Can an employer's lawyer make a lump-sum workers' comp settlement offer that includes the employee's attorney fees?

Plain-English summary

The Committee was asked whether, in Alaska workers' compensation proceedings, an employer's attorney may present a lump-sum settlement offer that is inclusive of the employee's attorney fees. It concludes that such offers are generally permissible, and that employee counsel may also tell the client of the intent to seek payment and address the possibility of these offers in the retainer agreement.

The opinion recognizes that a lump-sum offer inclusive of fees creates a conflict of interest for the employee's lawyer under Rule 1.7(a)(2), because there is a trade-off between the fees paid to the lawyer and the benefits paid to the employee, implicating the lawyer's personal interest. It traces the history: courts and bar associations once treated such offers (and simultaneous negotiation of merits and fees) as impermissible, but that view shifted after Evans v. Jeff D., 475 U.S. 717 (1986), which held that the right to recover statutory fees belongs to the client, who may settle or even waive them. Since Evans, the opinion says, the majority of courts and ethics authorities treat settlement offers inclusive of statutory attorney fees as generally permissible.

Agreeing with that majority, the opinion holds the employee's lawyer must communicate any such offer to the client and explain the alternatives and consequences, and that the decision to settle belongs to the client under Rule 1.2(a). Because of the conflict, Rule 1.7(b) allows continued representation only if the lawyer reasonably believes the representation will be competent and diligent and the client gives written informed consent under Rule 1.7(b)(4). The opinion identifies the initial retainer agreement as the best place to address the issue and supplies sample language explaining that fees come out of any lump-sum settlement. It cautions that each case is fact-specific and that particular settlement conduct could still breach the Rules.

In practice

Under this opinion, as the Alaska rules stood at the time, an employer's lawyer may make a lump-sum workers' compensation settlement offer that includes the employee's attorney fees, and this is generally permissible rather than per se improper. For the employee's lawyer, the opinion treats the offer as creating a Rule 1.7(a)(2) personal-interest conflict that the lawyer may proceed past only with the client's written informed consent under Rule 1.7(b)(4); it identifies the retainer agreement as the best place to obtain that consent and provides sample disclosure language. The opinion stresses the decision to accept any offer is the client's under Rule 1.2(a), and that the lawyer must communicate the offer and its consequences.

Common questions

Q: Can an employer's lawyer include the employee's attorney fees in a lump-sum workers' comp offer?

A: Generally yes. The opinion concludes such offers are ethically permissible, consistent with the majority view that developed after Evans v. Jeff D.

Q: Doesn't that create a conflict for the employee's lawyer?

A: Yes. The opinion recognizes a Rule 1.7(a)(2) conflict because the lawyer's fee and the client's recovery trade off, but Rule 1.7(b) permits continued representation with the client's written informed consent.

Q: How should the employee's lawyer handle the conflict up front?

A: The opinion identifies the initial retainer agreement as the best place to disclose the possibility of such offers and obtain Rule 1.7(b)(4) written informed consent, and it provides sample retainer language.

Q: Who decides whether to accept the offer?

A: The client. The opinion applies Rule 1.2(a): the lawyer must communicate the offer and explain the consequences, and the decision to settle belongs to the client.

Background and rules framework

The opinion interprets Alaska Rule of Professional Conduct 1.7 (conflicts, analog of Model Rule 1.7), particularly the personal-interest conflict in 1.7(a)(2) and the informed-consent path in 1.7(b)(4), together with Rule 1.2(a) (the client's authority to settle) and Rule 1.4 (communicating offers). It situates the analysis in the line of fee-shifting authority following Evans v. Jeff D.

