How Much Is Too Much To Pay For A Workers’ Compensation Attorney?

Earlier this week, The Legal Intelligencer published an article on attorney’s fees* in workers’ compensation** cases that’s currently pending before the Pennsylvania Supreme Court. (* For anyone curious about the answer to the age-old question of whether to use attorney fees, attorneys fees, attorney’s fees, or attorneys’ fees, consider this court opinion. ** For anyone curious about the other age-old question of whether to use worker’s compensation, workers’ compensation, or workers compensation, consider this blog post. Pennsylvania’s laws call them attorney’s fees and workers’ compensation, so I will, too.)

I’ve written a lot about contingent fee representation on this site, because there are a lot of misconceptions surrounding it. For example, few people — including many lawyers — realize just how expensive contingent fee litigation really is for the lawyers who represent plaintiffs. Take all the expenses you can imagine in a lawsuit (hiring experts, paying for court reporters, et cetera), then add more for the punitive tax treatment for contingent fee lawyers: unlike every other business in America, when we spend money on a case, we can’t deduct that cost from our income tax as “business expenses.” The tax code pretends that money we have paid to someone else exists as a profit until the case is entirely finished, often years after we paid the money, when it magically converts into either a loan (if it’s reimbursed from the settlement or judgment) or a “business expense” (if we have simply eaten the cost).

Workers’ compensation is supposed to be cheaper and more efficient for workers than a normal personal injury lawsuit, and by and large it is. The worker doesn’t have to prove their employer was negligent, just that the accident was work-related, and incentives are built-in to encourage lawyers to take the cases and to lower their contingency fees. For example, here in Pennsylvania, an employee in a contested case is entitled to “a reasonable sum for costs incurred for attorney’s fee, witnesses, necessary medical examination, and the value of unreimbursed lost time to attend the proceedings, though the attorney’s fee “may” be eliminated if the employer or insurer had a “reasonable basis” for the defense.

Because of those incentives, workers compensation attorneys generally charge a lower contingent fee than personal injury lawyers. Whereas the industry standard personal injury contingent fee is between 33% to 40% (depending on the type of case), the bulk of workers’ comp attorneys charge a 20% contingency. Indeed, many unions and injured workers’ advocacy groups, like the Pennsylvania Federation of Injured Workers, demand that any attorney who wants to be recommended by the union or group agree to charge no more than 20% (with a cap prohibiting deduction of future benefits more 250 weeks past the award), and further reduce the contingent to 15% if the claim is settled for a lump sum. (Here’s the PFIW’s panel attorneys’ agreement.) They similarly require attorneys not charge a fee for simple matters that can be cleared up with a phone call or a letter.

And that’s where the Pennsylvania Supreme Court case comes in. Prior to 2006, Pennsylvania’s workers’ compensation law imposed a 20% cap on the contingent fee, but allowed a higher fee to be approved in certain circumstances:

All counsel fees, agreed upon by claimant and his attorneys, for services performed in matters before any referee or the board, whether or not allowed as part of a judgment, shall be approved by the referee or board as the case may be, providing the counsel fees do not exceed twenty per centum of the amount awarded. The official conducting any hearing, upon cause shown, may allow a reasonable attorney fee exceeding twenty per centum of the amount awarded at the discretion of the hearing official.

Meeting that “cause shown” standard to go above 20% wasn’t a joke; as the Commonwealth Court described in 2001, “Although the reasonableness and extent of the amount awarded as attorney fees under Section 442 is a finding of fact to be made initially by a [workers’ compensation judge], this determination is subject to review on appeal to the [Workers’ Compensation Appeal Board] and, ultimately, is subject to further review on appeal to this Court.” Larry Pitt & Associates, PC v. Butler, 785 A. 2d 1092, 1100 (Pa. Commonwealth Ct. 2001).

Which brings us to 2006. In the course of a couple amendments to the Workers’ Compensation Act, most of which were streamlining measures to move the cases along, the Pennsylvania General Assembly and the Governor struck out the last sentence of that portion I quoted above; now, 20% is the highest possible contingent fee in workers compensation.

Like I wrote above, that doesn’t make a difference in the majority of workers’ compensation cases, in which most lawyers voluntarily charge that amount — or lower, if the case is settled by a lump sum — as a result of the marketplace for these claims and because of demands by the unions and other workers’ association. To the extent any clients were actually signed up at a higher rate, the judges, the Board, and the Commonwealth Court would reign the lawyers in and force the 20% rate.

Which is what makes the 20% cap insidious: it doesn’t actually protect injured workers. The primary effect is to prevent injured workers with complicated claims from being able to find attorneys. The only reason a client wouldn’t be able to find a lawyer at 20% — and the only way a fee agreement for more than 20% would be approved by the judge, the Board, and the Commonwealth Court — is if something about the case made it extraordinarily difficult or expensive. A workers compensation lawyer isn’t going to have trouble handling a case concerning a fall from a ladder, or an on-duty car accident, or an explosion, or the like — i.e., cases where the injury is plainly “work-related” and the battle is over the damages — but thousands of workers are injured in subtle ways that are not obviously related to work.

