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The New Jersey Workers' Compensation Fraud Act

On August 14, 1998, Governor Whitman signed into law this state's first bill specifically addressing the issue of workers' compensation fraud. The Workers' Compensation Fraud Act, codified at N. J. S. A. 34:15-57.4, subjects claimants to criminal penalties for the fourth degree crime of workers' compensation fraud if they "purposely or knowingly" make false or misleading claims, statements, representations or submissions concerning any fact that is "material" to a claim for the purpose of wrongfully obtaining benefits. The Act states that "purposely or knowingly" shall have the same definition as that used in subsection b. of N. J. S. A. 2C:2-3 of the New Jersey Criminal Code. Under that statutory section, "purposely or knowingly" means that "the actual result must be within the design or contemplation" of the actor.

Criminal Sanctions for Employers

It is equally important to point out that the Act also subjects employers to criminal sanctions if they intentionally misclassify workers or engage in deceptive leasing practices to evade workers' compensation insurance premium payments. Along those lines, the law specifies that an employer or insurance carrier that improperly delays or denies benefits must pay the amount owed plus simple interest.

It is clear that these new criminal offenses are designed to provide a more effective means to prosecute those who would illegally profit through the filing of false or fraudulent claims, as well as those employers who would attempt to avoid paying workers' compensation insurance premiums. Since these are criminal offenses, however, one must remember that the burden of proof is "beyond a reasonable doubt" as in any criminal case. That burden is much more difficult to establish than the burden of proof required in a workers' compensation case which is only a "preponderance of the probabilities."

Given the tremendous significance of this law, it is worth reviewing the additional sanctions that can be imposed for violating the Act:

  • Civil Liability: Under subparagraph 1(b) any person who wrongfully obtains benefits or evades the full payment of benefits or premiums by means of a violation of the Act shall be civilly liable to any person injured by the violation for damages and all reasonable costs including attorneys' fees.
  • Immediate Termination or Denial of Benefits: Significantly, the Act confers the power upon all judges of compensation within the Division to order the immediate termination or denial of benefits with respect to a claim and a forfeiture of all rights of compensation or payments sought with respect to the claim.
  • Repayment of Benefits Plus Interest: If an employer and/or an insurance carrier evades full payment of premiums, or improperly denies or delays benefits, they will be liable to pay the sum due and owing plus simple interest. If a claimant receives benefits to which they are not entitled, then he or she will be liable to repay that sum plus simple interest to the employer or the insurance carrier or have the simple interest deducted from future benefits payable. The Act further states that the Division shall issue an order providing for the repayment or deduction.

Cases Involving the Act

It is expected that the insurance fraud prosecutor within the Division of Criminal Justice will conduct investigations into potential offenses and indeed that has happened as the cases below indicate.

Employers who falsely claim the status of employees to relieve themselves of obtaining workers comp insurance or paying the proper premium amounts are subject to severe penalties. In 2014, Charles Kelcy Pegler, Sr., president of Roof Diagnostics, Inc., was charged and entered a guilty plea for falsely representing to his workers' comp carrier that his company did not employ roofers and that all roofing work was done by subcontractors. Mr. Pegler was sentenced to six months in jail, required to make restitution to the workers' comp carriers, and fined $15,000.

Employees who misrepresent their disability limitations can also find themselves subject to the provisions of the fraud act. In Dubrel v. Maple Crest Auto Group, A-3321-10T3 (App. Div. 2012), an injured worker claimed that he could no longer enjoy horse harness racing, because he physically could no longer do the activities that the racing required. After the worker had testified as to his limitations, an investigation was conducted that showed that he was still actively engaged in horse racing and doing all of the physical things he said that he could no longer accomplish. The court took a dim view of the injured worker's falsehoods and upheld the Division of Workers' Compensation decision to terminate the injured workers benefits.

Actions Considered Fraud for Workers, Employers and Attorneys

According the New Jersey Division of Workers' Compensation a worker commits fraud by:

  • misrepresenting job status while collecting disability benefits
  • filing a claim for an injury that did not occur or was not work related
  • knowingly misrepresent physical condition to obtain benefits
  • misrepresenting previous trauma or treatment

An employer commits fraud by:

  • misrepresenting amount of payroll
  • misrepresenting classification of employees
  • failing to obtain workers' compensation insurance

In addition to workers and employers, an attorney or a health care provider can also be found to have commented fraud under the statute by:

  • assisting an individual in fraudulent schemes
  • participating in double billing
  • intentionally billing for services not provided or are unwarranted

In Conclusion

Violating the New Jersey Workers' Compensation Fraud Act has real consequences that employers, employees and attorneys need to be made aware. False misrepresentations carry the possibility of jail time and fines or at the very least a termination of benefits. In addition, attorneys and healthcare workers could also find themselves in violation of the act.

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