With surprisingly little fanfare, the Massachusetts legislature recently amended the state workers’ compensation statute to create a private right of action against Massachusetts employers who fail to pay their workers’ compensation insurance premiums. This means that employees, businesses, and other private individuals and entities now have the legal power to sue employers who violate the workers’ compensation laws for a share of compensatory damages, based on the total amount owed by the employer as a result of the violation. The law, which is the first of its kind in the country, applies prospectively to policies issued or renewed after the law’s effective date of November 7, 2010.

Before the amendment was enacted, enforcement for workers’ compensation violations was left solely to the state insurance fraud bureau. But that department’s ability to resolve violations in a timely and efficient manner had become severely hobbled by a growing backlog of violations amidst increasingly limited resources in a faltering economy. The new amendment relieves this growing burden by effectively transferring substantial enforcement power to the hands of individual employees and business competitors.

HOW A PRIVATE SUIT GETS FILED, AND WHO CAN SUE (I.E., JUST ABOUT ANYONE)

Under the new law, “any three persons” may file an action against an employer 90 days after giving notice of the complaint and intent to file to both the employer and the insurer. If the insurer does not attempt to collect the amount(s) owed during the 90-day period, the suit may move forward. Successful plaintiffs may recover 25% of the full value of what the employer is adjudged to have owed, subject to a $25,000 cap, plus an additional $25,000 or 25% of what is owed, whichever is less, as compensatory and liquidated damages. Plaintiffs may also recover attorneys’ fees and costs. The balance of any recovery (i.e. the portion of the judgment over and above the $50,000 cap) is deposited into the state’s Workers’ Compensation Trust Fund.

Contractors should keep in mind that the right to sue under the new amendment appears to extend to virtually anyone who learns of the violation and follows the procedural pre-requisites for filing. Specifically, “any three persons” can bring suit, and potential plaintiffs are not limited to people who are actually harmed by the violation at issue, such as an uninsured, injured employee or a losing bidder/competitor. So anyone who can find two willing co-plaintiffs may theoretically initiate suit even if they have no connection to the violation. In the worst case scenario, the law could trigger a wave of “professional litigants” who troll jobsite violation records in search of worthwhile targets. It remains to be seen whether the $50,000 cap on recovery will do anything to dissuade this practice, or whether the courts or the legislature will impose a standing requirement that restricts the right of action to parties who actually suffer harm from the violation.

GENERAL IMPLICATIONS FOR CONTRACTORS AND THE CONSTRUCTION INDUSTRY

The amended law presents a sweeping expansion of potential liability for contractors. Whereas liability used to depend on whether a violation was actually reported to the state – by competing bidders, for example, whose bids were undercut by other contractors who misclassify workers in order to achieve cost savings through lower premiums – contractors who violate any aspect of the Workers’ Compensation Law now face the immediate possibility of being sued in Superior Court for damages. The workers’ compensation statute has always permitted a losing bidder to sue a competitor who is awarded a contract under illicit circumstances, but damages in those cases are limited to ten percent of the bid or $15,000, whichever is lesser. By imposing up to $50,000 in additional liability, the new amendment is intended, in part, to dissuade this practice further.

One issue to note is how the amendment affects section 18 of the workers’ compensation statute, which makes upper-tier contractors responsible for their subcontractors’ uninsured employees. For example, it is unclear how damages to an aggrieved individual employee of a cheating subcontractor would be measured, since they technically have coverage under the general contractor’s policy. This issue is likely moot in terms of potential liability to offending contractors, however, because even if damages recoverable by a plaintiff are offset by the coverage of the general contractor, the violating subcontractor almost certainly will remain fully liable for the value of the total shortfall in coverage, with the full amount of damages likely being paid into the Workers’ Compensation Trust Fund.

While there are some issues that may need to be ironed out by the courts and perhaps the legislature, one thing is clear: Contractors who violate workers’ compensation requirements now risk liability from a much larger pool of potential claimants, ranging from individual laborers to industry competitors. On the other hand, the amendment does not create any new types of violations or expand the type of conduct that is subject to enforcement under the workers’ compensation law. Rather, it simply expands the group of people who have the right to seek redress for conduct that has always been unlawful. So while the thought of every Tom, Dick and Harry filing a private lawsuit – it only takes the three of them, after all – might make contractors nervous, scrupulous contractors who continue to play by the rules should have nothing to lose sleep over.