A contingency fee – also referred to as a contingent fee – is a type of conditional payment arrangement between a lawyer and a client. The payment is made on the condition that the case is resolved successfully. Your lawyer is paid for his legal services only if and when he successfully resolves your case and receives a money award or financial settlement. This is the most popular method of payment for personal injury cases, class action lawsuits and workers’ compensation. The common factor is situations where money is being sought to resolve the legal matter.
Contingent fee arrangements are barred in some legal areas: criminal defense, domestic and family matters, bankruptcy, immigration, intellectual property registration, business origination, contract drafting, and estate law contracts. In other areas it’s rare or strongly discouraged: real estate, large debt collections, wage issues, employment law, and business litigation.
The Payment Arrangement
Your attorney will claim a set percentage of any monetary recovery that you receive for your case. Your lawyer’s fee comes right out of the award. If you lose your claim or case, your attorney will not be paid for his legal services.
With some arrangements, you lawyer may take a smaller percentage of your recovery if he receives the settlement through negotiation or mediation and doesn’t have to proceed to court. However, because there is more work involved in the courtroom, the percentage he will earn would increase if your claim moves to trial. This is called a sliding-percentage scale.
The average contingency fee percentage is about one-third of your monetary recovery. With a sliding-percentage scale this will often increase to about 40% if your case moves to trial. Additionally, with very complex cases, like medical malpractice and complicated product liability claims, the average frequently starts around 40%.
You will sign an agreement with your attorney agreeing to the percentage that will be charged and under what circumstances. A judge can change the amount if he ascertains that it is unfair or unreasonable, but this is pretty rare.
Several factors help determine whether a contingency fee percentage is fair and reasonable:
- What is the industry standard?
- How much time has your attorney spent preparing your claim?
- Did his work on your case prevent your lawyer from accepting other clients/cases?
- How big is the monetary award?
Many states set a cap on the percentage your lawyer may charge for your workers’ compensation claim. Several states also cap the amount of damages you may recover for certain claims. This often impacts the percentage your lawyer charges for his contingency fee. If he knows the total amount he can recover for you is limited, he may be more likely to charge a higher percentage in order to cover costs and still ensure a reasonable fee for his services.
Additional Costs and Fees
Some contingent fee agreements set out the payment of costs and other related expenses separate from your lawyer’s contingency fee. In these contracts, if your lawyer recovers money damages, he will pay himself back for his expenses out of the award first, then take his agreed percentage out of the remaining amount.
Some common additional costs include the following:
- Court Costs
- Expert Witness Fees
Be wary of any contingency fee agreement that makes you responsible for costs even if you lose your case.
Contingency Fee Tips
- Visit your state bar website to learn about any contingency fee limitations in your state.
- Ensure your fee percentage is clearly stated in your attorney-client retainer agreement.
- If your contingent fee agreement provides for costs separately, ask your attorney to send you a bill detailing these costs regularly.
- Consult with a tax professional to determine how your award will be taxed. In many cases, if you pay your lawyer at least one-third of your money damages, you will be taxed on 100% of the recovery.
Find out up front what happens if you fire your attorney: will you owe fees and how much.
If you’re in New Jersey ensure your lawyer will not be charging you for your costs if you lose your case. However, it is important to discuss with your New Jersey accident lawyer the possibility of being responsible for the costs of the prevailing party if your case is unsuccessful.