Workers’ Compensation, the Employer Bar and the Third-Party Case

Workers’ compensation, the employer bar, and the third-party case

Practitioner note

Authority: Workers’ Compensation Law §§ 10, 11, 29; Labor Law §§ 200, 240(1), 241(6); CPLR 4545. WCL § 11 text as revised 6 January 2023.

An injured worker in New York has two systems available, and they interact in ways that decide the value of the file.

Workers’ compensation is the no-fault system: it pays medical treatment and wage replacement regardless of who was at fault, and it is the exclusive remedy against the employer. Workers’ Compensation Law § 11 bars the employee from suing their own employer in tort, and bars a third-party defendant from seeking contribution or indemnity from that employer — unless the employee suffered a "grave injury".

The third-party action is where the real recovery usually is. It runs against everyone who is not the employer: the property owner, the general contractor, other trade contractors, a product manufacturer, a negligent driver. On a construction site, the Labor Law claims against the owner and general contractor are precisely this kind of action.

So the question is rarely "comp or lawsuit". It is almost always comp plus a third-party action, with the lien determining how much of the recovery the worker keeps.

The grave-injury list is closed and narrow

WCL § 11 defines grave injury exhaustively: death; permanent and total loss of use or amputation of an arm, leg, hand or foot; loss of multiple fingers; loss of multiple toes; paraplegia or quadriplegia; total and permanent blindness; total and permanent deafness; loss of nose; loss of ear; permanent and severe facial disfigurement; loss of an index finger; and an acquired brain injury caused by an external physical force resulting in permanent total disability. Courts read the list strictly — a partial loss of use is not "permanent and total" — and the third-party defendant bears the burden of proving it through competent medical evidence.

The § 29 lien, and why consent matters

The compensation carrier holds a lien under WCL § 29 against the third-party recovery for the benefits it has paid. Settling the third-party case without the carrier’s written consent or a court order can forfeit future compensation benefits, which is a trap that has cost injured workers more than the settlement was worth.

The carrier’s lien is reduced by its share of litigation costs

Under the equitable apportionment doctrine from Kelly v State Insurance Fund, the carrier’s lien and its future credit are reduced by a proportionate share of the attorney’s fees and costs that produced the recovery. Negotiating that apportionment is a routine and material part of resolving these cases.

Comp benefits are a collateral source

Compensation benefits that replaced economic loss interact with CPLR 4545 at judgment. Coordinating the lien resolution with the collateral-source reduction, rather than handling them separately, is what prevents the same loss being deducted twice.

An independent contractor may not be barred at all

The § 11 bar protects employers. Where the injured person was genuinely an independent contractor, or where a general contractor is not the special employer, a direct negligence action may be available. Special-employment status is fact-intensive and worth testing rather than assuming.