Workers' Compensation in Canada
What's the Problem?
"Too many Canadian workers are being hurt, suffering from occupational diseases and are even sometimes dying as a result of our work. We need to put more effort into preventing these harmful consequences of work. Instead, we are devoting more and more effort to fighting about whether and how much disabled workers are paid and by whom. This pamphlet describes why and how workers' compensation was set up and what some of the current issues are throughout the country. It also tells us what we can do in the short run to protect our members' interests and introduces what we need to do to change the system in the long run, establish a system of universal disability insurance. This pamphlet is meant to be read with the companion pamphlet, Universal Disability Insurance Plan.
Buzz Hargrove, President
Workers' Compensation - Why?
The workers' compensation system began in Germany under Otto von Bismarck during the last century. Bismarck was concerned about worker upheaval and the growing trade union movement. He decided that introducing social programs such as workers' compensation and a pension system would help to meet people's needs and stem dissent.
In Canada during the last century, child labour was still permitted. The dangerous conditions in factories meant children were often maimed or killed. Their families' only recourse was to sue the employer in the courts. While employers frequently used the defence of "contributory negligence" against adult injured workers, it was much more difficult to claim that a child should have been aware of all of the risks of industry. In the beginning of the century, juries began to award large damages against employers who had killed or seriously harmed workers. Although these successful lawsuits were relatively infrequent, employers in Canadian manufacturing realized it could lead to financial ruin. By 1913 they decided to support a system of workers' compensation.
The trade union movement lobbied long and hard for better working conditions including safer machinery and shorter work days. As well, they argued for a system of workers' compensation so workers injured would have an income when they were unable to work, as well as receiving medical treatment and a decent burial for those workers who died on the job. They knew that the lawsuit system was a lottery in which most workers lost.
Meredith Royal Commission
The Ontario government appointed Ontario Chief Justice Meredith head of the first Canadian Royal Commission into Workers' Compensation. Before his appointment as a judge, Meredith had been head of the Conservative Opposition in the Legislature.
Meredith recommended a system based on the following principles:
Security of Payment - The worker was to be guaranteed compensation for as long as earnings were impaired.
No Fault System - It would not be necessary to prove negligence in order to receive benefits. Contributory negligence would not prevent workers from receiving benefits.
"In these days of social and industrial unrest it is, in my judgment, of the gravest importance to the community that every proved injustice to any section of class resulting from bad or unfair laws should be promptly removed by the enactment of remedial legislation and I do not doubt that the country whose Legislature is quick to discern and prompt to remove injustice will enjoy, and that deservedly, the blessing of industrial peace and freedom from social unrest. Half measures which mitigate but do not remove injustice are, in my judgment, to be avoided. That the existing law inflicts injustice on the workingman (sic) is admitted by all. From that injustice he (sic) has long suffered, and it would, in my judgment, be the gravest mistake if questions as to the scope and character of the proposed remedial legislation were to be determined, not be a consideration of what is just to the workingman, but of what is the least he can be put off with; or if the Legislature were to be deterred from passing a law designed to do full justice owing to groundless fears that disaster to the industries of the Province would follow from the enactment of it."
Employer Funded Collective Liability - The vast majority of employers would have to contribute to a fund from which benefits would be paid. This protected small firms from the potentially high cost of serious accidents. Employers were grouped into assessment rate groups so employers with similar risks paid the same assessment rate which would be higher than those in industries which were less hazardous.
Administration by an Independent Agency - This was the beginning of the Workers' Compensation Boards. Workers were to be spared the expense and delay of going to court.
Injured Workers Could Not Sue Their Employers - In exchange for the establishment of workers' compensation, workers gave up their right to sue their employers. This is often referred to as the historic compromise. This means that workers' compensation is not welfare; workers' compensation is a right.
Meredith's recommendations became law in Ontario in 1914 and other provinces followed suit and established the same system.
"...Industry and not soup kitchens must look after the helpless humans sacrificed in the service of industry. To the yawning criticism that workers surrounded by such pleasant options (WCB benefits) will not maintain their usual safeguards, the retort of experience is that no worker in his sane senses deliberately invites a painful, perhaps fatal bodily hurt..."
