New York To Crack Down On Fraud By Employers In Workers' Comp Market

New York Governor Eliot Spitzer has created a task force to crack down on an “epidemic” of employers who misclassify employees to avoid providing workers' compensation and other benefits by listing workers as private contractors or paying them off the books.

The governor's announcement of the executive order creating a Joint Enforcement Task Force was made at a press conference with State Labor Commissioner Patricia Smith and labor leaders.

Gov. Spitzer's announcement noted that misclassified employees can be deprived not only of workers' comp but unemployment insurance, Social Security, income tax-withholding, temporary disability insurance, minimum wage and overtime pay.

Businesses that follow the law and provide benefits are put at a competitive disadvantage, since they bear the expense, while operators who skirt the law avoid such costs, the governor noted.

The executive order, which became effective immediately, allows for greater coordination among state agencies charged with classification enforcement and creates a new Joint Enforcement Task Force led by the Department of Labor.

Gov. Spitzer's statement said the task force will work to strengthen enforcement and avoid duplication of efforts by sharing relevant information, coordinating investigations and enforcement actions, and educating the business community and the public at large.

The task force will be required to issue a report to the governor on Feb. 1 of each year, detailing its actions and suggesting potential legislative or regulatory changes in this area.

“For too long state government has turned a blind eye on a growing epidemic that is keeping wages and benefits artificially low for working New Yorkers,” said Gov. Spitzer. “This executive order–a key component of my economic security agenda–protects worker rights while leveling the playing field for law-abiding employers so they are not at a competitive disadvantage to employers who refuse to play by the rules as they exploit hard-working New Yorkers.”

Commissioner Smith promised that the “task force is assembled and ready to reverse several years of lax enforcement.”

New York State AFL-CIO President Denis Hughes said the order will “go a long way” toward eliminating opportunities for unscrupulous employers to deny workers “fair pay, benefits and protections under state law” and provide legitimate employers with a level playing field.

Also praising the governor's action were Change to Win Executive Director Greg Tarpinian and New York City Central Labor Council President Gary La Barbera.

According to the task force announcement, a Cornell University School of Industrial Labor Relations study estimated approximately 10 percent of workers reviewed from audits conducted by the Department of Labor were misclassified. In the construction industry, this number increased to 15 percent.

Members of the task force will include representatives from the:

o Attorney General's Office

o Department of Taxation and Finance

o Workers' Compensation Board

o Workers' Compensation Inspector General

o New York City Comptroller's office

Each of these entities enforces different laws pertaining to misclassification of workers. Prior to the signing of the order, they did not coordinate their enforcement efforts on this issue, the governor noted.

Meanwhile, an agent group praised New York's top insurance regulator for recommending that a private insurers association no longer develop workers' comp rates, and said he should replace the facility as a statistical source as well.

The comments followed New York Insurance Superintendent Eric R. Dinallo's recommendation that instead of the New York Compensation Insurance Rating Board filing the state's workers' comp rates, they should be established by open competition among insurance carriers.

The Independent Insurance Agents and Brokers of New York said this finding was “welcome news” and called on Mr. Dinallo to dump the entire CIRB operation and replace it with the Boca Raton, Fla.-based National Council on Compensation Insurance.

Mr. Dinallo's 54-page report studying the CIRB was mandated by the legislature in March as part of a landmark measure reforming the state's workers' comp system. CIRB will not be authorized to perform its current functions as of Feb. 1, 2008 under the new law.

While the board should no longer file rates, Mr. Dinallo recommended that CIRB should “continue to collect and analyze” the data necessary to determine rates for now.

In that role, CIRB would continue to develop loss costs based on historical and projected loss experience, and carriers would use them as the basis for developing their specific rates.

In addition to stripping CIRB of its rate-making authority, Mr. Dinallo recommended restructuring CIRB to add representatives of labor, employers and the insurance department to its Governing Committee to make it more independent and transparent.

The CIRB should provide data for now, he said, because “the absence of accurate industrywide claims data would lead to a disastrous situation for the workers' compensation insurance market, because the health and stability of the system depends on the ability of insurers to accurately evaluate the cost of workers' compensation risks.”

The superintendent proposed that the department be allowed to continue to examine CIRB's performance to evaluate whether, in the long term, an orderly transition of CIRB's data-gathering duties should be transferred to another entity.

Monte Almer, the president of CIRB, said this review was called for in the legislation, and “we are sure we can supply the department what they need in the short term and the long term to remain the rate service organization of New York State.”

However, IIABNY said it strongly believes NCCI “would be the best long-term option. As the oldest and largest statistical source of workers' compensation and employee injury-related information in the United States, the NCCI has broad experience.”

The agent group noted information on NCCI's Web site that it is the “licensed rating and statistical organization” for more than 30 states.

Mr. Almer said the board will work with the department to set up the new recommended rate development system, adding that the suggested system–using the board to develop data–”is what 36 other states do.”

CIRB has functioned as the New York system's rate-making and data-gathering entity for 90 years, according to the New York Insurance Department.