Underground Economy Promotes Workers Compensation Fraud

Prove It:

Just knowing that an employee is committing fraud in a workers’ compensation claim is not enough to secure arrest, prosecution, or recovery of the amounts illegally paid.

Winning cases need to have unimpeachable documentation. Such proofs consist of:

Unimpeachable witness testimony that the employee was committing fraudulent activity.
Investigations that include background histories, neighborhood and fellow employee canvassing.
Surveillance, with video or photographing, showing a physical activity or action that disproves alleged incapacities.
Medical verification that the employee was capable of working.
Tangible proof that the employee was receiving compensation for the activity.
A legal review by an attorney with criminal prosecution knowledge and experience.
Agreement with employer, criminal attorney and claim technician that the case is fully ready to report and prosecute for fraud.

Underground Employers:

Chances are when the fraudulent employee is found working, it often develops that the employer is an underground operator. These employers are usually paying the employees in cash, often with no bookkeeping or bank records.

Challenges include:

Customers of underground employers may not know or may fail to cooperate with the investigation and un-recorded employees will not be on the worker’s compensation insurance application.
Insurance premium and claim audits may not uncover this illegal activity.
Underground employers may report injury claims for undocumented employees to their insurance carrier and carrier claim units seldom catch such activities.
Underground employers may hire illegal aliens and they have been known to threaten or coerce the employees to keep quiet.

Underground employers can hardly be expected to cooperate in exposing a fraudulent employee. After all, they could be charged and possibly convicted for a multitude of criminal felonies. Often the most that can be expected is that the fraudulent employee will be terminated, and under these circumstances the claim is too weak for prosecution.

Fraud Employee Defenses:

Fraud cases must show the employee knows the meaning and understanding of work or work activities. The employee must know what is meant and understood as compensation.

Cases have been lost simply by such employee testimony as:

I was doing it for a friend.
I was doing it for free.
I was reinvesting the money.
I was not paid yet.
I was working for a friend who was out of town.
I did not know it was work.
I was not paid money; I was given things instead.
I was told I was allowed to work while on disability.
I was able to do this job but not my regular job.
I was just seeing if I could return to my regular job.

Summary:

Proving fraud against an employee caught working for an underground employer is extremely difficult. For any possible success irrefutable documentation must be obtained. If the claim is not strong enough for prosecution, consider using the information to limit or mitigate the case.

Author Michael Stack, Principal, COMPClub, Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder of COMPClub, an exclusive member training program on workers compensation cost containment best practices. Through these platforms he is in the trenches on a working together with clients to implement and define best practices, which allows him to continuously be at the forefront of innovation and thought leadership in workers’ compensation cost containment. Contact: [email protected].

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.