The state crackdown on businesses that fail to carry workers’ compensation insurance has led to a wave of penalties this year.
From Jan. 1 through July 28, the state’s Workers’ Compensation Fraud Prevention and Compliance Unit has collected more than $150,000 in fines paid by 98 companies that were found to have no workers’ compensation insurance. The average fine was around $1,530.
During all of last year, the unit collected $87,500 in fines. And in the three-year stretch from 1999 through 2001, it collected an average of around $43,000 in penalties from employers who were found not to have coverage.
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Much of the increase can be attributed to a statewide investigation of restaurants, bars and nightclubs, which the state initiated following the Feb. 20 The Station nightclub fire that killed 100 people.
The workers’ compensation issue became a flash point when it was revealed that The Station’s owners, Michael and Jeffrey Derderian, hadn’t carried workers’ comp insurance for nearly three years. The brothers were fined more than $1 million by the state, or the maximum $1,000 for each day that the business went without coverage.
A state Workers’ Compensation Court judge upheld the fine in a July 24 ruling.
Of the 98 employers that have paid fines this year, 62 of them were restaurants, bars or nightclubs ensnared by the statewide probe, according to Julie Karg, an attorney with the state’s workers’ comp unit, which is part of the Department of Labor and Training.
In all, the unit has identified 1,725 liquor-license holders since it began the effort last spring. Of those, 1,403 now have insurance, Karg said, and compliance officers still are checking the remaining 322.
Labor department hearing officers determine the amount of the penalties. Employers who waive their right to a hearing have their payment set by the workers’ compensation unit.
Karg said there is no concrete formula for determining penalties, although the fine always is more than the estimated amount of premiums the employer would have paid during the time period that it went without coverage.
And factors such as whether or not there were any injuries at the business, for example, or cooperation with compliance officers, are taken into consideration, she said.
Employers who only recently bought insurance policies still can be assessed penalties for the months or years that they went without coverage. But Karg said in those cases, the show of good faith likely would be considered when the penalty is assessed.
“It certainly factors into their favor that they went out and got (policies),” Karg said. “The bottom line is, we want these employers to have coverage.”
Another reason for the spike in penalties, Karg said, is that the labor department now has two full-time compliance officers in charge of making sure employers have coverage, instead of one.
Aside from the state’s efforts, businesses now have another motivating factor to comply with the state’s workers’ comp mandate. The Legislature in June passed a bill that allows for two-year prison sentences for employers who fail to carry workers’ comp coverage.
Local attorneys say the fallout from the Station fire will be seen as a watershed for the state’s workers’ comp system.
“Employers are realizing that this is pretty heady stuff, and these fines
can add up and can drive some of these companies out of business,” said Jeffrey
Liptrot, a partner and workers’ comp attorney at Morrison Mahoney & Miller
law firm in Providence.
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