Workers’ Compensation Law: A Frightening Reality For the Unlucky Few

Workers’ compensation, like many different aspects of the United States legal system, is not something the typical citizen will ever encounter until in need of this policy. Furthermore, every state requires workers’ compensation insurance with few exceptions. So, what is it, and why do I (or should you) care about it?

Workers’ compensation is the method in which employees can be financially compensated, to a limited extent, for injuries sustained in the workplace. Negligence and fault are insignificant in the course of the injury, whether it was the negligence of the worker or that of the employer. Furthermore, an employee’s benefits include modest wage-loss of up to two-thirds of his or her weekly wage if his or her wage is under the compensation cap for up to 500 weeks in Indiana if completely unable to work. If the employee is able to return to work, but he or she is still partially unable to do the same job, then up to two-thirds of the difference in pre- and post-injury wages may be awarded for up to 300 weeks. If parts of an employee’s body have permanently been disabled, known as permanent partial impairment (PPI), then employees may also seek compensation in these instances. All damage awards and ratios are capped quite modestly to a roughly $45,000 salary in the case of full paralysis or a PPI of 100.

PPI is calculated by an assessment of a doctor when the employee has reached his or her maximum medical improvement (MMI). This PPI is a number between 0 and 100, and it determines the disability index of the employee after reaching MMI. For example, the doctor may say the employee has lost 25% function of their body, leading to a PPI rating of 25 degrees. Furthermore, the employee may be deemed to have 50% impairment of the thumb, which is worth 12 degrees in Indiana, so that employee’s PPI rating would be 6. Some other examples of impairment include loss of both testicles at 30 degrees, loss of an arm above the elbow at 50 degrees, and loss of both hands at 100 degrees, which is not full paralysis but one could argue extraordinarily catastrophic. This PPI rating will then be translated into a lump sum that maxes out at $390,000 for someone 100% impaired with a PPI of 100. This lump sum will then be distributed in the form of 2/3 the weekly wage of the employee up to the cap until it has been exhausted[1].

The guaranteed form of payments in workers’ compensation comes with a catch though, and that is the employee gives up his or her common-law right to sue the employer for damages. Negligence therefore no longer becomes the point of concern. Rather, it is only the work connection. “Let the employer’s conduct be flawless in its perfection, and let the employee’s be abysmal in its clumsiness, rashness, and ineptitude… Reverse the positions, with a careless and stupid employer and a wholly innocent employee: the same award issues[2].” The underlying social philosophy is that consumers should find it appropriate to compensate those providing the goods and services desired in an event in which they are injured on the job[3]. Essentially, the consumers are bearing the risk for unforeseen accidents at the workplace for those that are creating their goods and services through price mark ups due to businesses paying for workers’ compensation insurance.

This theory is one in which I am happy to support, but with one caveat. I believe it is fair to have predetermined awards, albeit small, for no-fault accidents in the workplace leading to injury, but not those in which negligence is involved. For example, imagine an employee is following proper safety protocol on the main floor of a factory, but his employer is sparing nickels and dimes in maintenance. This employee is then paralyzed after an equipment malfunction due completely to the employer’s negligence in failing to maintain the equipment. Why then should the employee be so limited in his or her potential compensation? After all, workers’ compensation is really meant for those injuries that occur naturally as part of the risk in doing the job at hand. This would include accidents such as a no fault injury from a machine breaking, a no fault slip and fall in a mine, or arthritis developed by a typist.

