Geaney: Should Employers Pay for Both Lawyers in Workers' Comp Cases?

Friday, July 21, 2023 | 0

When a workers’ compensation case settles in the New Jersey Division of Workers’ Compensation for a percentage of disability, the employer pays for its own lawyer and most of the fee of the injured worker’s lawyer.

John H. Geaney

New Jersey may be the only state that has this practice. Judges generally assess 60% of the legal fee of the claimant against the respondent and 40% against the lawyer with the bizarre result that injured workers pay a paltry 8% of the total award for their own lawyer. Practitioners are often astonished to learn that there is no legal basis for an employer to pay for the attorney of the claimant. No statute requires this outcome and no regulation requires this. 

Given that there is no legal requirement for this practice, when did this peculiar financial burden on employers begin? Attorney Richard Rubenstein, of Livingston, New Jersey, has done a great deal of research into the history of the state Workers’ Compensation Act and was kind enough to share some of his findings on this issue. He found cases in the 1920s in which the entire counsel fee for the petitioner was paid by the employer, provided that the case was accepted at the outset by the employer.  

Employers used to have a way of avoiding counsel fees, however. For many years after the New Jersey law was passed, employers could make a settlement offer immediately prior to a hearing to defeat the entire counsel fee. That practice was successfully challenged in a 1950 decision based on due process arguments. Rubenstein first found a reference to a 60/40 split around the year 1950.

Based on Rubenstein’s research, we know that judges began using discretion to assess 60% of the employee’s counsel fee against employers as far back as 1950. The next question is why did this happen in the first place? My own guess is that this practice reflected the reality that workers’ compensation rates prior to 1979 were abjectly low.  Even in 1979, an award of 50% permanent partial disability amounted to only $11,000.  The major change in rates began with the 1979 amendments.

In 1980, an award of 50% permanent partial disability trebled to $36,900. In 2023, an award of 50% permanent partial disability, by contrast, amounts to $220,000. That is 20 times more than in 1979. Needless to say, inflation has not risen 2000% in the past 43 years.

The 60/40 split is an anachronism and makes no sense today, with workers’ compensation rates having risen so much over the past 40 years. In 2022 alone, workers’ compensation rates rose 10% in just one year. An award of 50% was $193,800 in 2021, but one year later the same award was valued at $213,000. 

One can see from the sharp rise in workers’ compensation rates that the 60/40 split is no longer warranted. Furthermore, it costs employers millions of dollars every year. Injured workers can afford to pay their own counsel fees on orders approving settlement with a percentage of disability just as they already do on Section 20 settlements. There remains no legal basis for the employer to pay any portion of the petitioner’s counsel fee.

This topic is highly relevant today because there is currently a bill that would raise counsel fees for workers’ attorneys to 25% from 20%. If the 60/40 split remains unaddressed in New Jersey, then employers will be paying 25% more in counsel fees for the injured workers’ attorney. 

For example, an award on a percentage basis amounting to $50,000 will mean the counsel fee rises from $10,000 to $12,500. Using a 60/40 split, the judge of compensation would require the respondent to pay 60% of $12,500, or $7,500. That amounts to 25% more than $6,000 if the counsel fee remains at 20%.

The rationale for the increase in counsel fees is that petitioners’ attorneys in workers’ compensation are much like their counterparts in civil litigation. Their fee is contingent on success. If there is no recovery, there is no fee. That is true. But here is where the argument falls apart: Attorneys who practice in civil litigation are permitted to charge their clients one-third of the first $750,000. Meanwhile, injured workers only pay 8% of the award on an order approving settlement in workers’ compensation cases.

Consider this anomaly: Sometimes an injured worker has both a workers’ compensation case as well as a civil third-party case. What sense does it make that the same individual pays 8% for his or her attorney in the comp case but pays one-third in the civil case? In many situations, the workers’ compensation case has more settlement value than the civil case.

Workers are benefiting from dramatically higher rates but still paying an absurdly low percentage to their own attorneys. Workers get the benefit of the skills of their lawyers and higher awards almost every year, but employers end up footing most of the legal bill. Passage of the proposed bill raising attorneys’ fees to 25% should be conditioned on petitioners paying for their own attorneys in all cases, not just Section 20 settlements.

This is not 1950 or 1979. Rates have skyrocketed, and there is no compelling argument that employers need to continue to subsidize injured workers by reducing their obligations to their own lawyers.

Judges have the power to decide what portion of the petitioner’s counsel fee is paid by the employer, if any, or by the injured worker. The 60/40 split is an archaic convention and nothing more. The division should address this issue not just because employees can afford to pay their attorneys, considering much higher permanency awards, but also because the state needs employers. 

New Jersey has the highest net outmigration of residents of any state in the nation. In 2022, 64,000 more residents left New Jersey than entered it. They leave for many of the same reasons employers leave the state. Among the reasons is that Florida and a few other states (Texas and Tennessee among them) have more friendly economic environments with no state income tax.

Requiring injured workers to pay most or all of the fee of their own attorneys will save employers millions of dollars every year. That may actually help the state retain employers.

John H. Geaney is an attorney, executive committee member and shareholder with Capehart Scatchard, a defense law firm in New Jersey. This post appears with permission from Geaney's New Jersey Workers' Comp Blog.