History of Workers' Compensation in California

Phillip Klein, Esq.

The history of the ever-evolving workers' compensation system in California is relevant to any physician practicing in this state. Potential industrial injuries may rear their head in any number of ways and in any number of clinical settings. Physicians can best respond to this possibility with knowledge of the history and legal framework of workers' compensation law in California and its relevance to practitioners.

In the early 20th century, the industrial revolution led to an increase in the number and severity of industrial injuries. At that time, the compensation received by injured employees was through the civil tort system and was inadequate and slow. California's response was a compulsory worker compensation system established in 1913 through the Boynton Act.(1) Pursuant to state constitutional mandate,(2) the Legislature enacted the California Workers' Compensation Insurance and Safety Act of 1917,(3) precluding civil remedies in most cases and making most benefits mandatory.

This system made workers' compensation benefits the "exclusive remedy" for employees injured while at work. The system is referred to as the "compensation bargain," where employers assume all liability for work-place injuries or deaths, without regard to fault, and the employee receives relatively quick payment of benefits.(4) Employees give up the ability to pursue other remedies through the civil tort system and employers are protected from unlimited liability for injuries and deaths of their employees.(5)

The California Constitution was amended to vest in the Legislature the power to create and enforce the workers' compensation system through appropriate legislation. The constitution provides that the workers' compensation system include provisions for adequate comfort, health, safety and general welfare of all workers and their dependents in order to provide relief from the consequences of injury and death incurred in the course of their employment.

Therefore, all of California's workers' compensation laws are state laws. California's workers' compensation laws have been generally upheld on the theory that employers should assume liability for industrial injuries as part of the cost of business and production. Workers' compensation insurance or a self-insurance bond is mandatory for California employers and an employer may not receive any contribution for the costs of workers' compensation from employees.

The main purpose of the act is to compensate for an injured worker's diminished ability to compete in the open labor market, not to compensate every work-related injury.(6) The theory of the workers' compensation law, unlike the common law, is not to make the victim whole for negligent acts, but to furnish economic insurance while the employee is away from work.(7) Several additional purposes of California's Workers' Compensation Act include: (1) ensuring that the cost of industrial injuries will be part of the cost of goods rather than a burden on society; (2) guaranteeing prompt, limited compensation for a work injury, regardless of fault; (3) promoting industrial safety; and (4) protecting the employer from tort liability. The act intends comprehensive coverage for injuries in employment, including full coverage for medical, surgical, hospital and other treatment needed to cure or relieve the employee from the effects of the industrial injury.(8)

The Labor Code workers' compensation provisions seek to protect the injured worker and facilitate quick and easy compensation to those injured at work. For example, the Labor Code mandates workers' compensation laws are to be liberally construed in favor of extending benefits for persons injured during the course of their employment. The Labor Code also prohibits discrimination against those injured in the course and scope of their employment.(9) An employer or workers' compensation insurer who discriminates against an injured worker is guilty of a misdemeanor. If an injured employee is retaliated against for claiming workers' compensation, he or she is entitled to increased benefits. A discharged employee is entitled to reinstatement of lost wages or benefits due to the discriminatory act. This is encoded in Labor Code Section 132(a).

Enforcement and Appeals
California's Division of Workers' Compensation oversees the administration of the workers' compensation laws. Under the California Division of Workers' Compensation is the Administrative Director, who may adopt, amend, or repeal any rules necessary to enforce workers' compensation laws. The California Division of Workers' Compensation has created the Workers' Compensation Appeals Board (WCAB), which exercises jurisdictional powers over workers' compensation laws and hears and decides disputes relating to workers' compensation benefits. Hearings are held before the WCAB in district offices spread throughout the state when a dispute over benefits arises. Appeal from this level is available by Petition for Reconsideration to a statewide panel of commissioners. Decisions issued by the WCAB are appealable to the state trial courts, and then to the California Courts of Appeal and the California Supreme Court.

