Category Archives: Fraud

Employer Work Comp Fraud

Employer fraud exists in worker’s compensation.   Despite propaganda about worker alleged “fraud,” most fraud in the system is actually in the form of employer premium fraud–misclassying employees to avoid paying insurance premiums (especially in certain fields).   Employers can falsely label an employee as an independent contractor or pay them in cash, and then effectively keep them off the books for insurance premium purposes.  

This fraudulent behavior affects not only the specific insurance company with lost premium dollars, but the system and insurance industry as a whole by creating faulty rates. 

A recent article shows the prevalence of employer fraud in Louisiana, as well as the significant amount of money recouped from prosecuting bad behaving employers.

Wisconsin now has greater ability to proscecute fraudulent employers.  As of 2016, a new statute allows for criminal prosecution, by the state Department of Justice, to investigate and prosecute fraud committed by employers and insurance carriers. 

Employer Fraud in Workers’ Compensation

Legislatures around the country (including ours in Wisconsin) seem to be preoccupied with employee fraud in workers’ compensation, despite overwhelming evidence that employee fraud is virtually nonexistent. 

Employer fraud, however, continues to plague the industry.  Over the last decade, my friend and colleague Len Jernigan has published a Top 10 Workers’ Comp Fraud Claims.  The list from 2015 can be found at this link.

None of the Top Ten includes only an injured worker.  The top six of the Top Ten stem from California claims.  Others are from New York, Washington, Utah, and Massachusetts. 

This year’s dollar amounts were particularly substantial, with nearly $850 million in total frauds, the largest being a $580 million kickback scheme out of California.  The California kickback scheme involved surgeons and the owner of a hospital.  The other California claims included FedEx mislabeling their drivers as Independent Contractors in order to avoid insurance, and the owners of a translation service fraudulently billing the workers’ compensation system.  Additional mislabeling involved California truck drivers from Pacer Cartage, which owed over $2 million to seven truckers, due to unlawful payroll deductions and misclassifications as Independent Contractors.

The single case involving a worker is a professional football player from the New York Giants who colluded with a claims adjuster, providing fictitious invoices and statements for more than $1.5 million.  The New York, Washington, and Utah claims also involved misclassification in which no workers’ compensation insurance was paid for actual employees.

Another popular theme is the under-reporting of earners in order to be granted lower insurance premiums.  That scheme was uncovered in Massachusetts, avoiding more than a half million dollars in insurance premiums.

The workers’ compensation insurance industry has done a marvelous job in diverting attention from the real culprits (employers, medical providers, and insurers) to the very rare, but sometimes spectacular claims involving employee fraud.  (A worker claiming permanent and total disability climbing around on rocks is far sexier than a financial officer mischaracterizing his employees in a closed office.)

Wage Theft Is Illegal And Immoral

Kim Bobo

Today’s post comes from guest author Leonard Jernigan, from The Jernigan Law Firm.

Kim Bobo, the Executive Director of Interfaith Worker Justice and the author of “Wage Theft in America,” recently spoke at Duke Divinity School and then at N.C. Central University School of Law in Durham, N.C. Ms. Bobo, who was awarded the Pacem in Terris Peace Award in 2012 (other recipients are John F. Kennedy, Mother Teresa, and Martin Luther King, Jr.), has a simple reason for the work she does: as a person of faith, she recognizes injustice and seeks to correct it. Wage theft, which is defined as stealing from workers what they have rightfully earned, is not only illegal it is immoral. She is simply trying to get people to do something about it.

In September a $4 million settlement was announced by the Harvard Club of Boston for not paying tips to its staff.

At N.C Central law school, Bobo spoke to students about waiters not getting tips, even though the restaurant collected those tips when the bill was paid, and asked if anyone in the room had experienced that type of theft. Indeed, one student shared a story about working at an exclusive club in South Carolina where that practice was routine. After reporting the problem and getting nowhere, he finally gave up and quit. He is still bitter about it. In September, a $4 million settlement was announced by the Harvard Club of Boston for not paying tips to its staff. Small amounts can add up for the employer.

Bobo gave some action items to the audience that I wanted to share with you.  She said we need to:

  • start recognizing the seriousness of the problem;
  • start getting attention about the problem in order to fix it;
  • stay focused; and
  • if necessary, cross of the lines of our comfort zone.

For more information about Interfaith Worker Justice, go to: www.iwj.org/

 

Are You Misclassifying Your Workers and Committing A Fraud?

Today’s post comes from guest author Leonard Jernigan, from The Jernigan Law Firm.