Maclean's Magazine, April 1, 1915
From 1914 to the late 1980's, workers compensation laws and practices continued to improve in each Canadian province. Waiting periods were eliminated. Benefits levels were increased. More occupational diseases were recognized. Inflation indexing of pensions was introduced. Independent appeal systems were established. Formerly secret WCB policies and decisions were published.
All of these improvements came about because we fought for them. Widows camped out on the steps of provincial legislatures; injured workers groups demonstrated repeatedly; newspapers, radio and television carried stories about injustice to workers with disabilities; and unions lobbied for improved benefits. These efforts resulted in positive improvements to the workers' compensation system.
The 1990's - Everything was at Risk
During the 1990's, however, for the first time in Canadian history, the workers' compensation system came under a dramatic attack. Why did this happen? What were the roots of the attack?
The Corporate Agenda
The international corporate agenda of privatization, deregulation and free trade has had far reaching effects in Canada. Our social institutions were under attack like never before.
Workers' compensation is no different. Employers tried to reduce their costs and erode a system Canadians have had as a right for ninety years. Remember, the historic compromise required employers to pay all of the costs for workers' compensation while workers gave up the right to sue them. The employers' attack on workers' compensation took place in the context of free trade with the attempt to harmonize downwards to the lower benefit levels of the privatized U.S. system.
Debts, Deficits, and Unfunded Liabilities
Corporations and right wing governments have argued that governments' deficits and debts are a problem. And they argued in order to reduce debts and deficits Canadians must cut their social safety net. Slashing government spending in critical areas like health care and education together with erosions in our social programs like Canada Pension and Unemployment Insurance were all claimed to be necessary to reduce government deficits. The CAW and other progressive forces in our society argue that high interest rates, unemployment, and inadequate corporate taxation were the reasons for deficits and debts. Slashing social programs only makes people poorer with less money to spend in our society. All the while the rich get richer. Bank profits are at record highs while several years ago General Motors reported the highest corporate profit ever in Canadian history. In fact, GM's profits were so high in Canada they stopped reporting them altogether and now lump them in with their U.S. profits, as do Ford and DaimlerChrysler.
Debts and Deficits
A government deficit means the government has taken in less money than it has spent over a period of time (usually a year). A government debt is the deficits built up over time. Workers' Compensation Boards (WCBs) have no debts. Some of them do, however, have unfunded liabilities. What is an unfunded liability?
According to Workers' Compensation Acts, the WCBs must set aside all of the money to pay for future pension costs (the future liability) of disabled workers' claims in the year they occur (or when the pension is calculated). If they fail to set aside all the money required for all such claims the WCB is said to have an unfunded liability. If they set aside too much money, the WCB is said to have a surplus. If the right amount of money is set aside, the WCB is said to be fully funded.
If assessments rates are set high enough, there is no unfunded liability or, at worst, a temporary small unfunded liability. Some Boards, however have had their assessment rates set too low for years. Employers have successfully lobbied governments and WCBs to keep their assessment rates low. They have been most successful in Ontario and Quebec. In these two provinces, the unfunded liability is quite large. In Ontario, for example, the unfunded liability became about $11 billion in the late 1990s. It sounds like a lot of money until you realize that at that time the Ontario WCB had $6.8 billion in the bank and in investments.
The Ontario WCB was then about 37% fully funded. There were hundreds of thousands of employers in the province. Ontario business was never on the verge of bankruptcy, rather, it was making more money than ever before in Canadian history.
It's a bit like having a house with a mortgage. You have a healthy income with no possibility of a layoff, you have a lot of equity in your house, and you are required to make mortgage payments in the future. You wouldn't say you were in crisis; you would say you were fairly well off financially and that you had a nice house.
The reason the Ontario, Quebec, and several others WCBs are not 100% fully funded is because in the past employer assessment rates were set too low. At times the rate has been almost a $1 per $100 of payroll below the rate it should have been. This was almost 50% lower than it should have been.
