In the world of personal injury law, some of the most complex cases involve an employee injured on the job by someone other than their employer. Imagine a delivery driver struck by a distracted motorist, or a construction worker injured by a defective piece of machinery manufactured by an outside vendor. In these scenarios, the injured worker is entitled to Workers’ Compensation benefits, but they also have a valid Personal Injury claim against the “third party” yet there is a catch that often surprises plaintiffs: the Workers’ Compensation Lien.
The Dual Path to Recovery
When an injury occurs “in the course and scope of employment,” the recovery process splits into two distinct tracks:
- The Workers’ Comp Claim: This is a “no-fault” system. The worker receives medical coverage and a portion of lost wages regardless of who caused the accident.
- The Third-Party Lawsuit: This is a traditional civil lawsuit based on negligence. Unlike Workers’ Comp, it allows the plaintiff to seek “pain and suffering” damages and full wage replacement.
What is a Workers’ Compensation Lien?
By law, an insurance company is not obligated to pay for the same injury twice. If your employer’s Workers’ Comp carrier pays $50,000 for your surgery and physical therapy, and you later win a $100,000 settlement from the driver who hit you, the insurance carrier has a “Right of Subrogation.”
This means they place a lien on your personal injury settlement to recoup the money they spent on your behalf. Essentially, they are “first in line” to get paid once your case settles or a verdict is reached.
How the Lien Impacts Your Settlement
The presence of a lien can significantly change the math of a personal injury case. Here is a simplified breakdown of how the funds are usually distributed:
| Step | Description |
| 1. Gross Recovery | The total amount won from the third party (e.g., $150,000). |
| 2. Attorney Fees & Costs | Usually a percentage of the gross recovery. |
| 3. The Lien Payment | The Workers’ Comp carrier is reimbursed for medical bills and disability payments. |
| 4. Net to Plaintiff | The remaining amount the injured worker actually takes home. |
Important Note: If the lien is $100,000 and the total settlement is only $110,000, the plaintiff might be left with almost nothing after legal fees. This is why “lien negotiation” is a critical part of the process.
The Art of Lien Negotiation
Rarely does a Workers’ Comp carrier collect 100% of their lien. A skilled attorney will negotiate the lien down based on several factors:
- Comparative Fault: If the plaintiff was partially responsible for the accident, the carrier may agree to reduce the lien by that same percentage.
- Attorney’s Fees (The “Common Fund” Doctrine): In many states, the insurance carrier must contribute to the plaintiff’s legal fees because the plaintiff’s lawyer did the work to recover the money the carrier is now taking.
- Hardship: If the settlement is small, carriers may take a “haircut” to ensure the injured worker receives a meaningful recovery.
The Common Fund Doctrine
The common fund doctrine allows a party who has paid for legal representation to create or preserve a fund from which others benefit to require those beneficiaries to share the litigation costs. This doctrine is rooted in the principle of avoiding unjust enrichment, ensuring that passive beneficiaries contribute to the costs of creating the fund from which they benefit (Leiper v. Gallegos, 69 Cal.App.5th 284 (2021))[1]. California courts have long applied this principle, particularly in cases involving workers’ compensation carriers seeking reimbursement from third-party recoveries (Quinn v. State of California, 15 Cal.3d 162 (1975)).
Under Labor Code section 3856, attorney fees are apportioned based on the services rendered for the benefit of both the employee and the employer. Specifically, section 3856(c) provides that when both the employee and employer prosecute an action together, whether represented by the same attorney or separate attorneys, the court must deduct reasonable litigation expenses and attorney fees from the judgment before reimbursing the employer for its workers’ compensation expenditures. The fees are apportioned based on the services rendered for the benefit of each party (West’s Ann.Cal.Labor Code § 3856).
Distinction Between Passive Beneficiaries and Active Participants
The common fund doctrine applies when the workers’ compensation carrier is a passive beneficiary of the litigation. For example, in Quinn v. State of California, the court held that an employer who did not actively participate in the litigation was a passive beneficiary and therefore required to contribute to the employee’s attorney fees (Quinn v. State of California, 15 Cal.3d 162 (1975)). Similarly, in Manriquez v. Adams, the court emphasized that when settlement is achieved solely through the efforts of the employee’s attorney, the employer is a passive beneficiary and must bear a fair share of the litigation costs (Manriquez v. Adams, 108 Cal.App.4th 340 (2003)).
However, the doctrine does not apply when the workers’ compensation carrier actively participates in the litigation. In Kavanaugh v. City of Sunnyvale, the court held that the common fund doctrine was inapplicable because the employer was not a passive beneficiary; the employer actively participated in the litigation by engaging in discovery, pretrial settlement conferences, designating expert witnesses, and participating in the trial (Kavanaugh v. City of Sunnyvale, 233 Cal.App.3d 903 (1991)). Similarly, in Hartwig v. Zacky Farms, the court stated that apportionment is inappropriate when both the employee and the employer (or workers’ compensation carrier) retain separate attorneys who actively participate in generating the recovery fund (Hartwig v. Zacky Farms, 2 Cal.App.4th 1550 (1992)).
