Workers’ Compensation History

The history of Workers’ Compensation in the United States has its roots in a state-based system, previously called Workmen’s Compensation before undergoing a name change for gender neutrality.

Across most states, there’s some version of workers’ compensation that’s usually mandatory for almost all employers, depending on organizational specifics. However, Texas, as of 2018, stands as an exception. Nevertheless, companies have the option to voluntarily purchase insurance, covering both compulsory aspects (Part One) and non-compulsory aspects (Part Two), irrespective of mandatory requirements.

Every state had initiated a Workers’ Compensation system by 1949. The journey began in 1884 when Otto von Bismarck introduced the Workers’ Accident Insurance system, influencing both Europe and the United States. This move convinced U.S. policymakers, journalists, and social scientists of the necessity for a compensation law. However, there was disagreement on whether to adopt the German or British system in the late 19th and early 20th centuries.

The German system was centered on insurance, eliminating employees’ ability to sue. On the flip side, the British system retained employees’ right to sue. Consequently, the United States chose to deal with employees’ injuries through litigation but ultimately leaned toward the German system.

The compensation law brought forth an “unholy trinity” of tort defenses for employers, encompassing contributory negligence, risk assumption, and the fellow servant rule. Consequently, injured employees or the families of deceased employees usually faced challenges in workplace injury lawsuits.

In 1855, Georgia and Alabama set the stage by passing the Employer Liability Act, followed by 26 other states passing similar acts between 1855 and 1907. This allowed injured employees to sue their employers under early laws, providing a means to prove negligence or omission. A similar regulation surfaced in Britain’s 1880 Act.


In 1898, New York, followed by Maryland in 1902, Massachusetts in 1908, and Montana in 1909, passed comprehensive Workers’ Compensation laws. However, the initial federal law for federal employees in 1906 was deemed unconstitutional. It wasn’t until 1911, with Wisconsin being the first, that a state passed an unchallenged statute in the courts. By 1949, every state had established a Workers’ Compensation program.

During the early 20th century, Workers’ Compensation laws varied among states, being either voluntary or mandatory. Opting out of these laws in certain states increased the risk of employee injury lawsuits. There were also legal battles where employers argued that mandatory participation laws violated the 14th amendment, necessitating due process before depriving someone of property.

In 1917, the United States Supreme Court, in the case of New York Central Railway Co. v. White, resolved the due process issue, affirming that mandatory Workers’ Compensation didn’t hinder employers. Consequently, each state established different threshold requirements, leading to changes in compensation for workplace accidents.

This led to alterations such that workers were no longer required to prove employer fault, and compensation couldn’t be denied if the employee’s negligence contributed to the injury. Employers were then mandated to have insurance covering (1) medical costs of employees’ occupational injuries and certain illnesses and (2) indemnity, partially replacing lost wages. Unfortunately, an early side effect of compensation laws included incentives for employers to terminate or reject employment for workers with disabilities or health conditions, resulting in increased costs.

In the United States, most injured employees receive medical care and sometimes financial compensation for resulting disabilities. However, injuries occurring en route to the workplace typically don’t qualify for Workers’ Compensation benefits, with a few exceptions like employees with responsibilities at multiple locations or after work hours.

To fulfill their obligation, employers adopt two methods: large organizations and governments may “self-insure” with permission from the Workers’ Compensation agency, while smaller organizations must purchase insurance policies. Some self-insured organizations may choose a “hybrid” approach, paying claims out of pocket after an investigative insurance company reviews them.

A self-insured organization differs from an uninsured company, as the former has state agency permission not to carry Workers’ Compensation insurance, being financially equipped to cover claims. States enforce strict penalties, including fines and imprisonment, for employers without self-insurance authorization or lacking Workers’ Compensation insurance.

Commercial insurance companies offer employers policies, but those seen as too risky may resort to assigned-risk programs. Additionally, public uninsured employer funds in many states are available to pay benefits when organizations fail to legally acquire insurance.

Educational and guidance resources for Workers’ Compensation administrators and adjudicators are provided by various organizations, including the American Bar Association (ABA), the International Association of Industrial Accident Boards and Commissions (IAIABC), the National Association of Workers’ Compensation Judiciary (NAWCJ), and the Workers’ Compensation Research Institute.

According to the Bureau of Labor Statistics 2010 National Compensation Survey in the United States, Workers’ Compensation expenses make up 1.6% of overall employer spending. However, these rates vary across industry sectors, with the construction industry spending 4.4%, manufacturing at 1.8%, and services at 1.3%.

Patients undergoing upper extremity surgery under Workers’ Compensation experience worse clinical outcomes compared to those without it. These patients also endure longer healing times and often return to lower-paying jobs. Contributing factors include the demanding nature of upper extremity work and the potential financial gain from reporting post-operative disabilities.

In conclusion, the evolution of Workers’ Compensation in the United States reflects a dynamic history shaped by legal battles, shifting ideologies, and the recognition of the rights and well-being of the American workforce. From the early debates over adopting German or British models to the establishment of a comprehensive state-based system, the journey has been marked by legal milestones and adjustments.

Over time, the system has sought to balance the interests of employers and employees, addressing issues of due process and compensation adequacy. While progress has been made in ensuring injured workers receive necessary care and support, challenges persist, such as unintended consequences and variations in industry spending.

The multifaceted nature of Workers’ Compensation underscores the ongoing need for careful consideration, continuous improvement, and a commitment to maintaining a fair and effective framework for both employers and employees.


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