Should we be worried about the unfunded liability? Only in very small jurisdictions such as the Yukon and the Northwest Territories and Nanavut do we need to worry about the WCB being fully funded. Because of the territories' small financial base even one large employer closing down can have a dramatic effect on WCB finances. They need to be fully funded, and they are.
Larger WCBs, however, are by their nature relatively wealthy institutions. They have lots of collective capital to meet the needs of disabled workers. Even if they are not fully funded, injured workers' pension cheques won't bounce. In order to retire the unfunded liabilities, employer assessment rates must increase. The vocal employer lobby, however, would rather see workers' benefits decrease than employer assessments increase.
Employers are using government deficits and debts to try to dismantle social programs. They are using the unfunded liabilities to try to erode workers' compensation. Remember, employers are the only contributors to workers' compensation. Employers directly profit from every penny not paid into workers' compensation. And the WCBs themselves have not one penny of debt or deficit, only, for some Boards, a future liability.
The Race to the Bottom
Beginning in the mid-80s, fuelled by employers' public hysteria over the unfunded liabilities, various provincial governments amended their Workers' Compensation Acts to reduce benefit levels and entitlement. Benefits used to be based on 75% of gross pay. Since WCB benefits are not taxable, this gave workers full take home pay. Provinces began reducing this level to 90% so that all injured workers suffered income loss. At present (2001), only B.C. and the Yukon have maintained 75% of gross pay as the benefit level.
In 1992, Manitoba was the first province in the race to the bottom. Benefit levels were reduced to 80% of take home pay after 24 weeks. As well, top up agreements negotiated by unions to compel employers to make up the difference were effectively prohibited. Manitoba also made chronic stress claims illegal. Harmonization with private sickness and accident plans also began in Manitoba with these lower benefit levels and with the concept of different short term (90% or net earnings or take home pay) and long term (80% of net) benefit levels introduced for the first time in Canada.
Atlantic Canada followed suit with Newfoundland and New Brunswick reducing benefits and entitlement. Newfoundland began paying 75% of net earnings for the first 39 weeks then 80% thereafter with New Brunswick beginning to pay 80% of net for the first 39 weeks, 85% thereafter. New Brunswick introduced a three day waiting period for benefits which both reduced WCB costs and induced workers to continue to work while injured rather than losing three days pay. As well, it continued the harmonization with group sick plans which usually have waiting periods. By 1996, Nova Scotia and Prince Edward Island joined the race to the bottom with benefit levels reduced to levels similar to the rest of Atlantic Canada (Nova Scotia at 75% of net for the first 26 weeks, 85% thereafter and PEI at 80% of net for the first 39 weeks, 85% thereafter). Nova Scotia introduced a two day waiting period for benefits.
As a result of such significant slashing of benefits and entitlement, the WCBs unfunded liabilities began to be eroded and in some cases the Boards are now in surplus. Some of the cutbacks have been partially restored.
Ontario began to erode indexing of benefits under the NDP in 1995 and this has been continued under the Harris government. The Harris government proposed to gut benefit levels in an even more profound way than Manitoba or Atlantic Canada. Bizarre ideas such as allowing the employer to pay (or not, as the case may be, of course) for the first four to six weeks of disability instead of the WCB were floated in the Report by Cam Jackson (Minister Responsible for Workers' Compensation). Employers and the private insurance industry had exclusive input into the report. The erosions to Workers' Compensation in Bill 99 reduced benefit levels to 85% and effectively eliminated the vocational rehabilitation responsibilities of the Board (now called the Workplace Safety and Insurance Board).
What has particularly fuelled the controversies around the WCB? Why are our CAW WCB activists busy like never before?
There is no question more workers are getting hurt today. As a result of speed up and work intensification, repetitive strain injuries are on the increase. And employers are fighting more and more WCB claims - Why?
The reason is a new system of assessments call experience rating. There are various abbreviations for experience rating systems such as NEER and CAD-7 in Ontario and ERA in B.C. All Boards are now using experience rating.
