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Keep the Lid on Workers’ Comp Costs During a Layoff

Between December 2007 and July 2009, the U.S. economy lost almost seven million jobs. In times of economic uncertainty, employees worried about their jobs may look toward the workers’ compensation system for supplemental income. Workers who have ignored aches and pains over the years and haven’t reported them might decide that the time is right to make a claim. Others who may have been healthy and who suffer an injury that they might have previously ignored may now decide they have nothing to lose by reporting it. Employers facing the possibility of having to lay off employees must be aware that their workers’ compensation costs may rise. However, there are steps they can take to keep a lid on costs.

Once a risk manager learns that a workforce reduction is coming, she can prepare in a number of ways. She should become familiar with the unemployment insurance laws in each affected state, including the levels and durations of benefits and how they affect workers’ compensation benefits. She should investigate other state programs available to employees that may offset workers’ compensation costs. She also might want to meet with the firm’s insurance broker to review pending claims and identify those that might become problems.

Another priority is claims documentation. The firm should backup employee records and store both in secure locations. Claim records should be updated with the latest available information. The risk manager might want to create a video record of conditions in the building prior to the layoff so that she can demonstrate to a court what the work environment was like. Finally, exit interviews that include written questionnaires completed by the employees can serve as evidence as to the employees’ physical condition at the time of termination.

When the layoffs occur, the company should handle them as sensitively as possible. Losing a job is a traumatic experience for anyone; clumsy communications from the employer can inspire a worker to seek retribution. To the extent that the employer can help affected employees, it should do so. For example, it may want to offer resume preparation or outplacement services or employee assistance programs for those who need emotional support. Also, if the company can afford them, it may want to offer severance payments to the employees in return for their written agreement to forego any future claims against the company. Finally, though it may seem unlikely, the company should have contingency plans in place should any of the employees become violent, either at the time of the layoff or later.

To defend against exaggerated or fraudulent claims, the risk manager should ask the broker and the insurance company to coordinate claims handling through one office and one senior claims adjuster. She should also request that the insurer assign the defense of all cases to one law firm. To assist in the defense, she should make relevant records, such as videos, employee files, job descriptions, and exit questionnaires, easily accessible to the attorneys and any medical specialists the firm may hire. Finally, she should identify key personnel who may be available to testify as to job requirements and conditions, and she should make a list of their names and contact information available to the attorneys.

Cutting jobs is one of the most difficult things any organization must do. The goal of a workforce reduction is to lower the firm’s costs; uncontrolled workers’ compensation expenses resulting from the action may wipe out any benefits from it. Careful planning and handling of the action and its aftermath can go a long way toward ensuring that the company’s pain will not be for nothing.