Tuesday, April 17, 2012

Noncompliance: Laws Are One Thing, Enforcement Another

I'm sure that one of the biggest reasons for non-compliance with mandatory workers' compensation provision is that some employers don't seem to feel that the risk of getting caught isn't that big compared to the reward of saving all that cash.

WorkCompCentral publishes news all of the time about employers who get jail time and ordered to pay restitution to the carrier for either misclassifying employees, under-reporting payroll, or not carrying coverage at all. Certainly this news gets around.

Yet there are always some who don't feel the penalty for getting caught is an adequate deterrence.

In Massachusetts some lawmakers feel that if the penalty were harsh enough they may be able to influence behavior more affirmatively.

Senate Bill 915, scheduled for a final vote in the Massachusetts state Senate on April 26, would make failure to carry workers' compensation coverage a felony punishable by up to five years in state prison and not less than six months to 30 months in county jail and/or fines of between $1,000 and $10,000 for noncompliance.

Current law sets a maximum penalty for failure to carry workers' compensation coverage of up to one year in prison, a $1,500 fine or both.

I would have to agree that certainly the current law is pretty much a joke in terms of compliance motivation. You can bet that nearly no one serves prison time under this law, in particular if it is a first time offender. And the consequence of only a $1,500 fine is recouped in just a short period of time if coverage isn't carried.

In terms of risk versus reward, the current Massachusetts penalty likely has little deterrent effect, and certainly isn't going to deter the sociopathic employer.

A Massachusetts law passed in 2009 also imposes penalties of up to a year in jail and/or a fine of up to $50,000 for employers who "willfully" misclassify workers as independent contractors. Repeat violators can be sentenced up to two years in jail and fined up to $25,000 per violation for misclassifying workers under present law.

I don't have any data or information as to whether the 2009 law made a difference in misclassification.

The Massachusetts Department of Industrial Accidents (DIA) reported more than 1,000 cases of noncompliance during the past five years involving injuries to workers employed by uninsured companies. DIA reported the injuries resulted in nearly $26 million in damages during those years, and during 2009 and 2010, DIA issued an average of more than 3,400 stop-work orders a year. The department collected between $1.3 million and $1.8 million annually in 2009, 2010 and 2011.

The purpose of this new law is to ensnare companies that unwittingly misclassify workers as independent contractors when DIA can't prove the misclassification was intentional, Bill Vernon, state director of the Massachusetts chapter of the National Federation of Independent Business, told WorkCompCentral.

The question all comes down to enforcement and whether penalties are meted out sufficiently to persuade employers into compliance.

One of the biggest obstacles I see is that jail time is likely not very enforceable because other more heinous criminals need that jail space.

And the criminal employer that is skirting workers' compensation compliance is typically not too concerned with the financial penalty - that mindset spends the money long before getting caught so there typically isn't much to lose (though occasionally we will read about an employer that did build up substantial wealth and had to forfeit much of that in restitution and fines - not very often though).

Other states that have recently increased the penalty severity for non-compliance but I don't know whether those efforts have proved successful. For instance in North Carolina noncompliance is a Class H felony punishable by up to 10 years in prison, and both Connecticut and Pennsylvania have recently made noncompliance felonies.

I think it is good to have stiff penalties on the books for noncompliance so that law enforcement and the judiciary have the tools necessary to prosecute those scofflaws

We all know that noncompliance is a serious issue. It drives up costs for those employers who do abide by the law and it creates an unacceptable risk to the non-covered employee that may get injured.

Surely some of those that end up as the subject of enforcement are either ignorant or just plain stupid. In most of those situations the law is adequate and we won't see repeat offenses.

It is the repeat offenders or those who display a callous disregard for the law by engaging in noncompliance behavior for a protracted period of time. Those are the bad apples that need to be removed from the cart.

Still, Does the criminal mind know? Does the criminal mind care? Time and statistics are all that we can use to measure the effectiveness of the law and law enforcement.

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