Have you ever seen an advertisement on television with a confident attorney in a suit, promising that they “don’t get paid unless you do”? These ads sound extremely promising to many people who are facing legal situations–especially since the attorney is essentially talking about being paid on a contingency basis.
A contingency fee agreement is a form of billing that allows for an attorney to be paid a percentage of the damages awarded at the end of the case instead of an hourly rate. In contingency arrangements, the attorney agrees to take on the case without charging their regular hourly fees. In exchange, the attorney is paid a certain percentage of the damages that the client is awarded at the end of the case.
Depending on what state you’re in and the details of the agreement, contingency fees can range from 5% to 50% of the final award. However, the lawyer does not collect a fee if their client does not win their case. The attorney’s payment is dependent on, or “contingent” on winning the case.
While the lawyer does not receive their fees until the end of the case (and unless the case is won), the client may still be responsible for a few up-front fees related to work on the case. For example, the client may be responsible for court filing fees, discovery costs, expert witness fees, and other overhead fees in order to keep their case moving along.
When are Contingency Fee Agreements Used?
Contingency fees are helpful in cases where a client is short on funds, but has an otherwise valid complaint, usually a personal injury claim. Such a case would be costly and possibly complicated to pursue.
Eligibility: Civil litigation lawyers typically accept cases that present clear liability on the part of the person or entity to be sued. In addition, the lawyer expects to be able to collect any award of money damages or settlement payment without problem. This is likely to be because the defendant in the case has an insurance policy that is legally obligated to cover the defendant’s liability.
In cases where liability is not clear, the case is considered too risky for some reason, or recovery of the money awarded to their client is not likely, the attorney may not accept the case on a contingency basis.
Contingency fee agreements are most often used in civil cases such as personal injury and workers’ compensation cases. Personal injury cases that attorneys usually accept on a contingency basis are as follows:
- Professional Malpractice
- Sexual Harassment
- Wrongful Termination of Employment
- Personal Injury
- Employment Discrimination and Wage Dispute Cases
- Class Action Lawsuits.
Process/Steps: To initiate a contingency fee agreement, a client should first consult with an attorney to discuss the details of their case. If the attorney agrees to take on the case and to do so on a contingency basis, the client and attorney then negotiate the precise terms of the agreement. This would include the percentage of any recovery of money damages that are to be paid to the attorney.
The percentage may depend on the stage of the case at which the award is won. Usually, an attorney takes a smaller percentage. For example, the attorney may take 30% if the case is settled before a lawsuit must be filed, 35% after filing of the complaint, 40% if there is a trial, and 45% if the case is appealed. This is because the attorney must put in more hours of effort on the case as it proceeds through the stages.
Another important provision is whether the attorney’s percentage is taken from the gross recovery, which is the total recovery before the costs are deducted or the net recovery after the after costs and expenses are paid. It is important to note that what is left after the attorney’s fee and costs and expenses are deducted (if they are), the remainder goes to the client.
It is important to have a written agreement which spells out all the details. It should include provisions about how the costs incurred in prosecuting the lawsuit will be paid.
State Variations: In some states, a written attorney fee agreement is a legal requirement in all instances in which an attorney works for a client. In other states, it is a legal requirement if the fee agreement is a contingency fee agreement. Whatever the law is in the state in which you live, you always want to have a written fee agreement with a lawyer, whether or not the fee is a contingency fee.
It is also important to note that some states restrict the percentage that an attorney may collect as a contingency fee. For instance, Texas does not restrict contingency fees, but they must be reasonable.
In Florida, the percentage allowed is tied to the stage of the case and the amount of the award won for the client as follows:
- If the case settles after the plaintiff has filed their complaint but before the defendant files an answer or the time to do so expires, the caps are:
- Up to $1 million: 33⅓%
- $1 million to $2 million: 30%
- Over $2 million: 20%.
- If the case continues past the filing of the answer by the defendant proceeds through trial to a judgment, the caps increase:
- Up to $1 million: 40%
- $1 million to $2 million: 30%.
In New York, in personal injury and wrongful death cases that do not involve medical malpractice, the client is offered a choice between 2 fee schedules at the time they sign the retainer agreement as follows:
- Schedule A uses a sliding scale:
- 50% of the first $1,000 recovered
- 40% of the next $2,000 recovered
- 35% of the next $22,000 recovered
- 25% of anything above $25,000
- Schedule B offers only 1 percentage: The attorney takes no more than 33⅓% of the total recovery.
In New York, medical malpractice rates are different and specific, again tied to the amount of money recovered.
Contact a lawyer if you have questions about the specific contingency fee laws in your state.
When Are Contingency Fee Agreements Not Allowed?
Contingency fee arrangements can be helpful in some cases, especially when a client may need financial assistance. However, they are prohibited by law in certain cases. If the case is a clear-cut, obvious win, the lawyer should give the client a reasonable rate based on how much work will go into the case–doing otherwise may appear to be taking advantage of the client and the circumstances of the case.
Additionally, the rules of professional ethics prohibit attorneys from working on contingency in family law or criminal law cases, because this would appear to condone or even encourage divorce or criminal activity. Depending on the laws of your state, contingency fees may also be prohibited in immigration and bankruptcy cases, or in instances of drafting contracts, wills, trusts, or other legal documents.
What Are the Advantages of Using Contingency Fees?
Contingency fee arrangements have several advantages for clients:
- No Up-front Fees. One large advantage to using a contingency fee arrangement for a case is that you do not have to pay your lawyer up front, and you are not faced with huge legal bills while your case is still ongoing. Many people believe that this helps give those with lower incomes better access to legal assistance and the court system.
