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Workers' Compensation Fraud Lands Employers in Hot Water

Workers' Compensation is a compromise between employers and employees. Employers cover injured employees' medical costs and lost wages. They do this even if they were not at fault. Employees lose the right to sue their employers over injuries.

State laws require most employers to buy Workers' Compensation insurance. Employers may see this as money unnecessarily spent. They must pay it even if no injuries occur in their workplaces. Consequently, a minority of them try to cheat the system. Things do not end well for these employers.

Some try to get away with not buying insurance.

• A Florida married couple owned and operated four supermarkets. One of them went without insurance for 10 years. They were arrested for this and other fraudulent transactions. Authorities estimated the amount of their fraud at $35 million.
• The owner of a Florida employee leasing company charged his clients millions of dollars for insurance premiums. However, his  policy did not exist. The fraud left 33,000 workers unprotected. His jail sentence was 14 years.
• Two employees of a Vermont home improvement contractor who skipped insurance got hurt. He was forced to cover $80,000 in medical bills and serve 30 days in prison.

More commonly, employers buy insurance but give their insurers false information. 

• They under-reported payroll to the State Compensation Insurance Fund.
• They pressured employees to lie about how they were injured. This made the company's loss record would look good.
• They failed to pay premiums due, resulting in policy cancellations.

The owner pled guilty to multiple felony counts, received a 16-month jail sentence and was ordered to pay $2.385 million in restitution. His wife also pled guilty, received three years' probation and had to pay a fine plus $470,000 in restitution.

A common tactic is to misclassify employees.

• A Connecticut construction company told its insurer that it had one employee who did carpentry work. When the insurer audited the company's books, it found that it had several employees who performed roofing work. The premium jumped from $750 to $51,000. The policy subsequently cancelled for non-payment of premium. Two months after cancellation, an employee suffered serious injuries while doing roofing work. The insurer refused to pay for the claim. The employer sued, but two courts ruled against him.
• A New York tree surgeon was charged with a felony after falsely reporting that an injured worker was an independent contractor and not an employee.

Some employers also try to pass off false evidence of coverage. The owner of an Ohio excavating contractor created false certificates of insurance and submitted them with bids to help him get jobs. In addition, he misclassified employees as independent contractors. He got six months in prison, three years of monitoring, and had to pay restitution.

Employers who try to cheat the Workers' Compensation system rob their employees of the benefits to which they are entitled. They also gain an unfair advantage over their law-abiding competitors. Employers who decide to play this game should understand that they will eventually lose.