Experience rating is the system of charging the individual employer an additional assessment or giving the employer a rebate depending on the past claims costs of the employer. It works like this. Let's say an employer was in an assessment rate group of 2.5% ( $2.50 per $100 of payroll) but had a past claims experience which greatly exceeded the average for the group. The WCB would charge the employer an additional assessment (surcharge) of perhaps (depending on the province) an additional 50% over what the employer would otherwise pay. If an employer is successfully in dramatically reducing costs, the employer can expect a hefty rebate.
Employers like to claim that experience rating generates better health and safety but in fact they learn very quickly that vigorous claims control activities have a much faster payout in reduced WCB assessments.
Experience rated employers:
Since a young worker 100% disabled for life might require the WCB to set aside a capitalized reserve of about $400,000 (in turn charged to the employer account), you can see that successfully fighting even one serious injury claim leads to significant cost savings for the individual employer.
Experience rating has made the workers' compensation system much more adversarial than before. It has created an employer army of WCB consultants with a belligerent attitude on individual claims acting as a well paid lobby group to erode the system as a whole.
Why did employers lobby so hard for experience rating? To save them money. They claim experience rating creates a fairer system for employers. Since all employers in an assessment rate group used to pay the same assessment regardless of whether they had a lot of claims or few, they claimed that "good" employers were subsidizing "bad" employers. They claimed that better health and safety would result from experience rating. Employers quickly learned, however, that vigorous efforts in claims control had a much faster payoff than prevention activities. As a result of many individual battles, experience rating has had a collective effect, a downward effect on the system as a whole. When workers' claims are disallowed or they lose appeals, and they see others rejected, workers are often discouraged from making a claim in the first place.
Our union rejects experience rating as a system that promotes an adversarial approach to claims adjudication. We believe in financial penalties to employers who have unsafe or unhealthy workplaces. These financial penalties, however, should be applied when health and safety regulations are violated to prevent injuries and diseases from occurring in the first place.
What's Wrong with Private Insurance?
As we know in dealing with our group insurance S&A (sickness and accident) plans at work, a private disability insurance system is a secret system. In nearly every case the union and individual workers have no right to see the details of the disability insurance plan. Unlike the public workers' compensation system with access to all WCB policies, we have only a short description of the S&A plan. The private S&A plan is negotiated between the employer and the insurance company. We have little input except for that we can bargain in our contracts. Our right of appeal under workers' compensation is guaranteed and is free. There is no equivalent right to appeal to an impartial body a decision made by a private insurance company. Some employers shop around for the lowest bidder. Low ball bids from insurance companies usually result in claims disallowals and being kicked off benefits prematurely. Through the private insurance company directly or by processing your claim form, your employer often has access to private medical information about you.
By looking at the U.S. system we can see how workers suffer as a result of privatized workers' compensation. In order to appeal claims disallowals they must go to the courts. Lawyers are costly. Delays are lengthy. Since coverage is provided by a variety of insurance companies all of which are set up to make a profit, the administrative costs are more expensive than the Canadian system. Medical costs as well are more costly in the United States. Since the overall system is more costly, even though employer premiums are higher in the U.S., workers get less - dramatically less. Benefit levels are as little as half Canadian benefit levels, even compared to the stingiest Canadian province. Benefit levels terminate after a number of years (often seven) even if you are still disabled. Employer costs in the U.S. for a much lower system of benefits are roughly double those in Canada (eg. auto parts rates in Ontario have been 4.56% while rates in Minnesota were 9.07% in the same year).
Who Wants Private Workers' Compensation Insurance?
It isn't hard to figure out that it is primarily the private insurance industry. The largest workers' compensation insurance carrier in the U.S., Liberty Mutual, set up shop in Canada in a big way, and hoped to take over workers' compensation. In a controversial deal, Liberty International (their Canada subsidiary), took over the formerly nonprofit extended health benefits carrier, Ontario Blue Cross. Liberty representatives travelled throughout Canada lobbying for privatization, producing a five volume document arguing for private insurance. They purchased more than twenty rehabilitation clinics in Ontario participating in privatized WCB rehab activities.
Union Fight Back
In order to fight the employer agenda, the union movement must fight back.
A universal disability system would have the following characteristics: