In third-party recoveries with liens, who has priority in distribution?

• A. The employee
• B. The employer’s lien takes priority if it does not exceed the recovery
• C. The employer
• D. One-third to employee, one-third to employer, one-third to attorney

Answer: (C)

When third-party recovery funds are involved after benefits have been paid, the employer’s subrogation lien has priority in how the recovery is distributed. The employer is entitled to be repaid for benefits already paid (and related costs) before any remaining funds go to the employee. This means the first portion of the third-party recovery goes to satisfy the employer’s lien, and whatever is left is for the employee, with attorney fees typically handled from that remaining amount under applicable rules.

The other options don’t fit this priority. The employee alone is not entitled to the recovery before the employer is reimbursed, and a fixed split (such as one-third to each party) ignores the employer’s right to subrogate. Additionally, saying the employer’s lien only takes priority if it does not exceed the recovery is misleading because priority applies regardless of the lien’s size; if the recovery is smaller than the lien, the entire recovery would go to satisfy the lien, leaving nothing for the employee.