NY cracks down on workers’ compensation fraud committed by employers

New York was recently proclaimed by Pacific Standard magazine to be a national leader in the fight to curb the illegal practice of "worker misclassification." Misclassification occurs when an employer deliberately misclassifies workers as independent contractors instead of employees. Misclassification may harm injured workers by misleading them into believing that they are not entitled to workers' compensation benefits. Moreover, misclassification of workers as independent contractors operates to keep an employer's workers' comp premiums at artificially low levels. This gives dishonest companies a financial advantage over companies that play by the rules. One study suggests that in some states misclassification rates on publicly financed construction projects approaches 40 percent.

In 2007, a Cornell University study found that one in 10 employers in New York was improperly classifying workers as independent contractors. This practice was especially prevalent in the construction industry. In response to that study, New York formed a state level task force designed to aggressively root out instances of worker misclassification. This led to a significant decrease in the number of employers in New York who misclassified workers as independent contractors. In part, this crackdown on fraud was accomplished by random audits of companies' business records. Surprise audits made New York employers more reluctant to deliberately and willfully misclassify their employees.

Although progress has been made in reducing employee misclassifications, the problem still exists. Earlier this year, the Insurance Journal reported that Manhattan District Attorney Vance released a report finding that New York's workers' compensation system was still vulnerable to fraud and abuse. Moreover, deliberate "worker misclassifications" were costing New York and NYC millions of dollars each year with the largest part of the loss being unpaid workers' compensation premiums. Vance stated that workers' compensation insurance provides "critical protection" to workers by providing a necessary safety net for those who are injured in the workplace. Workers' compensation also protects employers from lawsuits for injuries that might lead to economic ruin for small businesses.

Vance called for reform of the system. The current system, reliant upon employer self-reporting, is easily exploited by "unscrupulous employers" who wrongfully classify employees as independent contractors. The report proposed that New York increase penalties for deliberate misclassification. In addition, increased transparency was called for by overhauling the auditing process necessary to curb fraud. Finally, the report found that increased education for employers and employees is necessary so that: (1) employers know their obligations under the system and (2) employees are better encouraged to invoke their rights.

Factors to be considered

According to the New York State Workers' Compensation Board, most individuals providing services to a for-profit business will be deemed an employee of that business and therefore must be covered by workers' compensation insurance. According to the Board, the following factors, if present, suggest an employer-employee relationship:

  • The business controls the manner in which work is to be performed.
  • The work performed is consistent with the primary work of the business.
  • Workers are paid regular wages by a business on a daily, weekly or monthly basis.
  • The business provides the equipment and materials used to perform the work.

The Board notes that all of the above factors are given consideration and no one factor alone determines whether a person is an employee for workers' compensation benefit purposes.

Seeking legal help

If you have been injured on the job, you should contact a New York attorney experienced in handling workers' compensation matters. Workers' compensation benefit cases are often complex and, in some instances, employers aggressively challenge a person's entitlement to benefits.