The Salt Lake Tribute reported on a spike in the number of independent contractors with one employer in Utah, which officials say is a sure sign that the so-called contractors have been misclassified.

In the most recent data available, Utah saw a steep one-year jump in the number of independent contractors who have only one employer -- a typical indicator that the worker has been misclassified, Bill Starks, state director of unemployment insurance, said. Two years ago, 200,000 independent contractors reported only to one employer. Last year, the number swelled to 300,000.

Plenty of people are legally classified as independent contractors. These people, often also called W9 employees or freelancers, perform work for a variety of different employers or clients, set their own hours and derive their income from multiple sources.

But many companies assign the "independent contractor" designation to employees. In doing so, they avoid having to pay for costly workers' compensation coverage to these workers though they are legally obligated to provide this protection.

There's a pretty good rule of thumb for knowing a worker's contracting status: If he only works with one company, that business sets his hours and the company's success is tied to the worker's success, the company should probably consider him an employee, not an independent contractor. That means that company needs to issue a W-2 tax form -- and pay taxes, Social Security and unemployment and injury insurance on the employee's behalf, at a cost of about 30 cents more on the dollar.

Last week, Ousama Karawia, the owner of International Protective Services Inc., and two company vice presidents pleaded not guilty to charges that they defrauded the California State Compensation Insurance Fund of $9 million.

The men are accused of going to extreme measures to deceive the state about the number of people employed by the private security firm.

According to an LA Times article:

 

 

The men allegedly created a shell company, International Armored Solutions Inc., to hide the true number of employees at the security firm to avoid paying higher workers’ compensation insurance premiums to the State Compensation Insurance Fund.

Authorities said Karawia told state officials that he employed about 20 workers at the new company and that it was not part of the main security firm. The company failed to pay $9.5 million in workers’ comp premiums for its 1,500 employees, prosecut

 

 

Employer workers' compensation fraud, the most common type of fraud, costs not only injured workers but taxpayers, as well. In the event of an accident, workers' on-the-job injuries may not be covered if their employer doesn't have adequate insurance, as required by law. In those instances, the burden for caring for these hurt and disabled workers falls on taxpayers and social service agencies.

Workers' compensation fraud is most commonly perpetrated by employees -- not by injured workers, as is the common perception. Two common tactics -- misclassifying employees job duties, treating employees as independent contractors or failing to carry workers' compensation insurance, as required by law. Misclassification of job duties helps companies keep their workers' comp insurance premiums lower, but it also means that employees may not be protected if they are injured on the job. Workers' comp fraud has a huge societal cost, as well.

"The theory is that in a difficult economic climate, crime tends to go up as does fraud. People who aren't otherwise motivated to be dishonest may follow that path," said Maureen O'Connell deputy district attorney [in San Bernadino] with the workers' compensation fraud unit.

The fraud unit is cracking down on businesses that don't abide by the law, by making surprise inspections to determine whether companies have proper workers' comp insurance. Those that don't face a $10,000 fine and up to a year in jail.

The next time someone tells you they think most people who are collecting workers' compensation are cheating the system, direct them to this video. It might not be as dramatic as a report by John Stossel, but at least it's accurate.

Click here to see the video on workers' compensation fraud.

I know that's simply not true. The overwhelming majority of people who apply for workers' compensation benefits are injured and unable to work because of those injuries. But the media and the insurance companies have done a great job conducting smear campaigns that cast injured workers in a bad light. They've subverted the facts with anecdotes and a few damning videos and created the impression that workers' compensation fraud by employees is rampant. But in reality, only about 1 percent of all workers' compensatioin claims are found to be fraudulent.

However, fraud by employers and insurers is much more prevalent and costs billions of dollars annually. There's a human cost, too. Injured workers who are the victims of workers' compensation fraud often are unable to collect benefits that would make their lives easier and help them get the treatment they need.

Leonard Jernigan Jr., a fellow workers' comp attorney in North Carolna and the chairman of the fraud task force for the Workers Injury Law and Advocacy Group (WILG) has an interesting article in Workers First Watch about the prevalence -- and cost -- of employer and insurance fraud. In it, he provides the straight scoop on workers' compensation fraud.

In Florida, one of the more aggressive states in attacking fraud, out of 54,854 claims filed in 2005 there were 178 convictions (and 130 were against employers).

In Kansas, out of 66,469 workers’ compensation claims filed in 2006, there were 798 fraud complaints reported and 718 were against employers.

In Rhode Island, out of 6,971 injuries filed in 2005, there were 5,219 fraud claims reported and 5,174 involved employers (primarily from late filing or noncompliance).

In Tennessee, a penalty program was initiated in 2004 as part of the Workers’ Compensation Reform Act. Since that time the program has collected nearly $300,000 from carriers and employers.

