How To Report Workers' Compensation Fraud in California

Workers’ compensation insurance exists for a reason; it protects your business in the event one of your employees suffers a work-related injury or illness.

But what if that injury or illness isn’t legitimate? Unfortunately, there are ways for employees to take advantage of their workers’ compensation benefits—and those fraudulent claims can lead to a variety of issues, including penalties, higher insurance premiums, and even legal trouble.

But what, exactly, is workers’ compensation fraud? What are the penalties in the state of California? And if, as a business owner, you suspect workers’ comp fraud, what do you do—and how should you report it?

What Is Workers’ Compensation Fraud?

A workers’ compensation insurance policy provides compensation (including wage replacement and covering medical costs) to employees in the event that they suffer an injury or illness related to their job, work, and place of employment. Workers’ comp insurance coverage is a must for ill or injured employees because it ensures they get the compensation they need to cover costs while they’re out of work—and it’s a must for employers because it protects them from legal action and ensures that they don’t have to cover those costs themselves (which would, in most cases, put their business at serious risk).

Fraud happens when someone—whether that’s an employee, an employer/policyholder, or a medical provider—makes a false workers’ compensation claim, makes false statements, or is found to be falsifying information to the insurance company for financial gain.

There are a few different types of workers’ comp insurance fraud, including:

• Employee Fraud. Employee fraud happens when an employee fabricates, exaggerates, or misrepresents an injury or illness in order to collect workers’ compensation benefits. For example, if an employee says they slipped and fell while on a job site and injured their back—but they actually slipped and fell in their home (or they never fell at all and are “faking” an injury), that’s employee fraud.
• Employer Fraud. Employer fraud happens when an employer is purposefully misclassifying employees (for example, classifying a worker as an independent contractor when they’re actually an employee), lies about working conditions, or provides other false information to the insurer to reduce workers’ comp premiums. For example, if an employer misrepresents their employee’s job responsibilities and tells the insurance company they work at a desk all day—when they’re really traveling to job sites and using heavy machinery—that could be considered employer fraud.
• Provider Fraud. Provider fraud happens when a health care provider presents false information in order to get kickbacks from the workers’ compensation insurance company. For example, if a doctor bills the workers’ comp insurance company for 10 weeks of medical treatments—but the patient only attended treatments for two weeks? That would be considered provider fraud.
  

Workers’ Comp Fraud Penalties in California

Under California law, the penalties for being convicted of workers’ comp fraud will vary by fraud cases; depending on the circumstances involved (including the scope of the fraudulent activity, the amount of money involved, and the claimant/defendant's criminal background), the fraud could be charged as either a misdemeanor or a felony. 

If the workers’ comp fraud is prosecuted as a misdemeanor, defendants could be facing up to one year in jail and up to $150,000 in fines or double the dollar amount of the insurance fraud—whichever figure is higher. If the district attorney’s office decides to pursue felony charges, defendants could find themselves facing even more jail time—up to 5 years in some cases.

Depending on the situation, defendants could find themselves facing additional legal issues related to their workers’ comp fraud (like additional insurance fraud charges) and may be required to pay restitutions to the insurance company—or, in other words, to pay back the money they received as a result of their fraudulent workers’ compensation claims.

How To Report Workers’ Compensation Fraud

If there’s suspected fraud happening with one of your employees (for example, if they make a claim saying they got injured on a job site—but there’s no evidence to support that and other workers dispute the employee’s version of events), you’re going to want to report that fraud.

There are a few steps you’ll need to take in order to report workers’ comp fraud, including:

• Document the suspected fraud. If you’re going to report an employee for workers’ comp fraud, you need documentation to back it up. Create a report that includes your contact information, name and address for the employee in question, and a description of the incident and why you believe there’s fraudulent activity going on. (For example, if you have an employee that claimed they injured their back after falling off a ladder at work—but then observed them lifting a 50-lb box two days later—you would want to include that explanation in your report.)
• Report the fraud to the California Department of Insurance. In order to trigger an investigation, you’ll need to report the fraud to the state. The CA Department of Insurance has an online portal at insurance.ca.gov where residents can file a complaint. The state also has a non-electronic complaint form, but because of COVID-19 measures, they recommend filing an electronic form to expedite the process. If you have any questions about the process, you can also call the Department’s Insurance Information and Questions Hotline at 1-800-927-4357. 
• Report the fraud to your insurer. You should also report the fraud to your insurance company directly; typically, insurers will have a fraud division that handles workers’ comp fraud claims—so get in touch with the division to figure out what you need to submit in order to start a fraud investigation into the false claim.
  

Workers’ Compensation Insurance Fraud Red Flags

Not sure what to be on the lookout for when it comes to workers’ compensation fraud? While you often can’t be completely sure that an employee is making fraudulent claims, there are red flags you should be on the lookout for, including:

• No witnesses to the event. While not all injured workers will get injured in public, most work-related injuries will have at least one witness to corroborate what happened. If the employee claims they suffered an on-the-job injury—but no one can confirm they saw the injury took place—it doesn’t necessarily mean the claim is fraudulent. But it does mean that you should investigate it further.
• The employee’s story keeps changing. If an employee can’t keep their story straight on how and when they were injured—or how that injury is impacting them—it could be a sign of workers’ comp fraud. For example, if the employee originally said they fell off a ladder and hurt their back—but then later changed their story and said they slipped on a wet floor, that’s definitely a red flag.
• The employee’s behavior doesn’t match their story. If an employee files a workers’ compensation claim saying their injury is preventing them from performing normal, every day physical activities—but then you observe them doing strenuous physical activity like running or lifting heavy boxes—it could be a sign of fraud.
  

If You See Workers’ Comp Fraud, Report It

As a business owner, it’s your responsibility to make sure that you’re operating your business in an honest and ethical way—and the same goes for your employees. If you suspect an employee of workers’ comp fraud, it’s important to report that fraud to the proper authorities—and make sure you’ve done everything you can to prevent your insurance company from being defrauded.