The opinion of the court was delivered by: Justice Freeman
Under section 5(b) of the Workers' Compensation Act, an injured employee who has received workers' compensation benefits must reimburse the employer for those benefits from any recovery the employee receives from a liable third party. The provision grants the employer a lien on the recovery equal to the amount of workers' compensation benefits paid or owed. See Ramsey v. Morrison, 175 Ill. 2d 218, 237 (1997). The employer must pay the employee's attorney "25% of the gross amount of such reimbursement." 820 ILCS 305/5(b) (West 1996).
In this case, the circuit court of St. Clair County reduced the employer's reimbursement under its workers' compensation lien by awarding two attorney fees to the employee's law firm: one fee based on a private fee agreement between the employee and the firm, and the second attorney fee pursuant to the Act. The appellate court affirmed. 303 Ill. App. 3d 927.
We agree with the employer that the additional reduction of the employer's reimbursement based on the employee's private attorney fee agreement was contrary to the Act. We reverse the appellate and circuit courts, and remand the cause to the circuit court with directions.
The appellate court detailed the undisputed facts. 303 Ill. App. 3d at 928-30. Therefore, we will repeat only those facts necessary for our disposition of this appeal.
This case arises out of the administration of the estate of Herman Dierkes (decedent). Decedent was fatally injured by a third-party tortfeasor while employed by the Department of Transportation (Department).
Decedent's widow, who was the administrator of his estate, retained a law firm to pursue all claims against the third-party tortfeasor. Decedent's widow agreed to pay the law firm one-third of any amount recovered from the third party. The estate and the third party reached a proposed settlement; the third party offered the estate $100,000.
Also, the Department and the estate reached a settlement on workers' compensation benefits. In their settlement contract, the Department agreed to pay decedent's widow $2,176.11 per month for 20 years. According to the Department's calculation, which the estate's law firm does not dispute in its brief, the net present value of the compensation to decedent's widow far exceeds $100,000.
Decedent's widow petitioned the circuit court of St. Clair County to approve and distribute the proposed third-party settlement. The petition contained the terms of the third-party settlement and the terms of the settlement contract with the Department. The petition also contained the following charges against the proposed settlement: one-third of the proposed settlement ($33,333.33) to the estate's law firm for attorney fees based on its private contingency fee agreement with decedent's widow, 25% of the remainder of the proposed settlement ($16,666.67) to the firm for attorney fees pursuant to the Act, and the remainder of the proposed settlement ($49,999.99) to the Department as reimbursement under its workers' compensation lien.
At the close of a hearing on the petition, the circuit court approved the third-party settlement and its proposed distribution. The appellate court upheld the distribution. 303 Ill. App. 3d 927. We allowed the Department's petition for leave to appeal (177 Ill. 2d R. 315(a)).
The Department does not dispute that its reimbursement under its workers' compensation lien should be reduced, pursuant to section 5(b) of the Act (820 ILCS 305/5(b) (West 1996)), by an attorney fee to the estate's law firm of 25% of the $100,000 proposed settlement. However, the Department contends that the circuit court violated section 5(b) of the Act by further reducing its reimbursement by the additional attorney fee to the estate's law firm based on its private fee agreement with decedent's widow. This narrow issue is one of ...