compensation rate, or by compensating by reference to the degree of physical impairment regardless of actual earnings loss, or by having no ceiling at all.
Another problem with a ceiling on the wage rate is that the same ceiling is then generally used on the level of earnings on which the assessments (premiums) must be paid. For example, if the ceiling is 50,000 monetary units per year, this means that the maximum level of compensation will be a percentage of 50,000 units per year. The assessment paid by an employer will be a percentage of the payroll, but subject to a ceiling of 50,000 units per year per worker. This ceiling on the assessment can be one of the factors making it cheaper for an employer to require regular overtime rather than increasing the size of the workforce. It may, therefore, be considered counter-productive in terms of social policy, occupational stress and the rehabilitation of disabled workers.
Classification of disabilities
Some jurisdictions classify compensable disabilities as temporary total, temporary partial, permanent total or permanent partial. The same disability will often move from one of these classifications to another. Some jurisdictions do not use all of these categories. Some use a variation of them, or may apply similar principles without classifying disabilities in these terms. In recent years, some jurisdictions that are supposed to compensate by reference to actual loss of earnings have abandoned the use of these classifications altogether.
Temporary total disability
Most jurisdictions pay benefits for temporary total disabilities. As well as transitory disabilities, this category includes the initial stage of most permanent disabilities. In some jurisdictions, there is a time limit for these benefits, but usually there is not. The benefit continues until the claimant makes a total or partial recovery, the disability is classified as permanent, or the claimant dies. In some exceptional cases, the benefit may be terminated by disqualification, such as where a claimant has left the jurisdiction during the period in which medical attention was required.
Since the vast majority of occupational disabilities are minor and temporary, this benefit is paid for only a few days in most cases—too short a time in many situations to make it worth the cost of considering whether the case should be processed as temporary partial. In some jurisdictions, the level of this benefit is reduced after a specified period, or reduced in stages after two or more specified periods, such as three months and six months. Such reductions are not usual in advanced industrial nations.
This benefit usually commences on the day following the incapacity for work, but in some jurisdictions there is a waiting period of three days. In some systems, the employer has an obligation to pay this benefit for a brief initial period, with the obligation of the insurer commencing after that. Such provisions can cause problems in the context of a workers’ compensation system. For example, they may delay the collection by the insurer of evidence about the cause of the disability.
Apart from compensation, some jurisdictions require an employer to continue the earnings of a disabled worker for a very brief initial period, commonly for the day of injury.
Temporary partial disability
Some jurisdictions do not use this classification at all. Others use it where a claimant has made a sufficient recovery from the disability to engage in some work, but is not yet able to return to the regular occupation. In most cases in many situations, it is not worth the administrative and adjudicative cost of using this classification because the claimant will be fit to return to the regular occupation in any event within a few days.
In jurisdictions that use experience rating, or in which employers otherwise have a financial incentive to invoke this classification, there are substantial administrative and adjudicative difficulties in deciding what type of work is suitable to the current condition of the claimant. The fear of abuse of the system by claimants creates a reluctance to let the worker decide, and there would be comparable difficulties in allowing the employer to decide. To have the matter decided adjudicatively creates the problem that disputes about what is suitable work for a particular medical condition cannot be resolved fairly and efficiently without an evidentiary inquiry. Most systems are not designed to conduct one promptly, and some do not provide for one at all, except on appeals. Decisions made on such issues in more peremptory ways are a cause of therapeutic damage, as well as injustice and waste. They can also create a strain in the employment relationship that becomes an impediment to rehabilitation. It is partly for these reasons that some jurisdictions prefer to avoid or minimize the use of this category.
For cases that are classified as temporary partial, the rate of benefit is commonly a percentage of the difference between the previous earnings of the claimant and the current earnings, or the amount which it is thought that the claimant could be earning (“deemed” earnings). In a few jurisdictions, the rate of benefit is required to be calculated by reference to the degree of physical impairment, but that is unrealistic. The period during which this classification may be applied is usually too short, and the gravity of the disability may be changing too fast, for the rate of benefit to be calculated in this way. Some jurisdictions exclude compensation for a temporary partial disability if the impact on earning capacity, or on earnings, is minor.
Some jurisdictions require the presence of a claimant within the jurisdiction as a condition of continuing eligibility for temporary benefits. Others require presence only during the period in which medical treatment is needed.
Permanent total disability
In many jurisdictions, severe disabilities are classified as total regardless of the impact on earnings or earning capacity. For example, total blindness, paraplegia or the loss of two limbs are commonly classified as permanent total disabilities. One rationale is that compensation should be paid for the disability itself, regardless of its economic significance. Another is that disabilities commonly involve costs, and therefore economic losses, regardless of the impact on earnings. Perhaps the most important rationale is that the payment of a fixed pension without inquiry into economic loss preserves the freedom of the individual, alleviates anxiety and maximizes the incentive to rehabilitation. A few jurisdictions provide for a lump sum in addition to the pension.
In some other jurisdictions, benefits for permanent disability are payable by reference to loss of earnings, so that benefits for permanent total disability are only payable where it is estimated that the loss of earnings will be permanent and total. In some cases, particularly among older workers, this may be the economic significance of a disability even when the degree of physical impairment is low. In such cases, however, there is commonly a reluctance to recognize that the loss of earnings resulting in the disability is likely to be permanent and total.
Where a case has been classified as one of permanent total disability, a pension may be payable for life or until a standard retirement age, but in some jurisdictions, it is for a more limited duration. The formula for calculating the pension may be the same as for temporary total disability benefits, but in some jurisdictions, a different formula is used. In particular, the wage rate on the claim may be adjusted as mentioned under Wage rate (above).
In systems administered by insurance companies, the right to periodic payments for a permanent disability is often settled for a lump sum, but some jurisdictions provide for annuities.
Permanent partial disability
This classification refers to permanent disabilities that are not classified as total. The methods (described below) that are used for estimating the degree of partial disability are also commonly used for distinguishing total from partial. Compensation for a permanent partial disability is commonly paid in a lump sum for minor and less serious disabilities, and in periodic payments for those that are more serious. A pension may be payable for life or until a standard retirement age, but in some jurisdictions, it is for a more limited duration.
Except for minor disabilities, a fixed pension has great advantages compared with a lump sum. Where the compensation is intended primarily for any future loss of earnings and some of the future costs of the disability, a pension has the great advantage that it can be paid for exactly the duration of the loss. A lump sum would require estimating an expectation of life, and in almost every case, that estimate would be wrong. Also lump sums tend to be spent in a relatively short time, and a claimant may then be supported out of general revenue. A fixed pension offers the best protection for the social security (welfare) budget.
How to calculate the benefits for permanent partial disability has been the most intractable problem in the history of workers’ compensation. Basically, three methods are used.
Physical impairment method
This method of calculating a fixed pension has been traditional and widespread in workers’ compensation, as well as for military pensions. Compensation is calculated by reference to the estimated degree of physical and mental impairment resulting from the disability. Rating schedules are commonly used that attribute percentage rates to a list of disabilities. In some jurisdictions, the rating schedule is rigidly followed. In others, the schedule is used as a guide. Variations are sometimes permitted or prescribed. One example is where there is some aggravating factor.
The content of these schedules is often criticized as too orthopaedic. For example, amputations commonly have a percentage rate that seems high, having regard to modern prostheses. More subtle disturbances of body function are commonly rated low, compared with their impacts on the lives of the claimants. A more comprehensive schedule is produced by the American Medical Association. This is used in some jurisdictions, either exclusively, or as a reference source when the primary scheduled used in the jurisdiction does not cover a particular disability.
Regardless of how a percentage rate is established, a pension is then calculated by applying that percentage to what would have been paid if the claimant had been classified as totally disabled. In jurisdictions that use this method, the schedule is also commonly used to distinguish total from partial disability. For disabilities that are rated below a certain percentage (commonly 10%) a lump sum is generally paid instead of a pension. This may be calculated by using the same calculations as for a pension, and then commuting the resulting pension to a lump sum, or some other method may be used for arriving at the lump sum. Since the vast majority of permanent disabilities are minor, the majority of awards for permanent partial disability take the form of a lump sum. A few jurisdictions provide that minor disabilities are not compensable.
