Chapter 5 - Subrogation of Employer

California Labor Code — §§ 3850-3865

Sections (15)

Amended by Stats. 1984, Ch. 252, Sec. 6. Effective June 27, 1984.

As used in this chapter:

(a)“Employee” includes the person injured and any other person to whom a claim accrues by reason of the injury or death of the former.

(b)“Employer” includes insurer as defined in this division.

(c)“Employer” also includes the Self-Insurers’ Security Fund, where the employer’s compensation obligations have been assumed pursuant to Section 3743.

§ 3851

Enacted by Stats. 1937, Ch. 90.

The death of the employee or of any other person, does not abate any right of action established by this chapter.

§ 3852

Amended by Stats. 2025, Ch. 763, Sec. 1. (SB 487) Effective January 1, 2026.

(a)The claim of an employee, including, but not limited to, any peace officer or firefighter, for compensation does not affect their claim or right of action for all damages proximately resulting from the injury or death against any person other than the employer. Except as provided in subdivision (b), an employer who pays, or becomes obligated to pay compensation, or who pays, or becomes obligated to pay salary in lieu of compensation, or who pays or becomes obligated to pay an amount to the Department of Industrial Relations pursuant to Section 4706.5, may likewise make a claim or bring an action against the third person. In the latter event the employer may recover in the same suit, in addition to the total amount of compensation, damages for

which they were liable including all salary, wage, pension, or other emolument paid

to the employee or to their dependents. The respective rights against the third person of the heirs of an employee claiming under Section 377.60 of the Code of Civil Procedure, and an employer claiming pursuant to this section, shall be determined by the court.

(b)(1) This subdivision applies only to an employee who is a peace officer, as defined in Chapter 4.5 (commencing with Section 830) of Title 3 of Part 2 of the Penal Code, or a

firefighter who is employed by any of the following:

(A) A city.

(B) A county.

(D) A fire protection district.

(2)An employer of an employee described in paragraph (1) shall be entitled to receive no more than one-third of a third-party defendant’s applicable liability insurance policy limits, if both of the following are true:

(A)The employee establishes that their total damages exceed the net recovery available after satisfaction of the employer’s claim.

(B)The total liability insurance limits available are insufficient to fully compensate the employer and employee’s proven damages.

(3)The

one-third maximum allocation under this subdivision is intended to reflect a fair and equitable share of the recovery in light of the injured employee’s total damages, attorney’s fees, and costs of suit, and shall be deemed exclusive of any lien or offset by the employer.

(4)The employer’s right to reimbursement or subrogation shall be subordinate to the

maximum allocation set forth in this subdivision. The maximum allocation to the employer described in this subdivision shall apply to all settlement agreements and judgments and shall take precedence over any employer lien or subrogation claim. Any remaining proceeds may then be allocated in accordance with existing lien and subrogation principles.

§ 3853

Amended by Stats. 1980, Ch. 582.

If either the employee or the employer brings an action against such third person, he shall forthwith give to the other a copy of the complaint by personal service or certified mail. Proof of such service shall be filed in such action. If the action is brought by either the employer or employee, the other may, at any time before trial on the facts, join as party plaintiff or shall consolidate his action, if brought independently.

§ 3854

Amended by Stats. 1959, Ch. 1255.

If the action is prosecuted by the employer alone, evidence of any amount which the employer has paid or become obligated to pay by reason of the injury or death of the employee is admissible, and such expenditures or liability shall be considered as proximately resulting from such injury or death in addition to any other items of damage proximately resulting therefrom.

§ 3855

Enacted by Stats. 1937, Ch. 90.

If the employee joins in or prosecutes such action, either the evidence of the amount of disability indemnity or death benefit paid or to be paid by the employer or the evidence of loss of earning capacity by the employee shall be admissible, but not both. Proof of all other items of damage to either the employer or employee proximately resulting from such injury or death is admissible and is part of the damages.

§ 3856

Repealed and added by Stats. 1959, Ch. 1255.

In the event of suit against such third party:

(a)If the action is prosecuted by the employer alone, the court shall first order paid from any judgment for damages recovered the reasonable litigation expenses incurred in preparation and prosecution of such action, together with a reasonable attorney’s fee which shall be based solely upon the services rendered by the employer’s attorney in effecting recovery both for the benefit of the employer and the employee. After the payment of such expenses and attorney’s fees, the court shall apply out of the amount of such judgment an amount sufficient to reimburse the employer for the amount of his expenditure for compensation together with any amounts to which he may be entitled as special damages under Section 3852 and shall order any excess paid to the injured employee or other person entitled thereto.

