New Workers' Compensation legislation puts focus on Employers’ Fraudulent Practices.

Victor Fusco

On March 5, 2007, the State Legislature considered and passed Governor Spitzer’s historic Workers' Compensation reforms. The bill is extensive and the product of a great deal of negotiation, including proposals made by various stakeholders over the years.

In response to complaints of workers, unions, workers’ advocates and the State AFL-CIO, as well as a spate of recent news articles, the framers of 2007 Workers' Compensation overhaul paid special attention to the question of employer fraud, by amending Workers' Compensation Law Sections 52, 131 and enacting Sections 141-a, 141-b and 141-c which confer broad enforcement powers upon the Chair of the NYS Workers' Compensation Board.

Coverage:

First, amended section 52, in relevant part substantially increases the fines to employers who do not obtain or maintain Workers' Compensation insurance. A second conviction, for example, can result in a $50,000 fine against the employer or officers, if a corporation. The new WCL§ 52 (1), in relevant part, describes criminal penalties:

§ 52. Effect of failure to secure compensation.

1. (a) Failure to secure the payment of compensation for five or less employees within a twelve month period shall constitute a misdemeanor, and is punishable by a fine of not less than one thousand nor more than five thousand dollars. Failure to secure the payment of compensation for more than five employees within a twelve month period shall constitute a class E felony, and is punishable by a fine of not less than five thousand dollars nor more than fifty thousand dollars in addition to any other penalties otherwise provided by law. It shall be an affirmative defense to any criminal prosecution under this section that the employer took reasonable steps to secure compensation.
   
   (b) Where any person has previously been convicted of a failure to secure the payment of compensation within the preceding five years, upon conviction for a subsequent violation such person shall be guilty of a class D felony, and fined not less than ten thousand nor more than fifty thousand dollars in addition to any other penalties including fines otherwise provided by law.
   
   (c) Where the employer is a corporation, the president, secretary and treasurer thereof shall be liable for failure to secure the payment of compensation under this section. It shall be an affirmative defense to any action against any officer of a corporation under this section that the officer took reasonable steps to ensure that the corporation secured compensation, that proper internal procedures were in effect to do so, and that proper internal controls existed to monitor compliance with said procedures.


It is clear that the Governor and the Legislature mean business. And, no doubt, The Business Council and the AFL-CIO shared the concern that when some businesses don’t maintain compensation insurance, the cost of insurance for legitimate companies and governmental entities, continues to increase via assessments for the Uninsured Employers Fund, which pays benefits to injured workers whose employers failed to have coverage.

It also seems clear that fines in the range of $50,000 are designed to root out some of the non-compliant companies and fly-by-night contractors who prey on homeownwers and whose work-force is predominantly made up of undocumented workers. Additionally, while corporate officers have always been personally liable for the criminal penalties, obviously the stakes are now so much higher that any of the former perceived incentives to circumvent the law now become too much of a gamble.

Under the agreement, benefits for injured workers will be increased for the first time in more than a decade, and employer costs, which are among the highest in the nation, will be reduced by 10 to 15 percent with savings to grow over time.

Payroll Fraud:

Section 52 (d)and (e) was written in response to repeated complaints that even though carrying Workers' Compensation insurance, some employers would try to save dollars by “misclassifying” employees on their payrolls. Workers' Compensation carriers ordinarily audit payrolls after the fact, and it was frequently difficult to catch cheats retrospectively. Many of these complaints came from competing employers, who felt they were being undercut in the marketplace by the cheats who managed to reduce compensation premiums by improper reporting employees’ job classifications. The new section reads as follows:

(d) If at any time an employer intentionally and materially understates or conceals payroll, or intentionally and materially misrepresents or conceals employee duties so as to avoid proper classification for calculation of premium paid to secure compensation, or intentionally and materially misrepresents or conceals information pertinent to the calculation of premium paid to secure compensation, such employer shall be deemed to have failed to secure compensation and shall be subject to the sanctions applicable to this section.

(e) A stop-work order issued because an employer is deemed to have failed to secure compensation under section one hundred forty-one-a of this chapter shall have no effect upon an employer's or carrier's duty to provide benefits under this chapter or upon any of the employer's or carrier's rights and defenses.

Civil penalties

§ 52 (5) also continues to impose civil penalties for non-compliance with the coverage requirements, but substantially increases them from $250 for each ten day period of non compliance to $1000 or “a sum not in excess of two times the cost of compensation for its payroll for the period of such failure, which sum shall be paid into the uninsured employers' fund created under section twenty-six-a of this chapter…”

Recognizing that it is frequently difficult to determine the payroll of “cash businesses” which frequently pay employees “off-the-books” or “part on/part off,” The statute goes on to read that: “When an employer fails to provide business records sufficient to enable the chair to determine the employer's payroll for the period requested for the calculation of the penalty provided in this section, the imputed weekly payroll for each employee, corporate officer, sole proprietor, or partner shall be the New York state average weekly wage, multiplied by 1.5. Where the employer is a corporation, the president, secretary and treasurer thereof shall be liable for the penalty.”

1. Every employer subject to the provisions of this chapter shall keep a true and accurate record of the number of his or her employees, the classification of employees, information regarding employee accidents and the wages paid by him or her for a period of four years after each entry therein, which records shall be open to inspection at any time, and as often as may be necessary ...Any employer who shall fail to keep such records, who shall willfully fail to furnish such record as required in this section or who shall falsify any such records, shall be guilty of a misdemeanor and subject to a fine of not less than five nor more than ten thousand dollars in addition to any other penalties otherwise provided by law, except that any such employer that has previously been subject to criminal penalties under this section within the prior ten years shall be guilty of a class E felony, and subject to a fine of not less than ten nor more than twenty-five thousand dollars in addition to any penalties otherwise provided by law.
   
   WCL §131 sub 2 continues to impose upon construction companies, the duty to maintain records of the hours worked by employees in the various payroll classifications. Falsification of such records constitutes Insurance Fraud under § 176.05 of the penal law, and subsection 3 imposes the same penalties as subdivision 52 (5) for non-compliance ($1000 for every ten days of non-compliance of two times the cost of compensation for its payroll, etc.)
   
   Additionally, the anti-fraud provisions of WCL § 114 have been toughened” in subsection 4 as well as a new subdivision 5, to wit:
   
   
2. Consistent with the provisions of the criminal procedure law, in any prosecution alleging a violation of subdivision one, two or three of this section, or sections fifty-two and one hundred thirty-one of this chapter, in which the act or acts alleged may also constitute a violation of the penal or other law, the prosecuting official may charge a person pursuant to the provisions of this section and in the same accusatory instrument with a violation of such other law.
   
   
3. A person (a) who is convicted of a second or subsequent offense under this section within ten years of the prior conviction, or (b) who violates any provision of this section concerning two or more claimants, shall be guilty of a class D felony.
   
   

Discrimination against workers with disabilities and veterans: In order to provide a “safety net,” (similar to the former section 15-(8)), to Workers' Compensation claimants, the amendments extend the provisions of section 125 (1) which prohibits prospective employers from discriminating against a worker who has previously filed a compensation claim, to include injured veterans. Not only is a violation a misdemeanor, but it subjects the employer to the debarment provisions of section 141-a, and 141-b which prohibit them from engaging in work on public projects.