Why Workers’ Compensation Exists

Workers’ compensation is likely a familiar term to many farmers and ranchers. Perhaps a previous employer provided coverage or the farm has carried it in the past or is considering getting it in the near future. Whatever a person’s experience may be, workers’ compensation insurance plays a role on most farms and ranches. Producers may be required to carry it now or in the future, and if not, the folks working on the operation are still at risk for injury – workers’ compensation is the most effective tool for managing that risk.

Workers’ compensation, often called simply workers’ comp, is a program that provides coverage for people injured in the course of doing their jobs. But, it can also feel like yet another expensive obligation and bureaucratic hurdle to overcome as an employer. What’s in it for the business? We’ve got a helpful secret to share. Workers’ compensation is a program that was created to benefit the employer.

To understand this more fully, let’s take a step back in time. Back in the old days, before workers’ comp existed, employees who were injured doing their jobs often sued employers for unsafe working conditions. Employees had to find an attorney, make their case, and hope for a favorable judgement. But at the same time, employers were spending lots of money defending these lawsuits and paying out large sums in settlements and judgements. The unpredictability of whether and when lawsuits would be filed and what the outcome would be was very difficult for employers.

Employees covered by a workers’ comp policy cannot sue the business

Unpredictability is bad for business, and so businesses started working with legislatures to find a new, creative solution to address workplace injuries in a comprehensive and predictable manner. Workers’ comp laws eliminated this unpredictability by offering a fundamental trade-off. Employees who were covered under a workers’ comp policy could no longer take their employer to court to sue for injuries. The only recourse for injured employees was the state’s workers’ comp administrative procedures.

The system of seeking compensation through workers’ comp may not sound very different that before — the employee is seeking compensation for workplace injuries. So what does it really matter whether it’s through the court system or through the state’s workers’ compensation administrative system?

When an employee files a lawsuit to receive compensation they are going to be filing something called a “tort” claim. If you file a “tort” claim you are suing someone because they did something wrong and injured you. In a tort claim, the employee’s whole case turns on whether or not the employer did a bad thing, often that they were “negligent.” In the workplace context, this means that it is reasonable to expect that employers ensure safe working conditions for employees, and when they do not, they are negligent.

An employer who is found to be negligent will then be “liable” for the injuries the employee suffered. In other words, the court will order the employer to pay for the workers’ damages because it was the employer’s fault.

This is unpredictable. Each and every case that employee and employer must battle out in court whether something wrong was done. Whether the employee is compensated for injuries will depend on how well the lawyers present their case, what facts come to light surrounding the nature of the injuries, and will be impacted by the various thoughts and feelings of the jury or judge deciding the case. The stakes are high – tort claims can include all kinds of things – claims for not only lost wages but emotional distress. And the payouts can be huge! On the other hand, if the employee loses the case, they get nothing. This is hard on both employee and employer. On top of that, the name of that game is blame. These cases are all about negligence and proving/disproving how the employer didn’t do what they should. This can be emotionally taxing and also bad for business.

The workers’ compensation process is more straightforward

When an employee goes through the workers’ comp system to redress their harm it is a very different process. There aren’t courtrooms and lawyers and making a case for negligence and blame. The employee simply makes an administrative claim and funds are awarded if the injury was found to occur in the line of work. Now that is oversimplifying it a bit as there can still be a host of issues that come up around workers’ comp, such as whether the injury was really covered, and whether there is even an injury at all. The point here is that workers’ comp is a “no fault” system. It is meant to provide financial compensation to the employee whether or not the employer was negligent. This eliminates a lot of the unpredictability inherent in these cases – for employees and employers alike. The employee can be assured of financial compensation for injuries, and the employer can rest easy knowing that their employee is taken care of AND it doesn’t have to bankrupt them in the process because the workers’ comp insurance is covering them. Predictability is the name of the game with workers’ compensation.

Now on the flip side, the employee potentially loses out some. Yes, they are assured that they will be compensated, but it’s not going to be the same as the damages they might have received in court. If they had a truly terrible boss who maintained deplorable working conditions and a supremely hazardous workplace, the employer doesn’t suffer any penalty intended as punishment.

Workplace safety is protected through OSHA

Motivation to maintain workplace safety is where what we call “OSHA” (pronounced oh-shuh) comes in. To go after bad bosses, employees still have a remedy and that’s through the Occupational Safety Hazards Administration or OSHA. OSHA sets workplace standards and if an employer is not meeting them, then an employee can complain to OSHA and an investigation would ensue.

However, this is not always going to be a recourse available to farm employees.  Although OSHA applies to all employers, OSHA is prohibited from enforcement on small farms. Farms with ten or fewer employees, who also do not “operate a temporary labor camp” do not experience enforcement. Note that the exemption is only from enforcement- OSHA does technically still apply to all farms, and the prohibition on enforcement may change in the future.

What about the injured employee?

So now that you know more about the why’s and the who’s of workers’ comp from the employer’s perspective, let’s turn to the injured worker. What do they get?

In terms of coverage, workers’ comp will pay injured workers’ medical bills and also provide compensation for lost wages when they cannot work at all because they are too injured to do the job. It also covers wages and transportation from time off work to go to doctor’s appointments. Workers’ comp also provides benefits or what are called “awards: in the form of a flat rate financial compensation for more serious losses like loss of a digit, loss of a limb, and loss of life.

Do farms have to buy workers’ compensation?

So, we’ve discussed why workers’ compensation exists, who benefits, and how. So, now the big question is: Are you required to carry it?

