Negotiating the Workers’ Compensation Lien

November 19, 2014

A tedious stage of nearly every injury claim comes when it is time to resolve the contractual rights of reimbursement or liens that exist. When confronted with an employer – or their carrier – seeking to resolve the workers' compensation lien, expect to be advised you don't represent the employer, they have a first right of recovery and they don't have to reduce their lien. Despite the often aggressive posture of lien holders, the truth is the law very much favors the employee.

The first question to be addressed when negotiating a lien is, "What benefits were paid?" This seems simple, but most workers' compensation carriers overreach when sending the itemization of benefits. Go through the final itemization and remove anything that is not direct compensation to the client. There are several examples of items routinely claimed that are not reimbursable. Utilization review, bill review, copy charges, "expenses," many nurse charges and even qualified medical exams – in my opinion – are not benefits to the employee, but are business expenses and management tools that should not be included in a lien.

Labor Code §3856(b) says the court shall allow as a lien on the third party recovery "the amount of the employer's expenditure for compensation… " (emphasis added) Similarly, in Harvey v. Boyson (1975) 50 Cal.App.3d 756, it was held that, "Where an employer is required to provide financial benefits to a workman because of disability brought about by a third party's negligence, the statute assures that the employer…be entitled to recover the value of such benefits from the tortfeasor." Id. at 760 61 (emphasis added).

Additionally, the court should not permit an employer to recover damages that would not be available to the plaintiff. There is no category of damages in which to squeeze an employer's expenses when filling out a verdict form. As noted by the Supreme Court in Breese v. Price (1981) 29 Cal.3d 923, "[I]t would be anomalous for an employer or insurer to recover damages greater, in nature or amount, than those afforded the injured employee." Id at 928. They later conclude, "Section 3852 does not enlarge the tort remedy of a compensation carrier beyond that of the injured employee." Id.

The expenses employers often try to assert are not "financial benefits to a workman" or "compensation" received by the employee. Nor can they be recovered as damages in trial. Thus, they should not be recoverable by way of a lien. Several employers and their carriers have tried to claim such expenses in liens against our clients recoveries over the years. In each instance I have referenced the above cases and invited them to produce alternative authority in support of their position. I have yet to receive a response.

Once the valid lien figure is determined, the next obstacle is the employer's routine refusal to reduce their lien by a pro rata share of the fees and costs incurred by the employee. Labor Code §§3856(b) and 3860(c) apply to liens on judgments and settlements, respectively. Each provide that an employees attorney fees and costs must be paid first if the employee and their attorney were the only party which actively participated in generating the third party fund. As succinctly stated in Quinn v. State of California (1975) 15 Cal.3d 162, 176, "[I]f the employer receives his fair share of the recovery, he must bear his fair share of the cost of the recovery."

Typically, an employer will attempt to evade this obligation by reminding you they already established you don't represent the employer and their notice of lien, including itemization of benefits, being sent to the tortfeasor represents "active participation" in the case. If the matter has proceeded to formal litigation they may have had their own counsel, filed their own complaint and their counsel attended depositions. Unfortunately for them, even if true, the above is not enough.

To avoid having to share in litigation fees and costs, the employer must provide evidence their conduct represented "a conscientious effort in the circumstances to address the substantive issues encompassed by the lienholder's case." Gapusan v. Jay (1998) 66 Cal.App.4th 734, 745-746. The

In an unpublished case, Eby v. Dejong (2008) 2 Cal.WCC 1113, the court refused to allow the City of Ukiah to avoid sharing in the fees and costs incurred by their employee. There, the City retained counsel, filed a complaint in subrogation and their counsel attended depositions but "only asked a few questions." In explaining their decision, the court quoted Hartwig v. Zacky Farms (1992) 2 Cal.App.4th 1550, which said, "[M]erely retaining separate counsel or filing a complaint in intervention or a lien, with nothing more, does not satisfy the standard of 'active participation.'" They also cite Gapusan, supra, 66 Cal.App.4th at 745-746, stating, "[A] token appearance or other nominal participation will not suffice." In reference to discovery participation, it has been held that filing an expert witness designation and attending three depositions is insufficient where the employer's attorney asked only one questions of one witness. Kindt, supra, 32 Cal.App.4th at 459-460.

The above authority should arm you with enough to bring a workers' compensation lien down to a more palpable figure even in the face of the most aggressive employer advocate.

*This article was originally posted in the October 2014 Edition of The Trial Bar News.