Pennsylvania Supreme Court Permits Award of Attorney’s Fees Despite Reasonable Contest

Harrisburg, PA – On December 22, 2021, the Pennsylvania Supreme Court issued a Decision (Lorino v WCAB (Commonwealth of PA) that has an immediate and significant impact the handling of workers’ compensation cases moving forward as well as the potential to impact premiums for workers’ compensation coverage moving forward.

The procedural background is quite simple.  Lorino suffered a work-related injury. The Employer accepted the injury and later obtained an Independent Medical Evaluation which found the Lorino was fully recovered from his work-related injury.  By this time, Lorino had returned to work and was no longer experiencing any wage loss.

When the Termination Petition was filed, Lorino retained counsel.  The case was litigated.  The Workers’ Compensation Judge ultimately concluded that Lorino was not fully recovered from his work injury and the Termination Petition was denied.  However, because Lorino was not receiving wage loss benefits from which a 20% attorney fee could be deducted, Lorino’s attorney requested attorney’s fees in the amount of $14,050 pursuant to Section 440 of the Workers’ Compensation Act, something that until now was only done when the employer engages in an unreasonable contest.

The Workers’ Compensation Judge denied the Termination Petition but did award attorney’s fees in the amount of $2000.

Both parties appealed to the Workers’ Compensation Appeal Board which reversed the award of attorney’s fees.  An appeal was then taken to the Commonwealth Court which, in an unpublished Opinion, affirmed the Board’s Order concluding that the Claimant was not entitled to attorney’s fees because the Employer had a reasonable basis for its Termination Petition.

Lorino then appealed to the Pennsylvania Supreme Court arguing that according to the language of Section 440(a) of the Act, where a employee prevails in a contested case, the employee “shall be awarded” a reasonable sum for the costs incurred for attorney’s fees, whereas when a reasonable basis for the contest has been established by the employer or the insurer, attorney’s fees “may be excluded”.

The Court agreed with the employee concluding that “shall” establishes a mandatory duty whereas “may” connotates an act that is permissive but not mandated or required.  Accordingly, the Court reversed the Commonwealth Court’s Decision concluding that an award of unreasonable contest attorney’s fees is mandatory whereas the exclusion of attorney’s fees is permissive, and found that a WCJ is able to use discretion when determining whether attorney’s fees should be awarded or not.

The Court is careful to point out that this interpretation of the Act does not mean that the  WCJ must always award of attorney’s fees when the employer has established a reasonable basis for a contest.  It is simply not a per se disqualification of attorney’s fees just because the employer establishes a reasonable basis for contest.

This Decision is quite troublesome. However, we believe that it can be argued that this decision should be limited to only those situations in which the employee is not receiving wage loss benefits making it impossible to pay attorney’s fees out of wage loss benefits. Secondly, the Commonwealth Court in Neves v WCAB (American Airlines), held that an employee’s attorney can be awarded a 20% fee on medical benefits.  Accordingly, employers could argue that attorney’s fees may be paid out of medical benefits rather than as unreasonable contest attorney’s fees. The downside of this argument is that it presents some administrative challenges for adjustors; but it would not result in increased cost to the Employer.

The unfortunate reality of this decision, however, is that WCJs are now empowered with the ability to award attorney’s fees even when a contest is reasonable based on their discretion.

For more information or questions, please contact any of TT&H’s Pennsylvania workers’ compensation practitioners.