Expert Commentary

Reducing Workers Compensation Claims during a Layoff

When facing an impending layoff, a risk manager is confronted with a more complex labor environment in which employees' attitudes toward workers compensation require special attention.


May 2009

The recent downturn in the economy has caused many employers to confront the prospect of downsizing through either a layoff or plant closing. Now, more than ever, employees are becoming anxious about whether their jobs are secure and how they will be able to provide for their families. In times such as these, rumors fly and employees may seek an alternate source of income before their job loss becomes a reality.

Employees that would ordinarily shake off aches and pains may look to exaggerate them and file for workers compensation benefits rather than face the possibility of unemployment. For the risk manager, this can be expensive and challenging.

This article will outline the issues risk managers face and suggest strategies to help guide them through a layoff.

Layoff Problems

Among the problems the risk manager is confronted with are:

  • Employees filing claims have little or no incentive to return to work, especially in plant closing situation.
  • Reduction in commitment to management objectives of controlling costs by reducing the length of disability and returning to work.
  • Claims for injuries become more subjective in nature and often include claims that involve soft tissue injuries or cumulative conditions which are alleged to have developed over a period of years.
  • More workers compensation claims are filed since these benefits are usually better and for longer duration than unemployment benefits.
  • The percentage of injured employees who retain legal representation typically increases as word of a workforce reduction spreads.
  • Many states now require advance notice of plant closings, allowing employees time to pursue potential claims. The federal Worker Adjustment Retraining Notification (WARN) Act requires employers with more than 100 employees to provide 60 days' advance notice in the event of a plant closing or mass layoff as the terms are defined in the WARN Act.

Get Prepared

As soon as the risk manager is informed of a large layoff, a number of steps should be carried out immediately.

  • Notify your broker or consultant of the impending layoff as soon as possible.
  • Review with your broker or consultant the relevant workers compensation statutes in the jurisdiction with special attention to cumulative trauma regulations.
  • Notify your insurer or third-party administrator (TPA) of plans for the layoff and review existing claims for potential problems.
  • Be aware of each state's rate and term of unemployment benefits, and their effect on workers compensation benefits.
  • Explore the potential of other benefit programs available to employees. For example, the second injury fund may assist the company to offset claims expenses.

Gather Records

Accurate and complete records of workers compensation claims and employee personnel and medical records are essential to the defense of questionable and frivolous claims. A complete history of, timely, and accurate records can successfully assist the defense of late or unreported claims that may be triggered by a layoff or plant closing.

  • Make sure you know where employee records are kept and, if they are being moved off site, obtain photocopies as backup.
  • Identify an individual in management who can provide, explain, and testify regarding these records.
  • Create a photographic or video record of plant conditions to preserve a visual image, especially if the physical plant is to be demolished or renovated.
  • Consider termination interviews to identify potential future workers compensation claims.
  • Evaluate whether termination physicals should be given; explore the potential merits versus risk with your broker or consultant.
  • Update all claims information with key personnel so that all available information is in file and with your insurer.

The Best Defense

The potential of claims from a large layoff or shutdown increases the likelihood of exaggerated or fraudulent claims. Since most states have specific time limits for response to claims, the preparation and handling of claims is very important. Consider the following suggestions.

  • Insist that the insurer or TPA centralize claims investigation and adjusting to one claims office.
  • Request that the insurer or TPA have sufficient staff available to handle the initial caseload so that cases are neither accepted nor denied without adequate investigation simply because of time standard pressures.
  • Request one senior claim person is assigned so that information flow and quality of service can be maintained.
  • Request that the insurer or TPA hire one defense firm to handle all workers compensation claims. Arrange for defense counsel to visit the plant site prior to a shutdown, if possible, to familiarize themselves with the plant operation.
  • Arrange for your broker or consultant to assign a senior claims person to work with the insurer and defense counsel to coordinate and monitor the progress of the cases.
  • Have the insurer or TPA identify physician(s) within specialties as experts and familiarize them with the plant conditions prior to a shutdown.
  • Make videos of certain job functions available for physicians and as defense exhibits.
  • Organize and update detailed job descriptions and locate them for easy access by the insurer and defense counsel.
  • Provide defense counsel with names of individuals that are willing and capable to testify regarding the functional requirements of each job.
  • Create a list of key personnel by name and title. Obtain home addresses and all telephone numbers (cell and home) in the event they are needed for testimony on litigated claims. Keep in contact and update these lists as necessary.

Additional Suggestions

When employees are certain where their next check is coming from, they will be less likely to file a workers compensation claim. Some ways to help accomplish this include the following.

  • Ask local unemployment office to send a representative to facilitate the filing of claims for unemployment and avoid allowing plaintiff attorneys to pick up new clients at the unemployment office.
  • Request governmental assistance in placing your trained/professional employees in positions with new employers.
  • Explore job placement fairs at your facility and invite area employers.

Conclusion

Risk managers must be prepared to facilitate the effective resolution of workers compensation claims that may arise out of a layoff or shutdown of a facility. By organizing and developing a long-range policy and procedure that is sensitive to the problems and conditions which accompany a large layoff/plant closing, the risk manager can help to control the ultimate cost effect of the layoff/shutdown on their risk management program.

To this end, it is necessary to set solid procedures for investigating, reporting, and recording all potential workers compensation incidents. Without detailed records, no defense may be available to successfully refute late or questionable claims.


*The Albert Risk Management Consultants claims management team (Glenn Brown, Lisa Hartman, William Quinn, Jr., and David A. Tweedy) contributes articles on claims topics. You can reach Lisa Hartman at


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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