OPINION OF THE COURT
These appeals call for us to decide whether section 114-a (1) of the Workers' Compensation Law authorizes the Workers' Compensation Board to disqualify a claimant from receiving wage replacement benefits where the forfeited compensation is not "directly attributable" to a false statement or representation.
Appellant James Losurdo sought workers' compensation benefits for an injury to his left knee, which occurred on September 12, 1994, while he was working for his employer, Asbestos Free, Inc. At a hearing held on May 15, 1997, Losurdo denied having previously injured his left knee. The Workers' Compensation Law Judge (WCLJ) found that accident, notice and causal relationship were established for Losurdo's injury, and awarded him wage replacement benefits.
The employer's carrier requested review of the WCLJ's decision. The carrier argued that medical records demonstrated a preexisting injury to Losurdo's left knee, and sought apportionment. The carrier also requested a fraud investigation pursuant to section 114-a (1) because at the hearing Losurdo denied a preexisting injury. At the new hearing, Losurdo professed that he had honestly not recalled any previous injury to his left knee when he testified in 1997. He admitted that the medical records refreshed his memory about the previous injury. On September 8, 1999, the WCLJ found that Losurdo had not violated section 114-a (1), and that no apportionment was necessary, citing Matter of Peziol v VAW of Am. (245 A.D.2d 877, 877 [3d Dept 1997] ["(I)nasmuch as claimant was able to effectively perform his job despite his noncompensable preexisting [ ] condition, apportionment does not apply"]).
On July 27, 2001, the Board modified the WCLJ's decision by finding that Losurdo had made "a misstatement of fact" concerning the injury site, which was material and violated section 114-a (1) "notwithstanding the fact that the claimant's compensable injury is not, as a matter of law, apportionable with his prior injuries." The Board rescinded all wage replacement awards after May 16, 1997; disqualified Losurdo from any future wage replacement benefits; and closed the case. The Board did not in any way contradict the establishment of the claim or the existence of a compensable injury. The Appellate Division affirmed (302 A.D.2d 703 [3d Dept 2003]), holding that the Board's determination of a statutory violation was supported
To investigate Machado's claim of total disability, the employer's carrier arranged for surveillance, which revealed that Machado was driving a taxi. At a new hearing requested by the carrier and held on September 26, 1996, Machado denied that he had "continued to do any work" since the accident. The carrier countered with the testimony of its investigator and the surveillance tape.
The WCLJ found that Machado was permanently partially disabled as a result of his work-related injury, notwithstanding his stint as a taxi driver. Alluding to the reduced earnings provisions in Workers' Compensation Law § 15 (3) (w), he disqualified Machado from all wage replacement benefits received from January through September of 1996 because Machado's income could not be determined for this period of time. The WCLJ also found that Machado had stopped working on September 26, 1996, and reinstated wage replacement benefits subsequent to that date at the rate for partial disability.
On November 30, 2000, the Board reversed the WCLJ's decision. The Board stated that section 114-a (1) contains two penalties—one mandatory and the other discretionary. Finding that Machado had received compensation attributable to his false statements and representations, the Board agreed with the WCLJ that section 114-a (1) required forfeiture of wage replacement benefits received by Machado from January through September of 1996. In addition, the Board disqualified Machado from receiving any wage replacement benefits subsequent to September 1996, and closed the case.
Section 114-a (1), which was added to the Workers' Compensation Law in 1996 as part of remedial legislation to repeal Dole v Dow Chem. Co. (30 N.Y.2d 143 ) and to curtail fraud, provides as follows:
Preliminarily, we address the requirement that section 114-a (1) comes into play only when a claimant makes a false statement or representation as to a "material fact." Pointing to People v Hunter (34 N.Y.2d 432 ), appellant Losurdo insists that a false statement or representation is material only if it enables a claimant to receive compensation to which he was not otherwise entitled. But section 145 of the Social Services Law, the statute at issue in Hunter, differs markedly from section 114-a (1). Section 145 (1) makes it a crime to deliberately conceal a "material fact" when applying for public assistance benefits, providing that "[a]ny person who by means of a false statement or representation . . . obtains or attempts to obtain. . . public assistance or care to which he is not entitled . . . shall be guilty of a misdemeanor." (Emphasis added.) Thus, in Hunter we held that "[b]y definition, the fact concealed would not be material unless it allowed the defendant to obtain benefits to which he would not otherwise be entitled" (34 NY2d at 436 [internal quotation marks omitted]).