In New York, a 2007 report by the Fiscal Policy Institute concluded that 25-30 % of all companies in New York are not purchasing workers’ compensation insurance and that non-compliance (failure to buy required insurance) was a growing problem in New York, which in turn increased premiums and shifted the cost of medical care to injured workers, taxpayers and other employers. It also concluded that between $500 million and $1billion was being lost to the system annually.

That's what's happening in New York, where some people working as contractors were charged with cheating the system byforging workers' compensation insurance benefits. At the same time, they were failing to provide insurance coverage for their workers who were injured.

When dishonest employers cheat the system, criminal charges follow. It's good to see the legal system taking a hard stand against employers who commit workers' comp fraud because that sends the message that such actions won't be tolerated. 

The North County Gazette reports "...defendants have been variously charged with second, third and fourth degree grand larceny, second, third and fourth degree insurance fraud, first degree falsifying business records, first degree offering a false instrument for filing and violation of the Workers' Compensation law."

Willard Leech of Bellingham, Wash., learned that the hard way. He got jail time for illegally collecting workers' compensation for a low-back injury that supposedly prevented him from working.

Employers are much more likely to commit workers' compensation fraud, as we've written about before.

The judge didn't outright accuse Boyd of workers' compensation fraud, but his ruling has the same effect. It's so unfortunate when legitimate workers' comp claims are denied, but more than that, such precedent makes it harder for other injured workers to get a fair hearing. It seems that these kinds of cases are quite often tried in public.

Fortunately in the California case, an appeals court saw things differently. In granting benefits, the court ruled there was no evidence Boyd was lying about his version of the events.

After his election, Governor "Arnold" began working to reform the state's WC system, promising that changes would save businesses millions, if not billions, in reduced premiums. But years later, those savings still have not been realized, and the reforms have been devastating for injured workers. The only winners from workers' comp reform in California? The insurance companies.

Recently, an injured worker who had been falsely accused of workers' compensation fraud after filing a claim received some measure of justice.

1. Making a knowingly false or fraudulent material statement or representation for the purpose of obtaining compensation
2. Grand Theft
3. Concealing or knowingly failing to disclose the occurrence of an event affecting the continued right to receive an insurance benefit. The Town of Atherton through the Cities Group claimed total losses of $247,000, including the cost of the investigative process and attorney fees.

Blick was convicted of the third count and served 60 days of a 90 day sentence in solitary confinement in a California jail.

Within the last two weeks, however, the California Court of Appeals vacated Blick's conviction and granted her a new trial.

More importantly for injured workers in California, the appeals court ruled that the crime for which Blick was convicted is a "specific intent crime," making it much harder for employers and insurance companies to bring workers up on trumped up fraud charges.

According to Californians Injured at Work, "This is a spectacular victory for injured workers all over California who have been falsely accused of Workers Compensation fraud. This legal ploy can no longer be used against an injured worker in this judicial district."

Though Anita Blick was charged with defrauding the workers' compensation system in California, there seems to be no dispute that she suffered a disabling injury at work. Blick's employer was found to have violated her rights for failing to notify her that she was eligible for vocational rehabilitation under the California Labor Code. The employer also underpaid her Total Temporary Disability and they illegally terminated her Total Temporary Disability without just cause.

This is workers compensation reform in action.

If you don't want this to happen in North Carolina, write to your legislators and tell them to oppose any efforts to reform the N.C. Workers' Compensation system.

This is another example of how employers continue to run roughshod over the workers' comp system, while workers' compensation insurance companies spend billions to convince the public that the blame for rising costs lies on worker malfeasance.

The owners of  Banning Construction Company (also known as TF Ventures and All Service, Inc),  are charged with an on-going scheme dating back to 2001 to defraud the state.

Carter Lee Pendergrass, 56, his son Joshua, 25, and their business associates, Timothy Cassidy and his wife, Karen, both 51, are each facing dozens of counts of insurance fraud, money laundering and filing false income tax statements, according to court documents. The charges involve collected losses over $6 million which include unpaid payroll taxes and lost money on insurance premiums.

“According to Riverside County Deputy District Attorney Paul Fick, the Company….would deliberately misreport wages paid to its workers to avoid paying the full amounts due in state payroll taxes and workers comp insurance premiums.  They would report a worker who earned $11 an hour for a 40-hour work week as working only 20 hours, but at $22 per hour,'' Fick said. ``That way, they saved more than half of the workers' comp insurance cost for that worker.'' 

This is another example of how business owners often exploit the WC system to their advantage to line their own pockets. Cases such as this chip away at the misconception that the workers are the ones taking advantage of the WC system.  When you disregard the pervasive, sensationalistic stereotypes and anecdotes about undeserving injured workers defrauding the comp. system, and look at the actual numbers, employer and insurance fraud almost always exceeds worker fraud.  

They argue that workers’ compensation laws are inherently ineffective and overly bureaucratic. The rising costs of workers’ compensation benefits are negatively affecting employers while an adversarial system is penalizing employees, placing most of the burden of proof on them for the claim.

