On April 28, 2016, the Florida Supreme Court held, in Castellanos v. Next Door Company,  that the state’s strict adherence to its workers’ compensation statutory fee formula for the award of fees to claimants’ attorneys was an unconstitutional violation of both state and federal due process rights. 
The Florida Legislature first implemented a statutory formula to measure compensation payable to claimants’ attorneys when it reformed Florida’s workers’ compensation laws in 2003. This formula tied the fees a claimant’s attorney could receive to the benefits secured by the claimant, whether the fees were paid by the claimant or ordered to be paid by the employer/insurance carrier.
However, in 2009, the legislature amended the law following a Florida Supreme Court decision in Murray v. Mariner Health.  Murray resolved seemingly contradictory sections of the workers’ compensation law related to the award of fees so as to allow for case-by-case deviations from the statutory formula in place. In addition to a statutory formula for the award of attorney’s fees, Florida’s workers’ compensation law included language at that time under section 440.34(3), Florida Statutes, that a claimant was entitled to a “reasonable attorney fee.” The supreme court in Murray relied on this language to provide authority for the award of the claimant’s fees against an employer/carrier beyond the amount that would have otherwise been payable under the statutory formula. However, in its next session, the legislature reacted swiftly to this decision in an effort to restrict any fee awards to the statutory formula when it removed the term “reasonable” from the statute.
In a decision that will have a far-reaching impact on the Florida business and legal communities, we fast forward to today and the supreme court’s decision in Castellanos, which noted that the rigid application of the mandated statutory formula led to fee awards that were grossly inadequate and that could not pass constitutional muster.
Section 440.34, Florida Statutes
Under section 440.34, Florida Statutes, attorney’s fees for claimants must be approved by the Judge of Compensation Claims (JCC) and are measured based on the following formula: 20 percent of the first $5,000 of benefits secured; 15 percent of the next $5,000 of the benefits secured; 10 percent of the benefits secured during the first 10 years; and 5 percent of the remaining benefits secured after 10 years.
Moreover, while claimants are responsible for the payment of their own attorney fees, section 440.34(3) provides that a claimant may be entitled to recover attorney’s fees from his or her employer based on the statutory schedule if: (a) the claimant has successfully asserted a petition for medical benefits only; (b) the employer/insurance carrier files a response to the claimant’s petition denying benefits and the injured person employs an attorney in successful prosecution of the petition; (c) the claimant prevails on the issue of compensability in a proceeding in which the carrier or employer denies that an accident occurred; and (d) the claimant prevails in proceedings to enforce a compensation order entered by the JCC or to modify a compensation order.
The statute prohibits the JCC from approving any fee arrangement that provides for attorney’s fees in excess of the amount specified in the law, with the sole exception of matters in which the claimant successfully asserts a petition for medical benefits only. In that circumstance, the JCC is able to approve an attorney’s fee of up to $1,500 per accident if the statutory formula fails to fairly compensate the attorney for disputed medical-only claims.
Castellanos v. Next Door Company
Interestingly, the Castellanos opinion was released almost 18 months after the supreme court heard oral argument and days before the end of Florida’s 2016 regular legislative session. In Castellanos, the Court found that the statute’s preclusion of consideration of any factor, other than the statutory formula, in awarding fees violates both state and federal constitutional guarantees of due process. The court indicated that the statutory “irrebuttable presumption” in determining a fee award defeated a critical purpose of the state’s workers’ compensation laws of providing quick and efficient medical care and wage-loss payments for disabled and injured workers.
Castellanos was heard by the Florida Supreme Court after lower courts upheld the award of $164.54 for 107.2 hours of legal work performed by claimant’s counsel even though those courts found that the legal work performed was reasonably necessary to secure the claimant’s workers’ compensation benefits. The actual amount of benefits secured was $822.70, resulting in a fee for the claimant’s attorney of $1.53 per hour.
Analyzing the law’s constitutionality, the court first traced the legislative history of awarding attorney’s fees to claimants. It found the legislature’s objective over the past 80 years was to provide injured workers with the assistance needed to navigate the increasingly complex workers’ compensation system, while ensuring that the injured worker – and not the attorney – received the bulk of the compensation award.
However, the court found the claimant in Castellanos had no avenue to challenge the reasonableness of the $1.53 hourly rate under the statute, even when it determined that his attorney had to dedicate significant time and effort in pursuing the case and refuting numerous defenses raised by the employer and its carrier.
While the court acknowledged that the legislature was concerned about the excessiveness of attorney’s fee awards and attempted to standardize fees, it held that the statutory fee schedule lacked any relationship to the amount of time and effort that would have to be expended by claimants’ counsel. Moreover, it determined that adherence to the fee schedule resulted in a significant and ever increasing gap between the amount of fees paid to claimant attorneys and the amount of fees paid to attorneys representing employers/carriers in the same case. The court also noted that excessive fees still resulted under the fee schedule, as the law did nothing to provide a standard to adjust fees downward when the recovery is too high in view of the time and effort involved.
In sum, the court was convinced that the law’s rigid adherence to the fee schedule and the lack of a mechanism for evaluation of the reasonableness of fees under the circumstances weighed in favor of finding the statute unconstitutional. The court determined that the current law discouraged attorneys from representing claimants in cases that were low-value but complex. “Without the ability of the attorney to present, and the JCC to determine, the reasonableness of the fee award and to deviate where necessary, the risk is too great that the fee award will be entirely arbitrary, unjust and grossly inadequate,” the court wrote.  “It is the irrebuttable statutory presumption – not the ultimate statutory fee awarded in a given case – which we hold unconstitutional.” 
Castellanos’ Effect on Workers’ Compensation in Florida
The resulting impact of the Florida Supreme Court decision on current and future workers’ compensation cases was instantaneously evident, with the state’s business community already preparing for increases in their workers’ compensation premiums and industry leaders publicly declaring that the court’s decision could threaten Florida’s recovering business climate. Certain aspects of their fear have already proven correct with a JCC recently awarding $42,000 in fees in a case where approximately $9,000 in benefits was secured. 
It is too early to fully identify an effective solution that addresses the need for a viable, efficient and cost effective workers’ compensation system that provides all claimants with reasonable access to recourse when benefits are denied. Florida’s Office of Insurance Regulation (OIR) has publicly indicated that the legislature will have to take up the issue in its 2017 regular session in order to stabilize rates.
In the meantime, the National Council of Compensation Insurance (NCCI) made a rate filing with the OIR to be effective August 1, 2016 estimating a 15% increase in overall system costs as the first year impact of the Castellanos decision. This does not take into account the unfunded liability which has been created in Florida due to the retroactive nature of the Castellanos decision. This filing will be reviewed, and is subject to approval, by the OIR and there will surely be significant debate about the overall increase in workers’ compensation insurance rates that may result.
Other ramifications will be closely monitored by stakeholders as time will clarify the impact of the Castellanos decision and offer a roadmap to ensuring a sustainable and responsive workers’ compensation system in Florida.