What Is a Contingency Fee?

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You’ve likely come across ads on television with a dashing attorney in a tailored fit suit saying something along the lines of “…we don’t get paid unless you do…”

If you’re currently in the middle of a sticky legal situation with limited financial resources to fight it in court, ads like that sound extremely promising. What you may not be aware of is that they’re referring to a contingency fee arrangement.

While it almost sounds too good to be true, it is a legitimate form of billing that some attorneys use to take on cases without charging the usual hourly fees. What is a contingency fee, and how exactly does it work? Here’s everything you need to know about it.

How Does a Contingency Fee Arrangement Work?

Attorneys receive payment from clients in exchange for legal representation. They are in business, after all.

Nonetheless, it is not unusual for clients to find themselves in need of legal services after a slip and fall incident or car accident without the money required to retain the services of an experienced lawyer. In such instances, a personal injury lawyer may decide to take on the case on a contingent fee basis.

A contingency fee is a payment made to an attorney for their legal services. It is only recovered once the client is awarded some kind of monetary compensation at the end of a lawsuit.

For instance, if you were injured as a result of using a defective product, and you launched a product liability claim to recover damages, the payment to your attorney for legal representation would be “contingent” upon winning the case at trial or receiving a suitable settlement for your personal injury suit. Your attorney would then take a cut of the recovery amount.

The exact contingency fee percentage will vary based on a wide range of factors. The two biggest ones, however, are:

1. The Risk and Complexity of the Case

The riskier and more complex a case is, the higher the payment a contingency fee lawyer is likely to request. If your case has a lot of moving parts, witnesses, at-fault parties, as so forth, you can expect to pay anywhere between 33% and 40% of the damages awarded.

On the flip side, a relatively straightforward case will likely attract a significantly lower contingency fee, somewhere in the realm of 20% to 30% of the damages.

2. The Associated Litigation Costs

Even in instances where a lawyer is willing to work at no cost whatsoever (“pro bono”), there will always be expenses that come with filing a personal injury lawsuit. These may include:

  • Filing fees – Filing a case in court isn’t free. To file a complaint in federal court, for instance, you’ll need to part with about $400.
  • Discovery costs – Anytime you have a civil lawsuit on your hands, several depositions will be required. This would typically involve paying for transcription services and hiring a court reporter. A deposition that lasts seven hours, for instance, could easily cost up to $1,000.
  • Expert witnesses – Having an expert witness testify on your behalf could set you back a few thousand dollars for them to analyze your case, prepare a comprehensive report, and testify in court.
  • Compiling evidence – Obtaining certified copies of public records, medical documents, and other relevant inventory can cost a few hundred dollars at the very least.
  • Overheads and incidentals – If your case has lots of paperwork involved, copying and postage expenses could potentially set you back a few hundred dollars.

If you win the case at trial, you’re usually the one expected to foot these costs. In a standard contingency fee agreement, you will be required to pay for litigation costs after your attorney gets their contingency fee from the recovery.

Why Do Lawyers Take Cases on Contingency?

Happy people in meeting

First off, let’s get one thing clear. The interests of lawyers that work on contingency are aligned with those of the clients they represent.

An attorney will only agree to take on a case on a contingency fee arrangement if the lawsuit in question has a high chance of success.

[Related Article: Top 7 Reasons Why Lawyers Won’t Take Your Case]

The larger the amount the lawyer can recover for their client, the higher the amount of money they get in contingency fees. This is a huge incentive for the lawyer to maximize the recovery they can get on behalf of their client.

The other benefit to the attorney is that the client will be able to afford the legal fees, no matter what. If a client were to hire an attorney to work on a standard retainer arrangement, there’s a high likelihood of the retainer amount running out long before the case concludes.

It’s a lose-lose either way you slice it since the client will no longer be able to afford legal representation, and the lawyer loses revenue. A contingency fee arrangement, however, gives the lawyer an opportunity for a massive payday.

If a client wins a $5 million settlement in a personal injury suit, and the lawyer’s contingency fee is 33%, meaning they take $1.65 million of the recovery, receiving such a huge amount in legal fees is more plausible than expecting a singular client to pay close to $2 million on standard hourly rates.

What Is the Standard Contingency Fee for an Attorney?

A contingency fee agreement outlines the costs covered in the fees versus what’s not. It may include expenses like court fees, expert testimony, certified records, etc.

The precise amount of contingency fees depends on the risk and complexity of the case in question, the litigation costs, the time and effort the attorney puts into the case, their experience and reputation, and lots more.

The most common contingency fee percentage for most attorneys is 33.33%, which amounts to a third of the recovery. If the case goes to trial, the percentage charged will be much higher.

Some contingency arrangements offer slight variations of the traditional model. For instance, a lawyer may opt for a contingency-hourly arrangement that mixes hourly fees with contingency fees.

If a lawyer bills you $200 per hour, they may only require you to pay $50 per hour until the conclusion of the suit, at which point they’ll then recover the remainder of the fees from the damages awarded.

Ask the Right Questions

If you believe you have a solid legal claim, a contingency fee arrangement can prove to be a useful tool in your case. Ensure you understand how your attorney’s contingency fees are structured so that you know exactly what you’re agreeing to.

Do you have any legal questions for us? Chat online with a Laws101 attorney right now.