- Incentive. You can rest assured that your attorney will give their utmost to your case. If they don’t get paid unless you get paid, your attorney will be highly motivated to do everything in their power in order to get you the best possible result.
- No Costs for Losses. Another advantage to using a contingency fee arrangement is that if the case does not come out as you hope, you don’t have to worry about paying a hefty attorney’s fee (although you may still be responsible for some administrative costs). This may provide some people with peace of mind–if the lawyer is willing to risk not collecting a fee for the work they put into things, you probably have a good chance of winning your case.
What Are the Disadvantages of Using Contingency Fees?
Of course, as with anything, there are certain disadvantages to contingency fees, as well. A contingency fee arrangement could potentially cost you more than a regular hourly fee. Once you agree on the contingency fee, you owe the agreed upon percentage no matter how long the case will take–whether it takes a year or a week. This is especially true in clear-cut cases that may only require a few phone calls and a couple of hours of work in order to settle.
Make sure you discuss your options with your attorney before you make a decision. Some attorneys may offer a flexible contingency fee depending on the outcome of your case.
When attorneys take cases on a contingency basis, they may be more selective about the cases they agree to take on. They may try to avoid cases that they don’t see as relatively easy victories, or may negotiate higher fees for “riskier” cases.
The Importance of Hiring a Lawyer: A person might consider going without a lawyer in their case if the legal issue is relatively straightforward, and they believe that the amount of money they could recover is low. They might think they could handle the case in small claims court.
This may be true if a person has not suffered a significant injury or incurred significant economic losses. However, if their injury is significant and it has had a major impact on their life, they should seek the assistance of a lawyer. Even if a contingency fee arrangement is not possible, consulting with an attorney can provide useful information to a person about how best to proceed.
How Much Can a Lawyer Take in Contingency Fees?
The amount of the contingency fee can depend on several factors. Some lawyers have different layers or tiers when it comes to their fee structures, and the contingency fee can depend on the nature of the case itself. Typically, contingency fees will be around 33% – 40% of the final award, but may be higher or lower depending on the value of the case and the agreement with the client.
As noted above, in some states the percentage a lawyer can collect is capped by state law.
Again, it is always a good idea to have a copy of your fee agreement in writing, so that you understand exactly what the fee arrangement entails and how much you agreed to pay. In some states, e.g. California, a written fee agreement is required.
Risks/Penalties: If an attorney violates the terms of a contingency fee agreement, they may face disciplinary action from their state bar association. This could include sanctions such as a reprimand, suspension, or even disbarment.
In addition, the client may have grounds to file a lawsuit against the attorney for breach of contract or legal malpractice. The possible consequences will depend on the specific facts of the violation and how serious it is.
Can the Percentage or Amount of the Contingency Fee be Limited or Lowered by a Judge?
It depends on the circumstances. Generally speaking, attorneys and clients are allowed to use their own discretion when it comes to agreeing on fees. However, if the court finds that the contingency fee agreement is unreasonable or unfair, the court may step in and either invalidate the agreement or amend it to make it more reasonable. In order to determine whether the original fee agreement was reasonable in the first place, the court may consider several factors, including:
- The amount of time the lawyer spent preparing and working on the case;
- The amount of work the lawyer had to turn down in order to meet the demands of this case;
- Typical attorney fees for similar types of cases;
- The amount of money in question in the case and the final total amount of damages awarded;
- The experience, reputation and ability of the lawyer;
- The likelihood of success in the case.
Can you Negotiate the Contingency Fee?
Contingency fee cases can sometimes be seen as a risk, because the lawyer does not get paid unless they win the case. However, the risk is lower if you are more likely to win your case. With a lower risk, the more likely you are to find an attorney willing to take the case.
If your case is strong and has a high likelihood of winning a significant amount of damages, you may be able to negotiate a lower contingency fee. However, negotiating for a lower fee will require patience and a little bit of legwork–you may need to shop around in order to find an attorney who will be willing to take on the case for the fee you desire.
Some attorneys may be willing to work with you on fee arrangements, as well. Some may offer a variable contingency fee based on the time spent on the case. For example, the lawyer may charge a 25% contingency if the case settles before trial, 30% if the case goes to trial, and higher percentages if the case goes through the appeal process. Others may offer a variable fee based on the amount of the award: 30% of the first $100,000, 25% of the next $100,00, and so forth.
Other forms of contingency arrangements may mix hourly fees with contingency fees. For example, the lawyer may bill $250 per hour, but you only need to pay $50 per hour until you win the lawsuit–the remainder of the attorney’s fees are paid from the damages awarded. However, these types of arrangements are at the discretion of the attorney and the client, and might only be used in situations where the winning side is entitled to recover attorney fees from the losing side.
Make sure you discuss fee arrangements in your first meeting with your lawyer, and ask to discuss all possible options before you make a decision on hiring an attorney.
Should I Have a Lawyer Represent Me on a Contingency Fee Basis?
Contingency fee arrangements can be an extremely useful tool if you believe you have a solid legal claim, but are not able to afford the costs of litigation up front. But, keep in mind that lawyers are not required to offer a contingency fee.
If you believe you have a case and want to pursue litigation, then it is in your best interests to consult a qualified civil attorney to discuss your case and your chances at trial. However, you should make sure that you discuss the possible fee options in detail with your attorney so that you know exactly how the fees will be handled and what you are agreeing to pay.
Making sure that you understand how your attorney’s contingency fee structure works will make you feel more at ease during the course of your case.