Accidents happen in the course of making a good or providing a service for the economy, but providing a safety net for the negligence of an employer or employee does not appear to be socially efficient. One could argue, this safety net for employers may act as an incentive to invoke negligence for a rational [4] employer. For instance, imagine the employer was debating between whether or not to maintain the aforementioned piece of industrial equipment. Let’s imagine the expected costs of maintenance or repairs in this period would be $400,000 and the likelihood of failure is 50% without maintenance. Furthermore, if the machine breaks and paralyzes a worker, the employer should expect damages amounting to the aforementioned $390,000 to be paid to the worker. This rational actor would then value the expected damages to his employee at only $195,000, or 0.5 multiplied by the potential for damages. Therefore, the higher cost of maintenance in this period incentivizes the employer to forgo maintenance. In reality, after someone is injured badly enough to bring upon paralysis due to negligence, one can expect medical bills, pain and suffering, and potentially punitive damages to be awarded by a jury in a common law trial to easily be in the millions.

For the purpose of this analysis, let’s imagine the jury can be expected to award at least $1,000,000 to an employee paralyzed by an indisputably negligent employer as demonstrated above. The employer would likely make a cost-benefit analysis as before. When multiplying the damages, he or she would find expected damages to be awarded to his or her employee in the period at $500,000. He or she would then rationally choose to make the required repairs at only $400,000. In economic terms, this employer just saved an expected $100,000 in this period and prevented an innocent employee from being paralyzed, grossly reducing quality of life and furthermore saving costs to the healthcare industry for decades caring for a paralyzed man or woman.

With travesties such as this undoubtedly happening to some extent in our nation now, how can we do something to fix this? In my opinion, there should be exceptions to workers’ compensation laws in our legal system. I would argue if negligence, or “gross negligence” is involved in an injury, then an employee should have the right to a common law jury trial against his or her employer[5]. This would incentivize businesses to focus more on safety, and further it would protect many innocent blue-collar workers trying to earn an honest wage for a big business. Some may argue this will only increase the cost for consumer goods and services, and it is likely that it may with all else held equal. On the contrary, I would assume more workers would be willing to work for companies paying slightly lower wages if they were educated of their potential for protection in instances due to negligence at certain companies, and thus, this may help to counteract the burden on the consumer. Furthermore, fewer workers will find themselves in the healthcare system with increases in incentives for safety, which would lead to lower demand in healthcare, potentially lower prices, and these lower prices may be reflected in consumers’ medical bills.

I believe analyses such as this are the key to creating better laws and preventing suffering to innocent workers on the factory floor. There is not a perfect solution.  as I am still an undergrad in college, I imagine it would be arrogant to claim my solution should be the guidepost for an entire industry. On the contrary, I would argue it is the job of the more educated to protect those being victimized by large scale laws aiding big business, because if we don’t do it, who will? To me, it is just as much of a crime to see broad incentive structures for employers to allow their employees to suffer for the rest of their lives only to increase profits or decrease prices for consumers marginally. My proposal has the potential to increase wealth distribution, thereby reducing inequality, to help those in need, and to make industry a better place to work for all those involved. If a consumer seriously desires an item, be it a white claw on Saturday, a coffee on Monday, or a car for their commute, I doubt a one or two percentage point increase in price for more complete workers’ compensation insurance will dissuade many. It’s not ideal to have to pay for something you may never need, but when you may need the extra dollars to maintain your standard of life after a catastrophic injury in the workplace, I would argue you’d be thankful to have spent the extra dime or dollar here or there.

[1] All details can be found in Guide to Workers’ Compensation Law at https://www.in.gov/wcb/files/HANDBK2007.doc

[2] Larson, Lex K. Workers' Compensation Law: Cases, Materials, and Text. (New York: LexisNexis, 2013), 6.

[3] Ibid.

[4] A “rational” actor, as I am defining it, is one who analyses their decisions on an individual cost-benefit analysis, where likelihoods are multiplied by expected costs or benefits to determine their value. This is commonly used in economic analysis. 

[5] Gross negligence, as defined by, West’s Encyclopedia on American Law,  is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both. It is conduct that is extreme when compared with ordinary negligence, which is a mere failure to exercise reasonable care. Gross negligence usually supports a recovery of punitive damages, where gross negligence does not. As seen at https://legal-dictionary.thefreedictionary.com/gross+negligence .