Protect Yourself from Workers' Compensation Fraud and Risks

It’s a common perception that workers’ compensation laws favor the employee. According to Michael Pauletto, partner at attorneys Lewis Brisbois Bisgaard and Smith LLP, that perception is correct.

Workers’ compensation is a form of insurance that provides wage replacement, vocational rehabilitation, medical benefits and other benefits to employees injured on the job. Workers’ compensation fraud occurs often and can cost the employer greatly if not discovered or investigated.

For example, according to the California Insurance Department, the Fraud Division identified and reported 5,151 suspected fraud cases, assigned 847 new cases, made 268 arrests, and referred 309 cases to prosecuting authorities during fiscal year 2012-13.

Pauletto says you can’t even the playing field, but you can arm yourself with knowledge of your rights and the employee’s obligations to help minimize the damage and combat fraud.

The employer’s goal

As an employer dealing with a workers’ compensation claim, you have several goals to protect your business and your workforce. You want to get your good staff members healthy and back on the job. At the same time, you need to identify the problem people—who may attempt fraud—and minimize the damage.

Both of these steps will help to keep your workers’ compensation premiums down. The quicker an injured worker returns to work, the lower your disability claims costs will be.  

You’ll also want to avoid paying Permanent Total Disability. Permanent Total Disability is when an employee loses their ability to earn a wage not only at the current employer, but permanently in any capacity. 

Disability Classifications according to the New York State Workers’ Compensation Board are as follows: 

Temporary Total Disability – The injured worker's wage-earning capacity is lost totally, but only on a temporary basis.

Temporary Partial Disability – The wage-earning capacity is lost only partially, and on a temporary basis.

Permanent Total Disability – The employee's wage-earning capacity is permanently and totally lost. There is no limit on the number of weeks payable.

Permanent Partial Disability – Part of the employee's wage-earning capacity has been permanently lost. There are two types of permanent partial disability benefits, depending on the body part affected and the nature of the permanent disability: schedule loss of use (SLU) and non-schedule. The severity of the disability is measured when the employee has reached maximum medical improvement (MMI). MMI is presumed to occur no more than two years after the date of injury.

The final goal is to resolve the case as quickly as possible without jeopardizing it legally. This will save on court and attorney costs, and let you get back to focusing on other areas of the business.

Limitations and disability classifications

When an employee is injured on the job, they will be given a disability classification. That classification will decide what extent of work they can handle and for how long. This classification is not up to the employee, but rather a medical professional.

“It isn’t up to the employee what they can handle,” says Pauletto. “It is up to the doctor’s orders.”

In some cases, you may be faced with an employee who does some “doctor shopping”. Doctor shopping is when an employee visits several doctors until they find one who will diagnose them in a way that grants them unemployment. If you have suspicions over the claim, you can choose to have the employee see another medical professional for another opinion.

The cost of fraud

You, your business and any remaining staff will pay the price for workers’ compensation fraud. The Coalition against insurance fraud warns against the following potential costs of insurance fraud.

Higher premiums – Businesses will pay higher workers’ compensation premiums because insurers pass the high costs of fraud onto their policyholders. Often the premium increases are large and can be very damaging to smaller businesses that can’t afford higher premiums.

Higher sale prices – Businesses are forced to pass their higher premium costs onto customers in the form of higher prices for goods and services.

Jobs lost – Higher premiums can force a business to lay off workers to reduce costs, or even cause a business to go bankrupt.

Lost pay – Business owners may freeze or reduce pay for remaining workers as they try to offset the often sharply higher cost of premiums.

Endangered workers – Workers can find their health, safety and life savings threatened. They could have a serious work injury but no coverage because their employer illegally avoids buying insurance.

Weakened businesses – Higher workers' comp premiums can decrease a dealership’s income, lower employee productivity, and force some companies to go out of business.

Workers work harder – Guess who takes up the slack when a fellow worker leaves the job with a fake injury? Fellow workers, who may have to pull extra duty and put themselves at risk for injury.

Medical treatment

The employee who has been injured on the job is required to get medical treatment, comply with doctors’ orders, and get any physical therapy that is ordered. If they don’t, you have the potential to limit or suspend Temporary Total Disability.

It is also helpful to hire a third party, like a nurse practitioner, to monitor the employee’s medical treatment and their schedule. The nurse can create a report for the workers’ compensation employee and push the employee to do all they can to get back to work.

Returning to work

The same doctor’s-orders limitations apply for when the employee wants to return to work before they are better. It is not up to the employee to decide when they are ready. That is also up to the medical professional.

What you can do is find work for an employee that is within the limits of their medical orders. Consider putting the employee in a different position. For instance, you may take a technician out of the shop and put them on the parts counter. From there it is up to the employee to be embrace their new position.

“If you accommodate and the employee decides he doesn’t want to come back, that is when you can withhold Temporary Total Disability benefits,” says Pauletto. “But you have to be cautious. You have to be on solid ground when suspending or terminating benefits.”

As mentioned earlier, timing is very important when handling workers’ compensation claims. Getting the employee back on the job as soon as possible is key.

“The longer the employee stays at home and doesn’t do any kind of work, the less likely a good outcome will happen,” says Pauletto. “There is just something about the routine that will push the employee and get them back to work.”

Firing while on Temporary Total Disability

Terminating an employee that is on Temporary Total Disability is a tricky move. Much like suspending coverage, you need to be absolutely certain that all your ducks are in a row. An employee will have to break company policy to be considered for termination.

“Unless you can show that a company policy was in place, the Temporary Total Disability will continue,” explains Pauletto. “You really have to tread lightly and think about whether you can terminate an employee that’s on workers’ compensation.”

If the employee has not broken policy, they may try to prove it was a Retaliatory Discharge for using their workers’ compensation benefits. Legally, you cannot fire an employee for exercising his rights under the workers' compensation act.

To file a Retaliatory Discharge claim against you and your company, an employee (or plaintiff) must prove:

  • They were an employee
  • They claimed workers' compensation benefits
  • They were discharged
  • A casual connection between their filing a workers’ compensation claim and being terminated

“An employer may not discharge an employee on the basis of a dispute about the extent or duration of a compensation injury,” Pauletto reiterates.

Bottom line: Any termination based after a workers’ compensation claim cannot have anything to with their claim. A connection between the two leaves the business vulnerable and open to a lawsuit.

Lewis Brisbois Bisgaard & Smith LLP have 32 offices in 18 states and the District of Columbia. For more information on their services, visit lewisbrisbois.com.
TAKE NOTE: States have varying laws and requirements for workers’ compensation insurance. Be sure to research what the laws are in your state.

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