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Protecting the Workers’ Compensation Lien

By Robert H. Jennetten

The employer has a lien on the proceeds of an employee’s recovery from an at fault party, but the employee does not have a duty to file suit. If the employee timely files a lawsuit, but fails to name the proper party, the employer has a lien in a case with no merit. The employer can petition to intervene but such a petition does not put the employer in a better position than the position of the injured worker. The employer cannot bring in a new defendant.

There is a solution. The employer and its insurer should confirm that the employee timely filed suit against the proper party, and if that cannot be confirmed, the employer should file suit within three months of the running of the statute of limitations. Without the employee’s consent, the employer cannot file suit to protect the lien until three months before the statute runs.

The problem is demonstrated by the complicated facts of a recent case. In Pederson v. Mi-Jack Products Inc., the injured worker timely filed a products liability case but named the wrong party as manufacturer. The defendant filed a motion for summary judgment and then negotiated a very modest settlement with the injured worker which was insufficient to cover the lien. The Appellate Court held that even though the employer filed a petition to intervene, the employer did not have the right to control the injured worker’s claim and did not have the right to prevent the injured worker from settling the claim for a modest sum even though the employee had little incentive to prosecute the claim because he filed a separate legal malpractice claim against his former attorney.

Section 5(b) of the Work Comp Act provides that no release of a claim against an at fault party is valid without consent of the employer unless the employer “has been fully indemnified or protected by court order”. In the Pederson case an order entered in the trial court protected the employer’s lien by stating that the employer’s lien was to be fully protected as provided for in Section 5(b). The problem was that out of the modest $50,000 settlement, the injured worker claimed that he was entitled to retain $12,500 for attorney’s fees and $39,491.60 for litigation expenses leaving nothing for the employer.

The facts of the Pederson case are convoluted but the end result serves as a reminder that relying on an employee to timely file a suit against the proper at fault party is like buying a new car “as is”. In significant cases, the preferred course is to demand that the employee provide a file marked copy of the Complaint naming the proper parties well three months before the statute runs and, if such a complaint is not received, file suit. If the employee also files suit, the cases can be consolidated or one or the other can be voluntarily dismissed. Better to have two suits on file than miss the deadline to file against the proper party.


Originally published in the Summer 2009 edition of Quinn Quarterly.

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