Labor Code section 3860
(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.
Source:
Section 3860, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=3860. (updated Jan. 1, 2026; accessed Dec. 15, 2025).
