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The History of Workers' Compensation
Part 1


By Tracy Watson

Tracy Watson became interested in workers’ compensation through his work on getMedLegal Magazine and while earning his paralegal certification.
> History of WC, Part 1
> Getting Back to Work
> Art of Reserving
> Structures Still Relevant
> War Story: Favorite Case
> War Story: Greenhorn
California workers’ compensation is a vast system with more than 300,000 claims annually in the state and billions of dollars paid in benefits. In recent years, California employers’ tab for insurance premiums ran between $6 billion and $9 billion a year, excluding the cost for firms self-insuring their workers (who account for approximately 30 percent of the claims in the state).

The WC system has been widely criticized (as regular readers of getMedLegal Magazine can attest) for providing minimal compensation at high costs. To describe the myriad procedures as stupefyingly complicated is an understatement. Despite the benefits to what amounts to a no-fault system, companies still complain that the system is too litigious. Compared to the alternative that existed 80 years ago, the baseline safeguards to life, limb and the economy are generally worth the trade-offs. Even though the WC system is ridiculously cumbersome, it is vital to all industrialized nations. Warts and all, this system prevents what would likely be both the collapse of our legal system, and most companies as well.
 

Even though the workers’ compensation system is ridiculously cumbersome, it is vital to all industrialized nations.
 
Workers' Comp – it's much older than most people think

Ask the average worker in the U.S. when they think workers’ compensation began, and many will logically place its origin at the beginning of the industrial era in the late-19th century. Most people express surprise when informed that WC did not originate in the U.S., and has been around for over 3000 years. The practice of compensating injured workers actually dates back to ancient Sumeria as documented on stone tablets. In approximately 2050 B.C., the laws of King Ur-Nammu provided payment for injuries to workers’ specific body parts, including broken bones. Several hundred years later, the legendary code of Hammurabi from 1750 B.C. details a similar set of compensation schemes for specific injuries and even their future permanent loss of function. As late as 600 A.D., Roman society developed both life and health insurance through guilds and clubs, although such policies were the province of the affluent, not the rank and file worker.
 
Workers’ compensation has been around for over 3000 years.

Other ancient laws including those from the Persians, Chinese, Greeks, and Romans provided sets of workers’ compensation schedules, many with payment for the loss of a body part. The ancient Persians showed remarkable prescience by creating what can only be described as an apportionment schedule: losing a joint of the thumb was valued at half of a finger, and for those jug-eared workers, payment was based on the size of the ear. Size was also a factor in payment for the loss of the male appendage. The hapless worker was compensated by the amount of length lost (yes– there really was a schedule for “penis apportionment”). There were additional variables such as slaves’ losses (they were property) not compensated as much as those of free men. The common thread among these ancient compensation plans was the limitation to awarding payments for particular injuries. However, it would take another two thousand years for the concept of separating impairment from loss of a body part to arise.

 

Ancient compensation schedules from antiquity eventually were replaced as the empires dissolved leading up to the Middle Ages. From the post-Roman era through the 18th century, feudalism and kingdoms increasingly became the “structure” of government in most of the world. The arbitrary nature of a King’s or Lord’s beneficence dictated what injuries were worth compensation. This concept of payment was tied to the doctrine of “noblesse oblige”: the care noblemen would bestow on injured servants was solely at their discretion. History clearly shows us there was not much sense of obligation demonstrated by these rulers.
 

 
The Advent of Common Law and the Industrial Revolution

Our system of English common law began in the late Middle Ages and developed through the 17th century, establishing a legal framework that endured well into the early 1800s. Workers in Europe and America were subject to three principles so constraining and anti-worker, they became known as the “unholy trinity” of defenses wielded with impunity by employers: assumption of risk, the fellow servant rule, and contributory negligence.

Assumption of risk
This far-reaching doctrine simply said that employees “knew” what they were getting into by agreeing to the employment and any inherent risks that job might have. Companies were merely required to provide only the safety measures accepted in that general industry. In the 19th century, this often meant whatever they deemed appropriate -- which was likely little or nothing. At the start of an employee’s tenure, many companies demanded contracts where workers forfeited their right to sue for an on-the-job injury or death. These became known as the “worker's right to die,” or literally, “death contracts.”

The “fellow servant” rule
In an astonishing shift of blame under this rule, companies or employers were not liable if the worker’s injuries resulted in any part from the acts or negligence of a co-worker. This oppressive scheme was established in Great Britain in 1837 through the case of Priestly v. Fowler, (1837) 3 Mees & Wels. 1, involving a butcher boy suing his master for the cost of his injuries. Five years later the court in Farnwell v. Boston and Worcester Railroad Company, 45 Mass. 49 (Mass. 1842) helped bring this “contract rule” to the United States by siding with the railroad’s contention that compensatory damages would create a “moral hazard” in the workplace and that the injured worker was in as good a position as his employer had been to monitor the work of his fellow workers. The concept of “respondeat superior” in the workplace would not occur in the U.S. for another 70 years.