For the employer to avoid paying its share of fees and costs, they have the burden to produce evidence of a “conscientious effort in the circumstances to address the substantive issues encompassed by the lien holder’s case.” (Gapusan v. Jay (1998) 66 Cal.App.4th 734, 745-746.) Employer has the burden to show their active participation, and merely filing a complaint and showing up to a few depositions will not suffice. “[A] token appearance insufficient.” (Id. At 745-746.) Another court in Hartwig v. Zacky Farms (1992) 2 Cal.App.4th 1550 stated, “merely retaining separate counsel or filing a complaint in intervention or a lien, with nothing more, does not satisfy the standard of ‘active participation.’”
The Formula for the Common Fund Doctrine Reduction
The actual formula is derived from appellate court decisions, particularly Quinn v. State of California (1975) 15 Cal.3d 16, which codified the application of the common fund doctrine to workers’ compensation subrogation.
The reduction is calculated to determine the carrier’s pro rata share of the attorney’s fees and costs. The general formula, although subject to judicial discretion based on the facts of the case, is often expressed as follows:
The Net Lien that the workers’ compensation carrier receives is:
Carrier’s fee share = lien amount x (plaintiff’s attorney fees + costs / total settlement)
Net lien = gross lien amount – carrier’s fee share
The landmark California Supreme Court case, Quinn v. State of California (1975) 15 Cal.3d 16, explicitly establishes that the workers’ compensation carrier’s lien must be reduced by a pro rata share of the injured employee’s litigation expenses, which includes both attorney’s fees and costs.
The core holding that confirms the inclusion of costs can be found in the court’s discussion of the Common Fund Doctrine. The court referenced the principle of “sharing the expenses of litigation” that resulted in the recovery. While the court used general terms, the Quinn decision’s foundational principle is that the party benefiting from the recovery (the lienholder) must pay its share of the entire cost of creating the fund.
A key passage from the opinion that summarizes the application of the common fund rule to the litigation expenses is:
“Thus, applying the common fund principle to the present case, we conclude that the lien of the intervening employer, or its carrier, must be reduced by the amount of the employer’s pro rata share of the employee’s litigation expenses.”
In this context, “litigation expenses” is the term used by the court, and it is universally interpreted to mean both the reasonable attorney’s fees and the reasonable costs incurred by the employee in securing the third-party settlement.
The Quinn court’s analysis effectively overruled earlier precedents that allowed the carrier to recover the full lien amount without contributing to the costs, ensuring that the employee’s net recovery is not unfairly burdened by the costs of litigation.
Filing a Motion for the Court to Apply the Common Fund Reduction
In California, a plaintiff (or plaintiff’s counsel) can absolutely file a motion asking the superior court to apply the common fund doctrine and reduce the workers’ compensation lien — even when the carrier has filed a complaint-in-intervention.
This motion is routinely filed and granted in California third-party cases. Here are the exact circumstances and how it works:
When the Motion Is Most Commonly Filed and Granted
- The workers’ comp carrier has intervened (or just filed a lien).
- The plaintiff is about to settle (or has already settled) with the third-party defendant.
- The carrier is passive — it has done little or no work (no discovery, no depositions, no expert retention, no trial prep, etc.).
- Plaintiff wants the lien reduced proportionally for attorney fees and costs under Lab. Code § 3860 and the common fund doctrine (Quinn, Summers, Draper, etc.).
Name of the Motion (California Practice)
It is almost always titled one of these ways in California superior courts:
- Motion for Apportionment of Third-Party Recovery and Application of Common Fund Doctrine
- Motion to Determine and Reduce Workers’ Compensation Lien (Common Fund Doctrine)
- Motion for Order Determining Amount of Workers’ Compensation Lien
Legal Authority (What You Cite)
- Labor Code § 3860(b) & (c)
- Quinn v. State of California (1975) 15 Cal.3d 162
- Summers v. Newman (1999) 20 Cal.4th 1021
- Draper v. Aceto (2001) 26 Cal.4th 1086 (key case: active vs. passive participation)
- Kaplan v. Eldorado Ins. Co. (1976) 55 Cal.App.3d 587
- Kindt v. Otis Elevator Co. (1994) 32 Cal.App.4th 452
How Courts Rule on the Motion
| Carrier’s Level of Participation | Likely Ruling on Common Fund Motion |
| Completely passive (just filed lien or bare intervention, did nothing else) | Common fund reduction granted in full (same percentage as plaintiff’s fees + costs) |
| Moderately active (some written discovery, attended a few depos) | Partial reduction — court apportions fees between plaintiff’s and carrier’s counsel (e.g., 50/50 or 70/30 split) |
| Fully active (hired own lawyer, did extensive discovery, ready for trial) | Motion denied — carrier pays its own fees, no common fund reduction |
Timing of the Motion
- Before settlement: Motion can be filed with a “good faith settlement” application (CCP § 877.6) and lien determination at the same hearing.
- After settlement: Plaintiff deposits the disputed lien amount with the court or into a trust account and brings the motion (very common).
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