California Workers' Compensation System

Government record

By: California Department of Industrial Relations

Date: March 12, 2004

Source: California State Government. "Divison of Workers' Compensation." <http://www.dir.ca.gov/dwc/ basics.htm> (accessed June 2,2006).

About the Author: The California Department of Industrial Relations oversees safety and health issues for California's workforce and employers. Its primary mission is to improve working conditions and to broaden employment opportunities in the state.

INTRODUCTION

The rights of workers and the duties of employers frequently conflict. In the early years of the Industrial Revolution, employees were often treated like any other piece of industrial equipment, to be used while needed then discarded. With an overriding emphasis on cost reduction, factory owners had little incentive to protect worker health or provide safety equipment. In the late nineteenth and early twentieth centuries, industrial accidents and deaths in the United States were rampant.

Injured employees were typically given rudimentary medical care and sent home to recover, normally without pay. While this system provided a strong incentive for workers to return to work as soon as possible, it also encouraged workers to continue working while injured, potentially endangering themselves or others. If an employee was permanently disabled while working, he could normally expect a token payment and little more; in cases of workplace deaths, the employee's survivors were similarly compensated.

American labor law in the early twentieth century characterized employer and employee as equals entering into a contract—an unrealistic perspective which generally benefited the company. In the rare cases when employees sought damages from employers for workplace injuries, the unemployed worker rarely had the time or the money to prevail in court. In cases where the suit did come to trial, companies were often able to drag the proceedings out for many years while the plaintiff ran up legal and medical bills.

Companies also frequently avoided paying large settlements by claiming that employees were injured due to their own negligence, although industrial design decisions by the firm were frequently major contributors. Upton Sinclair's 1906 novelThe Jungleprovided a sobering look at how large corporations often abused the virtually powerless workers on their payrolls and was instrumental in mobilizing legislators to improve workplace protections.

During the 1910's and 1920's, a wave of reform swept through the American workplace. Acknowledging for the first time that companies had a duty to provide a safe workplace and that employee injuries should be considered a business expense, states began to enact legislation designed to protect workers. Most of these laws provided a set amount of income for injured workers during the time they were unable to work. In addition, they generally required benefits regardless of whether the fault lay with the employee or the employer.

California has the largest workforce in the country, with more than sixteen million civilian employees, and the state's workers' compensation system is typical of those now found in all fifty states.

PRIMARY SOURCE

Medical care

Injured workers are entitled to receive all medical care reasonably required to cure or relieve the effects of the injury, with no deductible or co-payments by the injured worker. For dates of injury on or after Jan. 1, 2004, an injured worker is limited to 24 chiropractic and 24 physical therapy visits.

Generally, the employer controls the medical treatment for the first 30 days after the injury is reported, and the employee is then free to select any treating physician or facility. However, if the employee has notified the employer in writing prior to the injury that he or she has a "personal physician"—a physician or surgeon who has previously treated the employee—the employee may be treated by that physician from the date of injury. Choice of treating physician differs, however, if the employer and employee have opted for a managed care program.

Temporary disability benefits

Those workers unable to return to work within three days are entitled to temporary disability benefits to partially replace wages lost as a result of the injury. The benefits are generally designed to replace two-thirds of the lost wages, up to a maximum of $728 per week.

Temporary disability benefits are payable every two weeks, on a day designated with the first payment, until the employee is able to return to work or until the employee's condition becomes permanent and stationary.

Permanent disability benefits

Injured workers who are permanently disabled— those who have a permanent labor market handicap—are entitled to receive permanent disability benefits. A worker who is determined to have a permanent total disability receives the temporary disability benefit—up to $728 per week—for life. A worker determined to have a permanent partial disability receives weekly benefits for a period which increases with the percentage of disability, from four weeks for a one percent permanent disability up to 694.25 weeks for a 99.75 percent disability. Permanent partial disability benefits are also payable at two-thirds of the injured worker's average weekly wages, but are subject to a much lower maximum. As of Jan. 1, 2004, the rates are $220 per week for disabilities less than 69.75 percent and $270 per week for disabilities rated at 70 to 99.75 percent. Those with a permanent partial disability of 70 percent or more also receive a small life pension—a maximum of $257.69 per week—following the final payment of permanent partial disability benefits.

The percentage of permanent disability is determined by using the Permanent Disability Rating Schedule and an assessment of the injured worker's permanent impairment and limitations.

The Permanent Disability Rating Schedule specifies standard percentage ratings for permanent impairments and limitations, and provides for the modification of these standard ratings based on the injured worker's age and occupation. The standard rating is adjusted for age by lowering the rating for younger workers and increasing it for older workers on the theory that it is easier for younger people to adjust to a permanent handicap. The standard rating is adjusted for occupation by increasing the rating if the permanent impairment or limitation will be more of an impediment in performing the worker's occupation, and lowering the rating if it will have a lesser impact.