Lump sums for minor disabilities, rather than pensions, have the advantage of avoiding ongoing administrative costs, but they can create a problem in some situations, such as where a worker suffers successive minor disabilities that become cumulative in their impact. There is the risk that the worker will become substantially disabled but without eligibility for a pension. A similar problem can arise when a lump sum has been awarded for a minor disability which deteriorates later to become more serious. If the deterioration is gradual, successive lump sums might be awarded for the same disability, and again, the end result may be a substantial disability without eligibility for a pension. In anticipation of this problem, some jurisdictions insist on a pension, rather than a lump sum, even for a minor disability, if the condition is unstable, or if it is considered prone to deterioration.
For unscheduled disabilities, most jurisdictions adopt one of four positions.
- A percentage rate is established by extrapolation from the schedule, using the schedule figures as benchmarks.
- Unscheduled permanent disabilities are compensated by using one of the other methods of calculation (described below).
- Unscheduled permanent disabilities do not receive benefits beyond those provided for a temporary disability, though temporary benefits may continue.
- Periodic payments terminate after a specified period notwithstanding that the disability, and any consequential losses, continues.
A major advantage of the physical impairment method is that it maximizes the incentive to rehabilitation while preserving its voluntariness and the civil liberties of the claimant. In jurisdictions that have a ceiling on the wage rate for the claim, this method also has the advantage that a pension is payable notwithstanding that there may be no loss of earnings below the ceiling.
Since evidence of actual loss of earnings is irrelevant under this method, a pension is paid notwithstanding that there may be no loss of earnings. That is considered a price worth paying to maximize the incentive to rehabilitation and to avoid the other disadvantages (mentioned below) of attempting to calculate compensation by reference to actual loss of earnings. Also the cases in which there is no apparent loss of earnings are commonly cases in which the claimant is continuing to work for the same employer. The economic impact of the disability may be more severe if the claimant is later in search of employment on the open labour market. Also the pension awarded by this method is usually the only compensation for non-monetary losses, and that rationale for the pension is independent of any actual loss of earnings.
Pensions awarded under this method are subject to reopening upon application by the claimant in the event of a deterioration in the condition. In some jurisdictions, the pension can also be reopened at the initiative of the compensation authority, insurer or employer, in the event of the disability being cured. This is rare, because disabilities are not generally classified as permanent until there is no realistic prospect of further cure. However, it can happen occasionally when medical research produces a cure that was not previously known.
The use of this method is sometimes abandoned in favour of the actual loss of earnings method (mentioned below), but the physical impairment method is sometimes reinstated when the difficulties and injustices of the actual loss of earning method have been rediscovered.
The projected loss of earnings method
This is an alternative method of arriving at a fixed pension and is used in a few jurisdictions. A pension is calculated by estimating the extent to which the earnings of the claimant are likely to be reduced by the compensable disability in the long run. In most cases, the claimant will have resumed employment by the time that the calculation is made, so that current earnings can be used as a starting point. It then has to be considered whether those earnings are more or less than the long-term earnings potential. Where a claimant has not resumed employment, the calculation can be more difficult; but since it only has to be made once in those cases, it is feasible to do it by an evidentiary inquiry where that is requested or otherwise seems appropriate. Statistical data are generally not of much use for this purpose. They cannot be used exclusively, or as the primary evidence, and if they are used at all, there is a danger that they will become a diversion from the facts of the particular case.
Like the physical impairment method, this method preserves the incentive to rehabilitation, its voluntariness and the civil liberties of the claimant. Also, like the physical impairment method, a pension awarded under this method is subject to re-opening in the event of a deterioration in the condition. The pension is, however, not subject to re-opening in the event of any change in the actual loss of earnings. This method avoids, therefore, most of the problems (mentioned below) of the actual loss of earnings method. Since this method takes no account of the expenses of the disability, or of non-monetary losses, it may be used in conjunction with other benefits.
Actual loss of earnings method
This method of compensating for permanent disability, which is used in some jurisdictions, does not provide any fixed pension. Periodic payments are supposed to be made according to the estimated actual loss of earnings resulting from the disability. These periodic payments are subject to variation according to changes in the estimated actual loss of earnings. In some jurisdictions, the payments are reconsidered from time to time when there is any change in actual earnings. In others, the payments are reconsidered at fixed intervals, sometimes yearly.
One problem with this method is the difficulty of estimating, as time goes by, the impact of the compensable disability on the earnings of the claimant compared with the impact of other factors, such as subsequent disabilities, natural ageing, technological change or political or economic changes that affect the labour market.
Another major problem with this method is the response to the risk of a claimant earning less than could be earned. The usual response is to “deem” each claimant to be earning what he or she is considered to be capable of earning. The use of such “deeming” provisions has been one of the greater causes of injustice and resentment in the history of workers’ compensation. While the initial intention was often that deeming should only be done by way of exception, it becomes the normal routine when the actual loss of earnings method is used. Claimants are “deemed” to be capable of earning in a “phantom job”; that is, a job that is unavailable to them. “Deeming” is also applied when a claimant declines to undertake a job because of health or moral objections. Compensation benefits are then commonly terminated while the disability and its consequential economic losses continue. In the jurisdictions in which this method is used, the periodic payments are usually the only compensation that a claimant receives for the economic losses resulting from a permanent disability. It is not part of the legislative prescription that these periodic payments should be temporary, but that is commonly the practical result of “deeming”.
Another injustice results from the way in which this method deals with career progression. Under a fixed pension system, a claimant loses the benefit of career progression in the pre-morbid occupation, but retains the benefit of any career progression in any subsequent occupation. Under the actual loss of earnings method, the claimant loses the benefit of any career progression in the pre-morbid occupation and also loses the benefit of any career progression in any subsequent occupation.
“Deeming” provisions also create a pressure to undertake any rehabilitation measures that the compensation authority may recommend (or require) regardless of whether they accord with the rehabilitation aspirations of the claimant, so that the voluntariness of rehabilitation is lost, and the ordinary civil liberties of the claimant may be impaired. For example, even the basic human right to move to another country may be lost or impaired when this method is used. For this reason alone, the use of this method can cause serious injustice when a migrant worker is disabled.
Another concern is that this method creates apprehensions about rehabilitation, as well as disincentives. If ongoing success is uncertain in relation to any employment opportunity, claimants are sometimes fearful of trying the employment in case it does not work out. The risk is that termination of the employment may then be attributed to reasons other than the disability, and the periodic payments may not be resumed.
Another serious problem with this method is the impossibility, in many cases, of making the relevant decisions fairly and accurately without an evidentiary inquiry. Yet such an inquiry is generally considered not to be feasible with the volume of decisions that have to be made when periodic payments are subject to change from time to time.
Variations and hybrids
Many variations of these methods are found, and some jurisdictions use a combination of them. Some use a hybrid method that draws features from among the three methods described above. One such hybrid is to award a pension by the projected loss of earnings method, but make it subject to review on two occasions, perhaps two years after the initial assessment and again at five years. This has the advantage of permitting the correction of any projection that turns out to be erroneous, but it has serious disadvantages. It prolongs insecurity, and if a claimant has any propensity to compensation neurosis or any other form of anxiety, this could become more entrenched. This method also prolongs any disincentive to succeed in vocational rehabilitation. It is also open to some of the other objections to the actual loss of earnings method, such as impairment of the basic right to move.
Since compensation benefits in non-fatal cases are usually earnings related, it is not usual to have variations for dependants, but supplementary benefits for dependants are provided in some jurisdictions.
In jurisdictions in which the benefits are taxable income, the existence of dependants may influence the net amount received in the same way it would influence the net amount of wages received. In jurisdictions in which the benefits are not taxable income, but where the compensation rate is a percentage of estimated “net” earnings, dependants are sometimes counted in estimating the level of income tax that would have been paid on wages, and in this way the existence of dependants can influence the compensation rate.
Many jurisdictions provide compensation for disfigurement, particularly facial disfigurement. In some jurisdictions, this is a lump sum, and it is separate from compensation for loss of earnings. In others, disfigurement is a factor to be considered in calculating the lump sum or pension for permanent partial disability.
