The penalties for not carrying workers’ compensation insurance when required to can be massive. Whether by choice or by ignorance, not following workers’ comp laws may place everything the farmer owns at risk.

What’s the situation?

June has a great little farm that makes enough profit to support June and one additional employee. This season she’s made some investments in a hoophouse and a new wash station, so her budget is really tight. Although she’s required to carry workers’ compensation insurance, she makes an agreement with her employee that if he gets injured he’ll just use his own insurance rather than make a workers’ comp claim.

Where does the law come in?

Not carrying workers’ compensation insurance could be a disastrous mistake. Employees in most states may not opt out of workers’ compensation coverage. Regardless of any private agreement, failing to carry required workers’ comp insurance can expose June to lawsuits, penalties, the closure of her business, and the loss of her personal assets.

Details, please: 

A few weeks ago I wrote a couple blog posts about what workers’ compensation insurance is and how to research state laws to determine whether farms are exempt from workers’ comp. To summarize, workers’ comp protects the employer from civil lawsuits and protects the employee from uncompensated injuries. Workers’ comp can be a good deal for farmers, although some states don’t require all farmers to carry the insurance.

Many states do require farmers to carry workers’ compensation. Every farmer needs to know what the rules are, because ignorance of the law is no excuse in the courtroom. Also, the state law will very likely prohibit an employee from waiving workers comp coverage, which means that, regardless of the reasons, farmers and their employees cannot agree to forgo workers’ comp.

Farmers might think, “Ok, I won’t put it in writing or anything. I’ll just ask my employees to carry their own health insurance and, if they are injured, they’ll use that.”  That probably won’t work in case of an injury, because once the health insurance company catches wind that the employee was injured on the job, they’re likely to refuse to pay compensation and a lawsuit will follow.

There’s no way around it: If workers’ comp is required, buy it. Just in case a farmer needs additional motivation, I’ll list some of the state penalties for failing to carry workers’ comp. I, like many farmers, am a risk-taker and it takes quite a bit to scare me. But I was scared in a hurry when I read some of these penalties. Here’s a sampling:

If a farmer does not have workers’ compensation insurance, the employee can sue the farmer under a tort claim, such as providing an unsafe work environment. If the insurance wasn’t required, the employee may have to slog through a long, expensive case to prove that the farmer did something negligent. But if the farmer was required to carry workers’ comp and didn’t, the case might be a slam-dunk for the employee. To penalize the employer for not carrying insurance, the law allows the employee to use the mere occurrence of the accident as proof that the employer was negligent. The employer is prohibited from claiming any defense except one: The accident never happened at all.

If the lawsuit isn’t enough, there’s more. In Wisconsin, an employer who fails to carry workers’ comp may owe a penalty equal to double the insurance premiums they should have been paying throughout. In many states, a penalty such as 10% of the total medical bills and compensation is added on to the actual bills. And don’t think your farm could avoid paying the bill by going out of business. Many state laws make the employer personally liable for uncovered employee injuries. That means non-farm assets such as the family home, vehicle, property, and bank accounts could be taken to pay the judgment. Also, a farmer could receive a court order to shut down the farm and cease operations immediately. In Arizona, Iowa, and several other states, the failure to carry workers’ comp is a felony offense that could land an employer in jail.

Saving money isn’t worth the risk of losing your farm, your home, and all your assets. Know the laws of your state and buy workers’ comp if it’s required.

What do you think?

• I argue the risk of not carrying workers’ comp is too high. But others might argue the chance of injury is quite small. What do you think?

• Why do the states care so much about workers’ comp if employees can simply sue the employer under a tort claim if they don’t have workers’ comp?