What about a fall at a home office? Or a repetitive stress injury that might be only partly work-related? Or a soft tissue injury that initially presented with vague symptoms, rather than an obviously accident at work? Or exposure to an uncommon toxin; in industrial sites, toxins like mercury or lead are easy to find, like how asbestos creates telltale diseases, but in many circumstances it takes more than a little bit of Dr. House to figure out that a worker was given a chronic illness by something in their workplace. (Usually, if you’re having trouble tying the injury to the workplace, you’re going to have even more trouble tying responsibility to a third-party manufacturer or contractor or the like, so third-party claims don’t really help.)

In the more challenging cases, 20% sometimes isn’t enough to justify the risk and expense to the lawyer of taking on the case, which leaves the client in a lurch: the more qualified lawyers won’t touch the case, so their best option is to hope a less qualified lawyer will take it with the intent to settle it cheaply for a nuisance value. That doesn’t benefit the injured worker — it just benefits the insurance company that won’t have to pay as much for the claim.

Ordinarily, all of those questions would just be for the legislature, but here the Pennsylvania Supreme Court has a unique role to play. Under the Pennsylvania Constitution, the legal profession isn’t like any other profession because its regulation remains under the Pennsylvania Supreme Court, rather than under the other branches. See Pa. Const. Art. V, Section 10 (“The Supreme Court shall have the power to prescribe general rules governing practice, procedure and the conduct of all courts.”)

Here’s the funny part. Rule 1.5 of the Pennsylvania Rules of Professional Conduct provides:

(c) A fee may be contingent on the outcome of the matter for which the service is rendered, except in a matter in which a contingent fee is prohibited by paragraph (d) [relating to domestic relations matters] or other law.

The challenge to the 20% cap thus hinges on whether the workers’ comp statutes are an “other law” within the meaning of Rule 1.5.

On the one hand, the workers’ comp law is plainly an “other law.” That’s what the Commonwealth Court found in this same case. On the other hand, no governmental branch in Pennsylvania — neither the Supreme Court nor the General Assembly — has the power to hand the General Assembly the power to regulate the practice of law. So even if we find that “other law” really means “other law,” we have to conclude that “other law” means “other law” promulgated by the Pennsylvania Supreme Court.

Which means we’re at the same place where we would be if the Pennsylvania Supreme Court were simply considering the issue as a matter of policy. Let’s hope, for all the workers with subtle or disputable work injuries out there, that the Court sees the light.

  • Keith Lee

    WC Plaintiff attorneys in Ala. have been at 15% for any type of WC case for years. As such there are no pure WC plaintiff firms and those that do handle plaintiff cases will often only do so if there is some sort of retaliatory discharge involved as well. Plus, all WC claims in Ala. are handled in Circuit Court, instead of a Board/Bureau, further increasing costs.

    All that’s to say, it could be worse.

    • Max Kennerly

      It’s funny, tort reformers were “concern trolling” long before it became popular on the Internet. If you add enough “client protections” for injured people and class action members and consumers, you make it impossible for anyone to actually represent them, and thereby preclude them from ever filing claims, much less winning them.
      There’s a similar situation in employment discrimination work. The damages are so tiny that the only way practitioners can survive is by operating off of a huge volume and doing the absolute minimum necessary on each case – which typically results in higher compensation than the individual would get on their own, because companies have no problem playing a war of attrition with an unrepresented plaintiff.
      Yesterday I heard from a credible source that Texas medical malpractice lawyers are making a killing now. That is to say, the vast majority of Texas medical malpractice lawyers left the field, and so now there’s only a tiny handful of them, and they reject more than 99% of the cases that come to them, taking only the handful of cases that can actually produce a result. Of course, that also means that the vast majority of medical malpractice victims in Texas are left with nothing, because they can’t find a lawyer who will take their cases.

  • John Day

    Republicans: “we believe in free enterprise – but we have to put government price controls on legal fees.” Hopefully, the PA S. Ct. will allow itself to be educated on the cost of running a personal injury firm In my experience, most judges just don’t get it. Many are so far divorced from the front lines that they lack an understanding law firm economics and an appreciation of the fact that lawyers – especially good lawyers – will refuse to regularly handle cases that are not profitable.

    • Max Kennerly

      I had a medical malpractice case that took 7 years and over $400,000 in out-of-pocket expenses. The eventual settlement required court approval because it was a wrongful death case. In that approval, the court disapproved $70,000 of our expenses as “unnecessary.” We went back on a motion for reconsideration and asked the court: which $70,000 was unnecessary? Which expert should we have ignored? Which depositions should not have been taken? Motion denied without opinion. Speaks for itself.

      • John Day

        The judge just thought it was too much. I hear that crap, too – “its too much.” That being said, you will enjoy this: We had a GAL complain that our firm unfairly charged a minor mileage expenses to handle a case in Memphis (200 miles away) and that those expenses (and fedex charges for sending documents to the Court) would not have been incurred if the minor hired a Memphis lawyer. We decided not to fight it – it was a few hundred bucks – but pointed out in a court filing and at the court approval hearing that we took depositions, disclosed experts and took medical proof, etc and resolved the case in 18 months or so. We noted that the other victims of the food poison episode involved in the case – the ones who hired Memphis lawyers – hadn’t even begun the deposition process and were not anywhere near to getting their cases resolved. The judge gave us our expenses despite the fact that we were willing to eat them. :)