The assessment of the injured worker's permanent impairment and limitations is made by either the treating physician or a "Qualified Medical Evaluator" (QME). The Division of Workers' Compensation's Medical Unit appoints and regulates QME's. If there is disagreement with the treating physician's opinion and the worker is not represented by an attorney, he or she chooses a physician from a three member panel obtained from the DWC Medical Unit. If the worker is represented by an attorney, the parties must attempt to agree on a physician to perform the evaluation. If they are unable to agree, each side may obtain evaluations from a QME of their choice. If the evaluations are disparate, the amount of permanent disability will be determined by negotiation or, if necessary, litigation.

Vocational rehabilitation services (for injuries before Jan. 1, 2004)

Injured workers who are unable to return to their former type of work are entitled to vocational rehabilitation services if these services can reasonably be expected to return the worker to suitable gainful employment. This includes the development of a suitable plan, the cost of any training, and a maintenance allowance while participating in rehabilitation.

Once an injured worker is determined unable to return to his or her previous type of work, the employer and worker jointly select a rehabilitation counselor who will determine whether vocational rehabilitation is feasible, and if appropriate, develop a suitable rehabilitation plan. The goal of a rehabilitation plan is to return the injured worker to "suitable gainful employment"— employment or self-employment that is reasonably attainable and which offers an opportunity to restore the injured worker as soon as practicable and as near as possible to maximum self-support.

The maintenance allowance payable to an injured worker while in rehabilitation is, like temporary disability benefits, designed to replace two-thirds of lost earnings, but the maximum weekly amount is lower—$246 per week. The worker may, however, supplement the maintenance allowance with advances of permanent disability benefits up to the point where the worker is receiving the same weekly amount as he or she received in temporary disability benefits. Total costs for rehabilitation are now limited to $16,000 for workers injured on or after Jan. 1, 1994.

For dates of injury on or after Jan. 1, 2003, injured workers who have legal representation may settle vocational rehabilitation for a lump sum. Vocational rehabilitation does not apply for dates of injury after Jan. 1, 2004.

Supplemental job displacement benefit (for injuries on or after Jan. 1, 2004)

This is a nontransferable voucher for education-related retraining or skill enhancement, or both, payable to a state approved or accredited school if the worker is injured on or after Jan. 1, 2004. To qualify for this benefit, the injury must result in a permanent disability, the injured employee does not return to work within 60 days after temporary disability ends, and the employer does not offer modified or alternative work. The maxiumum voucher amount is $10,000.

Death benefits

In the event a worker is fatally injured, reasonable burial expenses, up to $5,000, are paid. In addition, the worker's dependents may receive support payments for a period of time. These payments are generally payable in the same manner and amount as temporary disability benefits, but the minimum rate of payment is $224 per week. The total aggregate amount of support payments depends on the number of dependents and the extent of their dependency. Generally, the maximum (where three or more total dependents are eligible) is $160,000, though additional benefits are payable if there continues to be any dependent children after the basic death benefit has been paid.

The benefit delivery system

Unlike most social insurance programs (e.g., social security, unemployment compensation), workers' compensation in California, as well as in most other states, is not administered by a government agency. Workers' compensation benefits are administered primarily by private parties—insurance companies authorized to transact workers' compensation and those employers secure enough to be permitted to self-insure their workers' compensation liability.

When an employer becomes aware of an on-the-job injury, the employer is expected to begin the process of providing the injured worker the benefits to which he or she is entitled under the law. The benefits are paid by either the employer (if the employer is authorized to self-insure) or the employer's insurer.

The state's role in benefit delivery is to oversee the provision of workers' compensation benefits, provide information and assistance to employees, employers, and others involved in the system, and to resolve disputes that arise in the process.

The vast majority of workers' compensation claims are handled expeditiously and are administered without dispute or litigation. These are, for the most part, the smaller claims—those in which only medical care is provided and those in which the injured worker is disabled for only a few days. These smaller claims account for more than three quarters of all workers' compensation claims.

The balance of the claims—those in which there are significant periods of disability or permanent disability— account for the vast majority of costs and litigation. In these more serious cases, litigation is common.

Most workers' compensation cases are litigated initially before workers' compensation referees employed by the Division of Workers' Compensation (DWC). Rehabilitation disputes are first heard by a consultant in the DWC Rehabilitation Unit, and that decision can be appealed to a workers' compensation referee. The decisions of workers' compensation referees are subject to reconsideration by the seven member Workers' Compensation Appeals Board (WCAB). A WCAB decision is reviewable only by the appellate courts.

Most disputed or "litigated" cases are settled without a decision being rendered by a workers' compensation referee. Most case dispositions are compromise and release settlements—settlements in which all future liability is released in return for a stipulated amount.

Applicants attorneys fees must be approved by a workers' compensation referee, and are generally 9 to 15 percent of the settlement amount. Defense attorneys' fees are not regulated.

The benefit financing system

The benefit financing system is the process by which employers finance their liability for workers' compensation benefits. Employers may finance their liability for workers' compensation benefits by one of three methods: (1) self-insurance, (2) private insurance, or (3) state insurance.

