Workers’ compensation has its roots in Germany with Otto von Bismarck in 1884, and his worker “sick fund.” Thirty years later Canada passed its first workers’ compensation act in 1914 after the Meredith report was delivered in Ontario.
William Meredith was tasked to review existing laws and make recommendations, which he delivered in his 1913 report. The resulting “Meredith principles” formed the basis for all workers’ compensation legislation in Canada. The workplace has evolved but most compensation acts and their respective compensation organizations have seen little change. Is it time for evolution?
The principles laid out by Meredith are just as relevant today as they were in 1913. He toured Canada, the United States and Europe reviewing their legislation before drafting a law based on his principles:
• No-fault compensation: Workers are paid benefits regardless of how the injury occurred.
• Security of benefits: A fund is established to ensure funds exist to pay benefits.
• Collective liability: Employers share liability for workplace injury insurance.
• Independent administration: Objective administration separate from government.
• Exclusive jurisdiction: Only workers' compensation organizations provide workers' compensation insurance.
Most of these principles work very well even today. There are some interesting outliers, but that happens over time. In looking at the Canadian system, most seem to be functioning alright.
Collective liability
Employers pay into a fund to protect themselves from liability by sharing it. Employers are protected from legal action against the employer which is the “historic trade off.” Employers are the major stakeholders in the system. Most, if asked, have strong feelings about workers’ compensation. Most compensation organizations have no real mechanism to consult stakeholders. To be fair, some have surveys and focus groups but most do not have rounded or meaningful stakeholder consultation system.
Compensation organizations collect data on injuries because they must in order to fairly assess rates and manage claims. That same data is now used by regulators to judge employer safety or diligence. It is also used by companies in assessing the safety of other companies, a purpose for which it was never intended and for which it is not suited. Most compensation organizations simply take the view this is not their responsibility.
Since employers have a financial stake in this whole thing, they do what any good business will do — contain costs. They are rewarded for containing costs. Claim experience rating means systems deliver a lower premium for those who successfully contain costs in the same way a safe driving record lowers our car insurance premiums.
Controlling costs is difficult to do when you introduce some real variables beyond an employer’s control. Doctors are cautious in the interest of their patients and that can lead to costly treatment, therapy and even days away from work. Employers, in order to contain costs, can challenge medical diagnosis, prognosis and even the treatment recommended. They also challenge whether the injury occurred at work or if it is a recurrence of a previous injury or condition. However, this usually can only happen after the fact so injured workers get assistance immediately.
Some compensation boards have instituted a policy where claims below a certain value or certain number of lost days do not impact the employer’s rate in recognition of this, but the approaches and effectiveness vary across Canada. So an injured worker usually means there will be a cost to the employer. A dollar spent on a claim is certainly worth more in terms of employer premiums than that single dollar. The ratios vary depending on the industry. Since most compensation organizations use an experience window, a ratio of three premium dollars to every claim dollar is not an unreasonable one.
Motivating employers to control costs but limiting their ability to do so, is bound to create conflict
No-fault compensation
Compensation is no fault. However, when a company incurs a cost, someone is accountable. Being humans and not always being logical, the most visible part of that cost is the injured worker. When a company begins to incur cost, it logically wants to know why and this can become a blame game. The relationship between the employer, worker and the compensation organization can become acrimonious for each party as each looks to shift the cost.
Making matters worse is that some workers believe they cannot be disciplined or terminated while on compensation. Unfortunately, some employers believe that too. Compounding this is that in some cases the compensation organization takes an absolute view of this and pays wages to workers who have been terminated for cause.
This can leave the employer paying for a claim they have no control of and a worker left hoping that the payments go on for longer than they probably should. Workers must be entitled to fair compensation for an injury. Employers must be able to manage their workforce fairly. Should contentious costs be borne collectively instead of by an individual employer?
Of course in today’s reality employers can be judged on their ability to manage claims and so become frustrated by claims they cannot control, which turn into workers they cannot control and costs they cannot control. Besides incurring cost, their company may be judged not safe because of high cost claims.
Evolution
I would not say compensation organizations need reform because the principles are indeed sound. Evolving to address the changes in the workplace and the way information is shared and used is what is needed. Some questions that we should answer are:
• How do we respect the no fault principle in a way that is fair to all stakeholders?
• How do we shape the use of information collected by the compensation organizations?
• Is rewarding employers for controlling costs in the best interests of workers?
• How can stakeholder engagement become more effective?
In promoting no fault we need to focus on the money side. Compensation organizations should raise the limit to which a claim can incur cost and lost time days to the employer in order to allow an employer to begin to engage in the cost control exercise after they have ensured the worker receives medical attention. Employers have an intrinsic right to hold workers accountable for their conduct that must not be hindered, nor should it impede a worker’s access to benefits.
Compensation boards classify claims for internal use. If others will use the statistics, then the definition or classifications must clearly understood and be subject to change upon appeal. These definitions should, ideally, become national.
Boards should regularly consult with industry groups and employers through key representatives and users of the system such as the compensation managers, safety and HR professionals who use the system. Other identifiable stakeholders are unions and worker advocacy groups.
Rewarding employers for controlling costs has positive and negative sides. The question becomes at which point does cost control have to become a focus? Most claims never exceed a few thousand dollars. Collectively sharing that cost in an industry group may raise a premium slightly but would result in a less charged atmosphere when a worker needs a day of rest or weeks of physiotherapy.
