Workers' Compensation: Overview and Description

Workers' Compensation: Overview and Description
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  • 0:02 Workers' Compensation…
  • 1:05 No-Fault, Negligence &…
  • 2:14 Eligibility
  • 5:02 Types of Benefits
  • 7:25 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Sometimes, work can be a dangerous proposition and accidents happen even in the safest of jobs. The workers' compensation system is designed to address these situations. In this lesson, you'll learn about some key aspects of the system.

Workers' Compensation System Defined

Mike works in construction as a carpenter. His company builds custom residential homes. While everyone on the job site, including Mike, takes safety precautions, accidents still happen. In fact, Mike was recently injured on the work site, resulting in a broken arm. Mike's injury required extensive medical treatment, and he will be unable to work for several months as his arm mends.

The good news for Mike is that his workplace injury is covered by the workers' compensation system. Workers' compensation is a system of state law that requires an employer either pay, or provide insurance that pays, an employee for loss of pay and medical injuries suffered by an employee who is injured while working. Keep in mind that state law governs workers' compensation, and each state may have slightly different systems. States usually require employees to purchase private or state-run insurance, or to self-insure, to ensure there are adequate funds available to pay claims.

No-Fault, Negligence and Third Parties

A key aspect of workers' compensation is that it is usually a no-fault system, which means that the negligence of the employer or employee does not matter for liability. If an employee is injured on the job, he is compensated. However, there is a tradeoff. If an employee is covered by workers' compensation, the employee loses the traditional common law right to sue his employer for an injury due to his employer's negligence. For example, if Mike's employer made him use an old ladder that should have been discarded and he breaks his arm as a result, Mike will be paid through worker's compensation but is not able to sue his employer for its negligence.

On the other hand, an injured employee can still sue third parties that may have contributed to the injury. For example, if the ladder Mike was using was defective due to its design, he can still sue the ladder company for his injury. However, Mike will have to repay his employer or insurance company the benefits received out of any judgment or settlement; Mike keeps what's left over.

Eligibility

Just because a worker is injured doesn't mean that the worker will be eligible for workers' compensation benefits. A worker, like Mike, is entitled to benefits only if his injuries arose out of and in the course of his employment. So, what does this mean? Let's take a closer look.

Mike must establish two elements - or requirements - in order to be eligible for workers' compensation. First, he must establish that his injury arose out of his employment. This means that there is a causal connection between his injury and his job. You can divide injuries into three different categories for this analysis.

1. Risk directly caused by employment activities.

Examples include someone falling off a ladder while roofing, being injured by a chemical used in a manufacturing process or a health care provider contracting a disease from a needle stick. These type of injures clearly fall within the purview of workers' compensation. Mike's injury probably falls within this category.

2. Personal risks are risks that are not reasonably related to work at all.

For example, if an employee is unable to work because he must undergo dialysis because of severe alcoholism, he is not eligible for workers' compensation because the drinking that brought about the condition had nothing to do with the injury.

3. Neutral risks are a gray area.

Whether injuries from neutral risks are compensated largely depends on the facts, circumstances and the law of the state where the worker lives. For example, a construction worker losing a toe due to frostbite or an offshore oil rig worker losing a leg to a shark bite after falling off the rig may or may not be compensable. Generally, the employee must show that the exposure to the risk resulting in the injury was greater than the risk the general public would endure.

It's not over yet. Not only must an employee, like Mike, establish that the injury arose out of employment, but he also must prove that it arose during the course of employment. This generally means that the injury:

  • Occurred during working hours
  • At a location that an employee should reasonably be
  • While the employee is fulfilling employment duties

Again, there is a large gray area and the facts and circumstance are often pivotal. Let's look at Mike's case. He broke his arm on the job during work hours. The facts also revealed that his arm was broken when he accidentally fell from a ladder while framing a house. According to these facts, Mike is entitled to workers' compensation.

Types of Benefits

Workers' compensation systems provide two types of benefits to injured employees. The first type of benefit is a medical benefit. As you might expect, medical benefits are either direct payments to an employee's healthcare providers related to the work-related injury or for reimbursement to the employee if already paid.

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