Magazine article Review - Institute of Public Affairs

Workers' Compensation: Time to Rethink the Options

Magazine article Review - Institute of Public Affairs

Workers' Compensation: Time to Rethink the Options

Article excerpt

THE workers' compensation schemes in the various States and Territories differ in their detail, but they all seem to attract criticism from both sides of the industrial fence.

Employers regard the current schemes as far too expensive and as a significant disincentive to job creation. Trade unions feel that the level of benefits is often inadequate and that this can create hardship for some severely injured employees.

In Victoria, common-law claims under that State's scheme were largely abolished by the former Coalition Government. They were recently restored by the current Labor Government-although, to the disappointment of the unions and of claimant workers, this was not done retrospectively.

As the quality of the debate on that matter left a lot to be desired, it is worthwhile looking at the subject from first principles, analysing the problem before looking at a possible solution.


The concept that, in a civilized society, persons who cause injury to other persons should, as a matter of morality, compensate their victims is well established.

This principle, long enshrined in the common law of England (and Australia), now covers all manner of situations and is not confined to the workplace. Naturally, compensation needs to have regard both to pain and suffering and to economic loss.

One difficulty which can arise in practice is that a party found liable in such circumstances might lack the wherewithal to meet the damages awarded by a court (or agreed in an out-of-court settlement).


Many years ago a remedy for this was arrived at by the authorities, at least in two common situations. This remedy was to require compulsory insurance for employers, regarding injuries to their own employees; and for motor car drivers in regard to vehicle accidents on the roads.

Other injuries which might be equally harmful to the victims-for example, when a brick falls off a house onto a passer-by or even when a motorist drives into a tree-were left out of these arrangements. So this legislative approach, with its obvious anomalies, was really flawed right from the start.

As time passed, a number of socalled improvements were built into the workers' compensation systemfor example, benefits were extended to cover injuries on the way to and from work; and the definition of `employee' was widened. The line between such schemes and social security started to get blurred.


When discussing such issues, the public invariably mixes up two quite separate aspects:

* the overall costs of compensation to the community, and

* the best ways of meeting such costs.

The aggregate costs are a function of the dollars actually flowing to victims, to health professionals, to lawyers and to various administrative personnel. They are not a function of book-keeping-a factor which also applies to another frequent hot potato, health insurance.

The basic costs are going to be the same in total regardless of whether these are funded out of:

* direct payments by the persons causing (or deemed to cause) injury, or

* insurance premiums, or

* consolidated revenue.

However, the associated costs for lawyers and the like will, of course, differ considerably according to the way the community chooses to handle these issues.

One possible advantage of an insurance scheme is its ability to impose a discipline on employers, encouraging them to set up safe work practices. This can happen where premium rates are aligned to the perceived risks. Such a discipline, however, could also be imposed in other ways-for example, through the criminal law.


If compulsory insurance is to be used in the workplace, then naturally the premiums become a cost to employers. But this applies equally to all the other expenses of running a business-wages, rent, electricity, telephones, and so on. …

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