Pain and suffering
Unlike employers’ liability, workers’ compensation systems do not usually provide compensation specifically for pain, suffering, loss of expectation of life, loss of enjoyment of life or loss of social functioning. However, such losses are compensated to some extent. Where the physical impairment method is used to calculate a pension for permanent disability, the pension is normally payable regardless of any loss of earnings. It might be seen, therefore, as compensation for non-monetary as well as monetary losses. In jurisdictions in which compensation for permanent disability is supposed to be paid by reference to actual loss of earnings, there is sometimes a separate benefit for the disability itself; that is, for the non-monetary losses. This benefit is usually a lump sum, but in some jurisdictions, it may be a pension in very severe cases.
Indirect economic losses
Compensation is not generally payable for economic losses that are indirect consequences of the disability or the accident. For example, if a worker had paid in advance for a vacation and then sustained a compensable injury that prevented the vacation from being taken, the loss of payment for the vacation would not be compensable.
Expenses and allowances
It is normal for the system to meet the expenses resulting from a compensable disability, or at least some of them. For example, claimants are commonly reimbursed for the cost of attending medical examinations or the processes for deciding claims. Irregular expenses are usually reimbursed by reference to actual cost, and ongoing expenses are sometimes met in the same way. Otherwise, an expense allowance may be paid for ongoing expenses. An allowance for attendant care is probably the most common and significant. Other examples that are broad in their application are an allowance for the extra wear on clothing that is caused by the use of a prosthesis, a pension supplement to those who are not ambulatory and “inconvenience allowances” for a broad range of disabilities. A more specific example of local application is a smokeless fuel allowance.
Where benefits are payable to a claimant under two or more sections of a workers’ compensation statute, whether on the same claim or different claims, the general rule is that the entitlement is cumulative. There are no off-sets unless the legislation so provides. Sometimes, however, the cumulative benefits may be subject to an overall maximum. There is also sometimes an implied exception when alternative benefits are payable in respect of the same loss. A common example is where a claimant has been awarded a pension for a permanent partial disability, and subsequently suffers a recurrence, causing a temporary total disability from the same injury. If a new wage rate is not being used for the temporary benefits, it would be normal to suspend the pension while the wage loss benefits are being paid for temporary total disability, or to continue the pension and reduce the temporary wage loss benefits by the amount of the pension.
The same person may be eligible for benefits for a compensable disability and for benefits as a surviving dependent spouse of a deceased worker. Each is a separate claim. There is usually no provision for any off-set, and commonly no maximum applicable to the aggregate.
With regard to benefits from other systems, usually other systems of insurance, workers’ compensation is usually in the position of first-payer, so there is no off-set or reduction of benefits because of money received from another system. Sometimes the other system may deny or reduce benefits when the claimant is receiving workers’ compensation. In some jurisdictions, however, workers’ compensation benefits are reduced by any amounts received by a claimant from certain other systems, usually social security or social insurance systems, or payments arranged by the employer.
The general rule is that no compensation is payable for damage to a worker’s property, but there are exceptions. Many jurisdictions compensate for damage to dentures, eyeglasses, a hearing aid or a prosthesis. A few jurisdictions also compensate for damage to a worker’s clothing. Where compensation is payable for property damage, the eligibility criteria are generally the same as for an injury, though some jurisdictions require an “accident” for a property damage claim when that is not a requirement for an injury claim.
The provisions mentioned above relate to property damage that occurs in the course of employment. There are also some provisions relating to property damage that subsequently results from a compensable disability. The most common example is the clothing allowance (see Expenses and allowances, above) that is paid to compensate for the extra wear on clothing that is caused by using a prosthesis.
Where a claimant who has been receiving benefits for a temporary disability returns to regular employment, the temporary benefits are usually terminated, though a pension and other benefits may continue in any respect of any residual disability. In the event of a recurrence of temporary total disability, the claimant may be entitled to a resumption of temporary benefits, but by this time the claimant may have established a new level of earnings. Some jurisdictions provide that this new level of earnings must or may be used for estimating the compensation benefits following the recurrence if this would be more favourable to the claimant. These provisions are particularly important in jurisdictions in which the wage rate on the claim is not indexed for inflation. Commonly, these provisions only apply after a specified number of years from the initial disability.
Non-compensable death of a disability claimant
This sub-heading refers to cases in which a person who is receiving or eligible for a pension for a permanent disability dies, and the death is not compensable because it did not result from the disability, or otherwise from employment. The general rule is that benefits terminate upon the death (or at the end of the month in which the death occurs). The following exceptions are sometimes found.
- Where the deceased claimant was receiving benefits for a total or very severe disability, some jurisdictions provide for the same death benefits to be payable as if the disability had been the cause of death. (These benefits are mentioned under the next sub-heading.)
- Some jurisdictions provide for the disability pension to continue in favour of a surviving dependent spouse for a short period, such as three months, or for a lump sum to be paid to the surviving spouse equivalent to the pension benefits for such a period.
- Where a pension is being awarded for a permanent disability, some jurisdictions provide that, in certain conditions, the entitlement may be converted into a pension for the joint lives of the claimant and spouse, and if that is done, the level of pension will be lower.
- A few jurisdictions provide for a survivor’s benefit, in the form of a pension or lump sum, to be paid regardless of the cause of death.
This sub-heading relates to cases in which the death itself is compensable. It may have been an instantaneous death that was caused by the employment, or death may have resulted later from a compensable disability. In most jurisdictions, the death need not have occurred within any particular time from the date of disability. However, the length of time between the disability and the death may sometimes be part of the evidence on whether the death resulted from the disability.
It is normal to provide a funeral benefit. In some jurisdictions, a standard amount is payable regardless of the actual cost. In others, the actual cost is reimbursed, subject to a maximum. Commonly the legislation does not specify to whom this benefit should be paid, so that it can be claimed by anyone who has paid for the funeral.
The most substantial benefits in fatal cases are the payments to surviving dependants. These may be by lump sums, periodic payments, or both. Some jurisdictions provide for standard amounts to be paid per dependant; for example, so much per month for a surviving dependent spouse and so much per month for each child. In other jurisdictions, the amounts vary by reference to the previous earnings of the deceased worker. This is usually done by establishing pensions for dependants at a percentage of what would have been paid to the deceased worker for a total disability. Some jurisdictions use a blended formula that refers to standard amounts and a variation by reference to the previous earnings of the deceased worker.
Where the benefits are a standard amount for each dependant, there is usually no maximum, so that the total might exceed what would have been payable to the deceased worker for a total disability. Where the benefits are earnings related, a maximum is sometimes established at the amount that would have been paid to the deceased for a total disability, or a percentage of that amount, and sometimes there is a lower maximum when there is no surviving spouse. In jurisdictions that use a blended formula, there may or may not be an applicable maximum.
Historically, death benefits have been payable to a surviving widow or disabled widower, and that is still the position in many jurisdictions. In others, recent moves to sex equality have eliminated the distinction, usually by reducing the benefits payable to surviving widows, and sometimes by abolishing pensions. Also, pensions for surviving widows used to be subject to termination upon a remarriage, often with a lump sum then being payable. In some jurisdictions, those provisions have been repealed. Even where they still apply, the children’s allowances continue. Also in some jurisdictions in which a widow’s pension is terminated upon a remarriage, that only applies if there are no children. When a widow’s pension has been terminated because of a remarriage, it is subject to revival in the event of divorce in some jurisdictions, but not in others. In some jurisdictions, the pension of a surviving spouse is also subject to termination if that spouse abandons the children.
Sometimes benefits are payable simply by reference to a family relationship. Otherwise it may be necessary to show a family relationship plus dependency. It is usually sufficient evidence of dependency that the claimant lived in a common household with the deceased worker, or that the claimant was receiving support payments from the deceased worker. It is not usually a disqualification from benefits that the claimant was earning, though if there was no common household and no significant support payments, that might be evidence that the claimant was not a dependant of the deceased worker.
Some jurisdictions recognize partial dependency, usually for cases in which the claimant and the deceased worker were not living in a common household. It may be decided that the claimant was partially dependent upon the deceased worker and benefits may be awarded based on a proportion of what would have been awarded if the claimant had been considered totally dependent. Other jurisdictions do not recognize partial dependency, so that a simple decision must be made that the claimant was or was not a dependant of the deceased worker.
