Workers' compensation (which formerly was known as workmen's compensation until the name was changed to make it gender neutral) is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. The trade-off between assured, limited coverage and lack of recourse outside the worker compensation system is known as "the compensation bargain." One of the problems that the compensation bargain solved is the problem of employers becoming insolvent as a result of high damage awards. The system of collective liability was created to prevent that, and thus to ensure security of compensation to the workers. Individual immunity is the necessary corollary to collective liability.
While plans differ among jurisdictions, provision can be made for weekly payments in place of wages (functioning in this case as a form of disability insurance), compensation for economic loss (past and future), reimbursement or payment of medical and like expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment.
General damage for pain and suffering, and punitive damages for employer negligence, are generally not available in workers' compensation plans, and negligence is generally not an issue in the case.
Workers' compensation statutes are intended to eliminate the need for litigation and the limitations of common law remedies by having employees give up the potential for pain- and suffering-related awards, in exchange for not being required to prove tort (legal fault) on the part of their employer. The laws provide employees with monetary awards to cover loss of wages directly related to the accident as well as to compensate for permanent physical impairments and medical expenses.
The laws also provide benefits for dependents of those workers who are killed in work-related accidents or illnesses. Some laws also protect employers and fellow workers by limiting the amount an injured employee can recover from an employer and by eliminating the liability of co-workers in most accidents. US state statutes establish this framework for most employment. US federal statutes are limited to federal employees or to workers employed in some significant aspect of interstate commerce.
The exclusive remedy provision states that workers compensation is the sole remedy available to injured workers, thus preventing employees from also making tort liability claims against their employers.