Thought Leadership

Key Points:

• The New Jersey workers’ compensation statute and applicable case law protects employers’ worker’s compensation lien rights against an injured worker’s third-party recovery. 
• An employer can perfect its lien by providing notice to the third party that there is a worker’s compensation action; Perfecting the lien obligates the third party to inquire about and satisfy the statutory portion of the employer’s lien prior to paying the third-party proceeds to the injured party. 
• The statute does not require either the third party or the injured worker to make payment on its lien immediately following payment of third-party proceeds, rather, this obligation waits until the lien amount is set. 

In New Jersey Transit Corp. v. Darshelle Joseph, 2024 WL 1172784 (NJ Super. App. Div. Mar 19, 2024), the New Jersey Appellate Division addressed a court order denying an employer’s application for satisfaction of a workers’ compensation lien. The Division found that an employer cannot recover on its workers’ compensation lien until that amount is set. The Appellate Division’s decision impacts an employer’s timely right to compensation of their lien under Section 40 of the New Jersey workers’ compensation statute.

Darshelle Joseph was involved in a compensable work injury on October 23, 2019. Mr. Joseph later filed a workers’ compensation, claim alleging permanent disability. Mr. Joseph also filed a third-party action against the alleged responsible party in the underlying incident. 

New Jersey Transit’s carrier sent a letter to Mr. Joseph dated November 11, 2019, informing him of its right to recover on money paid as a result his workers’ compensation claim. The carrier also requested that Mr. Joseph notify them whether he retained counsel to represent him in his third-party action.

The carrier ultimately paid a total of $7,112.90 in workers’ compensation benefits as a result of Mr. Joseph’s work injury. Mr. Joseph resolved his third-party claim in December 2021 for $14,000. Mr. Joseph’s attorney in the third-party action disbursed the settlement minus the attorney fee of $4,661.63 and $15.10 for costs. Mr. Joseph’s net was $4,676.73. The workers’ compensation case remains unresolved.

Following the third-party resolution, New Jersey Transit filed a verified complaint and order to show cause seeking reimbursement of its worker’s compensation lien. The parties argued their respective points, and the court subsequently denied New Jersey Transit’s request as premature. New Jersey Transit appealed that decision, and the Appellate Division took the appeal. 

The Appellate Division recited the relevant parts of Section 40 of the New Jersey workers’ compensation statute. It noted that in the event of an injured worker’s third-party recovery, the employer shall be entitled to recover if the amount the injured worker obtains from the third-party action is equivalent to or greater than the workers’ compensation lien and on the amount that exceeds the attorney fee on the third-party action and the costs associated with that action. The Division also noted that the statute provided that, if the employer provides notice of its workers’ compensation lien to the third party prior to third-party payment on a suit, the third party then has the duty to inquire prior to making any payment of the amount of the workers’ compensation lien and the obligation for payment. 

New Jersey Transit argued that it was entitled to reimbursement on its statutory workers’ compensation lien immediately upon the third-party action being resolved. It further argued that this is required regardless of the status of the workers’ compensation action in question. 

The Division noted that Section 40 of the statute, which covers third-party recovery, was enacted to guard against double-recovery. Section 40 provides a statutory lien in favor of an employer that attaches against an injured worker’s third-party recovery. This right to reimbursement depends on an injured worker realizing recovery on a third-party action. The Division also noted that while the statute outlines when and under what conditions an employer can recover on its lien, the statute does not provide a specific timeline on when this recovery takes place. However, it notes that the amount of the employer’s lien cannot be determined until the workers’ compensation benefits paid is finalized. 

The Division went on to discuss that, if the employer perfected its lien and notified the third party regarding the workers’ compensation lien, then the third party, as outlined above, would be obligated to satisfy this portion of the lien prior to making payment on the third-party action. The Division reinforced the section of the statute wherein workers’ compensation liens attach the third-party recovery. However, the Division cited case law supporting that notice of and perfection of the lien is not required in order to attach Section 40 lien rights to a injured worker’s third-party recovery. Perfecting the lien obligates the third party to consider the employer’s lien and make payment on that lien prior to making third-party payment to the injured party. 

However, none of this requires either the third party or the injured worker to satisfy the employer’s Section 40 lien rights immediately following recovery on its third-party action. In fact, the parties are unable to know the extent of the employer’s lien amount until that amount is finalized. Regardless, the Division reinforced that the employer’s right to third-party recovery enjoys great protection. The Division, therefore, remanded the case back the trial court so steps could be taken to reinforce the employer’s lien rights either via a third-party fund being held by the court or deposited into an attorney trust account until such time that the workers’ compensation action is resolved. 

This case reinforces the employer’s right to recovery on its workers’ compensation lien against an injured worker’s third-party recovery if that recovery is equal to or greater than the workers’ compensation lien. This decision also provides guidance to an employer regarding its right to recovery in the event the lien is perfected or not. 

_{Defense Digest, Vol. 30, No. 2, June 2024, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2024 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}