Benefits for dependants are payable directly to those dependants (or to the person having care of a dependent child), not to the estate of the deceased worker. In some jurisdictions, dependants’ (survivors’) benefits are confined to a spouse (or widow) and children. In others, the range of eligible dependants can include siblings, parents, grandparents, grandchildren and other family members. In these jurisdictions, it is usual for a spouse (or widow) and children of the deceased, if any, to have priority. Subject to that, benefits may be payable to other family members who were, or who would in the future have probably been, dependent on the deceased.
Pensions to a surviving spouse are commonly payable for life. In some jurisdictions, they are payable for a fixed term of years, or until a standard retirement age. Periodic payments for a child usually terminate when the child reaches a specified age. There are commonly provisions extending the payments for a few years beyond that age when a child is undertaking full-time education, or for life if the child is disabled.
Where there are surviving children and no surviving spouse, an allowance is commonly payable to a foster parent. The amount is often equivalent to the amount that would have been paid to a surviving dependent spouse, but the duration is different. A foster parent’s allowance usually terminates when the last child reaches a certain age, or sooner if the foster care terminates.
A legal marriage is not usually required to qualify for spousal benefits. A couple who were cohabiting at the time of death and for a specified period prior to the death are considered spouses. The period is commonly less, or there is no minimum period, if there is a child of the union.
A legally married spouse who was separated from the worker at the time of death may be disqualified from benefits in some jurisdictions, or entitled only to reduced amounts. Where the deceased worker was supporting a separated legal spouse and there was a cohabiting spouse, some jurisdictions provide for the spousal benefits to be divisible between them, but the total payable is not increased. In deciding on the apportionment, it used to be normal for a legally married spouse to have priority, but the contemporary trend in some jurisdictions is for the cohabiting spouse to have priority.
In most jurisdictions, it is not a disqualification that a marriage took place or cohabitation began after the disability that caused the death.
In some jurisdictions, monetary benefits are not adjusted automatically for inflation, so that their values deteriorate over time, subject to such episodic adjustments as may be legislated. In other jurisdictions, benefits have a stable value by being indexed for inflation. This may take two forms. First, indexing of the payments that apply to new claims, including indexing of the ceiling. Second, indexing of the ongoing periodic payments that are being made in respect of earlier claims. The indexing factor may be applied directly to the benefits, or it may be applied to the wage rate on the claim, with consequential adjustments being made to the benefits.
Taxation of benefits
In some jurisdictions, the benefits, or some of them, are subject to income tax, and the tax is then commonly deducted at source. In other jurisdictions, the benefits are not taxable income. Where this is so, the ceiling on the wage rate, or on the level of benefits, is usually designed to ensure that a worker will not be better off on compensation than when earning. As an alternative to a ceiling, this result could be achieved by establishing the compensation rate as a percentage of the wage rate according to a scale of percentages that descends at higher levels of income.
Protection of benefits
To ensure that the benefits are available for the maintenance of the disabled worker and dependants, some jurisdictions prohibit any assignment of the benefits to creditors or others, and the benefits cannot be attached to satisfy any judgement. In recognition of this statutory principle, some compensation authorities also decline to accept any direction from a claimant to send compensation benefits to the address of a lawyer.
There are several common exceptions. Where an employer has continued to pay wages or has paid other benefits to a worker who has a compensable disability, some jurisdictions provide for the compensation authority to reimburse the employer for the lesser of the compensation benefits to which the worker was entitled and the amounts paid to the worker by the employer. Where a claimant has been receiving benefits from social security (welfare) pending the outcome of the workers’ compensation claim, some jurisdictions provide for the social security department (welfare office) to be reimbursed by the workers’ compensation insurer. Where a claimant with a compensable disability is failing to support dependants, some jurisdictions provide for a portion of the compensation benefits to be paid directly to those dependants.
Suspension of benefits
There are various provisions for the suspension of periodic payments. Common examples are the absence of a disability claimant from the jurisdiction during a period in which medical care is required, the unreasonable refusal of medical care, the cohabitation of a surviving dependent spouse with another person, and imprisonment of the recipient of the benefit. The significance of the suspension is not always clear in the legislation. Where words are used to indicate suspension, without any words being used to indicate disqualification, it may mean simply that the payments are postponed, with the entitlement remaining intact, so that the arrears are payable at the end of the suspension period. Sometimes words of disqualification are used, or it is otherwise apparent from the context that no benefits are payable at any time in respect of the suspension period.
The term “overpayments” refers to payments to which the recipient was not entitled, or payments in an amount that exceeds the entitlement. An overpayment might result from a mistake by the insurer, the recipient or a third party, or it may be the result of fraud by the recipient or a third party. The obligation of the recipient to repay the overpayment may sometimes depend upon the circumstances; in particular, on the recipient’s culpability. The recipient may:
- have induced the overpayment by fraud, negligence, or failure to comply with obligations to report information
- have been innocent of the cause of the overpayment, but aware that it was received, and may have deliberately or negligibly failed to inform the insurer
- have been innocent of any contribution to the cause of the overpayment and unaware of any overpayment.
Some workers’ compensation statutes provide that the insurer may recover overpayments, though not necessarily in all circumstances. Where the legislation is silent on the question, overpayments may be recovered under general legal principles, though not in all circumstances. For example, in some jurisdictions, an overpayment is not recoverable if it resulted from a mistake of law by the insurer and the recipient had not induced the mistake.
Where an overpayment is legally recoverable, the methods of recovery are generally the methods available in the particular jurisdiction to any other creditor. For example, the available method might be a court proceeding for debt, with the judgement being enforced by a seizure of the goods of the recipient. There may be no right, or only a limited right, to recover an overpayment by deductions from future benefits. Bearing in mind that compensation payments are commonly spent by the recipient as they are received, and that future benefits are intended to provide for future needs, there is sometimes an obligation under compensation legislation to make all future payments as they fall due without any set-off for past overpayments. Where that is so, any overpayment is only recoverable by other methods of enforcement.
The actual practice varies. If it is discovered that an overpayment was obtained by fraud, it is normal to seek recovery by all available legal methods of enforcement, and there may also be a criminal prosecution. Where an overpayment occurred by mistake, it may be written off, particularly if it was received in innocence. Otherwise the overpayment may be enforced by ordinary legal processes, and in jurisdictions where it is legitimate to recover overpayments by deductions from future benefits, this may be done in instalments. However, compensation authorities sometimes strive to avoid deductions from future benefits, even where such deductions are legally permissible.
Where an overpayment has been made to a physician or other service provider, the legal position is generally the same as for an overpayment to a disabled worker, except that a right of set-off is more widespread, so that recovery can be made by deductions from future bills, and that is a common practice.
Where an overpayment has been made to a disabled worker who has subsequently died, recovery may be sought from the estate of the deceased worker, but deductions are not generally permitted from any benefits that are payable to dependants.
Some jurisdictions permit the commutation (redemption) of all or a part of a pension into a lump sum. This may take the form of:
- a total commutation of the whole pension
- a commutation of full pension benefits for a term of years, so that the pension resumes after that period
- a partial commutation that reduces the level of pension benefits for the duration of the pension
- a partial commutation for term of years, so that pension benefits are reduced during that period, after which the pension resumes in full.
Among the jurisdictions that permit commutations, many do not permit all types, and the first is the most common.
Commutation provisions are vulnerable to abuse by system administrators, particularly by using a formula to calculate a lump sum that is much less than the real capital value of the pension. The availability of a commutation may also make a claimant vulnerable to predatory practices by service providers. It may also mean that taxpayers lose the protection that the system was intended to create by preventing a claimant from spending a lump sum and subsequently becoming a burden on public funds.
To avoid these problems, some jurisdictions prohibit commutations (or have no provision to allow them). Others provide that a commutation is only available at the discretion of the compensation authority, and this discretionary power may be defined (by the statute or by the compensation authority) to permit commutations only for certain purposes. Notwithstanding that a commutation is discretionary, some jurisdictions allow the denial of a commutation to be the subject of an appeal, and where that is so, the administrative and adjudicative cost of such discretionary powers can be unduly high in relation to the amounts involved.