 
Workers in Europe and America were subject to the “unholy trinity” of defenses: assumption of risk, the fellow servant rule, and contributory negligence.
Contributory negligence
If a worker was in any way responsible for his injury, this principle held the employer blameless. No matter how dangerous exposed equipment might be, a worker who lost fingers, limbs or life was not entitled to any payment whatsoever. This type of “blame the worker” U.S. case law was established in an accident where a freight conductor fell from a moving train due to faulty equipment in Martin v. Wabash Railroad, 142 F. 650 (1905). In particularly twisted judicial reasoning, the worker was not awarded compensation because inspecting the train for faulty equipment was one of his job duties -- despite the fact that other inspectors found a loose handrail was to blame.

Much like today, one of the main barriers to a worker seeking compensation in the 19th century was the court system. Once injured, a worker’s only means of pursuing a claim against a company was to file a lawsuit. In the 1800s the immoderate costs associated with filing such a suit were well out of reach of the common worker. It was a foregone conclusion that any employee filing a claim against the company would be fired immediately, further worsening an already bad situation. The outcome of most 19th century lawsuits were so lopsided in favor of employers, private associations such as the English “Friendly Societies” and German “Krankenkassen” were created to assist more well off laborers with the option of actually purchasing various types of disability insurance.
 
It was a foregone conclusion that any employee filing a claim against the company would be fired immediately.
 
The Modern WC System Begins in Prussia

Not long after some of the oppressive 18th and 19th century court cases established an almost total lack of accountability of companies to their employees, Britain passed the Factory Act in the 1840s and introduced the concept of safety regulations and the possibility of compensation to injured workers. This legislation did very little to change the circumstances of England’s workers, and meaningful reform in Britain would not occur for nearly a half century.

Meanwhile, over in Prussia (the German Empire), the first step in the protection of injured workers was begun in 1838 with laws protecting railroad employees and passengers in the event of an accident. The Empire struck back with another gain for workers in 1854 with legislation requiring certain types of employers to contribute to employees’ sick time accounts.

Less than two decades later, in a classic case of unintended consequences, Chancellor Otto von Bismarck inadvertently created the seminal system that became the workers’ compensation model adopted by most countries in the industrialized world.

At the time, the growing Marxist and Socialist movements within his country were putting a crimp in the good Chancellor’s desire to expand the Prussian Empire. Although he outlawed these political parties to further his grand plans, he also wanted to have some worker stability and social protections to quell dissent. As an adherent of Realpolitik (political pragmatism), Bismarck did what any politician in power does to maintain some semblance of loyalty – he co-opted some of the opposition’s agenda. First, he instituted the Employers’ Liability Law of 1871 to provide a modicum of social protection for workers in key industries such as railroads, mining, quarries and factories. Bismarck then went on to create Workers’ Accident Insurance in 1884, followed by Public Pension Insurance – providing a stipend for workers incapacitated due to non-job related illnesses, and Public Aid, providing a safety net for those who were never able to work due to a disability.
 
otto von bismarck
In a classic case of unintended consequences, Chancellor Otto von Bismarck inadvertently created the system that became the industrialized world’s model for workers’ compensation.
 
Most importantly, Bismarck’s system of state-administered control was ultimately regarded as the exclusive remedy for injured workers: employers in this system could no longer be sued by their employees in the civil courts. Ironically, Bismarck’s attempt to quash his opposition by adopting some of their ideas resulted in a demonstrable improvement in many workers’ lives. As a system of state control, the Prussian system was deliberately complex from the start. Many of the bleak stories of Franz Kafka were inspired by his employment in the early 1900s as a minion in the byzantine Prussian workers’ compensation board. Sadly, the culture of obfuscated regulations and procedures lives on in today’s workers’ compensation boards.
 
Sadly, the culture of obfuscated regulations and procedures lives on in today’s workers’ compensation boards.

For a Kafkaesque view of California’s current system, see The Metamorphosis of California's Workers’ Compensation System.
 
The WC concept spreads in Europe

Although their close business trade with Prussia meant Britain had many of the same systems in place, the radical idea of compulsory workers’ insurance was slow to spread to England for most of the 19th century. Beginning in the 1850s, barristers, solicitors and other enterprising individuals with legal knowledge and training came forward in increasingly large numbers; what started as a small number of lawsuits on behalf of injured workers, became a huge liability for the courts within just a few decades.

The English courts became horribly backlogged, with the public suffering from this unfair and grossly inefficient system, resulting in delays of other civil actions. In the midst of crowded dockets and general confusion, companies began to realize that some workers were actually prevailing in these lawsuits and with the maturing legal profession’s assistance – through liens and attachments – they were tying up machinery, buildings and the property of employers. British employers were beginning to understand that their liability would only grow with each successful lawsuit. Although Parliament did not move quickly to establish a WC system of its own, Prime Minister William Gladstone pushed for legislation abolishing the oppressive common-law defenses favored by employers. The Employers’ Liability Act of 1880 compromised by keeping the death contracts in place. Britain finally repealed that law, and despite huge opposition from manufacturing interests, in 1897 Parliament enacted legislation modeled on Prussia’s system. This marked the formal beginning of workers’ compensation in England. It would take more than 10 years for this watershed social and political change to affect American business law.

References
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The radical Prussian idea of compulsory workers’ insurance was slow to spread to England for most of the 19th century.
 

Tracy Watson is a marketing communications professional and web designer who has worked on getMedLegal’s website for the past six years and also works part time for a law firm as a certified paralegal.

To reach Tracy, email him at
tracy@twdgroup.com

 
In the next issue: Workers’ Compensation lands in America
tracy watson