Skyrocketing unemployment and economic uncertainty due to the coronavirus is delivering another load of fear to already anxious injured workers. Fears about how the sudden downturn in the economy can affect a workers’ compensation claim are legitimate fears.

So, what happens to workers’ compensation claims when an employer closes or lays off workers in mass or goes bankrupt? What happens when a workers’ compensation insurer becomes insolvent? How does a mass layoff or plant closing affect a workers with already an already accepted workers’ compensation claim?

Bankrupt employer

The worst-case scenario is a bankrupt employer. While employers are required to carry workers’ compensation insurance, financially unstable employers tend to carry cheap high deductible insurance that shits the cost of an injury away from an insurer onto an employer. Bankruptcy can stay the payment of workers’ compensation benefits for an injured worker.

An injured worker with a bankrupt employer needs to contact an attorney. An injured worker is a creditor of a bankrupt employer and the law tends to favor creditors who file first. A lawyer can also go to court and sometimes force an otherwise solvent insurer to pay workers’ compensation benefits for a bankrupt employer.

Insolvent insurer

Recessions hit workers compensation insurers with a vicious one-two punch. Layoffs reduce the insurance premiums the insurance companies rely on and declines in the stock market cut into the investment profits from those premiums.

In Nebraska, like most states, workers compensation insurers pay into guaranty funds to take over claims from insolvent insurers. 

Unfortunately, at least two prominent state governors, Steve Bullock of Montana and Chris Christie of New Jersey, raided guaranty funds in order to balance state budgets. We will probably find out if guaranty funds will serve as an effective backstop in the next few years.

Laid off on “light duty”

Jonathan Louis May of Morgan and Morgan in Memphis raised concerns on Twitter about what happens to injured workers on light duty who get laid off due to a plant closure or mass lay-off. I agree with May that many insurers will probably use layoffs to deny temporary disability.

In Nebraska, a lay-off should not impact a worker’s eligibility for temporary total disability. But it may take a court order to have back due temporary disability benefits paid after a lay off.

Collecting workers compensation and unemployment benefits

Workers laid off in a mass lay-off may have their employer file unemployment for them. Under the recently passed CARES Act, workers can get their weekly unemployment benefit plus $600 for up to four months.

Injured workers who aren’t already collecting temporary disability in Nebraska should be able to collect unemployment and back due temporary disability.

But injured workers in Nebraska who are already collecting temporary disability may not be able to collect these enhanced unemployment benefits. Normally a worker who is collecting temporary total disability benefits is not eligible to receive unemployment under Neb. Rev. Stat. 48-628.02(c). I am not aware if the CARES Act has modified that rule or if the state has eliminated that requirement during the crisis.

When in doubt employees receiving temporary disability under workers compensation ought to file an application for unemployment if they have lost their job due to a coronavirus related layoff. The state of Nebraska has eliminated job search requirements for employees laid off during the coronavirus crisis. Workers normally must be able to and available for work and be looking for work to receive unemployment benefits.  Workers who are temporarily totally disabled for workers compensation aren’t able to work. But if work eligibility isn’t a requirement to receive unemployment if you lose your job due to coronavirus, injured workers who are receiving temporary total disability would have a decent argument to receive unemployment in addition to temporary total disability benefits.