To avoid misclassifying your workers follow these tips:

  • Don’t make assumptions. If you are a business owner you should consult a tax professional and an attorney to ensure you are complying with IRS and labor laws when hiring staff or contractors.
  • If contracting with staffing companies or labor brokers, make sure those agencies are properly classifying its workers as employees. Companies can be held responsible for labor violations of their contractors.
  • Consider filing a SS-8 Form (Determination of Worker Status) with the IRS and ask that agency to determine whether the worker is an employee or independent contractor.
  • Be aware that contractors set their own schedules and pricing, and perform the work as they see fit. If you want control over these areas, make sure you hire an employee.
  • Check the workers’ compensation policies of any subcontractor you hire. (Look out for “ghost policies,” which aren’t designed to cover known employees.)
  • Don’t rely on excuses such as “He only works a few days a week.” “She agreed to be an independent contractor.” “They use their own tools.” “He’s done this for so long he doesn’t need my supervision.”

Thanks to McClatchy DC!

 

Employers Who Cheat on Workers’ Compensation Coverage

Employers who fail to cover their workers for workers’ compensation, or who mischaracterize their employees as “Independent Contractors” cheat the entire workers’ compensation system. They cheat both the workers who remain uncovered and other employers who appropriately cover their workers. 

An effective tool for combating this employer fraud has been used in North Carolina. The North Carolina Industrial Commission used computer data to collect nearly a million dollars in penalties from employers with no workers’ compensation. The penalty revenue is used in North Carolina to maintain public schools.

The Commission’s Compliance and Fraud Investigative Division staff used a new tool, the Non-Compliant Employer Targeting System (NETS) to identify employers who are required by law to maintain a valid workers’ compensation insurance policy but have failed to do so. North Carolina Industrial Commission Chairman Andrew Heath noted “Unlawful employers that fail to provide workers’ compensation insurance coverage are a drain on North Carolina’s legitimate businesses, health care providers, and taxpayers.” He noted “unethical and illegitimate business owners will find no safe harbor here in North Carolina.”

States should focus on employer fraud, rather than spinning their wheels on virtually non-existent employee fraud. Much fanfare (primarily fueled by insurance carrier advertisements) accompanied the enactment 20 years ago of a fraudulent claims reporting provision in Wisconsin’s Workers’ Compensation Act. Since 1994 the Act requires insurers to report suspected employee fraud to the Department of Workforce Development on their own initiative. After reviewing the results of the insurer’s investigation, the Department refers cases to local District Attorneys for prosecution if there is a reasonable basis to believe the case involves insurance fraud. The Department’s published multi-year study of such claims concludes that the public perception of workers’ compensation employee fraud is extremely exaggerated – less one in ten thousand injuries.

Efforts at uncovering and penalizing employer fraud should be undertaken in all states.

Roofing Company Owner Faces Felony Charge for Not Paying Workers’ Comp

Today’s post comes from guest author Kit Case, from Causey Law Firm.

This is a good reminder that worker’s compensation “fraud” applies to employer behavior too.

A Mason County, WA roofing contractor faces a criminal charge for allegedly failing to provide workers’ compensation insurance for his employees while they were on the job.

The Washington State Attorney General’s office has charged Peter Daniel Yeaman, 55, with unregistered contracting and doing business when his workers’ comp coverage was revoked.

The latter charge is a felony with a penalty of up to five years in prison and a $10,000 fine. Yeaman is scheduled for arraignment in Kitsap County Superior Court today, July 23.

The case resulted from a Department of Labor & Industries (L&I) investigation into Yeaman and his company, Southgate Roofing, of Belfair.

 

Unfair business advantage

“When contractors skip out on workers’ comp, it’s illegal and it’s incredibly unfair to legitimate contractors who pay their fair share and get underbid by these lawbreakers,” said Annette Taylor, deputy assistant director of L&I’s Fraud Prevention & Labor Standards. 

“Workers’ comp premiums for roofers are among the highest in building construction and the trades, based largely on the safety risks those workers face.”

State law requires employers to provide their employees with workers’ compensation insurance. The coverage provides medical care and other financial support if employees are injured on the job.

Construction contractors also must register with L&I. The department confirms they have liability insurance and a bond and that, if they employ workers, they’ve paid their workers’ comp premiums.

 

At least six roofing employees

L&I suspended Southgate Roofing’s contractor registration in November 2012 for failing to pay workers’ comp premiums, and later officially revoked the company’s workers’ comp coverage.

Nonetheless, according to the charges, L&I found two consumers in Silverdale who had work done by the company in May 2014 and in August 2014.

During the August job, six workers told an L&I inspector they worked for Southgate Roofing. Yeaman himself told the inspector he needed to pay a bill before he could register as a contractor, charging papers said.

