Misguided Workers’ Comp Reform

by Kemp Brinson

This past legislative session, HB 903 was passed which restored a cap on plaintiff’s attorney’s fees in workers’ compensation cases. This bill was heavily lobbied on both sides, pitting various business organizations and insurance companies against the plaintiffs’ workers’ comp attorneys and certain unions. Was the lofty rhetoric spewed by either side accurate? Does the new law actually accomplish a legitmate public policy objective?

The good news for Florida businesses is that rates for workers’ comp insurance may stay low-ish, but perhaps at the cost of some abuses that will harm employees.

Let’s discuss.

Hold it, start from the beginning. What is workers’ comp?

Skip this section if you don’t need the basic summary. Long, long ago in a galaxy far, far away, there was a big problem. People got injured on the job a lot and it became a nightmare sorting out who owed who what as a result. Should the employer pay lost wages? What if the employer didn’t do anything wrong? Well, if the employee was injured at work doing work-related functions, shouldn’t the employer pay no matter whose “fault” it was? A nightmare.

Someone had an idea to fix the mess: what if we required (nearly) ALL employers to buy insurance to compensate employees injured on the job, regardless of fault, and let employees use that system to get compensated for their injuries. Employees would not have the right to sue their employers, but there would be a clear and efficient mechanism to make sure they all got paid. It’s good for employees because there is a clear and guaranteed benefit. It’s good for employers because they don’t have to fight lawsuits over it all the time. The workers’ compensation system was born! We call it “workers’ comp” for short.

That’s it in a nutshell. Your employer (in most cases) already has insurance to cover on-the-job injuries. If you get hurt at work, insurance pays your bills and, in some cases, your lost income, but you usually do not have the right to sue your employer.

So what’s the deal with this new law?

It’s all about attorney’s fees. Let’s say you get injured and, for whatever reason, the workers’ comp insurer does not pay you enough. You have to fight them. First you take your case in front of a special judge who hears nothing but workers’ comp claims. If you don’t like the result there, you can take the insurance company to court and fight there.  Most people don’t have a few grand lying around to pay an attorney to help them do this, so you are stuck finding an attorney to take it on a contingency fee basis. The new law has to do with how much that attorney gets paid.

Isn’t how much my lawyer gets paid between me and my lawyer?

No, not in workers’ comp cases. The workers’ comp system has a history of some abuses by attorneys who charged outrageous fees on small cases, driving costs up for everyone. So the fees charged must be approved by the court.

Well, what does the statute say?

The statute contains, and has contained for many years, a fee schedule for employee’s attorneys. The schedule is based on a percentage of the amount recovered: 20 percent of the first $5,000,  15 percent of the next $5,000,  and 5-10 percent of the rest, depending on the payout schedule (sometimes benefits recovered are paid over time). So an attorney who recovered $6000 could get paid:

($5000 * 20%) + ($1000 * 15%) = $1150

The crux of the matter is whether there are any exceptions to this rule. The new law addresses the exceptions.

Are the attorney’s fees that big a deal in these cases?

Ahhh…. economics. In some cases, the attorney’s fees are paid by the insurance company in addition to the actual claim.  Here’s the deal. If being a workers’ comp attorney is a profitable venture, more workers’ comp cases will be contested, more money will be paid out by insurance companies to pay those claims, more money will be spent on attorneys to represent those insurance companies, and, most importantly, workers’ comp insurance rates will go up.

If being a workers’ comp attorney is not a profitable venture, fewer workers’ comp cases will be contested, less money will be paid out, less money will be spent on attorneys for the insurance companies, and, most importantly, workers’ comp insurance rates will go down.

This is the key to understanding the whole thing. Commit this to memory:

Employee’s lawyer gets more = rates go up

Employee’s lawyer gets less = rates go down

Both the workers’ comp insurance companies and all businesess have a vested interest in reducing the fees that employee’s attorneys get. It has less to do with the actual amount of the fee in any given case and more to do with how many claims get contested and what they get settled for in aggregate.

OK, I get the economics. So tell me about the exceptions to the fee schedule and the new law.

Prior to 2003, the fee schedule was accompanied by a list of factors the judge could use to adjust the fee up or down, depending on the circumstances. For example, if the “customary” fee in the area for similar services is higher, the judge could up the fee. If the issues presented were “novel,” the judge could up the fee. If the lawyer was a particularly good lawyer, the judge could up the fee. Here is the actual text of these “factors” direct from the pre-2003 statute:

(a)  The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly.

(b)  The fee customarily charged in the locality for similar legal services.