The full thrust of the article is that neither employees or their employers are benefiting or being protected by the workers’ compensation system.

The blog also weighs in on workers’ comp fraud, specifically “the fraud of worker fraud.”

According to Tort DeForm,

“In the early 1990’s, insurers and businesses began a misleading media campaign focusing on employee fraud, even though only a tiny percentage of workers – one to two percent – engaged in it. Despite its lack of substance, the campaign caused rights and benefits to be cut in many states, and created an unfair stigma for injured workers.”

Glad to know that other bloggers out there are talking about this deception.

For more on Tort DeForm’s take on WC, visit the blog.

A group of wokers who sought workers' compensation benefits after their factory closed were ordered to pay more than $2.2 million to their former employer.

The company levied racketeering charges against the employees and accused them of conspiring to defraud the company by making false injury claims.  The saddest part is that the workers, in part because they may not have understood what was happening, did not contest the lawsuit.  And so, without any contested hearing on the merits of the case, U.S. District Judge Stanley Chesler signed a default judment against the workers. 

Judge Chesler ordered the employees to repay the company's attorney fees, costs, compensatory damages and even workers' compensation awards that had been paid to two former factory workers.

The judgment is alarming, not least because it is a default judgment and the viewpoints and positions of the workers were not heard.  I've got to agree with others workers' rights attorneys who told the Star-Ledger newspaper in New Jersey that the case "signals a 'frightening precedent' that can be used to quell legitimate employee injury claims" and may make attorneys hesitant to take on workers' cases.

The Michigan-based company involved had 12.8 billion in sales last year, and obviously had plenty of money to hire competent attorneys to bring this federal case.  The workers, many of whom had salaries of $16,000 or $17,000 a year, would probably have had trouble paying attorneys to defend them, had they realized the necessity of responding to the suit. 

Read more about the case here.   

Here's a story about one such case in New Mexico. The owners of a roofing company are charged with providing a bogus documents that said they carried workers' compensation coverage for their business when they really didn't.

Stats show that Latino workers are injured on the job at a disproportionate rate.

The real tragedy occurs when an undocumented worker is injured. Many employers try to deny these employees workers' compensation benefits, and they're often successful in doing so.

According to an article from McClatchy Newspapers:

"In one national study, university researchers surveyed 2,660 day laborers, most of them working illegally. One in five said he'd suffered a work injury. Among those who were hurt in the last year, 54 percent said they didn't receive the medical care they needed, and only 6 percent got workers' comp benefits."

But the law is clear.  Undocumented workers, even if they are working in the U.S. illegally are entitled to workers' compensation benefits -- lost wages and medical treatment.

From the same article:

"Employers in at least 20 states, arguing that their employees shouldn't receive injury benefits because they're illegal immigrants, have fought and lost in courts and review boards. Among those employees were a California laborer who hurt his back lifting sacks of coffee, an Arizona auto mechanic who was hit in the eye by flying debris, a Maryland carpenter who cut his hand on a saw, and a North Carolina construction worker who suffered a brain injury when he fell 30 feet onto a concrete floor."

I encourage you to read the entire McClatchy article to learn more about how some workers are being denied benefits to which they are lawfully entitled.

More examples of how the insurance companies have distorted public perception of workers' compensation fraud.

http://scsenatedems.blogspot.com/2007/03/workers-compensation-makes-insurance.html

In New York state, the cost is a staggering $1 billion every year – the result of companies that either don’t pay their workers compensation insurance premiums or underpay because they lie about the size of their work force. Honest companies end up paying higher premiums as a result, and injured workers are forced to go without the workers' compensation benefits that they are entitled to.

See www.pbs.org/wgbh/pages/frontline/shows/workplace/etc/fraud.html

Footage such as this, shown on NBC’s Dateline, makes for compelling television news. But it also perpetuates the myth that workers’ compensation fraud is rampant.

But it’s not.

What’s more, employers and insurance companies are as likely or more likely to perpetrate workers’ compensation fraud than are their employees.

Yet, the myth persists that many workers are faking injuries in an attempt to collect workers’ compensation benefits.

I’ll share some theories about why this is in a later blog posting.

But now, I want to talk about how this myth that large numbers of workers are defrauding the system is affecting injured workers.

• States are restricting benefits available to injured workers under the theory that less generous benefits will provide fewer incentives for workers to defraud the system.
• Employers are more likely to view workers who file for workers’ compensation as malingerers or frauds.
• Workers’ compensation insurance companies are more likely to view every claim with suspicion and to thus contest more claims, which prolongs the amount of time it takes for injured workers to receive their benefits.
•  Due to the social stigma, workers who are legitimately injured may decide not to file for workers’ compensation benefits for fear of being seen as a fraud.

More on this topic later.