How does a contingent fee agreement work?

A contingency fee agreement is a payment arrangement that allows a plaintiff who has been injured and is seeking legal remedy to obtain legal representation even if they do not have money to pay a lawyer at the beginning of the case. Clients do not have to pay a contingency fee upfront, agreeing instead to pay an attorney a percentage of the client’s award should they win the case. The contingency fee agreement will dictate the circumstances of payment, and how much an attorney is owed. The rules governing lawyers in your state will frequently determine when contingency fees are appropriate.

Keep reading to find out how does a contingency fee agreement work. If you need to know what is the standard contingency fee for an attorney, just enter your ZIP code below.

What are the basics of contingency fees?

The basic concept of the contingency fee agreement is that the client is out little or no upfront expenses; you as a client do not pay legal fees unless and until you win, and then the lawyer receives a percentage of your recovery as his or her fee. If you lose your case, there is no legal fee at all for the lawyer.

Contingency fee agreements are customarily used for cases wherein a plaintiff is seeking money damages for some sort of injury. Depending on the nature of the case and the damages claimed, lawyers will not always accept contingent fee arrangements. Some legal claims have limits on how much a plaintiff can recover in damages, in which case lawyers will be hesitant to work on a contingency fee.

For example, even though a worker’s compensation claim involves damages, some state statutes limit damages for that type of claim. Lawyers will be less likely to accept these cases on a contingency fee.

Most states permit contingent fee agreements; however, some state bar organizations have become critical of contingency fee agreements as excessive fees and have worked to place limits on their use. Advocates of contingency fee agreements argue that they provide a motivation for the attorney to obtain the best possible settlement for their clients and provide a way for those who could not ordinarily afford to do so, to access the justice system. Visit the state bar website in your state or consult an experienced local attorney to find out if limitations have been placed on the use of contingency fees in your state.

How to operate under a contingency fee agreement

Do contingency fees include expenses?

After a standard contingency fee agreement is reached, the attorney will pay the expenses of the lawsuit. Expenses can include paying filing fees, arranging for payment of depositions, and paying for copies of medical records or reports. If your attorney is successful in obtaining a judgment or settlement on your behalf, the written contingency contract will control how your funds are dispersed. Some contingency fee agreements will operate under a graduated percentage contract.

For example, if a litigation lawyer has to file a lawsuit and go to trial, his or her agreement may provide for a higher percentage because more effort is required for litigation. If the attorney does not have to file a lawsuit but instead resolves your lawsuit through mediation or another form of alternative dispute resolution, the contingency agreement may provide for a smaller percentage.

Some contingency fee contracts provide for expenses plus a percentage. If you enter a contingency agreement and the litigation lawyer won you a $100,000 judgment at jury trial after spending $10,000, he would be able to recoup his expenses off the top, and then distribute the remaining $90,000 in funds accounting for the lawyer’s contingency fees.

How are contingency fees calculated?

Your attorney will agree upon a certain percentage of your recovery. This percentage is often around 1/3 or 33%. The exact amount depends on a variety of factors, including:

• Complexity and Risk – if the case is risky or complex, the contingency fee percentage will be higher; say 35% to 40% of the recovery. In contrast, an easy case is more likely to end in a lower contingency fee percentage, about 20% or 25%.

• Litigation Costs – even if an attorney is willing to work for free (also known as “pro bono”), there are still additional costs related to a personal injury lawsuit such as:

1. Court and filing fees. It costs about $400 to file a complaint in federal court.
2. Discovery costs. A deposition requires hiring a court reporter and paying for a deposition transcript, which can cost up to $1,000
3. Expert witnesses. Expert witnesses can charge a few thousand dollars to review your case, prepare a report, and testify at trial.
4. Obtaining evidence. Getting copies of public documents, medical records, etc., can add up to a few hundred dollars in your case.

Case Studies: Understanding Contingency Fee Agreements

Case Study 1: Emma’s Personal Injury Case

Emma was injured in a car accident caused by a negligent driver. Unable to afford the services of a lawyer upfront, she sought representation under a contingency fee agreement. Her attorney agreed to take on the case and handle all legal expenses.

If Emma wins the case or receives a settlement, her attorney will be entitled to a previously agreed percentage of the amount awarded to her. In the event that Emma’s case is unsuccessful, she will not owe any legal fees to her attorney.

Case Study 2: David’s Employment Dispute

David is involved in a dispute with his employer regarding unpaid wages. Since he cannot afford to hire an attorney, David explores the option of a contingency fee agreement. He finds an attorney who agrees to take on his case under this arrangement.

If David’s attorney successfully recovers his unpaid wages, a portion of the amount awarded will go towards the attorney’s fees. If the case is not resolved in David’s favor, he will not be responsible for paying any legal fees.

Case Study 3: Sarah’s Medical Malpractice Lawsuit

Sarah suspects that she has been a victim of medical malpractice and decides to pursue legal action. Due to financial constraints, she seeks representation through a contingency fee agreement. Sarah’s attorney agrees to cover the costs of the lawsuit, including expert witnesses and court fees.

If Sarah wins her case or reaches a settlement, her attorney will receive a predetermined percentage of the amount awarded. In the event of an unsuccessful outcome, Sarah will not be obligated to pay any legal fees.