A state agency has filed a series of enormous lawsuits against thousands of businesses statewide, many of which cannot afford to bear the financial burden.
LOCKPORT, N.Y. – Metal Cladding is a small manufacturer. Part of the backbone of America, you might say. The company moved to Western New York in the midst of the post-World War II boom, and even though many of its manufacturing counterparts have since shipped jobs overseas, Metal Cladding still proudly employs 80 people here in Lockport.
Companies like Metal Cladding don't have a lot of financial wiggle room. So when Ray Adornetto, the chief financial officer, learned in September that a state agency had filed a multi-million dollar lawsuit against his small business, he described the feeling as nothing short of "devastating."
"It's a very dark cloud," Adornetto said.
And he's not the only one facing it. Thousands of companies in New York are named as defendants in a series of lawsuits filed by the state's Workers' Compensation Board, stemming from a dispute that now spans more than a decade. Western New York businesses like Budwey's in Tonawanda, The Market in the Square in West Seneca, PJR Industries in Hamburg and others face dire financial consequences, to the extent that one attorney said the lawsuit could threaten to shut many of them down for good.
It is a complicated, complex and highly-technical situation, but the bottom line is this: the Workers' Compensation Board faces an $800 million deficit for workers' claims in New York, and they have sued businesses to pay them back.
"It's horrible," said Joe Makowski, who represents Metal Cladding and about 100 other companies in Western New York in these suits. "I've talked with clients who have retained my firm, who've told me that if they have to pay a half-million dollar settlement, they're gonna close their doors."
This multi-million dollar tussle all stems from the very basic concept of workers' compensation insurance. By law, every company needs to have coverage for its employees, protecting them in the event of a workplace injury. More than a decade ago, many businesses believed they could cut down on premium costs by joining entities called "self-financing trusts," which would eliminate a middleman. Metal Cladding, for example, joined a trust in 2003, 2004 and 2005 before leaving altogether. It paid all of its premiums on time and figured it'd never have to worry about that trust ever again.
Then 2008 happened.
The economy took a turn for the worse, and suddenly, these self-financing trusts went bankrupt. Workers with injuries still needed money from these trusts—but suddenly, the money wasn't there. Someone has to pay injured employees, though, so the Workers' Compensation Board took on the burden. That's where the $800 million deficit came from, and eventually, this enormous series of lawsuits.
"It's had a devastating effect on our business," Adornetto said. "It's very difficult, or impossible, to borrow money."
Metal Cladding faces an assessment of about $500,000 as a part of a $17.9 million lawsuit against its particular manufacturing trust (there were many other trusts, all consisting of different industries. Some of these trusts face their own lawsuits). Adornetto said the company received notice of an initial assessment in 2008, at which point the company immediately sought legal counsel to prepare for the court battle that culminated in the notice of a lawsuit in September.
The state believes the companies who joined the trusts should bear the financial burden. After all, these businesses elected to pay the trusts in the first place, and perhaps they should have known what they were getting into.
In a statement to 2 On Your Side, the Workers' Compensation Board applauded efforts by Gov. Andrew Cuomo to help eliminate the deficit with the creation of the Business Relief Act, which "established a bonding mechanism to ease the burden of employers" and in turn allowed some businesses to create a payment plan to cover their portion of the missing funds.
The board believes the rest of the companies should get in line.
"Unfortunately, there are a few former trust members who, rather than resolving their claims, elect to pay millions of dollars to attorneys and lobbyists in an attempt to secure a public bail out of their obligations," the statement reads.
"The board continues to work with all employers to resolve their liabilities."
Republican State Senator George Maziarz blames the Workers' Compensation Board, however, for lacking oversight of these trusts and allowing businesses to enter them before 2008.
"I fully understand that a lot of these companies signed up for insurance," Maziarz said. "But that should have been the job of the Workers' Compensation Board to review these companies to see if they had the financial wherewithal to respond to the claimants."
Maziarz called this issue a "priority" for the 2014 session, which begins in January.
"[Last year], we put forth one proposal that worked for some businesses but hasn't worked for others. We're in the process right now of trying to come up with some other solutions," Maziarz said. "Some of these businesses are totally innocent. They've never had a worker's comp claim."
That's another issue for companies like Metal Cladding. There are 130 businesses facing the $17.9 million lawsuit against the manufacturing trust, but some of them are no longer operational and would not be able to pay their share.
"My clients, they don't mind paying claims attributable to them," Makowski said. "If they have certain employees who've filed for compensation, they don't mind paying their fair share. What they object to is being required to pay for companies that have failed. For companies that have gone out of business. For companies that maybe have left New York."
Adornetto won't go as far as to say a lawsuit would put Metal Cladding out of business, but he's not shy in pleading for help from the Governor.
"I have faith in our Governor," Adornetto said. "I think he's going to step up to the plate on this and resolve this issue. I really do. I really hope so."
Maziarz said Cuomo's efforts have already surpassed previous governors, who he said "kicked the can" on this issue.
"It's a nightmare," Maziarz said. "I really think it is incumbent upon the Workers' Compensation Board in the state of New York to sort this mess out."