Next, section 114-a (1) provides, as relevant here,
Further, "[i]n addition"
Both Losurdo and Machado contend that their disqualifications are not authorized by section 114-a (1) because they received no compensation "directly attributable" to a false statement. Losurdo argues that because his misstatement did not affect the Board's apportionment decision, no compensation is "directly attributable" to it, and thus no compensation is subject to forfeiture. Machado argues that because he has a nonschedule impairment, he can receive compensation for reduced earnings pursuant to Workers' Compensation Law § 15 (3) (w) even if he returns to work. Thus, his purported false statement did not enable him to receive any compensation to which he was not otherwise entitled, and so none of his compensation is subject to forfeiture.
These arguments have merit to the extent they relate to the mandatory penalty in section 114-a (1). Appellants, however, ignore the Board's discretionary power under section 114-a (1), which, if exercised properly, supports disqualification even though the forfeited compensation is not directly attributable to a claimant's false statement or representation.
We agree with the Appellate Division that substantial evidence supports the Board's findings that a violation of section 114-a (1) took place in both Losurdo and Machado (see Matter of Phelps v Phelps, 277 A.D.2d 736, 738 [3d Dept 2000]). We cannot determine from the records below, however, whether the Board imposed the disqualification penalties in these cases in accordance with section 114-a (1). In order for a reviewing court to assess whether section 114-a (1) has been properly applied, the administrative record must, at a minimum, reflect whether a mandatory or discretionary penalty was imposed. If mandatory, the record must demonstrate a link between the false statement
In Losurdo, the forfeited compensation was not "directly attributable" to a false statement because notwithstanding Losurdo's denial of a preexisting injury, the Board found that his injury was not apportionable and was, in fact, compensable under the statute. But in such a case, the statute does not require the Board to condone a claimant's misrepresentations and continue wage replacement benefits undiminished. While the mandatory penalty does not apply to Losurdo, section 114-a (1) vests the Board with discretion to disqualify him from wage replacement benefits so long as the penalty is not disproportionate to his offense (see Matter of Harp v New York City Police Dept., 96 N.Y.2d 892, 894 ). On remand, the Board must reconsider whether or not blanket disqualification is justified and provide some explanation for its determination in this regard.
The Board properly applied section 114-a (1) in Machado to the extent that he was disqualified from receiving compensation from January through September of 1996. This compensation was directly attributable to Machado's false statement about his employment in that his earnings from employment affected his entitlement to reduced earnings compensation. The record does not, however, demonstrate whether the forfeiture of Machado's compensation subsequent to September 1996 was intended as a mandatory or as a discretionary penalty. Perhaps the Board's reversal of the WCLJ's decision was intended to overrule the finding of a permanent partial disability, and thus was a finding that Machado was not disabled and so was not entitled to any wage replacement, not even under the reduced earnings provision. In such a case, Machado's false statement concerning his ability to work would result in a mandatory penalty. Alternatively, if the WCLJ's finding of a permanent partial disability stands, then the Board's penalty can only be sustained if it was an exercise of discretion under section 114-a (1), and the record demonstrates that disqualification from all future wage replacement benefits is not disproportionate to Machado's offense.
Accordingly, the orders in Losurdo and Machado should be reversed, with costs, and these matters remitted to the Appellate
In Matter of Losurdo v Asbestos Free: Order reversed, etc.
In Matter of Machado v Pleasantville Ford: On review of submissions pursuant to section 500.4 of the Rules of the Court of Appeals (22 NYCRR 500.4), order reversed, etc.