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Labor Commission fee schedule illegal

Workers’ Compensation Act Lawsuit

In 1917, the Utah Legislature enacted the Workers’ Compensation Act.  Under the Workers’ Compensation Act, injured workers are required to forego their common law tort remedies against their employers in exchange for a process by which employers compensate injured workers for workplace injuries regardless of fault.  Shortly after the Legislature passed the Workers’ Compensation Act, the Legislature created the Industrial Commission, which it bestowed with the “full power to regulate and fix the fee charge” of attorneys involved in workers’ compensation cases.”  The power originally given to the Industrial Commission has resided with the Labor Commission since its inception in 1997.  However, a recent Utah Supreme Court ruling has found that the Labor Commission’s regulation of attorney fees and its corresponding statute are unconstitutional under the separation of powers doctrine.

Traditional Regulation of Attorney Fees in Workers’ Compensation Cases in Utah

By way of background, the former Industrial Commission initially created a scheme in which attorneys received a minimum fee of ten dollars, plus five percent of the injured worker’s award.  Under this initial policy, the Industrial Commission retained discretion to adjust an attorney fee upward or downward if the fee would be otherwise unjust to the parties.  The Industrial Commission’s regulation scheme only affected injured workers’ attorney fees.  At no time, whether under the Industrial Commission or the Labor Commission, have the attorney fees of attorneys representing employers or insurance companies been regulated.

Over time, the fee schedule applicable to injured workers’ attorneys has been adjusted.  The most current iteration of the Labor Commission fee schedule grants successful injured workers’ attorneys a fee of 25 percent for the first $25,000 of the award, 20 percent for the next $25,000 of the award, and 10 percent of amounts awarded in excess of $50,000.  Beginning in 1991, the former Industrial Commission added a cap to the total overall fees an injured worker’s attorney may recover, which at present is capped at $18,590.  Thus, by creating a hard cap on the overall fees to be awarded to an injured worker’s attorney, the Industrial Commission removed any discretion in awarding fees.  Rather, after 1991, the amount of attorney fees awarded depended solely on the size of the judgment.

Injured Workers v. State, et al.

The issue of the constitutionality of the Labor Commission’s regulation to injured workers’ attorneys and their fees, along with the statutory framework establishing that regulation, recently came before the Utah Supreme Court.  In Injured Workers v. State, et al., the Injured Workers Association of Utah (“IWA”) and several of its member attorneys brought suit to challenge the statute and the Labor Commission’s fee schedule as unconstitutional.  Specifically, IWA argued that, under the Utah constitution, the Utah Supreme Court is vested with the exclusive authority to regulate the practice of law, and that this authority extends to the regulation of attorney fees.

In response to IWA’s contentions, the State pointed to Thatcher v. Industrial Commission, which rejected the notion “that the regulation and fixing of fees of attorneys is essentially and solely the power of the judiciary.”  While IWA acknowledged the holding in Thatcher, IWA argued that the law changed after the 1985 revision of article VIII of the constitution, when the supreme court’s power to govern the practice of law became explicit and exclusive.  The district court was unpersuaded by IWA’s argument.

Utah Supreme Court Finds Labor Commission Fee Regulation, and Supporting Statute, Unconstitutional

However, the Utah Supreme Court agreed with IWA, stating:

We agree with IWA and hold that the regulation of attorney fees is included within the power to govern the practice of law. Because the Utah Supreme Court is vested with exclusive inherent and constitutional authority to govern the practice of law—and the court cannot under the separation-of-powers doctrine delegate the regulation of attorney fees to the legislature or the Commission—we hold both the Commission’s fee schedule and its authorizing statute unconstitutional.