(b)If the action is prosecuted by the employee alone, the court shall first order paid from any judgment for damages recovered the reasonable litigation expenses incurred in preparation and prosecution of such action, together with a reasonable attorney’s fee which shall be based solely upon the services rendered by the employee’s attorney in effecting recovery both for the benefit of the employee and the employer. After the payment of such expenses and attorney’s fee the court shall, on application of the employer, allow as a first lien against the amount of such judgment for damages, the amount of the employer’s expenditure for compensation together with any amounts to which he may be entitled as special damages under Section 3852.

(c)If the action is prosecuted both by the employee and the employer, in a single action or in consolidated actions, and they are represented by the same agreed attorney or by separate attorneys, the court shall first order paid from any judgment for damages recovered, the reasonable litigation expenses incurred in preparation and prosecution of such action or actions, together with reasonable attorneys’ fees based solely on the services rendered for the benefit of both parties where they are represented by the same attorney, and where they are represented by separate attorneys, based solely upon the service rendered in each instance by the attorney in effecting recovery for the benefit of the party represented. After the payment of such expenses and attorneys’ fees the court shall apply out of the amount of such judgment for damages an amount sufficient to reimburse the employer for the amount of his expenditures for compensation together with any other amounts to which he may be entitled as special damages under Section 3852.

(d)The amount of reasonable litigation expenses and the amount of attorneys’ fees under subdivisions (a), (b), and (c) of this section shall be fixed by the court. Where the employer and employee are represented by separate attorneys they may propose to the court, for its consideration and determination, the amount and division of such expenses and fees.

§ 3857

Enacted by Stats. 1937, Ch. 90.

The court shall, upon further application at any time before the judgment is satisfied, allow as a further lien the amount of any expenditures of the employer for compensation subsequent to the original order.

§ 3858

Amended by Stats. 2025, Ch. 763, Sec. 2. (SB 487) Effective January 1, 2026.

(a)Except as provided in subdivision (b), after payment of litigation expenses and attorney’s fees fixed by the court pursuant to Section 3856 and payment of the employer’s lien, the employer shall be relieved from the obligation to pay further compensation to or on behalf of the employee under this division up to the entire amount of the balance of the judgment, if satisfied, without any deduction. No satisfaction of such judgment in whole or in part, shall be valid without giving the employer notice and a reasonable opportunity to perfect and satisfy their lien.

(b)In any case governed by subdivision (b) of Section 3852, the employer’s lien or subrogation rights shall be limited to the portion of the recovery allocated to the employer and the employer shall have no right to assert any credit or offset against future workers’ compensation benefits owed to the employee, including, but not limited to, temporary disability, permanent disability, medical treatment, or vocational rehabilitation. The recovery allocated to the

employer under subdivision (b) of Section 3852 shall not affect or diminish the employer’s obligation to provide any compensation under this division.

§ 3859

Amended by Stats. 2025, Ch. 763, Sec. 3. (SB 487) Effective January 1, 2026.

(a)(1) Except as provided in paragraph (2), a release or settlement of any claim under this chapter as to either the employee or the employer is not valid without the written consent of both. Proof of service filed with the court is sufficient in any action or proceeding where such approval is required by law.

(2)The written consent of the

employer is not required in a claim that is subject to subdivision (b) of Section 3852.

(b)(1) Notwithstanding anything to the contrary contained in this chapter, an employee may settle and release any claim they may have against a third party without the consent of the employer. Except as provided in paragraph (2), a settlement or release shall be subject to the employer’s right to proceed to recover compensation they have paid in accordance with Section 3852.

(2)In any case governed by subdivision (b) of Section

3852, a settlement or release shall limit the employer’s claim for reimbursement to the portion of the settlement

allocated to the employer

pursuant to subdivision (b) of Section 3852.

§ 3860

Amended by Stats. 2025, Ch. 763, Sec. 4. (SB 487) Effective January 1, 2026.

(a)(1) Except as provided in paragraph (2), a release or settlement under this chapter, with or without suit, is not valid or binding as to any party thereto without notice to both the employer and the employee, with opportunity to the employer to recover the amount of compensation the employer has paid or become obligated to pay and any special damages to which the employer may be entitled under Section 3852, and opportunity to the employee to recover all damages the employee has suffered and with provision for determination of expenses and attorney’s fees as herein provided.

(2)If the employee is a peace officer, as defined in

Chapter 4.5 (commencing with Section 830) of Title 3 of Part 2 of the Penal

Code, or a firefighter, a release or settlement, with or without suit, subject to subdivision (b) of Section 3852, is not valid or binding unless it provides that the employer shall not receive more than one-third of the third-party insurance limits.

