Cost Drivers In Workers’ Compensation

Workers’ Compensation costs for employers and taxpayers are rising sharply.  In 2022 rates rose by 10% simply because of the Department of Labor’s long-time practice of tying the increase in the statewide average weekly wage to the increase in workers’ compensation benefits.  What that meant is that every single case in workers’ compensation cost employers and taxpayers 10% more in 2022 than in 2021. Lost wages rose by 10% and so did all awards.  Example:  an injured employee had a maximum rate for lost wages of $969 per week in 2021; the maximum rate rose to $1,065 in 2022.  A low back award of 40% in 2021 amounted to $124,080.  In 2022 that same award rose to $136,320.  You could see this even more clearly at the higher percentages:  in 2021 an award of 50% amounted to $193,800; in 2022 that same award jumped to $213,000.  In the latter example that meant employers and taxpayers paid $19,200 more for the very same percentage award.  For public entities, the question is where do the extra funds come from?
The practice of the Department of Labor in tying increases in temporary disability benefits to statewide wage increases has some logic to it.  Temporary disability benefits are paid for wage loss, so if the wages rise in New Jersey in a given year, then workers’ compensation rates must rise to keep up with loss of those wages.  That is understandable, but why does the Department of Labor increase permanency awards by the same percentage?  Permanency awards are for loss of bodily function.   Almost every worker who is injured goes back to work doing the same job.  Why should the permanency award rise by the percentage increase in the statewide average weekly wage?  When a workers’ compensation award is granted for permanency, the employee usually says he or she is still able to perform job functions, but has some diminished capacity to perform non-work activities, like bowling or yard work. There is no discussion about loss of wages at all – except in the rare total and permanent disability case. 
Readers also need to understand that when permanency awards rise by 10% in a year, that also means that the lawyer for the injured worker gets an increase of 10% in his or her legal fee – paid mostly by the employer and taxpayer! If an employee gets an award of $100,000 for a percentage disability, his or her lawyer gets a fee of $20,000.  The employer pays 60% of that fee or $12,000. The injured worker only pays his or her lawyer $8,000 on a $100,000 fee.  Every time the Department of Labor increases awards it also raises the amount that employers and taxpayers have to pay in legal fees for the injured worker.
Proposed bill S3818 has employers and taxpayers very concerned.   This bill is being pushed by attorneys who represent injured workers to raise their counsel fee on every case and every motion to 25% from 20%.  The 20% cap has existed for well over 50 years.  In the example above, the legal fee will jump from $20,000 on an award of $100,000 to $25,000 on an award of $100,000.  That is a 25% increase in legal fees paid to attorneys who represent injured workers.  Who pays for the increase?  You guessed it:  employers and taxpayers pay for most of the increase, namely 60% of the increase.  There are over 100,000 active claim petitions in the Division of Workers’ Compensation.  Every single one of them will eventually settle with an increase in legal fees from 20% to 25%.  After getting a 10% jump in legal fees in 2022 as noted above, attorneys for injured workers now will receive another 25% increase in legal fees paid mostly by employers and taxpayers. On a section 20 settlement, the employee will have to pay the entire increase, but most cases don’t settle on a Section 20 basis because there has to be a genuine issue of causation or liability.
An equally disturbing part of AS3818 is that it will remove discretion from workers’ compensation judges on all legal fees.  Presently a judge has discretion not to award the full 20% fee on an award or on an order for medical and temporary disability benefits after a trial.  The language of the bill substitutes the word “may” award to “must” award a fee of 25%.  In other words, the legislation is designed to take the judge of compensation out of the picture.  This becomes a major factor on motions for medical and temporary disability benefits.  If an employer denies a claim, believing that the claim is not compensable but loses the trial, the lawyer for the injured worker gets a legal fee on every dollar paid to the claimant for medical bills and lost wages, not just on the permanency award.  Example: let’s say an employee’s claim was denied and petitioner incurred medical bills of $300,000 and lost wages of $100,000 totalling $400,000.  After a full trial, the Judge enters a ruling in favor of petitioner.  Under current legislation, the Judge of Compensation may consider that there was a strong basis to deny the case and award the attorney 10% of $400,000 or $40,000. The proposed legislation removes the judge from the picture.  The fee will be 25% on every dollar paid on the case for medical and temporary disability benefits by way of court order.  In the example above, the judge could not enter a fee of $40,000. The judge would have to enter a legal fee of $100,000, which is 25% of $400,000.   That is in addition to the 25% legal fee on the permanency award up from 20% currently.
The impact of S3818 will punish employers and taxpayers dearly over time at the expense of attorneys who represent injured workers.  The purpose of the bill is to enrich lawyers who represent claimants and attorneys.  There is no benefit to the employee either because the injured worker also has to pay more for his or her lawyer, but the injured worker does not have to pay any of the award on medical and temporary disability benefits by way of court order.  Awards on orders for medical and temporary disability benefits are assessed entirely assessed against employers and taxpayers.
What should be done?  If the legislature wants to pay attorneys who represent injured workers more money,  then the standard split should be changed to half against the employee and half against the employer.  Right now the employee pays 8% of the legal fee and the employer pays 12% of the legal fee to the injured worker’s lawyer.  In a car accident case or other non-work injury, the injured plaintiff pays up to 33% for his or her employee.  In a workers’ compensation case, the injured worker only pays eight percent of the legal fee.  A better bill would split the percentage evenly.  For example, assume a percentage recovery of $100,000 to the employee.  The employee would pay $12,500 to his or her lawyer for the legal fee, and the employer would pay $12,500 to his or her lawyer for the legal fee for a total of $25,000. That small change would help protect employers and taxpayers from the full impact of this proposed legislation.   With workers’ compensation costs rising sharply each year, the employee should share most of the increased cost because the employee gets the benefit from the recovery. The employer gets no benefit. The language allowing the judge discretion on fees should also remain in the proposed law.