What is a contingency fee and how does it work?

It’s not uncommon for potential legal clients to inquire about contingency fees. Basically, clients want to know what they are and how they work. A contingency fee is one pricing method used by lawyers to bill their clients. Under a contingency fee agreement, a lawyer (or law firm) does not collect a fee from the client unless the lawsuit is successful (or is favorably settled out of court). Contingency fees are usually calculated as a percentage of the client’s net recovery, but exact details will vary since fee arrangements are made on a case-by-case contractual basis between the client and attorney. Often, attorneys charge a contingency fee that is one third of the amount recovered.

Not every case can be taken on contingency

Contingency fee agreements may or may not be available, depending upon the type of case. Lawyers are more commonly willing to work for a contingency fee in cases involving car accidents, boat accidents, or other personal injuries; in certain types of consumer protection cases, or in collecting old debts. Lawyers are unlikely to work for a contingency fee in cases involving employment law disputes, real estate matters, or disputes between businesses. Lawyers are prohibited from working on a contingency fee in certain types of cases, like child custody or criminal defense matters.

A contingency fee set-up provides access to the courts for those who would not otherwise be able to afford the costs of civil litigation. Contingency fees can also serve as powerful motivation for the attorney to work diligently on the client's case. Simply put, if the lawyer doesn’t win, the lawyer doesn’t get paid. There’s another advantage for clients: if the case is lost, the client is not charged attorney fees. It is important to note, however, that a client may still be responsible for the law firm’s out-of-pocket costs incurred during the case—even in the event of an unfavorable decision. These expenses may include mediation fees, court reporter fees, transcript fees, expert witness fees, and filing fees. To avoid any last-minute surprises, such “actual cost” terms should be negotiated when retaining an attorney and should be provided for in the fee agreement.

Contingency over hourly billing

There are some aspects of contingency fee arrangements that clients might not find so favorable. For example, when a case settles quickly, the contingency fee agreement may prove more costly than standard hourly billing. Clients should consider that in the event of a favorable outcome, the full fee will be owed regardless of how easy, difficult, long or short the case proves to be. In other words, the contingency fee will be the same percentage of the recovery whether the case lingers for years, or if it is settled within one week.

Some lawyers may offer a flexible contingency fee depending on the result of your case. It is worthwhile, if not essential, to ask about all available payment options when hiring a lawyer. Every case is different. In addition to the field of law involved, individual facts and circumstances will play a role in determining the applicable fee structure.

This article is intended as an overview of contingency fees, not as a comprehensive source. If you need legal assistance and have questions about contingency fees or any other matter of law, please contact an attorney.