The current workers' compensation benefit structure seeks to indemnify persons who cannot work when such an employee sustains an injury "arising out of and in the course of the employment and for the death of any employee if the injury proximately causes the death.(10) When this standard is met an employee may be entitled to the following benefits: first, medical treatment that is reasonably required to cure or relieve the injured worker from the effects of the industrial injury.(11)

Second, workers' compensation indemnity benefits that are paid at the rate of two-thirds of the workers' average weekly wage at the time of the industrial injury, subject to statutory minimums and maximums.(12) Temporary disability payments are paid when an injured employee is recovering from the injury or illness. Permanent partial disability benefits are paid to injured workers who are left permanently but only partially impaired. A number of weeks of disability are paid based on a percentage of disability determined by, for example, the severity of the disability. Permanent total disability benefits are paid when an injury results in total disability.

Third, a qualified injured worker may receive vocational rehabilitation. The administrative director is required to establish a vocational rehabilitation unit.(13) The vocational rehabilitation unit employs counselors who set up rehabilitation "plans" for injured workers.(14) The employee may receive a living expense allowance while participating in vocational rehabilitation.(15) Vocational rehabilitation expenses are capped at $16,000.(16)

Fourth, an injured worker who is 70 percent disabled or more may receive a pension for the remainder of his or her life.(17)

Finally, death benefits are paid to total or partial dependents or heirs of a worker who dies as a result of an industrial injury.(18)

Efforts Toward Reform
In recent years, California's workers' compensation system has been criticized for its high costs, increasing complexity, and fraudulent claims.(1) Several efforts to "reform" the system have resulted, beginning with drastic legislative amendments passed in 1989 and 1993.(20) Importantly, medical costs in workers' compensation cases have increasingly been seen as too high. In fact, most of the 1989 legislation was aimed at cutting the high costs associated with doctors and attorneys. Doctors saw a serious cut in fees and employee benefits were increased modestly.

The 1993 legislative changes targeted workers' compensation fraud, the increase in psychiatric "stress" claims, and costs associated with vocational rehabilitation. Many psychiatric cases were declared noncompensable, and others were limited. Also, in case of a disagreement between doctors the injured worker's treating physician's findings would be presumed correct.

Attempts to "reform" the system continue with a vengeance. In the last several years, bills were passed in both houses of the California Legislature, but Gov. Davis vetoed them for three years in a row.(21) Most recently, a large legislative reform package, Assembly Bill 749, was passed and went into effect January 1, 2003. Also, Gov. Davis approved additional legislation through Senate Bill 228 on September 30, 2003, to take effect on January 1, 2004. Newly elected Gov. Schwarzenegger has vowed to cut workers' compensation costs even further and is currently working to enact additional legislative reforms. Thus, the system is ever evolving and new legislative changes on the horizon could have This background is relevant to all physicians practicing in California for a number of reasons. First, patients may present with potential industrial injuries at any time and a physician must be prepared to appropriately respond. Second, physicians must know the important legal ramifications for treating a patient with an industrial injury. additional effect on physicians who treat injured employees.

This background is relevant to all physicians practicing in California for a number of reasons. First, patients may present with potential industrial injuries at any time and a physician must be prepared to appropriately respond. Second, physicians must know the important legal ramifications for treating a patient with an industrial injury.

Medical costs associated with treating industrial injuries are limited and strictly regulated. Under California law, what doctors can charge for treating injured workers is governed by the Official Medical Fee Schedule. The Administrative Director, pursuant to Labor Code Section 5307.(1), effective in 1993, adopted the Official Medical Fee Schedule. It is rare, if not unheard of, for a worker' compensation insurance company to pay a fee beyond what the fee schedule allows. Often workers' compensation insurance companies send out physician bills to be audited by a review service to determine the appropriateness of the billing amounts. Such audits often result in medical bills being cut and often cause delay in payment to physicians.

