The work of an applicant’s attorney in California’s Workers’ Compensation system is rarely a venture in charity – applicant’s attorneys are paid a fee out of the applicant’s recovery.  But there are factual circumstances under which the employer must pay the applicant’s attorney’s fees in addition to, rather than out of, applicant’s benefits.

This can happen when the self-insured employer or the insurer over-advances without reserving funds for attorney fees, which is a subject of an article written by Lisa Kasselik of Harbinson Tune Kasselik.  The defendant can also be required to pay applicant’s attorney’s fee if the defendant files the application for applicant.

Usually, an employee is injured and fills out a claim form.  The employer decides to conduct some form of discovery, such as deposing the applicant or witnesses.  But the cases of Donna Yee-Sanchez v. Permanente Medical Group and Natalie Piatt v. Eureka Union School District tell us that discovery is prohibited, (see 8 C.C.R. § 10403), and even sanctionable, before the commencement of a case, and a case is only commenced by the filing of an application for adjudication of claim.  (Labor Code § 5500.5)

If applicant has not retained an attorney and has not filed an application him or herself, how is the defendant to proceed?  One option, when injury is in dispute, is to withhold benefits, forcing the employee to lawyer-up or file an application.  Of course, when injury is NOT in dispute, this comes with a 10% delay penalty (or 25%, depending on the facts).  (Labor Code § 5814).

Whatever the benefits withheld may be, the employer faces a 10-25% penalty only on those benefits already due and withheld.  On the other hand, by filing an application for the employee, defendant exposes itself to 15-18% of all permanent disability benefits in attorney’s fees.

However, there is a danger in using this tactic.  If an applicant retains an attorney in response to withheld benefits and there is no dispute as to the injury, any attorney worth his salt would file a petition for penalties with his notice of representation.  This would bring the penalties to 25% of the withheld benefits (or a maximum of $10,000).  This could also bring upon the insurer or self-insured employer administrative penalties under California Code of Regulations § 10111.1.

Another disadvantage to this tactic is the fact that, when the injury is not in dispute, the defense is essentially using bad-faith delay tactics.  This is inappropriate, unethical, and will likely result in long-term self-injury such as damage to reputation and ability to maintain an insurance certificate.

All in all, this course of action is a gamble and brings with it a slew of its own risks.  But there are other options available to the defense in such cases.  Check back tomorrow for Part 2 of 3.