In a case out of Colorado, the state Supreme Court determined that the penalties assessed against a company for failing to maintain workers’ comp insurance may have been excessive in nature. The Court remanded the case to determine a fine that was proportional to the harm or risk of harm caused by noncompliance.

Dami Hospitality owned a Denver motel and employed between four and ten people at any certain time. Workers’ Compensation statutes require employers with three or more employees to maintain coverage, and Dami’s coverage lapsed in 2005. They paid a corresponding settlement in June 2006 because of the lapse, but then failed to maintain coverage again in 2006. The company maintained coverage until September 12, 2010 and went without coverage until July 9, 2014. The DWC issued another notice to the company on February 19, 2014 for the lapse. They presented the DWC with proof of coverage starting July 9, 2014 through July 10, 2015. They eventually accrued $841,200 in fines for noncompliance during the lapses, and the DWC issued an order upholding these fines.

The company appealed to the Industrial Claim Appeals Office (ICAO), which rejected all of their arguments except for their “excessive fines” argument which the ICAO remanded to the DWC. The DWC has used a statutory regime in calculating the fine and charged the company between $250 and $500 a day, the longer they went without insurance the larger the fine would be. Ultimately, they owed $841,200 for 1,698 days of per diem fines. The company’s annual payroll is less than $500,000 and they were unable to afford the fines and requested leniency in the form of a penalty “that is more reasonable to the size of the business”. There had not been a work-related accident or injury at the motel in times of coverage or in times of noncompliance.

The case made it to the Supreme Court, who held that the proper test to assess the constitutionality of fines requires an assessment of whether that fine is grossly disproportional to the offense. The Excessive Fines Clause of the Eigth Amendment covers corporations as well as individuals. They reversed the ruling and remanded it to the court of appeals, leaving it to the Division of Workers’ Compensation to determine whether the per diem fines are proportional to the harm or risk of harm caused by each day of the employer’s failure to comply with carrying workers’ comp insurance.

The Division of Workers’ Comp should review other factors like the ability of the company to pay the fine, before calculating it.

Read the case here.