Citations and references

Rules of Professional Conduct:

• Alaska RPC 1.7(a)(2), 1.7(b), 1.7(b)(4) (conflicts; informed consent)
• Alaska RPC 1.2(a) (client's authority to settle); RPC 1.4 (communication)

Statutes and regulations:

• Alaska Workers' Compensation Act, AS 23.30.145; AS 23.30.008(d); 8 AAC 45.180
• 42 U.S.C. § 1988 (federal Fees Act), via Evans

Cases:

• Evans v. Jeff D., 475 U.S. 717 (1986), right to statutory fees belongs to the client
• Williams v. Abood, 53 P.3d 134 (Alaska 2002); Compton v. Kittleson, 171 P.3d 172 (Alaska 2007)

Other opinions cited:

• Utah State Bar Ethics Advisory Op. 98-05; D.C. Bar Op. 207 (1989); NYC Bar Formal Op. 1987-4; California Formal Op. 1994-136

See also

• CA COPRAC Op. 2009-176: Fee-Waiver Settlement Offers in Fee-Shifting Cases
• ABA Formal Op. 06-438: Aggregate Settlements

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/2017-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ALASKA BAR ASSOCIATION
ETHICS OPINION NO. 2017-1
In The Workers’ Compensation Setting, May A Lawyer For The Employer
Present A Lump-Sum Settlement Offer, Inclusive Of Legal Fees?
ISSUE PRESENTED
In Workers’ Compensation proceedings, is it ethically permissible for an
employer attorney to present a lump-sum settlement offer, inclusive of attorney
fees?
CONCLUSION
Generally speaking, such offers are ethically permissible. It is also
ethically permissible for employee counsel to advise the client of their intention
to seek payment and address the possibility of lump-sum settlement offers
within retainer agreements.
BACKGROUND
Under the Alaska Workers’ Compensation Act (the “Act”), the employer is
typically responsible for payment of employee attorney fees with disputes
resolved by the Alaska Workers’ Compensation Board.1 The procedure for
doing so is governed by the Alaska Administrative Code and may be separate
from the resolution of other issues.2
Recovery of fees by employee attorneys under the Act is different from
attorney fees awarded under Alaska Civil Rule 82. Unlike the traditional
lawyer-client relationship, attorney fees for claims brought under the Act are
typically paid directly by the employer, not the client, and the client may not
review employee attorney fee billing; the Alaska Workers’ Compensation Board
reviews the attorney’s affidavit concerning the work performed and determines
the fee.3 Attorney fee awards under the statutory scheme are to be “fully
compensatory” and reasonable in order to encourage competent counsel to
represent injured workers.4
1 AS 23.30.145 (attorney fees related to claim to Alaska Workers’ Compensation

Board); AS 23.30.008(d) (attorney fees related to appeals to Alaska Workers’
Compensation Appeals Commission).
2 8 AAC 45.180.
3 8 AAC 45.180(d)(2); AS 23.30.145(a) (noting that, for a controverted claim,

“the board may direct that the fees for legal services be paid by the employer”).
4 Williams v. Abood, 53 P.3d 134, 147 (Alaska 2002).

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Due to the fee model described above, the Committee is informed that
employees may be advised that attorney fees are paid by the employer, not the
employee, and are in addition to other workers’ compensation benefits. The
Committee is unaware of any fee arbitrations between an employee attorney
and client.
As with many disputes, claims under the Act are often resolved through
settlement negotiations. Employer lawyers periodically make lump-sum
settlement offers to employees, inclusive of liability for employee attorney fees.
To the extent that the employee attorney is paid, the employee receives less.
The Committee’s guidance is requested on the permissibility of this practice.
ANALYSIS
The Committee agrees that settlement offers inclusive of employee
attorney fees create a conflict of interest between the employee attorney and
the employee by virtue of the personal interest of the lawyer.5 Similar issues
arise in other claims arising under statutes providing for payment of attorney
fees such as Unfair Trade Practices and Consumer Protection Act claims, Civil
Rights Act claims, Voting Rights Act claims, and class actions. The ethical
issue created by settlement offers inclusive of attorney fees for these claims is
that there will be a trade-off between the amount of the fees the employer or
defendant pays to the attorney and the amount paid for other benefits or relief
owed to the employee, potentially creating a conflict between the attorney and
client.
Historically, multiple courts and bar associations opined that it was
ethically impermissible for lawyers defending claims under “fee shifting”
statutes to make lump-sum settlement offers inclusive of attorney fees with
some also opining that it was ethically impermissible even to simultaneously
negotiate the underlying claim and associated fees because doing so created a
conflict of interest between the opposing lawyer and his client.6 However, this
view changed with the United States Supreme Court Opinion, Evans v. Jeff D.,
5 See Rule 1.7(a)(2) (noting that a concurrent conflict of interest exists if there

is a significant risk that the representation of the client will be materially
limited by the “personal interest of the lawyer”); see also Utah State Bar Ethics
Advisory Opinion No. 98-05 (noting that a settlement offer may create a conflict
of interest when it is predicated on counsel’s loss of fee).
6 See, e.g., Jeff D. v. Evans, 743 F. 2d 648 (9th Cir. 1984); Moore v. Nat’l Ass’n of

