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PA Supreme Court Decision: Reasonable Contest Attorney’s Fees Under Pennsylvania Workers’ Compensation Act

Article by Alana Staniszewski, Esq.

On December 22, 2021, the Pennsylvania Supreme Court issued a unanimous decision in Lorino v. W.C.A.B. (Commonwealth of PA/Penn DOT), ___ A.3d ___, 2021 WL 6058030 (Pa. 2021), with a holding upsetting years of Workers’ Compensation custom and practice. As often the case, the Supreme Court was tasked with a matter of statutory interpretation – this time, within the context of the Pennsylvania Workers’ Compensation Act.

A question had been raised by the language of Section 440(a), which states in pertinent part:

In any contested case where the insurer has contested liability in whole or in part, including contested cases involving petitions to terminate . . . , the employe[e] . . . in whose favor the matter at issue has been finally determined in whole or in part shall be awarded . . . a reasonable sum for costs incurred for attorney’s fees . . . That cost for attorney’s fees may be excluded when a reasonable basis for the contest has been established by the employer or the insurer.

77 P.S. § 996(a) (emphasis added). The Supreme Court was left to determine the effect of the legislature’s use of “shall” and “may” in regards to the award of attorney’s fees where there was a reasonable basis for the employer’s contest. Historically, this statutory provision was interpreted to mean that a successful claimant would be entitled to attorney’s fees unless the employer could demonstrate that its contest had been reasonable. Weidner v. WCAB, 332 A.2d 885, 887 (Pa. Commw. 1975). However, this interpretation had now been challenged.

By way of background, the Claimant in Lorino was an equipment operator for the Department of Transportation. On the date of injury, he slipped on his work truck and fell backward, injuring his lower back and left hip. The Employer, through its Insurer, accepted liability for Claimant’s low back sprain and left hip sprain by Medical Only Notices of Compensation Payable. This meant that while Claimant would not receive any indemnity, or wage loss, benefits, the Employer, through its Insurer, would pay for medical treatment that was reasonable, necessary, and causally related to the accepted work injury. Claimant did not miss work following his injury. However, he did treat for his injury with periodic epidural spinal injections.

Six months after his injury, the Employer referred Claimant for an Independent Medical Examination. The doctor found that Claimant had fully recovered from his injuries. As a result, Employer filed a Termination Petition, seeking the termination of Claimant’s medical benefits. Claimant then retained counsel for the hearing on Employer’s Termination Petition. At the conclusion of the hearing, Claimant requested, in addition to continued medical benefits, attorney’s fees pursuant to Section 440 of the Workers’ Compensation Act.

The Workers’ Compensation Judge denied the Employer’s termination petition. Although the Judge found that the Employer had a reasonable basis for filing its termination petition based on the IME report finding full recovery, upon full consideration of the evidence submitted by both parties, the Judge found that the Employer had not met its burden of proving full recovery. However, because the Judge found that Employer had a reasonable basis for pursuing termination of Claimant’s benefits, the Judge denied Claimant’s request for attorney’s fees.

Both parties sought further review by the Workers’ Compensation Appeal Board, which affirmed that Claimant was not entitled to attorney’s fees. Claimant then appealed to the Commonwealth Court.

The Commonwealth Court affirmed the Board’s determination that Claimant was not entitled to attorney’s fees under Section 440 of the Act because Employer had a reasonable basis for its termination petition. The Court noted that,

despite the General Assembly’s use of the word may, this Court has always interpreted Section 440 to mean that attorney’s fees shall be awarded unless a reasonable basis for the employer’s contest has been established; or otherwise expressed, the award of attorney’s fees is the rule and their exclusion is the exception to be applied in cases where the record establishes that the employer’s . . . contest is reasonably based.

Lorino, 1217 C.D. 2019 at 10-11 (Pa. Commw. Filed Aug. 19, 2020) (quoting Weidner, 332 A.2d at 887) (emphasis added).

On appeal to the Pennsylvania Supreme Court, Claimant argued that the legislature’s use of the word “may” instead of “shall” in discussing the exclusion of attorney’s fees demonstrates that the legislature did not intend for attorney’s fees to be excluded in every reasonable contest case. Claimant highlighted that the Supreme Court had previously found that “where the General Assembly uses both ‘may’ and ‘shall’ in the same section of a statute, it intends for those terms to have distinct meanings.” Lorino, at 6.

In asserting its objective to stay true to the intent of the General Assembly, the Supreme Court gave effect to the plain language of the statute. The Supreme Court found that the Commonwealth Court’s interpretation of Section 440 was contrary to the Act’s express and unambiguous language. The Supreme Court stated that the Commonwealth Court’s interpretation served as a “per se disqualification of an award of claimant’s attorney’s fees where the employer has established a reasonable basis for its contest.” Id. at 11.

The Supreme Court held, that based on the established meaning of the terms “shall” and “may,” the award of attorney’s fees in a contested case resolved in favor of an employee is mandatory. However, in the case where the employer has established a reasonable basis for the contest, the Workers’ Compensation Judge has the discretion to exclude the award of attorney’s fees.

The Supreme Court noted that it was unpersuaded by the Employer’s argument that this interpretation of Section 440(a) granted Workers’ Compensation Judges discretion to award attorney’s fees without clear standards. Rejecting this argument, the Supreme Court stated that it was confident the judges would apply their discretion “based on the humanitarian and remedial purposes which underlie” the Act.

Following this decision, Employers may no longer find a safe harbor in Section 440(a) of the Act. Regardless of whether their contest of claim is reasonable, Employers may still find themselves at the mercy of the Workers’ Compensation Judges with their newly asserted, significant discretionary authority. Under this new interpretation, it is entirely possible for an employer to be assessed attorney’s fees despite a truly reasonable contest.

It is well settled that “[a]n abuse of discretion occurs where the Workers’ Compensation Judge’s judgment is manifestly unreasonable, where the law is not applied, or where the record shows that the action is a result of partiality, prejudice, bias, or ill will.” Allegis Group v. WCAB (Coughenaur), 7 A.3d 325, 327 n.3 (Pa. Commw. 2010). Keeping this in mind, the Workers’ Compensation Judges’ discretionary authority will prove to be significant. As a result, the immediate future may likely be filled with appeals over abuse of discretion regarding the assessment of attorney’s fees as the Workers’ Compensation Judges, Appeal Board, and Commonwealth Court grapple with Section 440(a)’s new interpretation.