Wash. Supreme Court Lets Stand Ruling that Employers Must Cooperate with L&I Audits

The Washington State Supreme Court has let stand a lower court ruling that says employers must cooperate with Department of Labor and Industries audits of their records, or risk paying what the agency estimates they owe in workers’ compensation premiums.

In a decision important to the administration of the state workers’ comp system, the court recently denied a Petition of Review sought by Diamond Driving School. The case grew out of a dispute dating back to 1997.

Diamond, which at the time provided driver’s education classes at 15 locations around the state, contended that its instructors were independent contractors and, therefore, did not have to be covered by the state’s workers’ comp system. When L&I auditors investigated the company to determine if that claim was true, Diamond reportedly refused to provide canceled checks and other documents supporting its position.

L&I subsequently assessed the company more than $68,000 in estimated unpaid premiums, penalties and interest. Diamond appealed to the Board of Industrial Insurance Appeals, Thurston County Superior Court, the state Court of Appeals and, eventually, the Washington State Supreme Court.

At each level of appeal, Diamond provided additional information supporting its contention that its instructors were independent contractors and, therefore, did not qualify for mandatory insurance coverage. By then, however, the issue before the courts was whether or not a company can refuse to cooperate with an L&I audit and then appeal audit findings using information it previously had denied L&I auditors.

The Court of Appeals in April found the school had violated state regulations by failing to produce “business records the Department properly and repeatedly requested,” and the court refused to consider those records on appeal.