Employees as Racketeers

March 21st, 2007 by

When a plant closes, the bond between employer and employee is broken. We often find that long-term employees, stung by the loss of jobs, file workers comp claims. Given the cumulative trauma of industrial work, the claims are often supported by objective medical evidence. With no opportunity to accommodate injuries through modified duty, the employer is stuck with the bills, which can be substantial. Most employers throw up their hands and write off the claims as an uncontrollable cost of doing business.
Which brings us to the case of Melard Manufacturing in Passaic, New Jersey, cogently outlined by Greg Saitz in the New Jersey Star Ledger. Melard, a manufacturer of bathroom fixtures, closed in 2002, laying off the entire workforce of 111 people. Enter Michael Policastro, an attorney at the time for Ginarte O’Dwyer Winograd and Laracuente (the website speaks for itself). Policastro aggressively recruited the laid off employees and filed workers comp claims on their behalf. Policastro must have been pretty convincing, as more than 80 of the workers filed claims.
Unfortunately, Policastro was more focused on quantity than quality. Most of the claims were identical except for the personal identifying information. The law firm apparently directed employees to provide false information to doctors. Subsequent exams by company doctors found virtually no disability attributable to work.
The Company Fights Back
In 2004 Bath Unlimited, the successor company to Melard, sued the law firm and the employees in federal court under the RICO statute. By this time, Policastro had left the law firm. Gilante was represented by Alan Zegas. Zegas claims that “the Ginarte firm did whatever was in its power to do to protect the workers.” Which turns out to be absolutely nothing. The law firm settled out of court, leaving the 84 workers on their own.
Judge Chesler ruled in favor of Bath Unlimited, signing a default judgment of $2.2 million against the former employees. These are people who made less than $20,000 a year, working in an aging plant under difficult (if not substandard) working conditions. That comes down to $26,000 per employee (more than any of them made in a given year).
One of the many fascinating aspects of this case is the basis for the $2.2 million fine. Included in the calculation are at least two compensable claims, totaling about $36,000. Under federal rules, the judge tripled these amounts and added attorney costs. Thus a federal judge rules the awarding of benefits to be fraudulent, even though a state judge found that at least one of the claims, involving lung damage, was related to the working environment.
While we don’t have all the facts, we can come to a few conclusions:
– the mass filing of identical claims does reveal a pattern of racketeering
– the law firm apparently instigated the filings
– while the employees had reason to be upset at the plant closing, signing onto these contrived claims was a serious error (in fact, a criminal act)
– The interests of the laid off workers were poorly represented in federal court
– Bath Unlimited won’t be able to buy a pair of crutches with the money they collect from these indigent, uneducated, unskilled and perhaps permanently unemployed workers
Fed vs State
The lingering issue is one of jurisdiction. The New Jersey workers comp system continues to handle the claims, one at a time. In at least two cases so far, they have concluded that the former employees suffered compensable injuries. The broad net of fraud cast over all 84 employees has apparently included at least a few legitimate claims. Will the judge continue to add the compensable claims to the fines? Will he hold the employees in contempt if they cannot come up with the big bucks? Does Bath Unlimited really want to see these people locked up?
We hope that employees who experience a plant closing find better legal advice than that offered to the Melard workers. We also hope that employers contemplating a plant closing take affirmative steps to transition their employees, first and foremost by providing job search assistance. If comp claims are filed at the time of the closing or soon after, they should be managed aggressively and humanely: the legitimate, work-related injuries should be paid; the fraudulent claims should be denied. The broad brush of the RICO statute is almost never needed and should be an absolute last resort.
Business necessity sometimes requires the closing of a plant. But managers should never lose sight of the contributions made by a committed workforce. Shut the door if you must, but try not to slam it in the faces of your people.