In jurisdictions where the system is administered by insurance companies, the insurer (or the employer) or the worker, or both, may have a right, after some initial period, such as 12 months, to require the redemption of all future periodic payments by a lump sum. Failing an agreement, the amount may be determined by the court. Such provisions are open to the objections that, in practice, the worker receives substantially less than the full capital value of the future periodic payments, and that the future income needs of the claimant become a burden on public funds.
Rehabilitation and Care
Clinical facilities for rehabilitation, and the services of physicians and various types of therapists, are generally provided under the heading of medical aid. The rehabilitation provisions of workers’ compensation statutes usually relate to other types of rehabilitation assistance. Some items, such as prostheses, are provided under the heading of rehabilitation in some jurisdictions and under the heading of medical aid (or health care) in others.
Rehabilitation assistance is part of the coverage under many workers’ compensation systems, and so is chronic care. Alternatively, workers’ compensation claimants may be eligible for such assistance under a general social security system that covers all disabled people. In some jurisdictions, the social security system may exclude workers’ compensation cases, but in others, it does not, so that there is a measure of overlap, and assistance may be provided by either.
The goals to be sought in the provision of rehabilitation assistance are commonly not prescribed. Goal definitions produced at international conferences are found in the literature of workers’ compensation, but they are seldom treated as the guides for daily practice. In particular, there is an ambiguity in many jurisdictions about whether the goal of a vocational rehabilitation programme should be to maximize or improve employment opportunities for claimants, or whether the goal should be to coerce them back to work.
To some extent, however, the goals of vocational rehabilitation are implicit in the way benefits are provided for permanent disability. A pension by the physical impairment method is most consistent with the notion that rehabilitation is voluntary, and that therefore the overall goal of any programme of rehabilitation assistance should be to expand the opportunities of claimants, so that the goals in any particular case are the goals of the claimant. Use of the actual loss of earnings method implies that rehabilitation is compulsory, that it is indistinguishable from benefit control, that the goal of the programme in each case is to restore the claimant to employment, or alternatively, to provide the evidence that will justify a termination of benefits.
Where rehabilitation assistance is provided under a workers’ compensation system, the services are commonly discretionary, particularly where a broad range of services is offered. There has been a trend in recent years to legislate an ostensible “right” to rehabilitation, but it is hard to define an enforceable “right” in this context. The attempt to do so has commonly been accompanied by the reduction of monetary benefits and new limits on the rehabilitation assistance that may be provided.
For vocational rehabilitation, the assistance offered may include counselling, training for job interviews, a placement service, support during a period of job search, retraining, further education and sometimes relocation expenses. As well as vocational rehabilitation, some jurisdictions offer social rehabilitation assistance, such as equipment for hobbies or sports, courses on makeup, assistance with social adjustment or assistance in the resolution of marital problems. Social rehabilitation may be provided as a goal in itself, or in aid of vocational rehabilitation. Chronic care may consist of electronic, pneumatic or mechanical aids, or home help. Such assistance is usually provided under the heading of “rehabilitation”, though in many cases it is really chronic care.
In some jurisdictions, rehabilitation services reached a peak during the 1970s and have declined in recent years. In particular, the provision of placement services has declined, and delays have developed in the provision of other services. Where placement services are still provided, there has been some erosion of the traditional principle that disabled workers should be placed in productive employment. For example, they are now sometimes coerced or required to work in telemarketing (making unsolicited advertising calls to people’s homes) notwithstanding objections that this is a form of public nuisance and electronic trespass. One aspect of the deterioration is that the provision of rehabilitation assistance is now commonly perceived as a role for unqualified office workers rather than professionally qualified and trained field workers.
Rehabilitation is commonly perceived as something that follows the occurrence of a disability, but some jurisdictions recognize the value of preventive rehabilitation; that is, rehabilitation assistance for the prevention of a disability, even in cases in which none has yet occurred. For example, bad backs and certain diseases from industrial contamination are often predictable, and assisting a worker to obtain another job may sometimes be appropriate as a preventive measure. Rehabilitation assistance for this purpose is not usually provided, but it is done in some jurisdictions in some circumstances. Rehabilitation assistance may then be one of the remedies available in a health and safety programme. A few jurisdictions also have rehabilitation measures for the protection of a foetus, or a newborn baby who is being breast-fed by the worker, where exposure of the worker to contamination, or to some other condition of the employment, would otherwise endanger the health of the foetus or baby.
The decision-making process for rehabilitation matters is the same as for compensation matters in some jurisdictions. In others, it is different, with a greater emphasis on discussion and consensus, and a reduced role for adjudication and appeals.
In some jurisdictions, the costs of rehabilitation assistance are charged in the same way as monetary benefits. In others, the costs of rehabilitation assistance are charged to the general fund and spread over the classes, even though experience rating may be in effect for the cost of monetary benefits. Since the cases in which vocational rehabilitation assistance is needed are usually those in which the accident employer is not offering continuing employment, this method of charging the cost enables the rehabilitation decisions to be made without the accident employer being involved as a party. In that way, this method avoids the therapeutic damage of adversarial processes. Where the costs of rehabilitation assistance are charged to the general fund, the costs of compensation for injuries sustained during rehabilitation may be charged in the same way.
Obligations to Continue the Employment
In recent years, some jurisdictions have purported to create an obligation upon an employer in whose service a worker became disabled by a compensable injury or disease (the accident employer) to continue the employment of that worker. Typically, the obligation commences when the worker has made a sufficient recovery to return to some type of work that the employer can make available, and continues for a period of one or two years. The enactment of such provisions is usually accompanied or followed by a reduction in compensation benefits for permanent disabilities.
In jurisdictions with a largely unregulated market economy, and where most employment is not covered by collective bargaining, such provisions are counter-productive. They detract from and tend to undermine the provision of any genuine rehabilitation service. A worker with a permanent disability is not usually assisted by a temporary “right” to employment. Moreover, these provisions change the image of a disabled worker from that of a person whose continuing employment with the same employer could be expected in the ordinary course of things to that of a burden that the employer should bear. This change of image is not confined to the cases that would have been a rehabilitation problem in any event, and for this reason alone, these provisions can create rehabilitation problems.
Given that the ostensible “right” is only relevant in cases in which the employer would like to terminate the employment relationship, the “right” is inevitably fragile. In most jurisdictions, an employment relationship can be terminated on a variety of grounds, and these grounds for termination are not usually extinguished by the worker’s “right” to continuing employment. Even if employment is unlawfully terminated, the remedies may be difficult to enforce. The “right” is, therefore, a fragile one, and notwithstanding its fragility, its exercise, or the refusal of the worker to exercise it, are both grounds for the termination of compensation benefits.
Disputes about what is suitable employment, having regard to the residual disability, are commonplace, and they can be hard to resolve without an evidentiary inquiry. Even when such an inquiry is conducted and a well-reasoned decision is made, it may still have limited significance, particularly if the circumstances are changing or the period of the obligation is expiring. When a dispute about the obligation is resolved in favour of the worker, this may still not produce a continuation of the employment. It generally produces a cash settlement instead. Thus even when the outcome is “successful” for the worker, the result is the delivery of a monetary benefit through a process that is highly inefficient, and a cause of therapeutic damage.
The enactment of such a “right” also detracts from the provision of a genuine rehabilitation service. Since the worker has an ostensible “right” to return to the same employer, that tends to be perceived as what ought to happen, so that assistance for alternative forms of rehabilitation are less likely to be considered. For all of these reasons, legislation which was intended to create an obligation on the employer and a choice for the worker turns out, in practice, to create an obligation on the worker and a choice for the employer.
Some jurisdictions require the continuing employment of a worker who has sustained a disability, regardless of the cause. Such provisions are probably workable only in the context of collective bargaining or a highly regulated labour market.
A few other jurisdictions prohibit the dismissal of a worker who is off work by reason of a compensable disability, but do not prohibit the dismissal of such a worker upon recovery from the disability.
The cost of workers’ compensation is generally raised by premiums or assessments that are paid by employers. Because of this, it is commonly asserted or assumed that employers bear the cost of the system, but that is manifestly incorrect. The burden of any tax may move from the party with the initial obligation to pay, and there is a wealth of economic literature explaining that a payroll tax is commonly an opportunity cost of labour. Part of the cost of workers’ compensation assessments (premiums) may rest with employers, but part of it is passed onto labour in the form of lower wage rates or other benefits, and part of it may be passed onto consumers. Also workers’ compensation benefits do not provide a complete indemnity for the economic losses of disabled workers. To the extent that these losses exceed any compensation received, these are costs of occupational disabilities that are not shown as costs of the workers’ compensation system. These costs are borne for the most part by disabled workers, though to some extent they may be passed on to others, such as family members or creditors.