The court began its analysis by discussing the separation of powers doctrine in Utah.  First, the court reiterated that “under our state constitution, the Utah Supreme Court has plenary authority to govern the practice of law.  This authority is derived both from our inherent power and—since 1985—explicit and exclusive constitutional power.”  Second, the court determined that “the regulation of attorney fees falls squarely within the practice of law, thus invalidating Thatcher v. Industrial Commission[.]”  As a result, the court concluded, “Because we cannot delegate the authority to regulate attorney fees in workers’ compensation cases to the legislature, both the statute and the Labor Commission’s fee schedule are unconstitutional encroachments upon the power of the judiciary to govern the practice of law.”  Finally, the court set forth the reasons it would presently decline to adopt a fee schedule of its own for regulating the fees of injured workers.

As it relates to the Utah Supreme Court’s plenary authority to govern the practice of law, the court noted that the court’s authority arose from Art. VIII, § 1 of the Utah constitution, and that “[a]s part of our inherent authority to govern the practice of law, we have always had the ability to regulate the admission and discipline of attorneys.”  Even still, the court noted that the Utah Supreme Court’s authority to govern the practice of law was not complete until 1985 when the Utah state constitution was amended to explicitly grant the Utah Supreme Court exclusive power to govern the practice of law.

Regulation of Attorney Fees “Squarely” Within Province of Utah Supreme Court

Having reiterated the Utah Supreme Court’s unequivocal province over the practice of law in Utah, the court turned to the issue of attorney fees, holding that the regulation of attorney fees falls squarely within the court’s exclusive jurisdiction to govern the practice of law.  There, the court said:

We hold that the regulation of attorney fees falls squarely within the practice of law.  It is something we have regulated since before Thatcher and continue to regulate today.  In rule 1.5, we mandate that a “lawyer shall not make an agreement for, charge or collect an unreasonable fee.”  We have used this rule as a guideline in determining the reasonableness of attorney fees in several cases.  Even in Thatcher, we recognized that the supreme court is in a better position than an administrative agency to determine the reasonableness of attorney fees.  Regulating attorney fees goes to the very heart of the practice of law, inasmuch as it involves assessment of the quality, amount, and value of legal services related to a legal problem.

Therefore, today we decide what Thatcher left undecided— that we have the power to regulate and fix attorney fees.  Moreover, by vesting the exclusive power to govern the practice of law with the supreme court, the 1985 amendment to article VIII, section 4 invalidated Thatcher’s holding that the legislature has the authority to regulate attorney fees.  Even if Thatcher correctly allowed the legislature to regulate fees at the time it was decided, this decision has been preempted by this court’s now exclusive constitutional authority to regulate attorney fees. The fee schedule the legislature has authorized is therefore invalid.

The final portion of the court’s opinion centered on whether the court would adopt its own fee schedule, similar to the one utilized by the Labor Commission, regarding the fees to be paid to injured workers’ attorneys.  The Court noted that “[a]lthough we have the power to adopt a similar scheme, we decline to do so” on the grounds that “the policy considerations advanced by the Labor Commission do not seem to outweigh countervailing policy considerations, and attorneys remain bound by rule 1.5 and the other Utah Rules of Professional Conduct—just as in any other case—and therefore may charge only reasonable fees.”

Significance of Court’s Holding is Two-Fold

The Utah Supreme Court’s holding in Injured Workers Association is significant for two reasons.  First, the decision displaces the old statutory framework that bestowed the Labor Commission with the authority to regulate attorney fees in workers’ compensation cases, as well as removing any scheduled limits on the workers’ compensation attorneys in as far as they were set by the Labor Commission and/or the Legislature.  Second, and maybe more importantly, the Utah Supreme Court has at present declined to set forth its own fee schedule for workers’ compensation attorneys.  However, this does not mean that workers’ compensation attorney are allowed to charge whatever fees they wish.  As the court set forth in its opinion, “We are therefore persuaded that injured workers are adequately safeguarded by current rules against attorneys preying on their awards and charging unreasonable fees,” based upon the fact that workers’ compensation attorneys are still bound the Utah Rules of Professional Conduct regarding the reasonableness of their fees.  Even still, the court’s decision represents a significant win for workers’ compensation attorneys in Utah, who are no longer bound by the Labor Commission.

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Copyright 2016