The Rich History of Worker’s Compensation

by Pam Clark

Captain MorganPirates: An unlikely beginning

Believe it or not, the first historical accounts of any workers compensation program comes from the most unlikely source: Pirates. Often misunderstood, pirate ships worked much like a democracy. Bounties were split relatively evenly and even the ship’s captain was (more or less) an elected official. But what is perhaps the most interesting part of the economics of a pirate ship was its system of workers compensation.

Unlike modern workers comp programs, the pirates’ compensation was more about maintaining motivation in the face of danger rather than a social safety-net after the fact. Pirates who were injured during their duty were often rewarded for their sacrifice. The loss of a limb or an eye carried a very specific reward in gold. More than that, the amounts were based on the relative weight of the sacrifice. For example, losing your right arm was worth more than your left, and in the case of losing both, a pirate was often rewarded more than the combined price of the two.

Although implemented for different reasons, this kind of advanced workers compensation statute (if you want to call it that) isn’t so far from some of what we have today. For example, in Connecticut, the difference in “value” between losing your right and left arms is roughly 7% (6% for pirates on Captain Morgan’s ships). Though the historical accuracy of such accounts are up for debate, and the similarities likely end there, still, modern worker’s compensation programs cannot claim to be the first of their kind.

The Industrial Revolution and the growing need for Workers Compensation

During the mid 1800’s the beginnings of the industrial revolution was creating demand for a variety of labor that carried risks not yet known to the developed world. Working with large machinery and unproven technology created a work environment that was riddled with health risks. A growing number of workers found themselves with injuries that not only were costly in terms of health care, but also in terms of their long-term employ-ability.

In the US, railroad workers were especially at risk: Between 1903 – 1907 about 3,300 railroad workers were killed each year. But as the industrial revolution in the united states continued to develop, other workers were also at risk. In 1913 alone, over 25,000 workers were killed in work related accidents along with approximately 700,000 seriously injured.

Germany, Anti-Socialism, and the Father of Modern Worker’s Compensation

Predating the American Industrial Revolution, in the late 1800’s, Europe (particularly Germany) was in the midst of their own. During this time, Otto Von Bismarck, sometimes known as “The Iron Chancellor”, had been busy uniting the German states into a single empire (much of which remains the country of Germany today).

During his reign, Bismarck (an aristocrat) attempted to abolish socialism and limit democracy. Despite these attempts, however, he still understood the need for social programs that could stimulate economic growth by strengthening worker security as the working class were emigrating to America in favor of higher wages. When he finally passed his no-fault “Workers’ Accident Insurance” bill in 1884 he explained this need with the following quote:

“The real grievance of the worker is the insecurity of his existence; he is not sure that he will always have work, he is not sure that he will always be healthy, and he foresees that he will one day be old and unfit to work. If he falls into poverty, even if only through a prolonged illness, he is then completely helpless, left to his own devices, and society does not currently recognize any real obligation towards him beyond the usual help for the poor, even if he has been working all the time ever so faithfully and diligently. The usual help for the poor, however, leaves a lot to be desired, especially in large cities, where it is very much worse than in the country.”

While his original proposal included a portion of the cost to be covered by the Federal Government, the final version approved by the Reichstag put the entire burden on the employers. The program created a central agency that would perform the administration of the benefits which included medical costs and up to 2/3 of earned wages if the worker was fully disabled. This “no-fault” program is still regarded as the foundation for many of the modern worker’s compensation programs we have today, including that of England which was implemented about a decade later.

America’s Industrial Revolution

Before workers compensation in America, civil lawsuits were the only way for an employee to seek compensation for on the job accidents. The trouble with this system was that current laws heavily favored employers as the defenses for which were notoriously difficult to defeat. They are sometimes playfully known as the “unholy trinity of defenses”.

  1. Contributory negligence – In this defense, if the worker was in any way responsible for his or her own injury (e.g. tripping and falling), the employer was determined to be not at fault.
  2. The “assumption of risk” – A relatively broad rule simply stated that an employee agreeing to work understands the potential hazards of their respective duties. Employers often formalized these risks into contracts now referred to as “death contracts” or sometimes known as “worker’s right to die” clauses.
  3. The Fellow Servant Rule – Like contributory negligence, this rule relieved the employer of any liability if a fellow employee was involved in any part of the negligence that resulted in an accident.

Despite difficulty for employees to recover damages in civil suits, employers still favored a system of workers compensation for a number of reasons. First, even though awards in civil cases were rare, they were sometimes substantial. This, along with increasing fears of legislation restricting the use of the above three defenses lead to a growing fear of being sued. Second, despite victories, civil suits and the corresponding litigation was costly enough on its own to prefer other means of compensation. Finally, within the system of workers compensation, the employers were able to pass on some of it’s costs back to the employees in the form of lower wages. In the end, a system of no-fault workers comp was a win-win for employers and employees alike.