(b)(1) Except as provided in paragraph (2) and Section 3859, the entire amount of the settlement, with or without suit, is subject to the employer’s full claim for reimbursement for compensation the employer has paid or become obligated to pay and any special damages to which the employer may be entitled under Section 3852, together with expenses

and attorney’s fees, if any, subject to the limitations in this section set forth.

(2)Pursuant to subdivision (b) of Section 3852, the employer’s claim for reimbursement shall be limited to the portion of the settlement allocated to the employer. The employer shall have no right to assert any credit or offset against future workers’ compensation benefits.

(c)If settlement is effected, with or without suit, solely through the efforts of the employee’s attorney, then prior to the reimbursement of the employer, as provided in subdivision (b) hereof, there shall be deducted from the amount of the settlement the reasonable expenses incurred in effecting settlement, including costs of suit, if any, together with reasonable attorney’s fees to be paid to the employee’s attorney, for services rendered in securing and effecting settlement for the benefit of both the employer and the employee.

(d)If settlement is effected, with or without suit, solely through the efforts of the employer’s attorney, then, prior to the reimbursement of the employer as provided in subdivision (b) hereof, there shall be deducted from the amount of the settlement the reasonable expenses incurred in effecting settlement, including costs of suit, if any, together with reasonable attorney’s fees to be paid to the employer’s attorney, for services rendered in securing and effecting settlement for the benefit of both the employer and the employee.

(e)If both the employer and the employee are represented by the same agreed attorney or by separate attorneys in effecting a settlement, with or without suit, prior to reimbursement of the employer, as provided in subdivision (b) hereof, there shall be deducted

from the amount of the settlement the reasonable expenses incurred by both the employer and the employee or on behalf of either, including costs of suit, if any, together with reasonable attorney’s fees to be paid to the respective attorneys for the employer and the employee, based upon the respective services rendered in securing and effecting settlement for the benefit of the party represented. If both parties are represented by the same attorney, by agreement, the attorney’s fees shall be based on the services rendered for the benefit of both.

(f)The amount of expenses and attorney’s fees referred to in this section shall, on settlement of suit, or on any settlement requiring court approval, be set by the court. In all other cases these amounts shall be set by the appeals board. If the employer and the employee are represented by separate

attorneys they may propose to the court or the appeals board, for consideration and determination, the amount and division of those expenses and fees.

§ 3861

Amended by Stats. 2025, Ch. 763, Sec. 5. (SB 487) Effective January 1, 2026.

(a)Except as provided in subdivision (b), the appeals board is empowered to and shall allow, as a credit to the employer to be applied against their liability for compensation, such amount of any recovery by the employee for their injury, either by settlement or after judgment, as has not theretofore been applied to the payment of expenses or attorneys’ fees, pursuant to the provisions of Sections 3856, 3858, and 3860, or has not been applied to reimburse the employer.

(b)In

a claim subject to subdivision (b) of Section 3852, the employer shall not assert, claim, or enforce any credit or offset against any future workers’ compensation benefits, including, but not limited to, future indemnity, medical, and vocational rehabilitation benefits, based on the employee’s civil recovery from a third-party tortfeasor. The appeals board is not empowered and shall not allow such a credit to be applied to the employer.

§ 3862

Amended by Stats. 2025, Ch. 763, Sec. 6. (SB 487) Effective January 1, 2026.

(a)Except as provided in subdivision (b), an employer entitled to and who has been allowed and has perfected a lien upon the judgment or award in favor of an employee against any third party for damages occasioned to the same employer by payment of compensation, expenses of medical treatment, and any other charges under this act, may enforce payment of the lien against the third party, or, in case the damages recovered by the employee have been paid to the employee, against the employee to the extent of the lien, in the manner provided for enforcement of money judgments generally.

(b)Pursuant to subdivision (b) of Section 3852, the employer’s claim for reimbursement shall be limited to the portion of the settlement allocated to the employer. The employer shall have no right to assert any credit or offset against future workers’ compensation benefits.

§ 3864

Added by Stats. 1959, Ch. 955.

If an action as provided in this chapter prosecuted by the employee, the employer, or both jointly against the third person results in judgment against such third person, or settlement by such third person, the employer shall have no liability to reimburse or hold such third person harmless on such judgment or settlement in absence of a written agreement so to do executed prior to the injury.

§ 3865

Added by Stats. 1989, Ch. 1280, Sec. 1.

Any judgment or settlement of an action as provided for in this chapter is, upon notice to the court, subject to the same lien claims of the Employment Development Department as are provided for in Chapter 1 (commencing with Section 4900) of Part 3, and shall be allowed by the court as it determines necessary to avoid a duplication of payment as compensation to the employee for lost earnings.