Employer Subrogation

Labor Code Division 4, Part 1, Chapter 5 deals with subrogation of employer under the workers’ compensation laws in California. Section 3850 defines the terms “employee” and “employer.”

Section 3851 provides that the death of the employee or of any other person, does not abate any right of action established by this chapter.

Section 3852 explains that the claim of an employee, including any peace officer or firefighter, for compensation does not affect their claim or right of action for all damages proximately resulting from the injury or death against any person other than the employer. 

An employer who pays, or becomes obligated to pay compensation, or who pays, or becomes obligated to pay salary in lieu of compensation, may likewise make a claim or bring an action against the third person. In the latter event, the employer may recover in the same suit, in addition to the total amount of compensation, damages for which they were liable including all salary, wage, pension, or other emolument paid to the employee or to their dependents. The respective rights against the third person of the heirs of an employee are determined by the court.

Section 3853 states that, if either the employee or the employer brings an action against a third person, he must immediately give to the other a copy of the complaint by personal service or certified mail.

Section 3854 provides that, if the action is prosecuted by the employer alone, evidence of any amount which the employer has paid or become obligated to pay by reason of the injury or death of the employee is admissible, and expenditures or liability must be considered as proximately resulting from injury or death in addition to any other items of damage.

Section 3855 explains that, if the employee joins in or prosecutes an action, either the evidence of the amount of disability indemnity or death benefit paid or to be paid by the employer or the evidence of loss of earning capacity by the employee is admissible, but not both. Proof of all other items of damage to either the employer or employee proximately resulting from injury or death is admissible and is part of the damages.

Section 3856 contains four specified rules in the event of suit against a third party.

Section 3857 requires the court to allow, upon further application at any time before the judgment is satisfied, as a further lien the amount of any expenditures of the employer for compensation subsequent to the original order.

Section 3858 states that, after payment of litigation expenses and attorney’s fees fixed by the court and payment of the employer’s lien, the employer is relieved from the obligation to pay further compensation to or on behalf of the employee under this division up to the entire amount of the balance of the judgment, if satisfied, without any deduction.

Section 3859 states that a release or settlement of any claim under this chapter as to either the employee or the employer is not valid without the written consent of both. Proof of service filed with the court is sufficient in any action or proceeding where the approval is required by law. The written consent of the employer is not required in a claim that is subject to specified laws.

An employee may settle and release any claim they may have against a third party without the consent of the employer. A settlement or release is subject to the employer’s right to proceed to recover compensation they have paid in accordance with law. A settlement or release must limit the employer’s claim for reimbursement to the portion of the settlement allocated to the employer.

Section 3860 provides that a release or settlement under this chapter, with or without suit, is not valid or binding as to any party thereto without notice to both the employer and the employee, with opportunity to the employer to recover the amount of compensation the employer has paid or become obligated to pay and any special damages to which the employer may be entitled, and opportunity to the employee to recover all damages the employee has suffered and with provision for determination of expenses and attorney’s fees as provided.

If the employee is a peace officer, or a firefighter, a release or settlement, with or without suit, is not valid or binding unless it provides that the employer cannot receive more than one-third of the third-party insurance limits. The entire amount of the settlement, with or without suit, is subject to the employer’s full claim for reimbursement for compensation the employer has paid or become obligated to pay and any special damages to which the employer may be entitled, together with expenses and attorney’s fees subject to the limitations in this section.

The employer’s claim for reimbursement is limited to the portion of the settlement allocated to the employer. The employer does not have a right to assert any credit or offset against future workers’ compensation benefits. If settlement is effected, with or without suit, solely through the efforts of the employee’s attorney, then prior to the reimbursement of the employer, there is deducted from the amount of the settlement the reasonable expenses incurred in effecting settlement.

Section 3861 explains that the appeals board is empowered to and allows as a credit to the employer to be applied against their liability for compensation the amount of any recovery by the employee for their injury, either by settlement or after judgment, as has not theretofore been applied to the payment of expenses or attorneys’ fees.

The employer is prohibited from asserting, claiming, or enforcing any credit or offset against any future workers’ compensation benefits, including future indemnity, medical, and vocational rehabilitation benefits, based on the employee’s civil recovery from a third-party tortfeasor. The appeals board is not empowered and cannot allow a credit to be applied to the employer.

Section 3862 states that an employer entitled to and who has been allowed and has perfected a lien upon the judgment or award in favor of an employee against any third party for damages occasioned to the same employer by payment of compensation, expenses of medical treatment, and any other charges under this act, may enforce payment of the lien against the third party. The employer’s claim for reimbursement is limited to the portion of the settlement allocated to the employer. The employer has no right to assert any credit or offset against future workers’ compensation benefits.

Section 3864 provides that, if an action as provided in this chapter prosecuted by the employee, the employer, or both jointly against the third person results in judgment against such third person, or settlement by a third person, the employer has no liability to reimburse or hold a third person harmless on judgment or settlement in absence of a written agreement so to do executed prior to the injury.

Section 3865 states that any judgment or settlement of an action as provided for in this chapter is, upon notice to the court, subject to the same lien claims of the Employment Development Department and be allowed by the court as it determines necessary to avoid a duplication of payment as compensation to the employee for lost earnings.