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OUT OF STATE EMPLOYERS BEWARE OF STOP WORK ORDERS ISSUED BY THE DEPARTMENT OF INDUSTRIAL ACCIDENTS

If you are a company located outside of Massachusetts that does work in Massachusetts, you must carry workers’ compensation insurance.  The Department of Industrial Accidents (DIA) performs routine investigations at work sites around the state to ensure that employers have valid workers’ compensation policies in effect to cover any workplace injuries.   If a DIA investigator determines that a company does not have proper coverage, he/she will issue a Stop Work Order (SWO).

The DIA prefers that out of state companies list Massachusetts in section 3A of their workers’ compensation policies.  This is commonly referred to as “3A coverage”.  If Massachusetts is listed in section 3A, all work performed in the state will automatically be covered for workers’ compensation purposes.  There is no need to give the insurance company specific notice of the work being performed before the coverage is effective.

Some out of state companies may not have 3A coverage but have coverage under section 3C of their policy.  For “3C coverage” to be effective the workers’ compensation insurer must receive notice of the work being performed within the time frame specified in the policy.  If the employer fails to notify the insurance company within the appropriate time frame, coverage will not be effective.

Before issuing a SWO a DIA investigator must allow a company time to confirm with its workers’ compensation carrier whether it has valid 3C coverage.  An employer does this by providing a completed Form 154 “Verification of Massachusetts Workers’ Compensation Coverage for Out of State Employers Operating in Massachusetts”.

If a SWO is issued, it prohibits further work activity until the coverage issue is resolved.  Employers will be fined $100 a day for every day they are without coverage following the SWO.   The DIA has made it relatively easy to pay fines with an online system that accepts credit cards.  The Department may try to convince you that it is in your best interest to pay the fine as soon as possible, as this will allow you to resume work.

However, as easy as it may seem, paying the fine is not the end of the story.  Payment of the fine is admitting the business was not properly insured.  As a result, the company will be prohibited (debarred) from bidding on or participating in any state or municipally-funded contracts for a period of 3 years.   Debarment is NOT negotiable once the fine is paid as it is acknowledgement of a violation.  

If there is a question as to whether workers’ compensation coverage under either 3A or 3C exists, the best practice is to appeal a SWO.  The appeal is to a Hearing Examiner at the DIA where a full evidentiary hearing will take place.  If after a hearing it is determined that the company did not have proper coverage in Massachusetts, the company will be fined $250.00 a day for every day of non-compliance, and will be subject to the 3 year debarment described above.  Conversely, if the business is able to prove valid coverage under section 3A or 3C, the SWO will be rescinded and the company will not be subject to any fines or other punishments.

In a recent case, an out of state employer was issued a SWO without the opportunity to submit the Form 154 verification of 3C coverage.  Our firm challenged the issuance of the SWO and once the client was given the opportunity to produce the Form 154, the SWO was rescinded and no fines or penalties were due.

If your company depends on state or municipally funded work in Massachusetts, a 3-year debarment can effectively mean the end your business.  You should contact your insurance agent/broker and have he/she verify in writing the type of coverage you have.  If you do not have 3A coverage, you should ask why and consider the potential catastrophic consequences vs. an extra premium charge.

Mistakes can occur in the issuance of SWOs.  Therefore, the best practice is to consult an attorney familiar with this area of law before taking any action.

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