Due Process in WCL § 26-a Penalty Calculations: Rehearing Required When Assessment Is Set Post-Hearing Without Employer Input

1. Introduction

In Matter of Cortez v Royal Stone Cabinet & Tile Inc. (2026 NY Slip Op 01570), the Appellate Division, Third Department reviewed a Workers’ Compensation Board determination arising from claimant Arturo Martinez Cortez’s alleged work-related slip-and-fall injury on December 25, 2021. The employer, Royal Stone Cabinet & Tile Inc. (Royal Stone), challenged multiple aspects of the administrative process: (i) limits on cross-examination of the claimant regarding discrepancies between testimony and medical records; (ii) the Board’s finding that claimant was Royal Stone’s employee (not an independent contractor); (iii) the Board’s refusal to review Workers’ Compensation Law (WCL) § 50 noncoverage and WCL § 26-a penalty liability due to lack of a hearing objection; and (iv) the Board’s denial of a rehearing “in the interest of justice,” especially concerning the amount of the WCL § 26-a assessment.

The Third Department largely affirmed the Board but made a significant procedural holding: when a WCL § 26-a penalty amount is calculated after the hearing (in a written decision) and the employer had no meaningful chance to address the statutory method of calculation, it is an abuse of discretion to deny a rehearing on the amount of the penalty.

2. Summary of the Opinion

  • Cross-examination limitation affirmed: The WCLJ did not improperly preclude additional cross-examination of claimant about testimonial/medical-record discrepancies because the record already contained sufficient material for impeachment and the WCLJ considered inconsistencies.
  • Employee status affirmed: Substantial evidence supported that claimant was Royal Stone’s employee given Royal Stone’s control, on-premises work, supervision, and provision of work instructions.
  • Board review of WCL § 50 violation and WCL § 26-a liability properly declined: Because Royal Stone failed to object at the hearing, the Board was within its discretion to decline review of those findings.
  • Rehearing denial partially reversed: Denial of rehearing on liability issues was upheld, but denial of rehearing on the calculation of the penalty was reversed as an abuse of discretion; the matter was remitted for further proceedings on the amount.

3. Analysis

3.1 Precedents Cited

A. Limits on cross-examination and impeachment

The court relied on principles reflected in Matter of Moore v U.S. Xpress, Inc., 201 AD3d 1083 (3d Dept 2022), lv denied 38 NY3d 1029 (2022), and Matter of Sang Hwan Park v Lee, 53 AD3d 936 (3d Dept 2008), to support the idea that not every proposed line of questioning must be permitted where the documentary record already contains the impeachment material and the factfinder acknowledges and weighs inconsistencies. Here, the WCLJ expressly noted inconsistent testimony and referenced the discrepancy between claimant’s hearing account and statements to medical providers; Royal Stone also argued those discrepancies in its Board review application. In that context, the Third Department treated the preclusion as a permissible control of the hearing record rather than a denial of fundamental fairness.

B. Employee vs. independent contractor (substantial evidence and control factors)

To frame the standard of review, the court invoked Matter of Colamaio-Kohl v Task Essential Corp., 157 AD3d 1103 (3d Dept 2018), and Matter of Santos v 77 GP, Inc., 232 AD3d 1016 (3d Dept 2024), reiterating that employee status is a factual determination for the Board that will be upheld if supported by substantial evidence.

For the multifactor “control” analysis, the court cited Matter of Sheehan v Nationwide Ct. Servs., Inc., 178 AD3d 1246 (3d Dept 2019), and Matter of Jennings v Avanti Express, Inc., 91 AD3d 999 (3d Dept 2012), emphasizing: right to control work and schedule, method of payment, furnishing of equipment, right to discharge, and the relative nature of the work—no single factor is dispositive. Applying those factors, the Board credited claimant’s testimony that Royal Stone called him in to finish weekend work, supervised him, provided written task descriptions and methods, and had the work performed on its premises with no indication claimant supplied his own equipment. The appellate court deferred to the Board’s credibility determinations and upheld the employee finding notwithstanding contrary evidence.

C. Preservation and the Board’s discretion to deny review absent a hearing objection

On Royal Stone’s attempt to challenge the WCLJ’s WCL § 50 violation finding and WCL § 26-a penalty liability on administrative review, the Third Department relied on Matter of Romero v Capital Concrete, 221 AD3d 1149 (3d Dept 2023), and Matter of Abdiyev v Eagle Container Corp., 181 AD3d 1132 (3d Dept 2020), applying 12 NYCRR 300.13 (b) (4) (v): the Board may deny review where the appellant did not interpose a specific objection or exception to the WCLJ’s ruling or award.

The court then reinforced this preservation principle with Matter of Markolovic v MTA Bus Eastchester Depot, 174 AD3d 1271 (3d Dept 2019), and Matter of Sweeney v Air Stream A.C. Co., 167 AD3d 1222 (3d Dept 2018), lv denied 33 NY3d 903 (2019), holding that Royal Stone’s failure to object at the hearing allowed the Board to decline review of the WCLJ’s WCL § 50 and WCL § 26-a liability determinations. This portion of the decision underscores that employers must timely object at the hearing to preserve challenges to coverage/violation findings.

