Complexities of Workers' Compensation Liens: Understanding the Exceptions

March 2023

Andrea M. Carlson and Ivan Nieves

Generally, in Illinois workers’ compensation cases, there are no liens allowed against petitioners’ cases pursuant to Section 21 of the Illinois Workers’ Compensation Act:

“No payment, claim, award or decision under this Act shall be assignable or subject to any lien, attachment or garnishment, or be held liable in any way for any lien, debt, penalty or damages,. . .”

As will be discussed in this article, however, there are important exceptions where liens can be claimed against a petitioner’s case which require special consideration and attention. Conversely, you may receive notice of a lien that is actually unenforceable against a workers’ compensation case under the law and this article will provide guidance how to identify and approach these unenforceable liens.

Child and Spousal Support Liens

A common exception to the general rule that there are no liens against petitioners’ workers’ compensation cases is for child and spousal support. Under the Income Withholding for Support Act:

(d) "Income" means any form of periodic payment to an individual, regardless of source, including, but not limited to: wages, salary, commission, compensation as an independent contractor, workers' compensation, disability, annuity, pension, and retirement."

Therefore, any notice of a child or spousal support lien from the Department of Health and Family Services (IDFHS) should be documented and addressed prior to resolution of a claim. It is highly recommended that the petitioner, or the attorney if represented, should be put on notice that a child and spousal support lien has been received and will be honored by Respondent throughout the pendency of the case and pursuant to the specific instructions of the child or spousal support court order.

Medicaid Liens

Medicaid is a need-based federal program administered by the states and is intended to be used for non-work related conditions only. Medicaid is often referred to as “the payer of last resort,” meaning that Medicaid only pays medical claims for covered items and services if there are no other liable third-party payers for the same items and services. The Social Security Act requires that states take “all reasonable measures to ascertain the legal liability of third parties.” The Act further defines third-party payers to include, among others, Workers’ Compensation. Regarding Medicaid payments for medical treatment that should have been paid under workers’ compensation, state Medicaid agencies must recover from workers’ compensation settlements or awards that include compensation for medical expenses. In Illinois, the Department of Healthcare and Family Services Bureau of Collections is responsible for coordinating these recoveries of Medicaid payments. Medicaid payments for undisputed medical treatment that should have been paid under the workers’ compensation policy must be resolved. If petitioner’s Medicaid plan has made payments for medical treatment, the Department of Healthcare and Family Services Bureau of Collections should be contacted for an itemization of the lien prior to any finalization of a settlement agreement.

Wage Garnishment

Another potential situation that may arise is a notice of wage garnishment against claimant’s workers’ compensation benefits. This issue was addressed by the Fourth District Appellate Court in Mentzer v. Van Scyoc, 233 Ill. App. 3d 438 (1992). In this case, a judgement was entered against a tenant in favor of her former landlord in an action for unpaid rent and damages. The tenant argued that no wage garnishment had been entered against her because her sole source of income was workers' compensation benefits. The Court agreed with the tenant and held that her workers’ compensation benefits were not subject to garnishment.

If a notice of wage garnishment is received by the Respondent, the recommendation is that the party alleging a wage garnishment should be advised in writing that the garnishment is unenforceable under Section 21 of the Act. Unlike spousal or child support liens, there is no exception against the general rule for wage garnishment of workers’ compensation benefits.

Medical Providers

In the Illinois Supreme Court decision In re Hernandez, 2020 IL 124661 (Sup. Ct. Ill. Jan. 24, 2020), the Court addressed the issue of medical provider liens, and reaffirmed longstanding precedent that a pending workers’ compensation claim and proceeds of a settlement are not subject to medical liens claim. The claimant sustained on-the-job injuries and received medical treatment from three separate facilities. In December 2016, she filed a voluntary Chapter 7 bankruptcy petition. Her filing included the outstanding medical charges from the three medical providers.

The Illinois Supreme Court held that there is no ambiguity to Section 21 and the proceeds of a workers’ compensation settlement are still exempt from the claims of medical-care providers who treated the illness or injury associated with that settlement. Under its express terms, any payment, award, or decision under the Act is unequivocally free from liability to processes such as seizure and sale, or attachment, to satisfy debts. Therefore, medical providers cannot secure a lien against petitioner’s workers’ compensation claim. With respect to Section 8.2 of the Act which states “Upon a final award or judgment by an Arbitrator or the Commission, or a settlement agreed to by the employer and the employee, a provider may resume any and all efforts to collect payment from the employee for the services rendered to the employee and the employee shall be responsible for payment of any outstanding bills for a procedure, treatment, or service rendered by a provider as well as the interest awarded…,” the Court found the provision merely allows health care creditors to resume collection efforts directly from employees after a settlement is reached, but it does not address the funds to which the creditors are entitled. The Court found that if Section 8.2 permitted creditors to go after settlement proceeds it would be in irreconcilable conflict with Section 21.

This decision means that medical providers cannot purposely delay claim resolution by asserting a lien on the workers’ compensation settlement for their unpaid medical bills. Of course, as a manner of practice, since medical providers can pursue collections directly against petitioners, most petitioners will look to address any outstanding medical bills and negotiate with Respondents prior to settlement.

Conclusion

The above examples illustrate some situations where liens may arise in the context of a workers’ compensation claim. Any of the above discussed liens should be highly scrutinized. Spousal and child support liens or Medicaid liens should be documented and addressed prior to any settlement as these liens are enforceable. However, wage garnishment and medical provider liens are unenforceable, and any entities attempting to enforce these liens should be advised of such.

If you come across a lien and are unsure how to handle or resolve, BCM Law is available to assist with any questions.

This article is for informational purposes only and should not be construed as legal advice. The content is intended to provide general guidance on the subject matter and is not a substitute for legal advice from a licensed attorney in your jurisdiction. No attorney-client relationship is created by your use of this article or the information contained herein.