 

Eight previous infractions

In addition, the charges say that between October 2013 and September 2014, the company bought roofing materials numerous times from a Bremerton supplier and made numerous trips to a Bremerton disposal site.

Apart from the criminal charges, L&I has cited Yeaman with six unregistered contracting and two permit-related infractions since 2013, and several safety violations in 2013. L&I currently lists him as ineligible to bid or work on public works projects. He owes the department more than $28,000 for the unpaid fines and more than $131,000 for unpaid workers’ comp premiums, penalties and interest.

Photo credit: davidwilson1949 / Foter / CC BY 

Work Comp Fraud? What Fraud?

Despite what the media portray, workers’ comp fraud is extremely rare.

Workers are not “getting rich” from worker’s compensation! Accordingly, fraudulent behavior in work comp is very rare—like the one bad apple spoiling the bunch—but often highly publicized. (Because, let’s face it, seeing a surveillance video of someone bowling or water-skiing is far more memorable than a thousand images of an injured worker struggling to get out of bed in the morning or walk a city block).

Under Wisconsin’s nationally-recognized model, a worker who suffers an on-the-job-injury receives workers’ compensation benefits without regard to fault. By virtue of the work comp system, injured workers cannot sue their employers or receive jury awards. Instead, injured workers are eligible for lower, defined benefits, like lost wages and medical expenses—again, we’re not talking about “pie in the sky” numbers that would incentivize bad behavior!

“Fraud” is minimal to non-existent

  • In the last published study, Dept. of Workforce Development (DWD) concluded that public perception of workers’ compensation fraud is exaggerated. In a six year span, the amount of prosecuted fraud was less than one in 20,000 work injuries…or 0.0001%.1

Industry insiders don’t think this is a big deal

  • Rick Parks, the President/CEO of Society Insurance: “From the view of thousands of claims over decades, fraud is minimal in Wisconsin”2 
  • Chris Reader of Wisconsin Manufacturers & Commerce: despite the “sensational stories,” fraud is “few and far between” in the system.3

Current law already allows criminal prosecution for alleged “fraud”

  • Worker’s Compensation Division already has an existing fraud hotline for the public. Also, a carrier can report an alleged fraudulent claim to the DWD. After an investigation, DWD can refer to district attorney for prosecution of criminal insurance fraud. Thus, if there is fraudulent behavior, under current law, there can be a crime found.

Independent Medical Examinations provide protection against “fraud”

  • Insurance carriers can require an injured worker to be seen by a handpicked independent medical examiner, or IME. If questions exist about a worker’s injury, symptoms, or disability, the IME can provide an opinion—allowing a carrier to deny the worker’s claim.

“Fraud” goes both ways

  • We want fair competition in the marketplace and in business. Misclassifying employees or workplaces results in “stolen” premium dollars and an unfair business advantage. Likewise, limiting or under-reporting work injuries undermines the fairness and credibility of our efficient work comp ratings process and system.

 

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1 Department of Workforce Development, Annual Report for Calendar Year 1999 Allegations of Worker’s Compensation Fraud (annual average of 3 prosecuted cases out of 60,000 injuries).

2 Senate and Assembly Committees on Labor, Informational Meeting, 7/31/13: WisconsinEye at 3:18:30.

3 Senate and Assembly Committees on Labor, Informational Meeting, 7/31/13: WisconsinEye at 2:13:00.

“Per Diem” Payments Latest Employer Fraud Issue in Workers’ Compensation

I have written often about the public’s perception that workers file fraudulent claims in workers’ compensation. The public perception (which ranges from one in ten to approximately one in three) is completely erroneous. The actual statistics indicate the incidence of employee fraud is as little as one-sixth of one percent, or two workers in ten thousand claims (based on the latest statistics available from the Wisconsin Worker’s Compensation Division).

Employer fraud, on the other hand, is rampant and grows daily into the billions of dollars. A recent report by the U.S. Department of Wage and Hour Division out of New Orleans indicated six Gulf Coast staffing agencies agreed to pay thousands of workers nearly $3.5 million in back wages after investigators found part of the workers’ wages were mislabeled as “per diem” payments as reimbursement for expenses they never incurred. The Labor Department indicated the recent investigations were part of an ongoing initiative aimed at ending an illegal and alarming trend of employers labeling part of employee wages as Per Diem payments, often to avoid overtime, payroll taxes, and other costs (such as workers’ compensation insurance premiums). The Department of Labor noted that companies break the law when they call part of a worker’s regular wages “per diem” expense reimbursement instead of wages. They do this in order to lower labor costs, avoid paying overtime, and avoid making payments toward federal and state taxes, workers’ compensation, unemployment insurance, and Social Security payments. These kinds of employers gain an unfair advantage over their competitors, some of whom are paying these taxes appropriately.