On June 19, 2014 the New Jersey Civil Justice Institute testified against S374. This legislation, which is being sponsored by Judiciary Committee Chair Scutari (D-22) and Sen. Beck (R-11), seeks to amend the formula for calculating attorneys’ fees to be awarded in workers compensation cases in a manner that discourages settlement and encourages parties to take cases that could be resolved outside the already overburdened judicial system to trial.
The existing statute provides for fees based only on the portion of the judgment in excess of whatever compensation was promptly offered and paid to an employee. The proposed amendment would instead base the formula for attorney fees on the full amount of the recovery, regardless of how much of that recovery was achieved absent any attorney involvement, and would actually deduct that full amount from the employee’s recovery.
The existing formula fosters good public policy in several ways. Most obviously, it encourages prompt, good faith payments to injured employees. It also ensures that the incentives for litigating claims are aligned with the incremental benefit of the potential litigation.
To the extent that the current formula dis-incentivizes unnecessary litigation, it ensures maximum compensation for employees at a minimum cost to employers. Furthermore, keeping workers’ comp. rates low also means more money is available for employee compensation.
The proposed amendment, by contrast, would undo all of those beneficial incentives. Eliminating the potential savings for prompt settlements reduces the potential risk and costs of contesting claims, encouraging more delayed and contested settlements.
Compensating plaintiff’s counsel for the entire award grants an unwarranted windfall to the attorney bringing the claim, at the expense of the injured employee. It also over-incentivizes litigation, eliminating the attorney’s incentive to consider the likelihood that he will recover any additional compensation for the employee over what the defendant has already paid.
At the hearing, an amendment was offered to clarify that the 20% attorney fee would be deducted from employee’s total compensation provided there was an attorney client relationship at the time of the award. NJCJI still opposes the bill because the goal of the existing statute is to encourage carriers to make fair and prompt payments to injured employees, and to ensure that employees are able to keep all compensation that could be obtained from the carrier without attorney involvement. Even with the amendment, the bill would undo that beneficial incentive, by depriving carriers of the opportunity to make good faith payments that go entirely to compensating the injured party where the party has an existing attorney-client relationship.
Despite NJCJI’s urging, the Committee voted along party lines to move the bill forward. It can now be taken up and voted on by the full Senate at any time.