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16.1 Types of Laws

Before the adoption of Workers’ Compensation laws, an employee injured on the job generally had to file a lawsuit against the employer and prove that the employer’s negligence caused the injury. Recovering damages was often difficult because employers could rely on several common law defenses to avoid liability. The three primary common law defenses were:

  • Assumption of Risk – The employer argued that the employee voluntarily accepted the inherent risks of the job by agreeing to the employment. As a result, the employee was considered responsible for injuries arising from those known risks.
  • Fellow Servant Rule – The employer claimed that the injury was caused, in whole or in part, by the negligence of a co-worker rather than the employer. If successful, this defense relieved the employer of liability.
  • Contributory Negligence – The employer asserted that the employee's own negligence contributed to the injury. Under traditional contributory negligence rules, even minimal fault on the part of the employee could prevent recovery of damages.

The adoption of Workers’ Compensation laws largely eliminated the need for injured employees to prove employer negligence. In exchange for guaranteed statutory benefits, employees generally relinquish the right to sue their employers for most work-related injuries, while employers receive protection from many civil lawsuits arising from those injuries.

With the adoption of Workers’ Compensation laws, employers became responsible for providing statutory benefits for employees who sustain work-related injuries or occupational diseases, regardless of fault. This no-fault system ensures that eligible employees receive benefits without having to prove that the employer was negligent. Workers’ Compensation is generally considered the exclusive remedy for covered workplace injuries and illnesses. Under this principle, an employee's recovery is typically limited to the benefits provided by the applicable Workers’ Compensation statute, and the employee generally may not bring a civil lawsuit against the employer for the same injury. In exchange, employers who maintain Workers’ Compensation coverage in compliance with state law receive protection from most employee lawsuits arising from covered workplace injuries and illnesses. Although specific rules vary by jurisdiction, the exclusive remedy doctrine forms the foundation of modern Workers’ Compensation systems by balancing the interests of both employers and employees. Employees receive prompt access to statutory benefits, while employers gain predictable liability protection and reduced litigation.

Compulsory vs. Elective States​

State Workers’ Compensation laws are classified as either compulsory or elective, depending on the requirements established by each state. This classification determines whether employers are legally required to obtain Workers’ Compensation coverage or whether participation in the Workers’ Compensation system is optional under specified circumstances.

Compulsory states are jurisdictions in which state law requires eligible employers to provide Workers’ Compensation coverage for their employees. Employers typically satisfy this requirement by purchasing a Workers’ Compensation insurance policy from an authorized insurer or by qualifying as an approved self-insurer, subject to state requirements. In compulsory states, Workers’ Compensation coverage must comply with all applicable state laws. If a policy provides benefits that are less than those required by statute, the insurer or approved self-insurer remains obligated to pay the full benefits mandated by law. Employers that fail to obtain the required Workers’ Compensation coverage may be subject to regulatory penalties and generally lose the legal protections afforded by the Workers’ Compensation system. As a result, they may be exposed to civil lawsuits brought by injured employees in addition to any statutory fines or other enforcement actions imposed by the state.

Elective states are jurisdictions in which eligible employers may choose whether to participate in the state's Workers’ Compensation system, subject to applicable state laws. Employers that elect to participate must provide Workers’ Compensation benefits in accordance with statutory requirements and, in return, generally receive the liability protections afforded by the Workers’ Compensation system. An employer that elects not to participate does not receive these protections. Instead, an employee who is injured in the course of employment may pursue a civil lawsuit against the employer to recover damages. In many elective states, employers that reject Workers’ Compensation coverage are prohibited from asserting traditional common law defenses, including assumption of risk, the fellow servant rule, and contributory negligence. As a result, employers that opt out of the Workers’ Compensation system may face significantly greater legal and financial exposure if an employee is injured.

Regardless of whether a state follows a compulsory or elective Workers’ Compensation system, employers that fail to provide required or elected Workers’ Compensation coverage may face substantial legal and financial consequences. In addition to any fines, penalties, or other enforcement actions imposed under state law, these employers may lose the liability protections provided by the Workers’ Compensation system and become subject to civil lawsuits for work-related injuries and illnesses. Because damages awarded in civil litigation are not limited to statutory Workers’ Compensation benefits, employers may be exposed to significantly greater financial liability.

Monopolistic vs. Competitive States​

Some states operate state workers’ compensation funds, which are government-owned and government-administered insurance organizations that provide Workers’ Compensation coverage to eligible employers. Depending on the state's laws, a state fund may serve as the exclusive provider of Workers’ Compensation insurance or may compete with private insurers in the voluntary insurance market. State funds help ensure that employers have access to Workers’ Compensation coverage while meeting the requirements established by state law.

States that operate a state workers’ compensation fund are generally classified as either monopolistic or competitive, depending on how Workers’ Compensation insurance is offered.

  • Monopolistic states require employers to obtain Workers’ Compensation coverage exclusively through the state-operated insurance fund. Private insurers are not permitted to write standard Workers’ Compensation policies in these states, although employers may still need Employers Liability or other supplemental coverage to address exposures not insured by the state fund.
  • Competitive states allow employers to purchase Workers’ Compensation insurance from licensed private insurers. In states that maintain a competitive state fund, the fund operates alongside private insurance companies, giving employers the option to choose between the state fund and the private insurance market.

The majority of states operate under a competitive Workers’ Compensation system, where coverage is primarily available through private insurers, with some states also offering a competing state fund.

Federal Workers’ Compensation Laws​

State Workers’ Compensation laws do not apply to every category of employee. Certain occupations are covered under federal statutes that establish separate compensation systems for work-related injuries and illnesses. When a federal law applies, it generally supersedes state Workers’ Compensation requirements. Examples of federal Workers’ Compensation laws include:

  • The Jones Act – Provides a legal remedy for qualifying seamen who are injured while serving aboard vessels in navigation. Unlike traditional Workers’ Compensation systems, injured seamen generally must establish employer negligence to recover damages under the Act.
  • The U.S. Longshore and Harbor Workers’ Compensation Act (LHWCA) – Provides Workers’ Compensation benefits to certain maritime employees, including longshore workers and individuals who load, unload, repair, or build vessels, but who are not members of a vessel’s crew.
  • The Federal Employers Liability Act (FELA) – Applies to employees of interstate railroads. Rather than providing no-fault Workers’ Compensation benefits, FELA allows injured railroad employees to seek damages by proving that the railroad's negligence contributed to the injury.
  • The Migrant and Seasonal Agricultural Worker Protection Act (MSPA) – Establishes employment standards and protections for migrant and seasonal agricultural workers. Workers’ Compensation requirements for agricultural employees vary by state, and this Act does not itself establish a federal Workers’ Compensation program.
  • The Federal Mine Safety and Health Act – Establishes safety and health standards for the mining industry and provides protections for miners through federal regulation and enforcement.
  • The Federal Employees’ Compensation Act (FECA) – Provides Workers’ Compensation benefits to civilian employees of the federal government who sustain work-related injuries or occupational illnesses.
  • The Defense Base Act (DBA) – Extends the benefits of the Longshore and Harbor Workers’ Compensation Act to certain civilian employees working on U.S. military bases or under government contracts outside the United States.