We have answers. Look up the rule for your state in our resource Selected Essentials in Farm Employment law. We have one for every state with a plain language description of the rule for your state. Now please note this important point: We have focused on the rule for agricultural employment in each state. Folks assigning non-agricultural labor to workers may need to follow non-agricultural rules. Non-agricultural rules usually require that workers’ compensation needs to be secured as soon as one person is hired.

So, what is agricultural labor and what is not? States don’t make this question easy to answer. The details are likely to be hashed out in case law and/or set by policy, which isn’t easy for the public to find or interpret. Although we’ve offered a strong interpretation of federal rules which are persuasive to states in the agricultural labor chapter of the Farmers’ Guide to Hiring Obligations. It’s also wise to talk with your state’s workers’ compensation agency or an attorney for specifics.

If a farm doesn’t have workers’ compensation, they need liability insurance

What do you do if you don’t have to buy workers’ comp? Well, farms can generally choose to still purchase it and there can be many good reasons for doing that: predictability and guaranteed coverage for workers who do not have medical insurance. If workers’ comp isn’t the right choice for you: buy liability insurance that covers workers! Remember if you don’t have worker’s comp, your workers can sue you if they are injured. Liability coverage for workers is essential. Most insurance policies will provide a defense attorney who can go to bat for you and handle your case. If in the end you are found liable for the injuries, your insurance coverage will pay for the injuries up to the coverage limit.

However, keep in mind that this type of insurance can be hard to find. Where every business except farms are required to carry workers’ comp, there isn’t much demand for liability insurance that covers workers. Farms and ranches may need to be persistent to find an affordable policy.

How to buy workers’ compensation

How does the farm business owner go about getting workers’ comp? The farm employer will buy a workers’ comp policy either from a private insurance agent or from a state agency. This will depend on how workers’ comp is set up in your state. To get moving, ask a peer or call your regular insurance agent.

Usually the biggest thing on most farm employers’ minds, understandably, is, “How much is workers’ comp going to cost me?”At a baseline, workers’ comp rates are determined based on this equation: 1) total payroll costs + 2) risk classification of the activities engaged in by employees and, often 3) whether the business has had a claim filed on their operation. Rates will likely go up after a claim and that is an unfortunate reality. It is also a good incentive for business owners to keep workplaces safe to avoid claims to keep that workers’ compensation rate as low as possible.

Managing the premium 

Here are three things farmers can do to manage the premium costs of workers’ compensation.

First, farms can make efforts to prevent future injuries and associated claims. This is a promising path to keeping costs rising, but do understand that while chances of injury are lower when efforts are made to actively avoid issues, accidents still happen on even the safest of farms.

Second, farms are always in charge of how big the workforce is and the rate of pay. Farms can strategize payroll costs in an attempt to control the workers’ comp premium total. This can be easier said than done as at the end of the day farms need the workers they need and payroll costs may not be flexible.

Third, farms have control over the kinds of tasks they assign to employees. Some tasks are higher risk than others. While no one can eliminate the inherent risks of farming or diminish the fact that the occupation of farming is generally classified as a high-risk occupation, managers can eliminate the kinds of activities that make your workers’ compensation rate go up. Working with chainsaws, PTO units, tractors, and horses generally result in higher risk rates and thus higher premiums. Consider limiting these activities to only one employee, if possible.

For example, you may not be able to do anything about the fact that you need someone to run a tractor on your farm or maybe you need someone to milk the cows. What you can do is take a minute to consider whether you need ALL of your employees to do all of these things. Same goes for tractor operations and all other dangerous farm activities. This way you only have one employee engaged in higher-risk activities and the rates may only go up for one employee, not all.

Farmers should talk with their workers’ compensation provider to understand which tasks and job descriptions are considered more risky and result in a higher premium. As irritating as it may be to go through a seemingly unending list of questions from your insurance agent or state agency about workers’ comp, it really is to your benefit to answer their questions in detail, speaking clearly and specifically about the nature of the activities employees are performing in order to secure adequate workers’ compensation coverage. Preparing for this conversation can help you plan out your employment needs and, as result, set you up to write job descriptions that match your needs!

Equity and fairness considerations

There are equity considerations at play with workers’ compensation. It’s a system that has the potential to be abused by bad employers who don’t honor workers with safe working conditions. Bad employers can get workers’ compensation and employees injured under their watch have to take whatever workers’ compensation provides, and nothing more. You may have been driving on a highway and seen signs for attorneys who specifically take on workers’ compensation cases. This may sound confusing given we just went through how workers’ compensation avoids lawsuits against the employer for employee injuries. Now that is true, and at the same time the employer or insurance company can delay or deny benefits that a covered employee is entitled to. You can see how in bad employer situations the deck gets stacked — the employee can’t sue the employer for injuries AND they may need an attorney to help them lay claim to their benefits. It can get to be a sticky situation.

Needless to say, being a mindful and responsive employer who ensures safe working conditions enables workers’ compensation to function under more equitable terms.

Action Steps

To wrap up, let’s review 2 action steps farmers and ranchers can take to move forward on managing workers’ compensation for your farm or ranch business.

  1. First is to identify whether or not the farm is required to carry workers’ compensation right now. Thankfully, our team of attorneys has done that work for you! We’ve researched workers’ compensation rules for farms and ranches in all 50 states, in addition to Washington D.C. and Puerto Rico. Learn your state’s rules by going to the Selected Essentials in Farm Employment Law guide for your state, included in this lesson as well as in the Farm Commons library.
  2. The second step is straightforward, and it’s the best practice we recommend: buy workers’ compensation, or if workers’ comp is not required get or expand liability coverage to employees.