As Mass Layoffs Surge, So Too Do Reactive Workers’ Comp Claims. How Organizations Can Assess this Risk

One-third of companies estimate they will lay off 30% or more of their workforce next year. Here's why workers' comp leaders need to be a part of those decisions.
By: | February 10, 2023

It’s no secret that economic woes are hitting the technology sector, as massive layoffs roil an industry that enjoyed runaway growth due to service demands during the pandemic.

Though the jobs market remains resilient — Bureau of Labor Statistics’ December numbers indicate a tight market and 223,000 jobs added in the final month of last year — high profile layoffs from major engines of the modern market including Amazon and Google have stoked fears.

It’s not just the tech industry. In December, ResumeBuilder.com surveyed 1,000 business leaders across industries to understand how employment in their organizations has fared in 2022 and the outlook for 2023.

A full one-third of companies estimate they will lay off 30% or more of their workforce this year. A further 70% of those surveyed indicated that they would at least implement a hiring freeze, in response to recession fears.

Layoffs, Claims, Comp and More

From the employer and insurer perspective — what do layoff fears provoke among skittish employees, many of whom still carry COVID-19-related mass layoff memories fresh in their minds?

Stephen Peacock, director of client engagement at Safety National, has over 30 years of workers’ compensation multi-jurisdictional claims experience. From his perspective, the risk of claims actually increasing because of layoffs is high.

“Workers’ compensation insurers realize that layoffs and recessions do not result in receiving less claims,” Peacock explained. “The opposite, in fact, usually happens as those aches and pains, which some laid off employees paid little attention to while they were working, persist and potentially become more problematic.”

Peacock noted these aches and pains can be difficult for adjusters to administrate, because they often have a trio of challenges —investigation, causality, and reporting delay.

“Post-layoff filings tend to not have occurred from one specific work event but multiple events as a result of repeated movements, sometimes called cumulative trauma or repetitive motion claims,” he explained.

Stephen Peacock, director of client engagement, Safety National

“These claims are more challenging for adjusters to investigate when they haven’t been reported before the layoffs. Employees who do not report incidents or pain caused by their work before they are laid off have a higher chance that their claims get denied, which increases the potential for litigation.”

However, there are other ways the pendulum can swing, as Gabriell Jeffreys, a Birmingham-based attorney at Burr & Forman LLP in its Labor & Employment practice group, explained.

“On the one hand, layoffs and hiring freezes typically result in less employees working, which often means there are fewer inexperienced workers. When overall employment numbers decrease and more experienced employees make up the majority of the workforce, there is potential for fewer on-the-job injuries and resulting workers’ compensation claims.”

The data bears this out — experienced employees file fewer claims; this is why the rapid aging of the workforce, with retirements increasing and new recruits entering, can spell trouble for risk managers.

An NCCI analysis found that employees with less tenure had 50% higher injury rates. A simultaneous consideration then is the fact that layoffs hit new employees first — resulting in more claims to investigate, pay and close after a layoff occurs.

“Employees confronted with the possibility of losing their job through layoffs may see workers’ compensation as a means of alleviating the financial uncertainty of unemployment,” Jeffreys explained.

“Because employees can continue to receive workers’ compensation benefits after a layoff, employees facing job elimination may be incentivized to file new workers’ compensation claims or prolong their existing claims.”

What Employers and Employees Can Do

The good news is, employers and employees can protect against layoff-related claims by employing much of the same strategies as for other types of claims.

“Employees can protect themselves better by being sure to report all incidents and complaints of pain to their employers while employed,” said Jeffreys.

“Conversely, and as difficult as they can be to conduct, employers can protect themselves better by conducting exit interviews with the employees they are laying off. These exit interviews should include questions about any known work accidents or pain that might be related to work, and then immediately be followed up with investigations.”

It all comes down to the two tenants of workers’ compensation claims handling — investigation and documentation.

According to Jeffreys, as soon as an injury is reported, employers should conduct an investigation into the events leading to the injury. This investigation may reveal inconsistencies or other details that could be crucial to defending the claim.

Important information or items to obtain during the investigation include:

Gabriell Jeffreys, attorney, Burr & Forman LLP

  • The employee’s name and job title
  • The extent of the alleged injury
  • A detailed description of the incident that led to alleged injury, including where the employee was working at the time, what the employee was doing at the time of the alleged injury, and any factors that contributed to the alleged injury.
  • Identification of any other individuals who witnessed the incident
  • When the incident was reported and who it was reported to
  • Any video surveillance footage of the employee or the area the employee was working in at the time of the alleged incident

The documentation side dovetails with the investigation side, especially in cases where there exists a suspicion that the being laid off prompted a dubious claim.

All information uncovered during the investigation, including any conversations with the employee or witnesses about the incident should be documented and preserved for use in defense of the claim.

Employers should obtain written statements from any employee who witnessed the accident and also preserve any surveillance footage or photos of the incident, injury or area.

“There is no single way to recognize a potentially fraudulent or exaggerated claim, as the circumstances of workers’ compensation claims often vary based on the employee’s job, the mechanism of the alleged injury, the type of alleged injury, and the extent of the injury alleged,” said Jeffreys.

“However, potential warning signs include delayed reporting of the claim, inconsistencies in the employee’s description of the accident or injury, timing of the injury in relation to events such as a layoff, or rumors of fraud.” &

Nina Luckman is a business journalist based in New Orleans, focusing primarily on the workers' compensation industry. Over the last several years, Nina has served as Editor of Louisiana Comp Blog, a news site she started in 2014 under the auspices of a group self-insurance fund. She can be reached at [email protected].