• Self-insurance—Most large, stable employers and most government agencies are self-insured for workers' compensation. To become self-insured, employers must obtain a certificate from the Department of Industrial Relations. Private employers must post security as a condition of receiving a certificate of consent to self-insure.
• Private insurance—Employers may purchase insurance from any of the approximately 300 private insurance companies which are licensed by the Department of Insurance to transact workers' compensation insurance in California. Insurance companies are free to price this insurance at a level they deem appropriate for the insurance and services provided.
• State insurance—Employers may also purchase insurance from the State Compensation Insurance Fund, a state operated entity that exists solely to transact workers' compensation insurance on a nonprofit basis. It actively competes with private insurers for business, and it also effectively operates as the assigned risk pool for workers' compensation insurance.

Special funds

In addition, there are two special funds that pay benefits to injured workers under some circumstances: (1) the Uninsured Employers Fund, and (2) the Subsequent Injuries Fund.

Uninsured Employers Fund—When an employee is injured while working for an employer who is unlawfully uninsured, and the employer fails to pay or post a bond to pay the compensation due the employee, the employee's compensation is paid from the Uninsured Employers Fund. An attempt is made to recover the amount paid from the uninsured employer.

About 1,000 to 1,500 new claims are filed with the Uninsured Employers Fund annually, at a cost that has reached about $26 million per year. Most of this cost is paid from the Uninsured Employers Benefit Trust Fund, which is financed by an annual assessment paid by all employers.

Subsequent Injuries Fund—When an employee has a previous permanent disability or impairment and sustains a subsequent injury, the employer is not liable for the combined disability, but only for that caused by the later injury. However, when the combined permanent disability is at least 70 percent and certain other criteria are met, the employee may receive additional compensation from the Subsequent Injuries Fund.

About 500 claims are filed with the Subsequent Injuries Fund per year, at a cost of about $6.5 million. Claims are paid from the Subsequent Injury Benefit Trust Fund account, into which all employers are required to pay an annual assessment.

SIGNIFICANCE

The passage of worker compensation acts such as the California Workers' Compensation System significantly leveled the playing field between companies and employees, placing the burden for insuring a safe workplace largely on the employer's shoulders. The addition of no-fault recovery, which made employers liable for most workplace injuries regardless of cause, created tremendous incentive for employers to improve workplace safety. As a result, companies began investing heavily in safety equipment and training, as well as instituting penalties for workers who did not comply with established safety procedures.

Typical worker compensation systems today include several categories of benefits. In most cases, an employee temporarily unable to work will receive a percentage of his normal salary until he is able to return. For permanently disabled employees, a benefit amount and length of payment is determined based on the degree of disability. Rehabilitation services are also frequently included to assist employees in returning to work. In cases of employee death, compensation typically includes funeral expenses and support payments for a set period of time.

Workplace safety improved markedly throughout the twentieth century, though regulation and enforcement was far tighter in some states than in others. In 1970, the U.S. Congress, finding that workplace injuries and illnesses created a substantial drain on the economy, passed the Occupational Safety and Health Act. This act authorized the Department of Labor to enact federal health and safety standards for all industries involved in interstate commerce and to provide penalties for employers who violated them. It further created the Occupational Safety and Health Administration (OSHA) to administer and enforce workplace safety regulations.

Today, OSHA is the primary agency responsible for workplace safety in the United States. Its inspectors visit workplaces following major accidents and in response to employee complaints. OSHA proactively schedules inspections at facilities that are found to have injury or illness rates above the national average. The agency also targets specific industries for inspection based on their assessed risk level. In 2005, for example, OSHA fined BP Products North America a record $21 million for violations related to an oil refinery explosion which killed fifteen.

FURTHER RESOURCES

Books

Charney, William, and Guy Fragala, eds.The Epidemic ofHealth Care Worker Injury: An Epidemiology. Boca Raton, Florida: CRC Press, 1999.

Herlick, Stanford D.California Workers' Compensation Handbook. Lexis Law Publications, 2002.

Sall, Richard D.Strategies in Workers' Compensation. Lanham, MD: Hamilton Books, 2004.

Periodicals

Editor. "Easy Stuff, Government."Economist. 371 (April 22, 2004): 31.

Kahley, William J., and Edward C. Woodward. "Workers' Compensation in California: Recent Performance and Outlook."Benefits Quarterly. 13(1997):34–40.

LaDou, Joseph, Lawrence Mulryan, and Kevin McCarthy. "Cumulative Injury of Disease Claims: An Attempt to Define Employers' Liability for Workers' Compensation."American Journal of Law & Medicine. 6(1980):1–28.

Web sites

California State Government. "Divison of Workers' Compensation." <http://www.dir.ca.gov/dwc/dwc_home_page. htm> (accessed June 1,2006).

Rand Corporation. "California's Workers' Compensation Permanent Disability Rating System: A Pre-Reform and Post-Reform Evaluation." 2005 <http://www.rand. org/pubs/research_briefs/RB9163/index1.html> (accessed June 1,2006).

University of California at Berkeley. Labor Occupational Health Program. "Workers' Compensation." <http://ist-socrates.berkeley.edu/"lohp/Projects/Workers__ Compensation/workers__compensation.html> (accessed June 1, 2006).