Sarah Kinsley’s Arm

A historical example of a failure of the system’s lack of worker’s compensation came by an article written by Theodore Roosevelt just after his presidency ended in 1909. In the article, he writes about a female factory worker by the name of Sarah Kinsley. Sarah had lost her hand when it was crushed in a cogwheel accident while working in a factory. She brought suit to the company for negligence to recover medical bills and lost wages. Despite having brought the dangers and lack of safety features of the machine she worked with to the foreman, the courts ruled in favor of the employer under the assumption of risk defense leaving her and her family with nothing.

Roosevelt’s article was a turning point in awareness on the need for worker’s compensation in the US. Shortly after, many states took notice and began drafting worker’s compensation legislation to reduce the toll of industrial accidents on the workers and their families.

Worker’s Compensation’s legal struggles & the Triangle Shirtwaist Fire of 1911

By the end of the first decade of the 20th century, four states had adopted worker’s compensation reform: Maryland, Massachusetts, Montana, and New York. Many labor unions opposed these legislations for fear it would render them obsolete. After some legal battles, one by one, each state declared the respective law unconstitutional for violating “due process”.

New York’s court of appeals declared their state’s worker’s compensation law unconstitutional on March 24th, 1911. The very next day, a fire in the Triangle Shirtwaist company factory in New York City killed 146 workers, most of whom were women. The families then turned to the courts (out of necessity) to seek damages. After being acquitted of criminal negligence, the Triangle Waist Company was later ordered to pay civil court damages of only $75 to each family.

Soon after, New York, and many other states, went on to change their constitutions to make room for worker’s compensation legislation. In NY, this new reform bill would pass nearly two years after the fire (1913). By 1930 all but four states had enacted worker’s compensation reform, and in 1948 Mississippi became the last to follow suit.

100 Years of State Run Worker’s Compensation

Despite a variety of opportunities in the past 100 years, worker’s compensation laws remain solely in the hands of the states:

1933-1936 – Amid the Great Depression, the New Deal promised to take on reform and social relief for the working classes. Despite the heavy involvement of Franklin Roosevelt’s Secretary of Labor: Francis Perkins, a woman who was witness to the Triangle Shirtwaist factory fire of NY in 1911, worker’s compensation reform was originally part of the bill, but ultimately not a part of the legislation signed into law.

1956 – 20 years later, Social Security’s Disability insurance program was enacted. Again, what was originally designed to be all encompassing, worker’s compensation was left out of the legislation for fears that conservative opposition to the broader based bill would make it too politically difficult to pass.

1970 – Finally, in December of 1970, Congress enacted the Occupational Safety and Health Act (OSHA), and even commissioned an investigation into state workers’ compensation laws. The commission found that there were serious flaws to most of the states’ worker’s compensation laws. And while this investigation led to the most drastic state-level worker’s comp reform in its 60 year history, the commission rejected federal takeover, simply stating:

Federal takeover would substantially disrupt established administrative arrangements

As a result of this lack of federal involvement, the laws and regulations in the US today still vary greatly state-to-state. Currently, 49 states (all but Texas) require companies of 3 or more employees to carry worker’s compensation insurance. Seven states have 100% state run insurance monopolies, eleven have a combined state and private competitive system, while the remaining 32 states leave worker’s compensation to private insurance companies alone.

While reforms and ever changing regulations continue to improve the system, worker’s compensation isn’t perfect by any means. But despite its shortcomings, its rich history is proof that we have come a long way since the days of the pirate Captain Morgan.

References & Additional Reading

http://legaltalknetwork.com/podcasts/workers-comp-matters/2010/07/the-history-of-workers-compensation-the-workers-compensation-centennial-2011/ – A fantastic podcast covering the history, origins, and reforms for worker’s compensation.

http://www.mynewmarkets.com/articles/91833/workers-compensation-history-the-great-tradeoff – Another fantastic article covering the rich history of WC from Pirates to today.

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1888620/ – Covers much of the history while going deep into the legal aspects of worker’s compensation.

http://www.freakonomics.com/2007/09/17/the-economics-of-piracy-the-real-kind-with-peglegs-and-pieces-of-eight/ – Discusses pirates and the first instances of worker’s compensation

http://www.hks.harvard.edu/inequality/Seminar/Papers/Howard.PDF – Discusses the past 100 years and the lack of federal regulations of US worker’s compensation.

http://eh.net/encyclopedia/article/fishback.workers.compensation – Brief historical accounts along with resourceful state-by-state references & trends.

http://www.cutcomp.com/depts.htm – State-by-state worker’s compensation regulations with links.

http://www.tdi.state.tx.us/wc/dwc/ – Discusses the history of Worker’s Compensation in Texas – the only state that WC insurance is not required.

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