Balancing of accounts
The first step in the financial design of a system is a criterion for balancing accounts, so that aggregate revenues and aggregate expenditures will be approximately equal over time. In systems operated by insurance companies, this is supposed to be done by adjusting premiums, so that the revenue will reflect the claims cost experience. In social insurance systems, the legislation usually requires accounts to be balanced in the same way, but there are often political pressures to reduce the level of assessments, and then bring the expenditures into line with the assessment decisions. Unless a government maintains the integrity to block these pressures, ongoing conflict between the legislation and the political pressures causes ongoing friction in the administration of the system, and in adjudication. It can also cause unfunded liabilities to accrue.
Revenue and classification
Most workers’ compensation systems use industrial classifications and establish a rate of premium or assessment for each class or sub-class of industrial activity. The classification may be by reference to the end product, or by reference to the job functions of employees. Classification by end product is easier from the standpoint of administration and adjudication. Classification by reference to the job functions of employees can increase the complexities of auditing, particularly where some employees perform multiple functions.
Once a rate of assessment has been established for an employer, that rate is usually applied as a percentage of the payroll. In jurisdictions in which there is a ceiling on the wage rate for a claim, the same ceiling is commonly applied as a maximum on the amount of pay per worker to which the percentage rate is applied for assessment purposes. For example, an employer might be required to pay 2 currency units per 100 units of payroll to a maximum of 50,000 units of payroll in respect of any one worker per year. Usually the rates are revised annually. While assessment as a percentage of payroll is normal, alternative methods are sometimes found, such as assessment on the estimated value of assets, or on the price of goods sold. Some systems also have a partial subsidy from government.
In many systems, the premium or assessment payable by an employer will vary from the standard rate for the class or sub-class to which the employer belongs by reference to the claims experience of that employer, compared with others. This is called “experience rating”. It is sometimes called “merit rating”, but that is a misnomer, because the rate variations have no known connection with any type of merit. Usually the formula for calculating the variations uses predominantly claims cost experience, but it may include a variation by reference to other factors such as the frequency of claims. Sometimes there is also a minimum deemed cost for fatal cases. Small employers are commonly excluded from experience-rating plans, or where they are included, the rate variations applied to small employers may be more limited.
Experience rating is standard in systems administered by insurance companies. It is sometimes used also in social insurance systems of workers’ compensation, and its use in these systems has been expanding in recent years, but to a large extent, it is incompatible with the rationale for their creation. A major advantage of a social insurance system is that in the adjudication of claims, it can avoid adversarial processes. The use of experience rating deprives the system of that advantage.
In systems administered by insurance companies, experience rating usually applies to all expenditures made on a claim. Sometimes that is also the case in social insurance systems, but in some such systems, experience rating is confined to the monetary benefits. It does not apply to medical aid or rehabilitation expenditures. This is to minimize the use of adversarial processes for decisions on those expenditures.
The rationale most commonly heard for experience rating is that it will create an incentive for an employer to reduce the frequency and gravity of occupational disabilities, but there is no credible evidence that it has that effect. The only “studies” that purport to show experience rating having any beneficial effect on health and safety use claims data as the measure of the effect. For several reasons, claims data cannot properly be used in that way. Experience rating creates an economic incentive for employers to prevent or discourage the filing of claims, to withhold positive information, to oppose claims, to appeal decisions that are favourable to claimants, to press claimants to return to work prematurely, to seek personal medical information relating to claimants and to require further medical examinations of claimants. Although some of these practices are commonly legitimate, their extensive use makes it impossible to use claims data as a measure of the “success” of experience rating in relation to health and safety. These practices also increase the administrative and adjudicative costs of the system; and because of the delays and therapeutic damage that they create, they probably increase also the compensation costs.
Experience rating can create an incentive for an employer to facilitate the rehabilitation of a disabled worker in some circumstances, but on the whole, experience rating is probably negative in its influence on rehabilitation. It commonly results in all soft tissue injuries being treated with suspicion. Such attitudes can be a cause of anxiety and an impediment to rehabilitation. Experience rating can also discourage an employer from hiring disabled people and from continuing the employment of workers who become disabled. This is primarily because the compensation cost of any subsequent disability can be greater when its impact is compounded by the previous disability. To counteract this negative influence of experience rating, some jurisdictions use a “Second Injury Fund”. Part of the compensation cost of the subsequent disability can be charged to that fund, rather than to the employer’s experience account. The costs of this fund are spread over all assessment classes and all employers. Rules for the use of the Fund vary, but the general principle is that where some pre-existing disability or condition has contributed to the cause of a compensable disability, has enhanced its gravity or otherwise increased its compensation consequences, a portion of the compensation cost of the disability should be charged to the Second Injury Fund.
These funds do not achieve their objective. This is partly because of other reasons (real or perceived) why many employers avoid the employment of disabled people, and partly because the transfer of costs to a Second Injury Fund depends upon a judgement being made in claims adjudication after the subsequent disability has occurred. Also the cost of processing applications for a transfer of costs to a Second Injury Fund is another reason why experience rating increases the overall costs of the system.
Experience rating would seem, at first impression, to improve equity in cost distribution among employers. To some extent it does, but it also creates new inequities. For example, applications for the transfer of costs to a Second Injury Fund, or to other general funds, are more commonly made by large employers who have staff or outside consultants engaged for that purpose. The result of these transfers is to elevate the standard rate for the class or sub-class, with the end result being a subsidy from smaller to larger employers.
In terms of a time dimension, the financing of workers’ compensation is arranged in one of two basic ways.
- Funding. The total revenues required in any year are determined by estimating the total present and future costs of all compensable disabilities that occur during that year (or of all claims received during the year).
- Current Cost Financing (sometimes called pay-as-you-go). The total revenues required in any year are determined by estimating the total costs that will be paid during that year in respect of all current and past claims.
Variations on one of these positions are found, and so is some middle ground between them. Funding requires substantial reserves to be established, and their adequacy is commonly re-estimated each year. With current cost financing, some reserve is required as a cushion, but it does not require repeated actuarial calculations.
Where a system is administered by insurance companies, the general principles of insurance law require that it must be funded. A social insurance system is in a different position because a government can, by law, compel future contributions. In practice, some social insurance systems have a statutory requirement of full funding, and some use current cost financing. Others adopt a different position, such as partial funding, or funding for some items of future cost and not for others.
Current cost financing is marginally cheaper in the long run, but funding is essential in many jurisdictions, such as smaller ones, and those that are heavily dependent upon primary producing industries.
Non-payment of assessments or premiums
In systems administered by insurance companies, an insurer may be allowed to terminate the insurance coverage if the premium is not paid. The employer is then responsible for the compensation payments on future claims, and future claimants are dependent on the continuing solvency of the employer. Where there is a legal requirement to carry workers’ compensation insurance, and an employer has failed to pay a premium, there is commonly a provision for criminal sanctions, usually a fine or imprisonment, and this is in addition to the employer’s liability for claims. The continuation of the business may also be stopped in some jurisdictions.
Where a workers’ compensation system is one of social insurance, some jurisdictions require or permit the coverage to be terminated when assessments have not been paid by an employer. More commonly, the payment of compensation is not dependent upon the assessments having been paid, and termination of the coverage is not permitted as a response to any non-payment. Each claim is a charge on the relevant class fund, and in some jurisdictions, it is a charge on the whole fund.
In the event of non-payment of an assessment, various enforcement mechanisms are used. Commonly they are similar to the enforcement mechanisms that are available in the jurisdiction in relation to other forms of taxation. These methods may include seizure of the employer’s property (including land and goods), attachment of the employer’s bank account, and orders for the cessation of business. In some jurisdictions, non-payment of the assessments is also a criminal offence. Penalties may be payable in addition to the overdue assessments, and the employer may also be required to reimburse the administering agency for the costs of claims arising during the period of non-payment. Where an employer is incorporated, there may also be some personal liabilities on the directors of the company.