(c)  The amount involved in the controversy and the benefits resulting to the claimant.

(d)  The time limitation imposed by the claimant or the circumstances.

(e)  The experience, reputation, and ability of the lawyer or lawyers performing services.

(f)  The contingency or certainty of a fee.

As of 2003, Florida had some of the highest workers’ comp rates in the country. It was  a huge problem for businesses. So the legislature passed a bill reforming the system. As we’ve seen, one theory of reform was that these factors were enabling too many attorneys to adjust their fees up. This was causing too many claims to be contested inappropriately, which was driving rates up. So the 2003 reforms removed this list of factors from the statute. Beginning in 2003, the fee schedule was more or less set in stone, 20%, 15%, etc…

It was very controversial at the time. Did it work? Well, workers’ comp rates dropped 60% in Florida. There has been controversy over why the rates dropped, but some attribute it at least in part to the reduced fees.

Over time, the workers’ comp bar has been hurting pretty bad, with some proclaiming that the practice is dead. With difficult cases that might result in effective fees of only $10-$20 per hour, it was tough to run a practice.

What happened next?

Make sure you are clear up to here, because here is where it gets interesting. The pre-2003 statute contained a requirement that the fee paid to an employee’s attorney be “reasonable” in addition to the fee schedule and adjustment factors. The post-2003 statute removed the reform factors but left the reasonableness requirement with the fee schedule. Thus, the post-2003 statute required two things: that the fee be reasonable, AND that it conform to the schedule. Until 2008, the courts just applied the schedule without really worrying about reasonableness.

In 2008, in the case of Murray v. Mariner Health, the Florida Supreme Court felt that that the post-2003 requirement did not make sense. What must the court do when the amount determined by the schedule was unreasonably low (in this particular case, about $8/hour gross)? The answer, according to the court, is that the legislature intended that attorneys should get a reasonable fee. (Sounds reasonable, right?) Therefore, the legislature must of intended that the court could adjust the fee if the fee schedule resulted in an unreasonable fee. And how does the court go about determining how much to raise the fee? You guessed it, a set of factors remarkably similar to the ones formerly in the statute.

Redux:

Pre-2003: fees can be adjusted upward – rates are high

2003-2008: legislature decides that fees cannot be adjusted upward – rates go down

2008-2009: court decides that fees can be adjusted upward – anyone want to guess what happened?

Good, grasshopper. You are correct. Rates did, in fact, start going up again.

OK, I see where this is going. The new law puts it back the way it was in 2003, right?

Yes. HB 903 simply removed the reasonableness requirement, which means that the only way to determine the fee is with reference to the fee schedule, regardless of how little the lawyer gets paid.

So is this a good thing or a bad thing?

I’ll get to that in a moment. What upsets me most is the way it was sold. Here’s what the Florida Chamber had to say:

In a victory for Florida’s employers, the Florida Chamber, working in support of the Florida Justice Reform Institute, passed a bill to restore a cap on attorneys’ fees in workers’ compensation cases. This legislation will ensure that an injured worker gets more in benefits than a plaintiffs’ trial lawyer does in attorney fees. The Florida Chamber and our partners in legal reform overcame the misleading and well-funded lobby effort of the personal injury trial lawyers association in order to pass this bill.

Did you catch that? No mention is made of the fact that this law has a direct effect on premiums. Instead, they spin it as a matter of fundamental fairness. We wouldn’t want those greedy attorneys getting more money than the claimant, would we? It’s all about those greedy lawyers! We make convenient scapegoats, but trust me, NO ONE was getting rich on worker’s comp work post-2003.

As I primarily represent businesses, I tend to side with business interests on things like this, but in this situation there plainly needs to be some leeway to award reasonable fees. Not that there should be a free for all, but there should have been a careful balancing of the following competing interests, taking into account actual data concerning how each of these factors is affected by adjustments to the others:

  1. Making sure workers’ comp premiums are reasonable.
  2. Making sure that insurance companies have a strong incentive to pay claims in full when there is liability and little pressure to settle illegitimate claims.
  3. Making sure that attorney’s fees strike a balance between encouraging legitimate contested claims and discouraging illegitimate ones.

As far as I know, no one did this analysis with actual numbers. At least I can’t find it. That’s a shame, because it might have resulted in a good law.

What happens next?

Workers’ comp rates will probably either drop slightly or hold tight. Also, expect a challenge to this statute’s constitutionality. I have not analyzed whether such a challenge might be successful, but I am pessimistic.

References


Post to Twitter Tweet This Post Post to Facebook Post to Facebook