The typical legal definition of workers’ compensation is that it involves payments, required by law, to be made to a worker that is disabled or injured on the job. It is insurance that replaces wages and offers medical benefits. However, the workers’ compensation is in trade for the worker giving up his or her right to sue the employer for negligence. Giving up the right to sue is mandatory. This tradeoff is often referred to as the compensation bargain.
Workers’ compensation plans differ from state to state, but generally speaking, a worker can arrange for weekly payments (a form of disability insurance), arrange for compensation for loss of wages, past and future, for payment of medical expenses (like health insurance) and/or benefits for workers killed on the job (a form of life insurance). Many people do not understand that general damages (punitive and for pain and suffering) for an employer’s negligence is not available in most, if not all, worker compensation plans.
Workers compensation used to be voluntary, as many thought mandating participation would deprive the employer of property without due process. In 1917, New York Central Railway Co. v. White held employer’s constitutional rights were not affected. Most states brought in compulsory workers’ compensation after that ruling. Texas is unique in the fact that employers have the ability to opt out of the workers’ compensation system and become nonsubscribers.