So you’ve received an L&I Audit Assessment, and you’re trying to determine: if you should appeal; whether the amount is even worth appealing; whether you need an attorney to appeal; and how far you should appeal. All of these are important questions/decisions that can have serious legal and financial consequences. We address each of these topics below.
Part 1 – Should You Appeal?
Yes. Usually.
Almost every L&I audit decision needs to be appealed. At a minimum, an L&I Audit decision should be appealed to request a waiver of penalties and interest. Penalties and interest are applied at the discretion of an auditor, and will usually be reduced during an appeal. So for that reason alone, it’s worth filing an appeal to request a waiver of penalties and interest.
With regard to the findings underlying the decision, not every finding needs to be appealed. This is because it’s very often the case that L&I gets it right. That is, if an L&I auditor is given correct and complete information during the audit, and based on that information, they found you used the wrong risk classification for your workers, then it’s very likely that you in fact used the wrong risk classification. Or if L&I found that your independent contractors are covered workers, then it’s likely because they found that the contractors did not have business licenses, or that that they did not have actual businesses, or that they did not meet some or all parts of the independent contractor test. Or if L&I determines that you underreported hours, then it’s likely the case that you in fact did not report the correct number of workers. So while it can be a popular reaction to bash the government and its investigators, it’s rarely the case that an auditor who received correct and complete information during an audit will arrive at an incorrect decision. There are of course times when an audit decision can be completely baseless, but that’s not the norm.
While auditors will generally arrive at the right decision if given correct and complete information, it’s almost always worth appealing an audit decision if the audit result was based on incomplete information. If, for example, you went through an audit and you weren’t able to provide all the information the auditor requested, and the auditor made a decision without that information, the decision is likely to be incorrect, thus providing basis to appeal. Or if you received an audit decision, and the auditor made assumptions about your workers and amounts paid to them, resulting in an assessment against you, then such a decision is clearly incorrect, and thus subject to an appeal. Or if you unwisely thought it was a good strategy to not cooperate with an audit, and the auditor issued a decision without your participation based on estimates, then that decision is one you’ll want to appeal in order to cooperate and reach the correct result.
Bottomline, whenever a decision is based on incomplete or inaccurate information, resulting in an assessment against you, then it’s almost always worth considering pursuing an appeal, assuming it’s not a tiny assessment amount.
Part 2 – What Size Assessment is Good to Appeal?
Because you can appeal, does that mean you should? For large assessments ($50,000 and above), you should always, always, always, always appeal. Auditors aren’t perfect, and even if an auditor got most things right, you’re almost always leaving money on the table by not filing an appeal and correcting what needs to be corrected.
For small-ish to medium-size assessments (e.g. $10,000 to $50,000), it’s usually worth appealing. As we touched on in Part 1, the smallish assessment should at least be appealed to request waiver of penalties and interest, if nothing else. Medium-size assessments, like large assessments, should almost always be appealed to reduce penalties and interest and to identify and make corrections.
Small or very small assessments (i.e. less than $10,000) may not be worth appealing for some because of the time and hassle of going through the appeal process. The process requires submitting a Request for Reconsideration, scheduling an appeal conference with a litigation specialist, appearing in or having a representative appear in the conference, and obtaining and considering a settlement offer. And that process takes 2-3 months to complete. So even if a person might save a couple thousand dollars, some might not find an appeal to be worth the hassle. But for some, no amount is too small to appeal, and they’ll happily go through that process for any amount.
Part 3 – Do You Need an Attorney to Assist With Your Appeal?
For medium and large assessments, it’s almost always a good idea to hire an experienced attorney. Experienced attorneys have been through many appeals and know the multiple ways appeals can be reduced. They also know the mistakes that are typically made during appeals and how to avoid them. They understand that there can be a give and take with negotiating a settlement, and that pushing for one result may end up in pyrrhic victory, i.e., with a litigation specialist conceding the argument but pulling back the amount of waivers they were planning to give. Having experience and the right strategy on your side is key, and it’s often the case that with large assessments, an experienced attorney can save many thousands of dollars, even when their fee is taken into consideration.
For small assessments (i.e., amounts under $10,000), it’s often not cost efficient to hire an attorney. And a good attorney will usually not accept a small case unless they’re sure that 1) they can get a better result than you could if you appealed on your own, and 2) they can do so in a cost-efficient manner. At a minimum, if you’re using an attorney to appeal a small assessment, you should request a flat fee so you know your fees are capped.
Bottomline, if you’ll hire an attorney, always hire experienced attorneys, whether your assessment is large or small. Hiring inexperienced attorneys is the equivalent of the blind leading the blind, and that will often be a costly mistake. And finally, if your appeal is very small, only hire an attorney if you can receive assurances that fees won’t exceed a certain amount. This will save you from having all your “savings” from appealing, and some, go towards paying attorney fees.
Part 4 – How Far Should You Take Your Appeal?
The general flow of an L&I audit decision appeal from the lowest forum to the Washington State Supreme Court is as follows:
Step 1 – L&I Request for Reconsideration
Step 2 – Appeal to Board of Industrial Insurance Appeals
Step 3 – Appeal to a State Superior Court sitting in an appellate capacity
Step 4 – Appeal to the Washington State Court of Appeals
Step 5 – Appeal to the Washington State Supreme Court
The first and best place to resolve cases is in the Request for Reconsideration process. This process is a cost efficient and less formal appeal, and allows you or your attorney to work directly with an L&I representative (known as a “litigation specialist”) to review an audit decision, present/consider additional evidence, and ultimately make corrections to the auditor’s findings. Litigation specialists are also empowered at this stage to reduce and/or waive penalties and interest owed, which can substantially reduce the amount of the assessment. It’s often the case that a properly handled Request for Reconsideration will result in a correct and/or acceptable decision, and it will not be worth the cost and hassle of appealing further. Clients should therefore think carefully before rejecting an offer in the Request for Reconsideration phase.
There will be times, however, where it becomes necessary to appeal to the Board of Industrial Insurance Appeals. This may occur if the litigation specialist handling the reconsideration is being intransigent and doubling down on an incorrect audit decision. Or it could be required if the matter wasn’t properly managed and presented in the Request for Reconsideration process and additional time is needed to properly resolve the issue. And even in appeals to the BIIA, these matters can often be resolved prior to a scheduled board hearing.
After taking the matter to the Board and after receiving the same decision in the audit, in the Request for Reconsideration process, and then again from the Board, it’s rarely ever the case that it will be productive to appeal beyond the Board. Obviously, cases get appealed beyond the Board level all the time, but as a practical matter, this only makes sense if you’re convinced L&I and the Board got it wrong, and you’re convinced that the law and facts are on your side (I’d add “clearly” on your side), and your pockets are deep enough to take on an emboldened L&I and its attorneys through the subsequent levels of appeals.
As discussed above, in most cases, an appeal of an L&I audit decision can and should be resolved at the lowest levels of appeals. And most clients should only take their appeals to the higher levels of appeals if they’re seeking to change L&I policy or change the law.
This concludes our overview of the L&I appeal process. Trust you’ve found it helpful!