Comma Doesn’t Get Massachusetts Workers’ Comp Scofflaw Off the Hook

By | July 11, 2016

A Massachusetts company has lost its argument that it should not have been prevented from participating on state or municipal contracts for three years due to its its failure to have workers’ compensation insurance as required by law for eight months.

New England Survey Systems Inc. (NESS) of Brookline, Mass. appealed its debarment by the Department of Industrial Accidents (DIA) from government business, arguing that because of the placement of a comma in the statute, debarment should apply only where an employer is trying to avoid higher premium rates. In its case, NESS said it simply was unaware that its policy had lapsed and was not trying to avoid higher premiums.

NESS also argued that statute denied it due process by making the severe penalty of a three-year debarment automatic for all employers found without workers’ compensation coverage.

But NESS failed to convince justices on the Massachusetts Supreme Judicial Court. In a June 30 ruling, the high court upheld previous rulings and the debarment penalty imposed on NESS, dismissing the argument over the comma as inconsistent with the legislation’s history and intent. The court also dismissed the due process claim, noting that the company had been given opportunities to appeal the disbarment.

Subsection (10) of section 25C of the state’s workers’ compensation law (Chapter 152) says:

“In addition to being subject to the civil penalties herein provided, an employer who fails to provide for insurance or self insurance as required by this chapter or knowingly misclassifies employees, to avoid higher premium rates, will be immediately debarred from bidding or participating in any state or municipal funded contracts for a period of three years and shall when applicable be subject to penalties provided for in section fourteen.”

NESS maintained that the comma after the word “employees” means that the phrase “to avoid higher premium rates,” modifies the two preceding clauses with the effect that an employer like NESS — against whom a stop work order issued due to its failure to have the required insurance but who was not shown to have acted with the intent to avoid higher insurance premiums — is not subject to automatic debarment. In effect, NESS claimed that prior to implementing the penalty of debarment, the state was required to prove that NESS’s admitted failure to provide insurance was motivated by a desire to avoid higher premium rates.

While the court sympathized with NESS that the penalty of debarment for three years may be a severe sanction, it did not go along with the firm’s grammatical reading of that section of the law.

“Instead, we conclude that the words used by the Legislature express its intention that the debarment provision contained in subsection (10) applies when an employer fails to obtain or provide workers’ compensation insurance, without the need to establish that this was the result of the employer’s intent to avoid higher insurance premiums,” the court ruled.

The ruling affirmed a decision by a Superior Court judge that the high court said was consistent with the original interpretation followed by the DIA.

The Superior Court judge called NESS’s interpretation of the language illogical in that an employer who is not self-insured and has not provided workers’ compensation insurance coverage, and therefore has paid no insurance premium, would avoid the penalty of debarment, while an employer who did have insurance, but misclassified one or more employees in order to pay a lower insurance premium, would face debarment. “The natural and logical reading of the words used by the Legislature in ยง 25C(10) is that an employer whose employees are not covered by workers’ compensation insurance and who is not self-insured is subject to automatic debarment,” the court found.

The court also noted that since the statute requires the penalty of debarment for three years to take effect in the event a stop work order issues, it is unnecessary to consider the evidence offered by NESS that its workers’ compensation policy lapsed when its insurance broker failed to notify NESS that it was time to renew the policy, and other evidence about the economic consequences that debarment will have on its business and its employees.

The legislative history “strongly suggests that the Legislature added the penalty of debarment to the statutory sanctions for noncompliance with the insurance requirements of the act in an effort to compel employers to comply with their obligations,” the court said.

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