Further, the California Labor Code requires treating physicians to file periodic treatment reports. California Labor Code Section 4628 outlines specific reporting requirements of any physician or chiropractor who undertakes to treat an injured worker. Failure to comply with Section 4628's requirements make a medical report inadmissible as evidence in workers' compensation proceedings and knowing failure to comply could subject the physician to a $1,000 penalty and a finding of contempt. Further reporting duties of injured workers' primary treating physicians are outlined in Regulation Section 9785.

In addition, a recent study found the average practice expense for workers' compensation medical providers is significantly higher than the average for physicians treating persons with nonindustrial injuries. This is attributable to the extensive statutory requirements and the additional issues that need to be addressed (including return to work issues).(22)

Some commentators feel the fees paid to medical practitioners are so low it may force some doctors to refuse workers' compensation cases and drive some doctors out of the system.(23)

Notwithstanding this, many critics of California's workers' compensation system continue to believe medical costs are far too high. This is reflected in the recent legislative change found in SB 228 this past September 2003 against stand-alone surgery centers, setting stringent limits on fees they can charge in workers' compensation cases. One can only speculate what the next wave of workers' compensation legislative changes will bring for physicians. Further reductions in medical costs seem likely.

Thus, it is crucial that practitioners know the history of California's workers' compensation system, the current benefit structure, and reporting requirements for physicians who treat industrial injuries. Such knowledge is essential to best respond to a potential industrial injury and to make informed decisions on how to best treat injured workers.

Phillip J. Klein is the Managing Partner at Laughlin, Falbo, Levy & Moresi LLP at its San Francisco office. Mr. Klein has been with Laughlin, Falbo, Levy & Moresi LLP since its inception in 1985 and before that practiced law with Sedgwick, Detert, Moran & Arnold. Laughlin, Falbo, Levy & Moresi LLP has several areas of practice, but its largest area continues to be workers' compensation defense, defending the defendants: employers and insurance carriers.

1. The Roseberry Act of 1911 established a voluntary system of insurance. The Boynton Act of 1913 established a compulsory workers' compensation system. The later Workers' Compensation Insurance and Safety Act of 1917 formed the basis of the current scheme, and was codified in the Labor Code in 1937.
2. California Constitution, Article VI.
3. Labor Code Secs. 3200 et. seq.
4. CPER, No. 153 (April 2002) "Deciphering the Long-Awaited Workers' Comp Reforms." Miller, Christopher; S.G. Borello & Sons, Inc. v. DIR, (1989) 49 Cal. 3d 341.
5. See Id.
6. See Livitsanos v. Superior Court, (1992) 2 Cal. 4th 744.
7. See Moore Shipbuilding Corp. v. IAC, (1921) 185 Cal. 200.
8. See Sea-Land Service, Inc. v. Workers' Compensation Appeals Board, (1996) 14 Cal. 4th 76.
9. California Labor Code Sec. 132(a).
10. California Labor Code Sec. 3600(a).
11. California Labor Code Sec. 4600.
12. California Labor Code Sec. 4653.
13. California Labor Code Sec. 139.5(a).
14. California Labor Code Sec. 4638.
15. California Labor Code Sec. 139.5(c).
16. California Labor Code Sec. 139.5(a)(5).
17. California Labor Code Sec. 4659.
18. California Labor Code Secs. 3503, 4700 et. seq.
19. CPER, No. 153 (April 2002) "Deciphering the Long-Awaited Workers' Comp Reforms." Miller, Christopher.
20. See Id.
21. See Id. SB 320 (Solis, 1999), was vetoed by Gov. Davis. SB 996 (Johnston , 2000) was vetoed by Gov. Davis.
22. "A Study of the Practice Expenses Associated with the Provision of Evaluation and Management Services" by the Lewin Group, prepared for the Industrial Medical Council on May 13, 2003.
23. See, for example, "Clinic's high costs in the cross hairs: new limits to appease employers may drive away doctors" by Eric Nalder, San Jose Mercury News, November 25, 2003.

1 CPER, No. 153 (April 2002) "Deciphering the Long-Awaited Workers' Comp Reforms." Miller, Christopher.