During times of uncertainty, many employers face the reality of reductions in business transactions and potential temporary or even permanent shutdowns. Many things should be considered by employers, from addressing employee benefits to shutting down building operating systems, and even the potential submission of previously unreported workers’ compensation claims.

No matter what the cause, business closings and layoffs can be a fact of life, and as a result, this article will mainly focus on unwarranted workers’ compensation claims or allegations that could impact insurance cost increases. However, the prudent management of these issues can help minimize the impact by following several steps.

Most importantly, be completely upfront, clear, and honest with your employees and communicate  with them on your company goals instead of leaving them second-guessing  what might be in store for them. It is better for you to be specific about trying to shore up job security and clarify that you are prioritizing that decision over other possible changes.

In addition, each employer should put together a plan to include techniques for dealing with all issues that accompany  work force reductions and/or the closing of one or more locations.

Please keep in mind that a reported employee illness related to an exposure such as COVID-19 that happened  within the scope of employment can in fact be considered OSHA Recordable.  Please see the OSHA standards and directives for more details.

When developing a plan, it should focus on three key areas:

  1. Educating & assisting affected employees
  2. Strategy to help protect against possible workers’ compensation claims
  3. Property conservation measures

1. Educating & assisting affected employees

The first centers on educating and assisting any employees affected by these business changes and future employment outlook, especially potentially displaced employees. An announcement of a location closing or reducing their work force can result in immediate alienation of the work force. When employees are treated with dignity, many problems can be eliminated or minimized.

2. Strategy to help protect against possible workers’ compensation claims

Management should have a defense strategy in place to help protect the company against possible workers’ compensation claims that had not been reported prior to the announcement of the closing or reduction in workforce. Here, the single most important step an employer can take is to make sure all individual transactions affecting employees are thoroughly documented.

3. Property conservation measures

Property conservation measures, as part of a business continuity plan, should be developed to assure the safety and security of the facilities (including equipment, materials and finished goods) in the event of a temporary slowdown or permanent business closing.

Guidelines developed in an effort to help reduce, and hopefully eliminate, potential workers’ compensation losses include the following:

  • Put the carriers or administrator on notice of the impending layoff or slowdown, alerting them to closely review all post-termination losses.
  • Obtain a listing of the individuals who will be terminated so they can be “tagged”.  Determine if any of the employees previously filed a workers’ compensation claim.
  • Thoroughly investigate and document all claims that occur or are reported following the announcement of the business closing or the workforce reduction. This should be done as soon as possible by both the location management and the claims team at the insurance company or TPA in a collaborative manner.
  • Provide detailed job descriptions of the positions being included in the layoff.  Provide videotape, job safety/task analysis, etc., of those job functions, if such information exists, to both physicians and defense counsel review (if necessary).
  • Maintain any OSHA and other safety-related materials and records such as written programs, training materials and training confirmations, Safety Data Sheets (SDS) to indicate what substances were in the workplace, OSHA recordkeeping logs, annual hearing conservation/audiometric testing results (if applicable), pulmonary function testing results (if applicable), etc. after the closure or business changes to the company.
  • Photograph or videotape the building and departmental conditions to maintain a visual record for potential litigation, especially if the building might be physically changed or altered after the layoff or slowdown occurs. Ensure all gas and electrical power sources or other energy sources are turned off and locked out. Include any recently documented building or department safety inspections as well.
  • Consider/determine if termination physicals should be given to individuals, especially those who may have filed a previous workers’ compensation claim.
  • Arrange exit interviews with the employees, carefully inquiring about possible work-related injuries or illnesses and, if possible, document their physical condition.
  • Centralize all claims reporting activities and claims investigation to provide an information flow that is reliable and consistent.
  • Select one defense attorney (if multiple jurisdictions apply, one defense attorney in each jurisdiction) to handle all the workers’ compensation losses arising from the layoff since conditions will remain constant for all losses.
  • If possible, arrange for possible outplacement services or options for those employees targeted for the layoff.
  • Make certain that the carrier or TPA is aware of the rate and term of unemployment benefits for the area and what their impact is, if any, on workers’ compensation benefit entitlement.
  • Consider the possibility of coordinating with or bringing someone in from the local unemployment office to assist employees with filing for benefits prior to leaving the job.

Guidelines developed in an effort to help navigate through executing staff and expense reduction options that adversely impact employees should include the following:

  • Consult with in-house counsel and human resources to accurately identify potential risks and opportunities to mitigate detrimental implications during the planning and decision-making process.
  • Maintain consistency with messaging by establishing a communication roadmap to equip all parties involved (e.g., managers, human resources, etc.) with the tools and resources needed to effectively communicate employment changes.
  • Be proactive when communicating decisions to employees – if you were on the receiving end, what would you like to know? Creating a FAQ or summary of “need-to-know” information including, but not limited to benefits, compensation and severance can serve as a great reference for employees.

Fleet/Auto Considerations:

As an employer, if your organization has company issued vehicles, it would be advisable to communicate with employees who drive those vehicles and remind them that the Fleet/Auto Safety Policy and Procedures will remain in effect unless otherwise notified. This would include, but not necessarily be restricted to, the following items:

  • Company issued vehicles are not to be used for personal business unless otherwise stated.
  • Only employees of the company have permission to drive company issued vehicles unless permission has been previously granted.
  • Company issued vehicles are to be domiciled at specific locations/properties where previously agreed to by management.
  • Whether in a company or personally owned vehicle, report all motor vehicle citations, convictions, suspensions or removal of operator’s license to management.
  • Report all motor vehicle accidents with a company vehicle to management.

In the event that slowdowns or layoffs result in the need to relinquish company issued vehicles, arrangements should be made for employees/drivers to return such vehicles and keys to locations specified by the company.

Hays Companies will do our best to assist our clients with the above items and we will help communicate the action steps taken to your insurance carrier(s).


Please be advised that any and all information, comments, analysis, and/or recommendations set forth above relative to the possible impact of COVID-19 on potential insurance coverage or other policy implications are intended solely for informational purposes and should not be relied upon as legal advice. As an insurance broker, we have no authority to make coverage decisions as that ability rests solely with the issuing carrier. Therefore, all claims should be submitted to the carrier for evaluation. The positions expressed herein are opinions only and are not to be construed as any form of guarantee or warranty. Finally, given the extremely dynamic and rapidly evolving COVID-19 situation, comments above do not take into account any applicable pending or future legislation introduced with the intent to override, alter or amend current policy language.


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