Finally, has anyone looked lately? Meredith looked at many systems that have all evolved differently. Perhaps it may be time for another research project.
William Meredith was tasked to review existing laws and make recommendations, which he delivered in his 1913 report. The resulting “Meredith principles” formed the basis for all workers’ compensation legislation in Canada. The workplace has evolved but most compensation acts and their respective compensation organizations have seen little change. Is it time for evolution?
The principles laid out by Meredith are just as relevant today as they were in 1913. He toured Canada, the United States and Europe reviewing their legislation before drafting a law based on his principles:
• No-fault compensation: Workers are paid benefits regardless of how the injury occurred.
• Security of benefits: A fund is established to ensure funds exist to pay benefits.
• Collective liability: Employers share liability for workplace injury insurance.
• Independent administration: Objective administration separate from government.
• Exclusive jurisdiction: Only workers' compensation organizations provide workers' compensation insurance.
Most of these principles work very well even today. There are some interesting outliers, but that happens over time. In looking at the Canadian system, most seem to be functioning alright.
Collective liability
Employers pay into a fund to protect themselves from liability by sharing it. Employers are protected from legal action against the employer which is the “historic trade off.” Employers are the major stakeholders in the system. Most, if asked, have strong feelings about workers’ compensation. Most compensation organizations have no real mechanism to consult stakeholders. To be fair, some have surveys and focus groups but most do not have rounded or meaningful stakeholder consultation system.
Compensation organizations collect data on injuries because they must in order to fairly assess rates and manage claims. That same data is now used by regulators to judge employer safety or diligence. It is also used by companies in assessing the safety of other companies, a purpose for which it was never intended and for which it is not suited. Most compensation organizations simply take the view this is not their responsibility.
Since employers have a financial stake in this whole thing, they do what any good business will do — contain costs. They are rewarded for containing costs. Claim experience rating means systems deliver a lower premium for those who successfully contain costs in the same way a safe driving record lowers our car insurance premiums.
Controlling costs is difficult to do when you introduce some real variables beyond an employer’s control. Doctors are cautious in the interest of their patients and that can lead to costly treatment, therapy and even days away from work. Employers, in order to contain costs, can challenge medical diagnosis, prognosis and even the treatment recommended. They also challenge whether the injury occurred at work or if it is a recurrence of a previous injury or condition. However, this usually can only happen after the fact so injured workers get assistance immediately.
Some compensation boards have instituted a policy where claims below a certain value or certain number of lost days do not impact the employer’s rate in recognition of this, but the approaches and effectiveness vary across Canada. So an injured worker usually means there will be a cost to the employer. A dollar spent on a claim is certainly worth more in terms of employer premiums than that single dollar. The ratios vary depending on the industry. Since most compensation organizations use an experience window, a ratio of three premium dollars to every claim dollar is not an unreasonable one.
Motivating employers to control costs but limiting their ability to do so, is bound to create conflict
No-fault compensation
Compensation is no fault. However, when a company incurs a cost, someone is accountable. Being humans and not always being logical, the most visible part of that cost is the injured worker. When a company begins to incur cost, it logically wants to know why and this can become a blame game. The relationship between the employer, worker and the compensation organization can become acrimonious for each party as each looks to shift the cost.
Making matters worse is that some workers believe they cannot be disciplined or terminated while on compensation. Unfortunately, some employers believe that too. Compounding this is that in some cases the compensation organization takes an absolute view of this and pays wages to workers who have been terminated for cause.
This can leave the employer paying for a claim they have no control of and a worker left hoping that the payments go on for longer than they probably should. Workers must be entitled to fair compensation for an injury. Employers must be able to manage their workforce fairly. Should contentious costs be borne collectively instead of by an individual employer?
Of course in today’s reality employers can be judged on their ability to manage claims and so become frustrated by claims they cannot control, which turn into workers they cannot control and costs they cannot control. Besides incurring cost, their company may be judged not safe because of high cost claims.
Evolution
I would not say compensation organizations need reform because the principles are indeed sound. Evolving to address the changes in the workplace and the way information is shared and used is what is needed. Some questions that we should answer are:
• How do we respect the no fault principle in a way that is fair to all stakeholders?
• How do we shape the use of information collected by the compensation organizations?
• Is rewarding employers for controlling costs in the best interests of workers?
• How can stakeholder engagement become more effective?
In promoting no fault we need to focus on the money side. Compensation organizations should raise the limit to which a claim can incur cost and lost time days to the employer in order to allow an employer to begin to engage in the cost control exercise after they have ensured the worker receives medical attention. Employers have an intrinsic right to hold workers accountable for their conduct that must not be hindered, nor should it impede a worker’s access to benefits.
Compensation boards classify claims for internal use. If others will use the statistics, then the definition or classifications must clearly understood and be subject to change upon appeal. These definitions should, ideally, become national.
Boards should regularly consult with industry groups and employers through key representatives and users of the system such as the compensation managers, safety and HR professionals who use the system. Other identifiable stakeholders are unions and worker advocacy groups.
Rewarding employers for controlling costs has positive and negative sides. The question becomes at which point does cost control have to become a focus? Most claims never exceed a few thousand dollars. Collectively sharing that cost in an industry group may raise a premium slightly but would result in a less charged atmosphere when a worker needs a day of rest or weeks of physiotherapy.
Finally, has anyone looked lately? Meredith looked at many systems that have all evolved differently. Perhaps it may be time for another research project.
