Pros and Cons: Fee Caps on Workers’ Compensation Cases

In August 2024, New Jersey raised the attorney fee cap for workers’ compensation cases from 20% to 25%, aiming to encourage more attorneys to represent injured workers.

How Fee Caps Impact Representation

Fee caps are intended to ensure that injured workers retain the majority of their settlement. However, critics argue that these caps can have unintended consequences, particularly in terms of the availability and quality of legal representation.

1. Attorney Deterrence: In states with low fee caps like California, the limited financial reward may deter attorneys from taking on cases that are complex or involve smaller settlements. This leaves workers with more challenging or lower-value claims struggling to find legal representation. For many attorneys, the time and effort involved in these cases may not justify the capped fee, resulting in fewer lawyers willing to handle such claims.
2. Preference for Higher Settlements: Attorneys may prioritize cases with higher potential settlements, where the capped fee still results in adequate compensation for their work. This dynamic can create a system where workers with smaller or more ambiguous claims face difficulties securing representation, leading to potential inequities.

Balancing Accessibility and Costs

On the other hand, fee caps can benefit workers by ensuring that a larger portion of their compensation goes directly to them. This is particularly important for workers who are already dealing with financial hardship due to injury.

The Potential for Increased Litigation

While raising fee caps, as seen in New Jersey, may encourage more attorneys to take on workers’ compensation cases, it could also lead to an increase in litigation. Here are several factors that might contribute to this:

1. Greater Incentive for Attorneys: Higher fees provide a stronger financial incentive for attorneys to take cases to court rather than accepting early settlements. When the potential payout is higher, attorneys may be more willing to invest the time and resources needed to litigate, especially in more complex cases.
2. Negotiation Leverage: With better legal representation, injured workers may be more likely to challenge low settlement offers from insurers. Higher fee caps could empower attorneys to push back against early settlement offers, leading to more cases being litigated rather than settled quickly.
3. Complexity of Cases: In more complicated cases, such as those involving long-term disability or significant medical expenses, attorneys may see a higher fee cap as justification for pursuing litigation to secure larger settlements. This is particularly true in cases where the initial settlement offer is perceived as insufficient.
4. Potential Drawbacks: While higher fee caps might lead to more litigation and potentially larger settlements for workers, they could also drive up legal costs for employers and insurers. This may result in higher workers’ compensation premiums for businesses. Additionally, more litigation could delay compensation for injured workers, prolonging their financial difficulties while waiting for court resolutions.

Changing Dynamics Between Workers, Attorneys, and Insurers

The recent increase in New Jersey’s attorney fee cap could shift the dynamics between workers, attorneys, and insurers. As attorneys become more willing to take on workers’ compensation cases, insurers may need to adjust their strategies. This might mean offering higher initial settlements to avoid prolonged litigation or preparing for more frequent court battles. Ultimately, while the intention behind these fee cap adjustments is to improve access to legal representation, it also introduces new challenges that stakeholders across the workers’ compensation system must navigate.

In this issue:

Fourth of July Exuberance Ruled Non-Compensable

Pros and Cons: Fee Caps on Workers’ Compensation Cases

Presumption Laws Make Strong Showing Among New Comp Laws Passed

What’s the Difference Between a Stipulation and a Compromise & Release?

Work Comp Fraud Losses Surge Since 2020

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