Employee Barred from Untimely Attempt to Intervene in Employer's Subrogation Suit

March 2019

By: Jeffrey F. Clement

In A&R Janitorial v. Pepper Constr. Co., 2018 IL 123220, the Supreme Court of Illinois was faced with the unique circumstance of an employee attempting to intervene in a subrogation lawsuit brought by her employer after the statute of limitations had expired for the employee to institute her own lawsuit. The Supreme Court of Illinois held that the employee could not intervene in the employer's lawsuit based on the doctrine of res judicata.

In addition to seeking workers' compensation benefits, an employee may file his or her own personal injury action against a third-party tortfeasor in order to recover damages for a work injury. Under Section 5(b) of the Illinois Workers' Compensation Act (the "Act"), the employer is entitled to reimbursement of its workers' compensation benefits out of the proceeds of any settlement or judgment obtained by the employee in that third party suit, less the payment of a 25% attorney's fee and pro rata share of costs. 820 ILCS 305/5(b). In addition, the employer has a right to intervene in the employee's action in order to protect its workers' compensation lien in all court orders entered after hearing and judgment. 820 ILCS 305/5(b). In most instances, the employee will timely file a lawsuit against the third-party and the employer will assert its lien rights by intervening in said action.

A&R Janitorial involved the converse situation. The employee was injured at work due to the alleged negligence of a third-party. The employee filed a workers' compensation claim but failed to file a personal injury action against the third-party within the statute of limitations. On the other hand, the employer timely exercised its own right under Section 5(b) of the Act to file a complaint in subrogation against the third-party seeking recovery of its losses.

Section 5(b) of the Act permits the employer to file the same action the employee could have filed in the event the employee fails to file their own action prior to three months before the expiration of the limitations period. Any proceeds obtained by the employer in excess of the amount of workers' compensation benefits owed, plus reasonable expenses, attorney's fees and costs, must be paid over to the employee. 820 ILCS 305/5(b). The statute is silent with respect to whether an employee has a right to intervene in an action filed by the employer. Also, in most circumstances, the employer will only seek recovery of the workers' compensation benefits it paid as it has no incentive to seek recovery for amounts in excess of its workers' compensation benefits as those excess amounts must be paid over to the employee. Indeed, in A&R Janitorial, the employer's original subrogation complaint only sought recovery for the workers' compensation benefits it paid.

In A&R Janitorial, after the employer filed suit, the employee attempted to file her own personal injury action against the same defendant, but the circuit court dismissed the action with prejudice based upon the statute of limitations. The employee then attempted to intervene in the employer's subrogation action and also to amend the employer's complaint to seek additional damages for her injuries above and beyond the amount of workers' compensation benefits paid.

On appeal to the Supreme Court of Illinois, the Court held the employee's petition for intervention was barred by the doctrine of res judicata. For res judicata to apply, three requirements must be met: (1) a final judgment on the merits rendered by a court of competent jurisdiction, (2) an identity of cause of action, and (3) an identity of parties or their privies.

The Court held all three elements were met. There was no dispute the circuit court's order dismissing the case with prejudice was a final judgment on the merits. As to the second element, identify of cause of action, the employee's previously dismissed personal injury action and the petition to intervene "arose from the same group of operative facts" – namely the alleged negligence of the third-party and the employee's damages. As a result, the second res judicata element was established. The third and final requirement for res judicata, an identity of parties or their privies, was present because the employee was the party seeking to recover from the third-party in both her personal injury action and her petition to intervene. Indeed, the employee was seeking to amend her employer's complaint to allege additional damages against the third-party.

Additionally, the Court rejected the employee's argument it would be inequitable to apply res judicata because her employer has no interest in protecting her right to recovery for noneconomic damages. Although it was true the employer had no interest in pursuing recovery of the employee's noneconomic damages, the Court did not believe this created an inequitable situation. Had the employee wished to seek non-economic damages, the employee could have filed suit within the prescribed statute of limitations.

Ultimately, the A&R Janitorial decision stands for the proposition that, where the employee files suit and that suit is dismissed as untimely under the statute of limitations, the doctrine of res judicata will bar the employee from intervening in the employer's Section 5(b) subrogation suit.

Importantly, the A&R Janitorial Court specifically noted it was making no findings as to whether the employee had a right to intervene in her employer's subrogation action if res judicata were inapplicable. The Court also did not reach the issue of whether the employer or employee would be allowed to control the litigation in the event the employee had been permitted to intervene.

As a result, several questions remain. If the employee never filed an independent lawsuit (either before or after the statute of limitations expired), but simply attempted to intervene in the employer's suit, would the employee be permitted to intervene? Because the employee never filed suit, there would be no final adjudication on the merits as to the employee's own suit, which may preclude the application of res judicata. If the employee is permitted to intervene in the employer's suit, who would control the litigation? In most instances, the employer would only seek to recover its economic losses (i.e. the workers' compensation benefits it paid) and would not seek to recover the employee's noneconomic damages (e.g. pain and suffering). Could the employee seek to compel the employer to amend its complaint to seek such non-economic damages? The A&R Janitorial decision does not provide any definitive answers to these important questions.

The best practice remains to file a subrogation action seeking only the recovery of workers' compensation benefits paid by the employer. The employee would seemingly have no protectable interest in the employer's action because non-economic damages (which must be "paid over" to the employee) would not be recovered. This would hopefully preclude the employee from showing up later down the road and attempting to intervene in the employer's Section 5(b) lawsuit.