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I realize there's probably not going to be rules on this, but experiences are also valuable:

Should villagers, servants, artisans and other non-combat NPC's have level 1 or be of the party's level?

There are at least two situations where this might matter:

  • The party wants to force an entire room of villagers to go unconscious. If they are of appropriate level, the PCs' hit chance will be about 70% so it will take some time to subdue them all. By contrast, if the villagers are level-1, they'll have 95% hit chance.
  • If the villagers don't scale, the PC's may use it to find out if a villager is not a villager at all, but rather an appropriate-level creature in disguise. (If the PC hits the villager and he doesn't fall unconscious, there's a pretty high chance he's just pretending to be a low-level nobody.)

If there are no rules, what would make for a more fun game?

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No, villagers should not level up with the party.

If you have a DMG, you should open it up to the chapter The World, on page 148. In the chapter's introduction, the authors discuss the fact the D&D 4e books — and their default Points of Light setting — are based on some assumptions. On the very next page, they bring up this one (the bottom left of page 150):

Adventurers Are Exceptional. Player characters are the pioneers, explorers, trailblazers, thrill seekers, and heroes of the D&D world. Although nonplayer characters might have a class and gain power, they do not necessarily advance as PCs do, and they exist for a different purpose. Not everyone in the world gains levels as PCs do. An NPC might be a veteran of numerous battles and still not become a 3rd-level fighter; an army of elves is made up of soldiers, not fighters.

The players, at their power level, are exceptional and probably one of very few people in the world like them. An adventurer's first level sets them apart from the entire world as uniquely powerful. An exceptional NPC might maybe have a few class levels; an ordinary villager has no chance. Consider the description of the Heroic tier (i.e. level 1-10) from DMG page 146:

Even 1st-level characters are heroes, set apart from the common people by natural characteristics, learned skills, and some hint of a greater destiny that lies before them. (...) The fate of a village might hang on the success or failure of heroic tier adventurers, to say nothing of the characters’ own lives. Heroic characters navigate dangerous terrain and explore haunted crypts, where they can expect to fight savage orcs, ferocious wolves, giant spiders, evil cultists, bloodthirsty ghouls, and shadarkai assassins.

If the heroes are level 5 or so, then they're powerful enough they probably should be able to send an entire room of ordinary, no-name villagers to sleep without much effort. Suffice to say D&D 4e is more or less designed to make the players feel awesome, so them being able to do this is fine.

Consider that if the villagers do level up with the heroes, at some point there'll be the incongruity that the villagers are resisting the players' effects as effectively as the {frighteningly powerful demonic entity of your choice} the players recently fought. Are they seriously that strong? What's with this village? How'd everyone get so powerful? Wait, are all those villagers secretly demons?

That could be excellent plot, but keep your ordinary not-secretly-demonic villagers at low levels below the party. Exceptional NPCs are to be handled separately, as exceptions, and may do whatever and be whatever level you find appropriate. Doppelgangers hiding among the populace will need to think on their feet or plan well, otherwise they'll get flushed out, which is relatively likely considering they might never have expected a heroic adventurer to show up.

Reminder/disclaimer: This answer operates on the default assumptions for D&D 4e and its Points of Light setting. If you're not running with those assumptions, and you're in a world where the PCs aren't exceptional, then you're in a unique situation to judge for yourself whether it's appropriate to have the PCs be about as powerful as ordinary villagers, or have very little power over them at least.

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The Rules

The short answer is that NPC's shouldn't scale with the PC's. However, in 3.x at least (not sure about 4e) there exist NPC's of higher level within cities. On pages 138-139 of the 3.5 DMG, it describes the break down of a city's population. It is possible that there are more than just level 1 commoners in the room the PC's are trying to knock unconscious. What if they are caught in the middle of knocking everyone unconscious? Can they afford to fight a town's entire staff of guards?

Consequences of the Situation

So the party knocks everyone unconscious and then what? I'm sure commoners don't enjoy being treated this way. Would the townspeople have motivation to seek revenge? If the PC's flagrantly take advantage of the villagers then they wouldn't be welcome back or if their abuse is serious enough then greater forces are likely to intervene. If the PC's are knocking everyone unconscious and taking all their stuff, for example, then perhaps the ruler of the kingdom or region that considers that town one of its members will come after the PC's and they will definitely be stronger than level 1 commoners. Or maybe the commoners hire someone to go after the party for this. If the party stole all of a man's things while he was unconscious then he might go out into the world and become an adventurer himself to seek revenge if the party took something particularly valuable from him (a family heirloom or maybe just all he possesses).

