n 1989 the federal law known as the Worker Adjustment and Retraining Notification Act (WARN Act) went into effect. The intent of the WARN Act was to provide employees with time to plan for their future employment with another company when the employer had to do a mass layoff. The WARN Act has in many ways morphed into the Workers Compensation Claims Preplanning Act (that is not a real title), which provides ample time for dishonest employees to plan and execute fraudulent workers comp claims.
The WARN Act requires employers with more than 100 workers to give a 60 day notice before laying off workers. Employers must issue a WARN Act notice if a facility closing or other Reduction in Force (RIF) will cause more than 50 employees to be without a job. The WARN Act also applies to companies that are staggering the layoffs if the employer is laying off more than 500 employees in any 30 day period, or more than one-third of the workforce if the company has less than 500 employees. If the employer does not provide the notice timely, the employer is required to continue the pay and benefits of the layoff workers for 60 days from the date the employees are notified of the layoff. Plus, in some cases the employer can be fined $500 per day per employee for not giving the layoff notice timely. Please consult your labor law attorney for additional information on WARN Act requirements.
Statistics show that workers comp claims spike by an average of 50 percent after a plant closing or other mass layoff is announced. This jump in claims always results in a future jump in the employer’s workers compensation premiums, as claim frequency is the primary factor in the calculation of the employer’s workers comp premium.
Unfortunately, there are times when a RIF is necessary due to a slow-down in business, a need to cut costs, a need to change the organizational structure, or a change in the company’s business strategy. However, the employer does not have to pay bogus work comp claims as a cost of doing business. There are numerous actions an employer who is planning a RIF should take prior to the announcement of the RIF. We recommend employers who must RIF employees to take the following actions.
- Keep intentions to yourself and only communicate with those who need to know. The less time unethical employees have to plan their fraudulent claim or to think about doing so, the lower the number of bogus work comp claims.
- If it is becoming obvious that the company needs a RIF, do not put it off. The longer you wait, the greater the distortion the rumor mill will create. The long wait provides ample time for unethical employees to not only plan their workers comp claim, but also to share their plans with other employees that would not be considering work comp fraud, until they learn others are going to file bogus workers comp claims.
- When a RIF is announced, place a strong emphasis on the unemployment compensation benefits the employee will be receiving. Employees who are less anxious about their source of income are less likely to commit work comp fraud if they know they will have another source of income while they look for another job.
- Learn how your state handles unemployment compensation in conjunction with workers compensation. Some states allow both at the same time, other states allow one or the other, and some states allow an offset (reduction) in workers comp benefits for employees drawing unemployment compensation.
Prepare for all workers compensation claims that may be received
- Consult with the third party administrator (TPA) or insurer so the TPA can plan to handle the additional workers comp claims quickly so there is no waiting. If there is a delay in beginning claim investigations, the likelihood of properly defending the claim is reduced, evidence is lost and affirmative defenses are less likely. TPAs should handle these claims aggressively and early which requires sufficient staff.
- If not already done, a “dedicated” or “designated” adjuster assigned to handle the claims for your company is needed. If you expect a large number of new workers comp claims, it is preferable to handle all of them in the same claims office. This way the claims adjusters are familiar with working conditions.
- If you have been utilizing more than one defense firm, pick the best attorney and pre-arrange for one attorney (best) or one firm (acceptable) to handle all work comp litigation that occur after the announcement of the RIF.
- If an employer is closing the facility or making a major remodeling, invite the defense attorney(s) to the facility so the defense attorney(s) can familiarize themselves with the facility.
- Video record the areas/equipment/machinery that would most likely be included in any injury scenario, especially if the plant is to be renovated or demolished.
- Video record job functions for the medical providers, especially those that would most likely be included in any injury scenario.
- Make a list of all key personnel, managers and supervisors, including the home address, home phone number and cell phone number, who can testify if necessary.
- Make sure all personnel records are up to date, especially health insurance records and sick time documentation (for example: the employee who took sick time for the back injury that occurred at home may now claim an aggravation of the pre-existing condition to continue the medical care and to draw indemnity benefits).
- An exit physical should be considered especially if the employees work in a high decibel area or have been exposed to chemicals or other irritants while on the job. This action should be reviewed with your defense attorney and claims supervisor as to the benefits versus the risk.
- An exit interview can identify potential future workers comp claims. Provide the employees with a form to complete to list any known medical condition.
- Do not forget the employees who were already out of work and drawing indemnity benefits before the RIF announcement. Their incentive to return to work has been removed in situations where their department or plant is being closed. Every possible effort should be made to get these people back to work before the RIF.
- 16. Work with an offsite transitional duty vendor so that employees who are on transitional duty can be employed elsewhere until they are fully recovered and at MMI. Be prepared to place ALL employees who are on transitional duty in a paid position elsewhere. Charitable positions are also an option as is home-based employment.
It is essential that all workers comp claims reported after the announcement of a RIF be completely documented and thoroughly investigated promptly. Once the facility is closed and people and evidence is no longer available, it is much more difficult for the workers comp adjuster to handle the claim properly.
It should be noted that not all workers comp claims that occur after a RIF is announced are fraudulent. There will be legitimate injuries that occur. There also will be employees who have worked through other minor aches and strains who now feel they must report their work-related medical condition.
When you are planning a large scale RIF, you will have a lot going on. The control and prevention of fraudulent work comp claims is necessary to not lose some or all of the financial benefits the company obtains from a RIF.
Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Manage Your Workers Compensation: Reduce Costs 20-50% www.WCManual.com. Contact: RShafer@ReduceYourWorkersComp.com.
2012 NEW WORKERS COMP BOOK: www.WCManual.com
WORK COMP CALCULATOR: www.LowerWC.com/calculator.php
MODIFIED DUTY CALCULATOR: www.LowerWC.com/transitional-duty-cost-calculator.php
SUBSCRIBE: Workers Comp Resource Center Newsletter
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.
©2011 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law. If you would like permission to reprint this material, contact