This term refers to situations in which one person may be liable for the obligations of another. Where the employees of one person (the “contractor”) are used to doing work for another person (the “principal”) some jurisdictions provide that in some circumstances, the principal is, in effect, a guarantor of the obligations of the contractor in relation to workers’ compensation. Such provisions commonly apply to work being done on construction sites, though they also sometimes apply to other situations.
Health and Safety
In systems operated by insurance companies, the practice varies among jurisdictions and among companies with regard to what role, if any, the insurer will play in relation to occupational health and safety. Sometimes the insurer plays little or no role. Sometimes the insurer undertakes a survey of risk, but limited to a standard range of items. Sometimes the insurer may undertake a more professional and sophisticated survey of risk. This is more common in particular industries where the insurer may be undertaking other types of coverage as well as workers’ compensation. Where surveys are undertaken, they may be repeated later, or they may be used only for initial premium setting, with the insurer using claims cost experience for subsequent premium adjustments.
Where workers’ compensation is a system of social insurance, the most common position is that the workers’ compensation system supports the government agency that has the regulatory jurisdiction in relation to occupational health and safety. This support commonly consists of statistical information, and the distribution of health and safety messages to employers, unions and workers. The workers’ compensation system may also provide some other health and safety services directly to employers, such as technical advice, or it may finance the provision of services by industry associations (though the value of this is controversial).
In some jurisdictions, the workers’ compensation agency also has the regulatory jurisdiction of the government in relation to occupational health and safety. In these jurisdictions, the workers’ compensation system can be, and sometimes is, used extensively in aid of occupational health and safety. This use may include the provision of health and safety information from claims records to programme inspections and for other purposes, the sharing of some technical and professional resources, and some sharing of support services. By far the most valuable connection is the use of compensation assessment adjustments as a sanction for the enforcement of occupational health and safety regulations and orders. The assessment payable by an employer may be increased by reference to hazardous conditions observed upon an inspection (not by reference to any paper records). This is the only suitable and available sanction for the enforcement of health and safety requirements that can be used in the broad range of situations for which criminal sanctions are inappropriate or inadequate (including, continuing high levels of toxic contamination).
The compensation system can also be used in other ways to provide a sanction for the enforcement of occupational health and safety regulations. For example, where a disability resulted from a serious neglect of regulations or orders by the employer, or other serious negligence, the employer may be ordered to pay the whole or part of the cost of the claim. Thus while fault on the part of an employer is irrelevant as a general rule in workers’ compensation, it can be invoked in a few jurisdictions by way of exception in extreme cases as a sanction for the violation of health and safety requirements. Assessment variations by the use of health and safety audits has no potential on a broad scale, but it can be done in limited circumstances.
Claims against Third Parties
This heading refers to any civil claims that a disabled worker may have against anyone who is alleged to have caused the disability, other than the employer. In some jurisdictions, some of these claims are barred by the workers’ compensation legislation. Where they are not so barred, some jurisdictions provide that the worker may pursue the claim, but the defendant is entitled to have the damages reduced by the amount that the claimant has received, or will receive, in workers’ compensation benefits.
Other jurisdictions provide that the insurer (the compensation authority, the insurance company, or the employer, as the case may be) may take over the right to pursue the claim against the third party. This is called “subrogation”. In some jurisdictions, this right of subrogation is total. The insurer takes over the whole claim; but if any amount is recovered above the compensation that has been or will be paid, the insurer must account to the worker for the excess. In other jurisdictions, the subrogation is partial. For example, the legislation might provide that the insurer can pursue the claim to the extent of the compensation paid and payable, while the worker can pursue the claim for the excess. Or it might provide that the insurer can pursue the claim for monetary losses while the worker can pursue the claim for non-monetary losses.
PART TWO: OTHER SYSTEMS
Social Insurance and Social Security
The term “social insurance” usually refers to a system of insurance administered by government with the coverage being compulsory, and with contributions being required from employers, employees or both, though there may also be a contribution from general revenue. Such a system usually covers employees, though the self-employed may be included, at least to some extent. A system may be specific; for example, a workers’ compensation system may be one of social insurance; or it may be broad, with benefits payable in the event of unemployment, sickness, disability, pregnancy, retirement and death. It is the broad social insurance systems that are discussed under this heading. The benefits may be flat-rate or earnings related. There may be exclusions from the coverage for particular industries or particular categories of employees, but the exclusions are commonly less extensive than the exclusions under a system of workers’ compensation.
The term “social security” is used with several meanings. In its narrowest meaning, it commonly refers to a system of benefits paid by government out of general revenue to people who qualify by reason of disability, old age, unemployment or some other qualifying cause. Commonly there is a means test. The system usually covers all people who are usual residents of the jurisdiction. The benefits are usually flat-rate, though there may be a variation by reference to dependants. The term “social security” is also commonly used in a much broader sense to include these benefits, plus social insurance, medical care and social services. In this chapter, the term “social security” is used in the narrower sense, so that it refers to money benefits that are distinct from social insurance benefits.
Many countries do not have a separate system of workers’ compensation. Disabilities and deaths that result from employment are covered under a broad social security or social insurance system that includes disabilities and deaths from other causes. Medical aid for disabilities resulting from employment is usually provided in these countries under the same government system of medical care that applies to disabilities caused in other ways. In some jurisdictions, additional types or levels of medical care are sometimes provided when a disability has resulted from employment, or certain services or treatments may be free which involve a cost for disabilities that did not result from employment.
For money benefits, disabilities and deaths that result from employment may be treated in the same way as those that result from other causes, and this is common with regard to short-term benefits, but in many jurisdictions, there is an additional benefit, or a higher rate of benefit, when a disability resulted from employment. This is common for permanent disabilities and it is sometimes found also in fatal cases. The historical explanation is often that the broad social insurance system replaced an earlier workers’ compensation system. This structure may also be a way of complying with ILO conventions. Some systems also include special benefits, or special levels of benefit, for those in particular occupations.
The coverage of broad social insurance systems is generally universal, applying to all those who live or who work in the country, though there are commonly some exceptions for foreign nationals.
Contributions for the cost of the system are commonly required from employees, and from employers in respect of their employees. The contributions may be at a standard rate (which is usual if benefits are flat-rate), or they may be earnings-related (which is usual if benefits are earnings-related). A certain personal contribution record may be a prerequisite for benefits, and the contribution record of a worker or the employer of the worker may also be relevant to the level of benefits. Where additional or higher benefits are payable for disabilities or deaths that result from employment, the costs of these provisions is commonly a charge on the employers’ contributions.
Where contributions and benefits are earnings-related, there is commonly a ceiling applicable to both. Thus the insurance coverage commonly applies only to income at lower levels, and the costs of the system are commonly borne wholly or predominantly from income at the lower levels. The benefits under a general social insurance system are commonly at lower levels than under workers’ compensation systems. However, various supplements are commonly found, such as supplements for dependants.
Administration and primary adjudication are usually in a government department. If there is any dispute, it is usually between a claimant and the department. Experience rating is not generally used in social insurance systems. Hence an employer is not usually seen as having an interest in the result of any particular claim and is not considered a party to the claim, though employers may sometimes be required to supply information. Appeals may lie within the department or to a separate tribunal. Appeals to the ordinary courts are sometimes possible, but the courts are not readily available to deal with social insurance cases in any significant volume.
Under a broad social insurance system, there is often a waiting period of three days. For temporary disabilities and during the initial phase of permanent disabilities, periodic payments are made. They are commonly called a “sickness benefit”, though they are paid also in injury cases. The cause of a disability is generally irrelevant, but the benefit is usually payable only if the disability causes an absence from work.
Pensions are normally paid for permanent total disabilities. In many jurisdictions, pensions are also paid for permanent partial disabilities, though in some jurisdictions, this benefit is limited to disabilities that have resulted from employment. Partial disabilities that are classified as minor may be compensated by a lump sum or not at all. The distinction between total and partial, and the rate of pension for partial disability, depends in some jurisdictions on the estimated impact of the disability on the earning capacity of the claimant. In others, it may be measured by the degree of physical and mental impairment. Sometimes there is a blended formula in which both factors are considered. In some jurisdictions, a partial disability is classified as total during any period of hospitalization for the treatment of that disability. Commonly there are additional benefits for special needs, such as attendant care.
