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 costly or complicated case. Civil litigation lawyers typically accept cases that present clear liability and a means to collect a judgment or settlement, such as through a defendant’s insurance policy. However, in cases where liability is not clear, or if the case is considered too risky, the attorney may not accept the case, even on a contingency basis.
Contingency fee agreements are most often used in civil cases like personal injury and workers’ compensation cases, although attorneys may accept work on a contingency basis in other circumstances, such as:
- Professional Malpractice;
- Sexual Harassment;
- Personal Injury;
- Employment Discrimination and Wage Dispute Cases;
- Class Action Lawsuits; and
- Debt Collections Cases
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 easy victories, or may negotiate higher fees for “riskier” cases.
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.
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.
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.