Sec. Dealers Inc., 762 F. 2d 1093, 1114 (D.C. Cir. 1985); Thomas G. Hungar,
The Ethics of Fee Waivers: Negotiation of Statutory Attorney’s Fees in Civil
Rights Cases, 5 Yale Law & Policy Review 157, 161 & n.24 (1986) (collecting
authorities).

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475 U.S. 717 (1986). In Evans, the United States Supreme Court held that,
under the statutory language of the Fees Act (42 U.S.C. §1988), the right to
recovery of attorney fees in a §1988 action belonged to the claimant – not the
lawyer – such that the client had the authority to settle his claim, including the
right to waive attorney fees in their entirety. Three members of the Court
vigorously dissented.
Since Evans, the majority of courts and ethics authorities considering
fee-shifting statutes conclude that settlement offers inclusive of attorney fees
are, generally speaking, ethically permissible.7
The Committee agrees with the majority of opinions holding that
settlement offers, inclusive of statutory attorney fee claims, are generally
permissible. Like any settlement offer, the employee attorney has a duty to
communicate the settlement offer to the client and to explain the alternatives
and consequences of the offer.8 Unless otherwise provided by statute,
regulation, or other law, the right to decide whether to settle a claim belongs to
the client.9
The Committee acknowledges that, despite the general permissibility of
these lump-sum settlement offers, each case is necessarily fact-specific and
that additional facts relating to the settlement negotiations could demonstrate
7 See, e.g., Nilsen v. York County, 400 F. Supp. 2d 266, 272 (D. Me. 2005) (“[I]t

is well established that a defendant may settle, for a single lump sum, all
outstanding claims in a fee-shifting case, including claims for attorney fees.”);
Wildearth Guardians v. U.S. Forest Serv., 778 F. Supp. 2d 1143, 1154 (D.N.M.
2011); Pinto v. Spectrum Chem. & Lab. Prods., 985 A.2d 1239, 1248-50 (N.J.
2010); Paul D. Reingold, Requiem for Section 1983, 3 DUKE J. CONST. L. & POL’Y
1, 35 (2008) (“In fact, after Evans, the state bar ethics boards that had
previously barred fee waivers or simultaneous negotiation of merits and fees
immediately changed their opinions to permit such bargaining.”). Some ethics
opinions go so far as to say that a settlement offer that waives a claim for
attorney fees may be permissible. See Utah State Bar, Ethics Advisory Opinion
No. 98-05; D.C. Bar Opinion No. 207 (1989); New York City Bar Association,
Formal Opinion 1987-4 (noting that such an offer is not unethical per se, but
deferring a definitive finding on the propriety of any such offer until responding
to further inquiry in specific cases). This “waiver” issue is beyond the scope of
this opinion, other than to note that those authorities allowing a settlement
condition on a waiver of attorney fees support the notion that a lump-sum offer
is permissible.
8 State Bar of California Formal Opinion Interim No. 98-0001.
9 Compton v. Kittleson, 171 P. 3d 172 (Alaska 2007); Rule 1.2(a) (“A lawyer shall

abide by a client’s decision whether to offer or accept a settlement.”)