D. Reopening/rehearing “in the interest of justice” and abuse of discretion—liability vs. amount

For rehearing standards under 12 NYCRR 300.14 (a) (3), the court drew on Matter of Puccio v Absolute Chimney & Home Improvement, LLC, 222 AD3d 1060 (3d Dept 2023), lv denied & dismissed 42 NY3d 967 (2024), to uphold denial of rehearing on liability issues that Royal Stone did not object to at the hearing.

The court then pivoted to the penalty amount, applying the abuse-of-discretion framework from Matter of Taylor v Buffalo Psychiatric Ctr., 199 AD3d 1110 (3d Dept 2021). Critically, it also cited Matter of Hailoo v State Ins. Fund, 45 AD3d 1200 (3d Dept 2007), supporting the broader fairness principle that a party should have a meaningful opportunity to be heard on consequential determinations. Because the penalty was not calculated at the hearing and WCL § 26-a contains alternative statutory calculation methods, the court found the employer lacked a fair opportunity to contest the appropriateness of the calculation; denying rehearing on that narrow issue was therefore an abuse of discretion.

E. Technical appellate point

In a brief procedural note, the court relied on CPLR 5520 (c) to disregard an incorrect filing date in the notice of appeal absent prejudice. While not central to workers’ compensation doctrine, it reflects a preference for deciding cases on the merits where the opposing party is not harmed by the defect.

3.2 Legal Reasoning

  1. Hearing management and credibility: The court treated the cross-examination dispute as a question of whether Royal Stone was deprived of the ability to impeach. Because the inconsistencies were already in the medical records, were acknowledged by the WCLJ, and were argued on Board review, the court found no reversible unfairness.
  2. Employee status as factfinding: Applying the established control-factor framework and the substantial-evidence standard, the court deferred to the Board’s credibility assessments and found the record sufficient to support the employee relationship.
  3. Preservation and administrative finality: For WCL § 50 violation and WCL § 26-a liability, the court enforced a strict objection requirement at the hearing level, allowing the Board to decline review when issues are not preserved.
  4. Distinct treatment of penalty liability vs. penalty amount: The opinion’s most consequential reasoning is its separation of (a) liability for a penalty and (b) the formula-driven computation of the penalty. Although the court accepted that the assessment itself is mandatory upon a WCL § 50 failure under WCL § 26-a (2) (b), it held that where the amount is determined after the hearing and depends on alternative statutory formulas, fairness requires a chance to be heard on the calculation method and inputs.

3.3 Impact

  • Procedural safeguard for employers on penalty computation: Even where an employer fails to preserve challenges to WCL § 50 violation/penalty liability, this decision supports a rehearing right (or at least makes denial an abuse of discretion) when the amount is first fixed post-hearing and the employer lacked a meaningful chance to address the statutory calculation alternatives.
  • Administrative practice implications: WCLJs and the Board may be incentivized to raise penalty computation at the hearing (or solicit submissions) when WCL § 26-a assessments are in play, to avoid remittal for additional proceedings.
  • Litigation strategy: Employers should still object contemporaneously to WCL § 50 and WCL § 26-a findings to preserve review; however, this case provides a narrow procedural backstop when only the amount was not fairly litigated.
  • Potential for more focused remittals: The remedy here was limited—remittal solely on the penalty amount—suggesting appellate courts may increasingly tailor relief to discrete due-process defects rather than reopen entire claims.

4. Complex Concepts Simplified

WCL § 50 (securing workers’ compensation coverage)
Requires employers to obtain and maintain workers’ compensation insurance (or otherwise secure payment of compensation). Failure can trigger statutory penalties.
WCL § 26-a (mandatory assessment for noncompliance)
If an employer failed to secure coverage as required by WCL § 50, the Board must impose an assessment. The statute provides alternative calculation structures, including (as quoted by the court) “$1,000 for each 10 day period of non-compliance” or an amount “not in excess of two times” the cost of payroll compensation for the failure period. This case stresses that choosing and applying the formula must be done with basic procedural fairness.
“Substantial evidence” review
An appellate court does not re-try the case. If the Board’s finding is supported by such relevant proof as a reasonable mind may accept, it will be upheld even if other evidence points the other way.
Preservation / objection requirement (12 NYCRR 300.13)
If a party does not object to a WCLJ ruling at the hearing, the Board may refuse to consider the issue on review. This promotes efficiency and fairness by requiring issues to be raised when they can be addressed immediately.
Rehearing “in the interest of justice” (12 NYCRR 300.14)
A discretionary mechanism allowing the Board to reopen proceedings for fairness. Appellate review is limited; reversal occurs only if denial is an abuse of discretion. Here, the abuse arose because the penalty amount was set after the hearing without giving the employer a fair chance to address the computation.

5. Conclusion

Matter of Cortez v Royal Stone Cabinet & Tile Inc. reinforces three core themes in New York workers’ compensation adjudication: (1) appellate deference to Board factfinding on employee status when supported by substantial evidence; (2) strict enforcement of preservation rules for Board review of WCLJ rulings, particularly on WCL § 50 and WCL § 26-a liability; and (3) a meaningful procedural limitation on penalty administration—when a WCL § 26-a assessment amount is first calculated after the hearing and statutory alternatives exist, denying a rehearing on the amount can be an abuse of discretion because the employer lacked a fair opportunity to contest the calculation. The decision thus adds a targeted due-process safeguard to the mechanics of mandatory coverage-violation assessments.