What Is a Contingency Fee and How Does It Work?
Many people with potential personal injury claims worry that they cannot afford legal representation. A contingency fee is one arrangement that may allow someone to retain an attorney without paying the attorney an hourly fee at the beginning of the case.
Below, Isaacson, Schiowitz & Korson, LLP explains the basic features of contingency fees and the questions clients should ask before signing an agreement. A personal injury lawyer can explain how contingency fee agreements work, answer questions about legal fees and case expenses, and help you understand what to expect before entering into a representation agreement.
How a Contingency Fee Works
Under a contingency fee agreement, the attorney’s fee depends on the outcome of the case. Instead of billing the client by the hour, the attorney generally receives an agreed percentage of the financial recovery obtained for the client.
If there is no recovery, the client generally does not owe an attorney’s fee. However, that does not necessarily answer whether the client may be responsible for case expenses. The written agreement should explain that issue clearly.
Contingency fee rules, permitted percentages, and required disclosures vary by jurisdiction and by the type of case involved.
Why Contingency Fees Are Used
Personal injury cases can require substantial time and resources. A case may involve reviewing records, investigating an accident, communicating with insurers, consulting experts, taking depositions, filing motions, or preparing for trial.
A contingency arrangement permits an attorney to perform that work without requiring the client to pay ongoing hourly bills. It also means the attorney accepts the risk that the firm may not receive a fee if the case is unsuccessful.
Attorney’s Fees and Case Expenses Are Different
One of the most important distinctions is the difference between attorney’s fees and litigation expenses.
The attorney’s fee compensates the lawyer for legal services. Case expenses are amounts paid to others to investigate and pursue the matter. Depending on the case, expenses might include:
- Court filing fees
- Medical-record charges
- Deposition transcript costs
- Expert witness fees
- Investigation expenses
- Fees for obtaining official records
The agreement should state whether expenses are deducted before or after the attorney’s percentage is calculated. That sequence can affect the amount ultimately received by the client.
What Should the Written Agreement Explain?
A contingency fee agreement should be reviewed carefully before it is signed. Among other things, it should explain:
- The percentage or method used to calculate the fee
- Whether the percentage changes if litigation or an appeal becomes necessary
- How case expenses will be handled
- Whether the client could owe any expenses if there is no recovery
- How the agreement may be ended
- What happens if the client changes attorneys
- How settlement funds will be distributed
Clients should ask for clarification if any language is confusing. They should also retain a copy of the signed agreement.
Does a Contingency Fee Affect Settlement Decisions?
A lawyer may advise a client about the strengths, weaknesses, risks, and potential consequences of a settlement offer. The final decision to accept or reject an offer, however, belongs to the client.
The fee arrangement should not change that basic principle. A client should receive enough information to make an informed decision rather than feeling pressured to accept a particular result.
Questions to Ask Before Signing
A prospective client may wish to ask:
- Who will be primarily responsible for the case?
- How will updates be provided?
- Which expenses are likely to arise?
- Will approval be requested before a major expense is incurred?
- How will the fee and expenses appear on the final statement?
- What responsibilities will the client have?
These questions are normal and can prevent misunderstandings later.
Be Informed
A contingency fee can make legal representation accessible to someone who could not reasonably fund a personal injury case on an hourly basis. Still, no one should sign an agreement without understanding how fees and expenses will be calculated. Because professional rules differ among jurisdictions, the written agreement and applicable local requirements remain especially important.