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a breach of the Rules of Professional Conduct. It is neither practical nor useful
to speculate on what types of settlement negotiation behavior could result in a
violation of the Rules. Either the courts or the Committee will address any
such scenarios as they arise.10
To be clear, this opinion does not preclude employee attorneys from
asserting their right to be paid fairly for their work. Some courts and
commentators recommend that attorneys address this potential conflict in the
initial retainer agreement between the attorney and the Employee.11 Despite
the potential conflict of interest created by settlement offers inclusive of
attorney fees, Rule 1.7(b) allows an employee attorney to continue representing
the employee if he or she reasonably believes he or she is able to provide
competent and diligent representation. In doing so, Rule 1.7(b)(4) requires that
the affected client give written informed consent. The retainer agreement may
provide this written informed consent.
Examples of these provisions in a retainer agreement include, but are not
limited to, agreements asking the client to agree not to waive any statutory
right to legal fees, agreements asking the client to assign any statutory right to
legal fees, or agreements otherwise providing that the Alaska Workers’

10 See, e.g., Maine Prof’l Ethics Comm’n Opinion 95 (1989) (“[T]he Commission

would prefer to leave the question of the reasonableness of the settlement
behavior of either party in a case involving statutory attorney’s fees claims to
the courts, for resolution on a case-by-case basis.”); New York City Bar
Association, Formal Opinion 1987-4 (concluding that it is not unethical per se
for defense counsel to propose settlements condition on the waiver of attorney
fees in statutory fee-shifting cases, but “emphasiz[ing] that no inference should
be drawn from the Committee’s action that conduct previously deemed
unethical by the Committee is now necessarily being sanctioned. Rather, in
the future these questions will be dealt with on a case-by-case basis.”).
11 See, e.g., Pinto, 985 A.2d at 1249 (“To the extent that lump-sum settlement

offers present challenges to public-interest clients and their counsel on how to
divide a limited pot between a client’s damages and attorneys’ fees, we believe
that candid lawyer-client discussions about the value of the case from the
outset will resolve many problems.”); see also Zeisler v. Neese, 24 F. 3d 1000
(7th Cir. 1994) (assignation of statutory right to fees under Truth in Lending Act
with potential claims against client and defendant in the event of breach of
agreement); California Formal Ethics Op. No. 1994-136; New York City Bar
Association, Formal Opinion 1987-4; Utah State Bar, Ethics Advisory Opinion
No. 98-05; RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 38 cmt. f
(2000).

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Compensation Board or some other entity will have the ultimate right to
determine the fees in the event of a settlement offer inclusive of attorney fees.12
The Committee believes the initial retainer agreement is the best place to
address this issue, clearly explaining to the client that such a settlement
proposal may be made and explaining the consequences, along the lines of a
provision similar to the following:
Employee recognizes that Attorney will be seeking payment of attorney
fees from the Employer pursuant to the Alaska Workers’ Compensation
Act. Attorney fees under the Act are paid by the Employer, and not by
the Employee. Sometimes, Employers offer to settle these matters
through lump-sum settlements that include attorney fees. Whether or
not to accept a lump-sum settlement is the Employee’s decision. In a
lump-sum settlement, Attorney’s fees are paid from the settlement funds.
The Employee receives the balance remaining after Attorney’s fees are
paid and not the full settlement amount. Employee agrees that if he or
she accepts a lump-sum settlement, Attorney’s fees and expenses will be
deducted from the settlement amount and paid to Attorney. In the event
such a settlement offer is made, Attorney will advise Employee of the
amount of fees and costs to be deducted and the expected balance to be
paid to Employee after those deductions, so that Employee may make an
informed decision on whether or not to accept the offer.
Otherwise, employee counsel must comply with Professional Conduct Rule
1.7(b)(4).
Approved by the Alaska Bar Association Ethics Committee on April 6, 2017.
Adopted by the Board of Governors on May 9, 2017.

G:\Ds\COMM\ETHICS\DRAFTS\2017\Settlement Offers in the Context of Fee Shifting Statutes-04-03-17.doc

Cisek v. National Surface Cleaning, Inc., 954 F. Supp. 110 (S.D.N.Y. 1997)
(better practice is to refrain from discussing attorneys’ fees at all until an
agreement is reached on the relief sought by client or to negotiate lump sum
and the allow court to allocate the fund between counsel and client); compare
Compton v. Kittleson, 171 P.3d 172, 177 (Alaska 2007) (if the client’s actions
unfairly deprive attorney of a reasonable expectation of compensation,
attorney’s proper remedy is to seek recovery of the reasonable value of services
rendered under a theory of quantum meruit).
12

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