The party doesn't necessarily have to be unable to knock everyone unconscious but that doesn't mean that's the end of it and they get away for free. This gives the GM a chance to bring other parties into play and make the world feel more real because it can react appropriately.

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Their level should be whatever is appropriate for the story.

Compared to 3.X, which for the most part tried to simulate a fantasy world, 4e is pretty much only concerned with the story. No creature in 4e has 1 defined set of stats at all levels; instead, whenever the creature needs stats it's given stats appropriate to its role in the story. For example, if a level 4 party encounters a hobgoblin thug who leads a band of goblins at low levels, he might be a level 5 elite, indicating that he's a significant threat. The party might run into similar hobgoblins 10 levels later being used as cannon fodder by an evil wizard, but rather than being level 5 elites those hobgoblins would likely be level 15 minions.

There are no defined stats for villagers because, like everything else, they have whatever stats are appropriate to their role in the story. If subduing the villagers should be a non-trivial challenge, then maybe the villagers should be minions or standards of the party's level (depending on how many there are). If it's just a quick detour from the story, then maybe they're all just level 1 minions who go down at a stern look from the party (probably without even actually handling the encounter as a fight).

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Before I begin my explanation of my solution to your problem, it first needs to be established that the 4th Edition level system is RELATIVE, not ABSOLUTE. By this, I mean that the only thing that really matters is the difference between your level and the level of the other guy, and that otherwise, the math should be even. According to the rules, you should almost always use equal level opponents. As an experienced DM, I'd extend this a little and say that, at the very most, use opponents who are no more than 4 levels above or below your party.

There is a sneaky and subtle solution, however, if you're willing to homebrew a little bit. It's never stated outright in the rules, but it can be derived from the rules, that you can adjust a creature's level in two ways while still keeping them at the same "thematic power level". By this I mean the math will work out in combat for a fun game, and the players will still feel like the opponent is of the appropriate relative power to themselves, which is key.

If you need to increase something's level, you can either make it a minion, or you can put a bunch of them together in a swarm or mob or even an army. In either case, increase the level by 5 each time. (To go the other way, and face an opponent much higher level than the players, you can drop the level by 5 and make the creature elite, or solo)

If the players want to mess with an entire room of villagers, I would treat them, together, as a single "Mob" creature, of level 5 (or 4, if you want to be technical and claim that villager are normally level 0). If your players are higher level than that, then make the mob a minion of level 10 (or 9, ibid). This is perfectly fair, and even makes sense thematically, that a level 9 or 10 player character SHOULD be able to take out an entire room of villagers in a single attack... they're just that awesome.

If your party is in the middle or upper paragon tier, then villagers simply won't be a combat factor, any any combat abilities the players want to use are simply going to work, every time... unless you want to increase those villagers to an entire army. Say, instead of a room full, we're talking the entire village of 100 or more at once, as a single creature. You'll have to eyeball it, but I could see 100 villagers warranting an upgrade of 10 levels. You'd still need to make it a minion creature to get the level up to 15 (or 14) of course, but at paragon levels, this still makes sense.

If you need to go epic? Well, your army will have to get bigger. An epic character could likely handle 1000, maybe even 10000 villagers as a single creature. "How will all those villagers fit into a 4x4 square?" you ask? Well, you increase the "size" of the square from being 5' squares to much bigger squares instead (I like old school 10' squares for paragon, and 100' for epic), implying that the character has enough speed and skill to "control" a much larger tactical area.

I highly suggest you try this out. It really works for conveying the right "feel" for these encounters, while still providing an actual game to play where the dice do matter.

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In heroic games (dnd included) where the PC are supposed to have abilities beyond common people, I would not scale levels of villagers. This may vary depending the location, but I cannot imagine a level 15 fighter as a bartender except under unusual circumstances. Not to say that it will never happen, but you cannot have a full village of high-level peasants.

If your PC are to hit everybody in a village to find out a hidden creature, they will probably be in trouble with innocent people killed, people trying to rebel and avenge, etc. Said hidden creature may also simulate death of unconsciousness to avoid detection.

That said, I already designed a full adventure with such a plot : villagers incredibly resistant, skilled, and lucky. All this due to a broken oath leading to a long-forgotten curse, enforcing former dead villagers to assist the living ones. So if you have some rationale behind that break the rule, feel free to build something enjoyable !

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