Death benefits commonly include a lump sum for funeral costs, a pension for any surviving spouse, or in some jurisdictions for any surviving widow, and periodic payments for surviving children.
Many features that are commonly found in workers’ compensation systems are uncommon, or not found at all, in broad social insurance systems. These include optional coverage, commutations, industrial classifications, experience rating, funding and a role in occupational health and safety.
In some jurisdictions that have a separate workers’ compensation system, the claimants on that system are disqualified from receiving disability benefits under a general social insurance or social security plan. In other jurisdictions that have a separate workers’ compensation system, the total or partial stacking of benefits is permitted. In some of these jurisdictions, the general social insurance system is in the position of first-payer, both with regard to medical care and monetary benefits, with the workers’ compensation system topping up the benefits, sometimes to the extent of a full indemnity for all losses.
Rehabilitation assistance is commonly provided under social insurance and social security programmes. The range of assistance varies, as it does under workers’ compensation systems. There is a contemporary trend in some countries to reduce the scope of disability pensions in favour of vocational rehabilitation assistance. The problem with this development is that the curtailment of monetary benefits may be real while the substitution of rehabilitation assistance may be illusory in view of the economic and political developments that are making vocational rehabilitation more difficult. The viability of social insurance systems is also currently threatened in some countries by the weakening of the State, the weakening of organized employment, the expansion of the “informal economy”, of self-employment, and of very small businesses.
These systems are discussed more fully in works on social security and social insurance.
A few jurisdictions have a scheme of accident compensation or accident insurance administered by government. These schemes differ from workers’ compensation in that they cover all injuries by accident, regardless of the cause, plus a category of occupational diseases, or all diseases resulting from employment. These schemes are in lieu of workers’ compensation and the personal injury component of motor vehicle insurance, but they also cover injuries that occur at home, during sports, or in other ways. The benefits are typical of the benefits that are commonly found in workers’ compensation, including medical aid, monetary compensation and rehabilitation assistance. These schemes differ from broad social insurance systems in that they do not cover most disabilities and deaths from diseases that are not shown to have resulted from employment. For this reason, they do not cover the majority of disabilities and deaths.
In some jurisdictions, the law of employment requires employers, or some employers, to continue the payment of salary or wages, at least to some extent, when an employee is unable to work because of sickness or injury. Also, regardless of any legal obligation, it is common for many employers to continue the payment of salary or wages for some period when an employee is unfit for work. Although this is often called “sick pay”, these provisions usually apply to absences from work that are caused by injury as well as sickness or disease. These arrangements are commonly informal, particularly among small employers. Larger employers commonly have contractual sick pay schemes, sometimes the result of collective bargaining. Some jurisdictions have a statutory scheme of sick pay.
A workers’ compensation system, where applicable, is usually in a first-payer position, so that sick pay is inapplicable to cases that are covered by workers’ compensation, or it provides a supplementary amount of income. Alternatively, the employer may continue to pay the wages and receive a total or partial reimbursement from the workers’ compensation agency. In a few jurisdictions, sick pay covers an initial period for all disabilities, with workers’ compensation providing the benefits after that period for those disabilities that qualify.
In jurisdictions that do not have a workers’ compensation system, sick pay generally applies to disabilities that result from employment as well as those that result from other causes. The sick pay may then provide the total income of the worker, or it may supplement a social insurance benefit.
As an alternative to sick pay, short-term disability insurance (sometimes called “weekly indemnity insurance”) is organized by some employers in some jurisdictions. It is similar to sick pay except that it is administered by insurance companies.
Long-term disability insurance is organized by many employers in many jurisdictions by arranging a group policy with an insurance company. In the organized sector, these policies are often the result of collective bargaining. In the unorganized sector, such a group policy is sometimes arranged at the initiative of the employer. The premiums are commonly paid by the employer, though sometimes by the employees or with a contribution from the employees.
In jurisdictions that have a workers’ compensation system, these policies generally exclude disabilities that are covered by workers’ compensation. In other jurisdictions, the coverage of these policies may include disabilities that result from employment. The benefits usually take the form of periodic payments, though they may be commuted to a lump sum.
These policies are commonly limited to cases of total disability, or they include certain cases of partial disability but only for a limited period. In other ways too, the coverage of these policies is more restricted than workers’ compensation. For example, the benefits may be subject to termination after two years if the claimant is capable of any type of work, even though it may be at a much lower rate of pay, and even though the claimant may only be able to do that work for a few hours each week. It is also normal to terminate the benefits after an initial period on the ground that the claimant is capable of some type of work, even though that type of work is unavailable to the claimant.
Most jurisdictions have, or have had, a law that makes employers liable in some circumstances for disabilities caused to their employees. Commonly, the criteria of liability are negligence by the employer, by management personnel, or by a fellow worker, or some breach of statute law or of a health or safety regulation. This liability may be the creation of the courts through case-law, the creation of statute, or it may be part of a civil code.
The compensation takes the form of a lump sum, known as “damages”. The amount may include an estimate of economic losses (usually loss of earnings) and an intuitive award for non-economic losses (such as pain and suffering, disfigurement, sexual dysfunction, impairment of social activities and loss of expectation of life). The lump sum will cover estimates of future and past loss. In fatal cases, the damages recoverable by dependants may include the loss of their participation in what would have been the future earnings of the worker, and in some jurisdictions, an award may also be made to dependants for non-economic losses. If negligence by the worker was a contributing cause, that would bar the claim in some jurisdictions. In others it would reduce the damages.
In jurisdictions that do not have a workers’ compensation system, the law of employers’ liability usually remains in full effect, though eligibility for benefits under a broad-based social insurance or social security system may reduce the damages. In some jurisdictions, employers’ liability remains in effect, but its scope is more confined. Where a disabled worker in some jurisdictions receives benefits under a broad social insurance system, that system is subrogated to the claim against the employer.
In jurisdictions that have a workers’ compensation system, but one that does not cover all industries or all occupations, the law of employers’ liability usually remains in full effect for those who are not covered by workers’ compensation.
Where a disability or death is covered by a workers’ compensation system, this usually has one of the following consequences for employers’ liability.
- Employers’ liability remains in effect, but a claimant must elect whether to claim workers’ compensation benefits or pursue the liability claim against the employer. Where the worker elects to pursue the employers’ liability claim, that extinguishes the workers’ compensation claim in some jurisdictions. In others, the workers’ compensation claim may be pursued if the employers’ liability claim fails.
- Employers’ liability remains in effect, but there is a set-off so that damages can only be recovered for any losses in excess of workers’ compensation benefits.
- Employers’ liability remains in effect, but it is confined to damages for non-monetary losses.
- Employers’ liability claims are excluded for workers who are covered by workers’ compensation, but with some limited exceptions, such as injuries that were caused “intentionally” by the employer, or that occurred on a highway. Subparagraphs 1, 2 or 3 may then apply.
- Employers’ liability claims are excluded for workers who are covered by workers’ compensation. In some jurisdictions, this exclusion also covers claims for damages for personal injury against fellow employees, against any other employer who is covered by the workers’ compensation system, and against any worker of such other employer, as long as the claim is based on conduct of the defendant that occurred in the course of employment or business.
In jurisdictions in which employers’ liability remains in effect for cases that are covered by workers’ compensation, the workers’ compensation benefits seem to be more restricted, and that is to be expected.
Where employers’ liability claims are prohibited, the prohibition often applies only to claims for damages for the injury or disease. Thus in some jurisdictions, a claim may still lie on other grounds. For example, a claim for damages may still lie against an employer for impeding the processing of a workers’ compensation claim, such as by failing to comply with statutory obligations to maintain or supply data relating to the exposure of a worker to contamination. Also the prohibition of employers’ liability claims usually applies only to disabilities that are compensable under the workers’ compensation system. Thus if a worker becomes disabled because of negligence by an employer, but is not eligible for workers’ compensation, an action for damages against the employer would not be barred. For example, in some jurisdictions, compensation is not payable for occupational stress; nor is workers’ compensation payable for a disability to a child resulting from a pre-natal exposure or injury to a parent during the course of employment. In these situations, an action for damages against the employer would not usually be precluded by workers’ compensation legislation.