The relationship of Workers' Compensation and litigation to low back pain (LBP) outcome is not established in the literature. Our study investigated the characteristics of disabled persons applying for Worker's Compensation or employing a lawyer, the factors predicting receipt of compensation, and the effects of compensation and litigation on employment outcome. One hundred sixty-nine unemployed persons with LBP were assessed by medical history, physical exam, biomechanical testing, psychiatric interview, and MMPI. Subjects were asked whether they had applied for compensation, received it, or had employed a lawyer. Six months later, subjects were asked about their employment and compensation status. Neither compensation status nor involvement of a lawyer significantly improved prediction of employment status 6 months later. Receipt of compensation predicted better outcome in those at risk for poor outcome due to external locus of control. Factors predicting failure to obtain compensation over 6 months, having applied, include education, spinal flexion, ability to do daily activities and affective inhibition. Neurological dysfunction did not predict receipt of compensation in univariate or multivariate analyses; emotional distress reduced the probability of receiving compensation, after controlling for severity of spinal dysfunction. Receipt of compensation and use of a lawyer did not reduce the probability of RTW in disabled persons in the present sample, but increased the likelihood of return to work for groups of individuals at higher risk such as those with external locus of control. Although compensation is awarded on the basis of physical evaluation under the present system, the present findings suggest that the likelihood of receiving compensation is also significantly determined by level of emotional distress.