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7 Tips for Reducing Your Company’s Workers’ Compensation Exposure

August 01, 2022 (8 min read)

By Elias Kahn

An employee reports he severely injured his back after lifting a heavy box at work. He files a workers’ compensation claim and receives benefits . . . but is spotted playing basketball soon after filing his claim. The injury never happened.

Workers’ compensation insurance is an important financial benefit for employees who incur workplace injuries, but it is unfortunately a ripe target for fraud and abuse.

Business Insurance reports that workers’ compensation fraud costs insurers and employers more than $1 billion annually, according to the National Insurance Crime Bureau (NICB), and other estimates place that number as high as $6 billion per year.

“When an injury happens on the job, workers’ compensation is the safety net that protects employees from the burden of lost wages and hospital bills,” according to “While most of us see workers’ compensation as something to use in an emergency, some fraudsters see this as easy money.”

The scope of the problem is broader than criminal misbehavior. Workers’ compensation fraud drives up premiums that insurers charge. Insurers must set rates assuming they will be paying out billions of dollars in claims filed by workers who misrepresent injuries.

The NICB projects that 10% of companies’ expenditures on workers’ compensation premiums to cover legitimate work-related injuries are lost due to workers’ compensation fraud. That represents a significant cost for all employers and is especially financially burdensome to small business owners.

There are concrete steps that in-house counsel should take to reduce their workers’ compensation costs. Some of these actions will help address fraud risks and others are best practices for managing other cost drivers.

Here are seven tips from Lexis® Practical Guidance’s Workers’ Compensation Costs Management Checklist that in-house counsel should consider.

Good communication and reporting

Minor injuries can easily become major injuries if not treated quickly and properly. For example, an employee strains their back, but fails to report it. By continuing to work, the employee’s injury is not treated and gets worse. The employee’s performance declines. Days, weeks or even months later, perhaps at the time the employee is being disciplined, the employer finally learns about the injury. Not only has the injury become worse, increasing the medical costs and necessary time out of work, but the delay in reporting causes the carrier to question the validity of the injury.

Be aware of concurrent leaves of absences

Employees who are injured or disabled on the job may also be entitled to leave under the federal Family and Medical Leave Act and the Americans with Disabilities Act, as well as similar state and local laws. Employer coverage, employee eligibility, and employee protections vary under these laws. However, when an employee is entitled to leave under one or more federal or state law, such leave typically runs concurrent with workers’ compensation leave. For information about how to administer employee leaves of absence, see Attendance, Time-Off, and Leave of Absence Policies: Best Drafting and Administration Practices, and Coordinating FMLA, ADA, and Other Leaves and Time Off.

Implement “early return to work” programs

Getting an employee back to work after an accident is essential to controlling costs. If the employee is out of work for a significant amount of time, the employer faces the cost of paying benefits to the employee in addition to managing the business without the employee. If at all possible, the employer should find modified or “light” duty positions and communicate these options to the treating physicians and clinics. Instead of the employee sitting at home and collecting benefits, the employee may be performing meaningful work for the employer and earning his or her salary. This can be a collaborative effort and may be an opportunity for the employee to discover new skills and grow professionally.

Conduct accident investigations

The employer should investigate each accident to determine the cause. This will allow the employer to verify the legitimacy of the claim, determine potential third-party liability, and prevent recurrences. In some circumstances, these investigations are also necessary to comply with government regulations (e.g., the federal Occupational Safety and Health Act) so it is important that there be a clear line of reporting and communication from employees and supervisors to the workers’ compensation specialist. See OSH Act Requirements, Inspections, Citations, and Defenses.

Be cautious about possible retaliation claims

At the outset of any workers’ compensation claim, the employer should remind the employee’s supervisor of the policy against retaliation. A retaliation claim could carry costs exceeding the workers’ compensation claim itself.

Manage relationships with outside legal counsel

Each workers’ compensation insurance carrier maintains a list of referral law firms. If the employer has a particular law firm that specializes in workers’ compensation defense, request that the carrier refer all claims to that law firm (or even to a specific attorney). If the attorney receives the claim and already knows the employer, they will spend less time (and money) getting to know the facts. Also, they will have a depth of knowledge about what the employer is willing and able to do related to items such as modified job offers.

Consider employee surveillance on a case-by-case basis

If an employer questions the severity or existence of an injury, surveillance may show that the employee is performing daily tasks inconsistent with his or her work restrictions. However, surveillance can be costly and does not always yield a useful result. The employer may end up paying thousands of dollars for information that will not impact the claim outcome. Consider the use of surveillance on a claim by claim basis and consult legal counsel to establish the goal and value of any potential information. Alternatively, the employer can monitor the employee’s presence on social media. Even if employees do not post photographs or other updates that relate to their physical activity, other users may post information related to the employees.

Of course, even the most safety-conscious employer will be subject to workers’ compensation claims. But when an injury inevitably occurs, there are claim-specific practices that can reduce the company’s costs and potential exposure.

Lexis® Practical Guidance has recently published a Workers’ Compensation Resource Kit, a comprehensive collection of practice notes, surveys, checklists, and templates that address workers’ compensation issues. The resource kit, which is available on Lexis+ includes, among other things, overviews of major workers’ compensation legal issues, guidance on workers’ compensation issues in all 50 states and D.C., and advice on avoiding workers’ compensation claims.

Lexis+ is designed for in-house attorneys who are managing an evolving workload. Experience it with a free seven-day trial.