What Does Contingency Fee Mean?

Contingency Fee System - What is it & Where it Applies

Most personal injury attorneys don’t collect compensation for their services until they win your case and recover damages on your behalf. For most people, this is the perfect solution for their legal troubles; they only pay if they receive compensation, so it’s a win-win situation.

We’ve compiled a complete guide into what a contingency fee is, what type of cases it applies to, and a quick overview of the pros and cons of contingency fee arrangements to help you decide whether they’re the best option for you.

A Quick Overview of Contingency Fees

A contingency fee is a way of paying for legal services through any financial compensation an attorney wins for you. Unlike a fixed hourly fee arrangement, a contingency fee is usually a percentage of your overall compensation. Your lawyer only receives payment after they successfully recover compensation on your behalf. The payment is also usually dependent on the phase of negotiation or litigation when your case settles and the amount of compensation that you recover.

Under a contingency fee arrangement, your attorney might also cover the upfront expenses such as filing fees, mileage expenses, and costs for witnesses. Once you’re awarded compensation, these costs are deducted from the settlement in addition to the attorney’s fee for service.

How Does a Contingency Fee Arrangement Work?

A contingency fee arrangement comes in handy when you’re short on funds. Most of the time, civil litigation cases, such as workers’ compensation and personal injury, use contingency fees.

However, it’s not uncommon for lawyers to accept a contingency fee arrangement for other types of cases as well, such as:

  • Sexual harassment cases;
  • Class action lawsuits;
  • Bankruptcy filings;
  • Wage dispute and employment discrimination cases;
  • Professional malpractice; and
  • Debt collections cases.

Two main factors determine the payment that your attorney receives:

Litigation Costs

Even though the attorney is willing to work on your case before they receive compensation, there are several litigation costs that they have to cover.

These include:

  1. Costs associated with obtaining evidence. This includes getting medical records, public documents, CCTV videos, etc.
  2. Discovery costs such as discovery expenses. For instance, if you file a civil lawsuit, your attorney will need to hire a court reporter and pay for deposition transcripts. Such costs sometimes end up being rather expensive because most lawsuits require multiple depositions that run for up to eight hours.
  3. Court and filing fees. Most courts charge a filing fee and other litigation costs when you file a lawsuit or other legal claim.
  4. Cost of obtaining expert witnesses. Expert witnesses are usually expensive and can sometimes ask as much per hour as your lawyer.
  5. Incidental and overhead costs such as postage, photocopy, and printing costs.

You should note that once your attorney successfully recovers compensation on your behalf, you must cover these and any other litigation-related expenses. This can significantly impact the amount you’re left with and what the legal advisor recovers.

Complexity and Risk Level of the Case

If your case is risky and highly complex, your lawyer may ask for a higher contingency fee. Straightforward cases, on the other hand, usually require a smaller contingency fee.

What Percentage Does a Lawyer Get in a Contingency Fee Arrangement?

Contingency fees vary, and you should discuss the details of your agreement upfront with your attorney. The percentage that an attorney receives generally ranges from 30 percent to 40 percent, but you can negotiate this with them. Some lawyers prefer working based on fee arrangement, while there are others whose contingency fees vary based on how much time they spend on your case.

For instance, an attorney may charge a smaller contingency fee if your case settles, a larger one if it goes to trial, and a higher percentage for an appeal. Other lawyers offer variable percentages based on the compensation you receive.

Attorneys are bound by ethics rules and shouldn’t ask for an unreasonable percentage. In most cases, you and your attorney come to a contingency fee agreement that you are both bound to upfront. There are, however, instances where a judge may step in and invalidate the deal or amend it.

What Are the Main Benefits of a Contingency Fee Arrangement?

Here are three main benefits of a contingency fee arrangement:

  1. Acts as an incentive for the lawyer: your attorney will only get paid if they win your case, and the larger your settlement or court award, the larger their payout. This motivates them to seek the maximum damages for you.
  1. You don’t have to pay if you lose. If you do not recover any settlement or court award, you don’t have to pay for the attorney’s time. You may, however, bear some litigation expenses.
  1. You don’t pay up-front fees: this is especially helpful to lower-income clients and makes legal help more accessible to everyone.

What Are the Drawbacks of Contingency Fee Systems?

Since attorneys aren’t paid by the hour in contingency fees arrangements, they are less likely to accept risky and complex cases even when they have a slight chance of success. You may also end up paying more than you would have hourly, especially when your case is clear-cut and only requires a few meetings to settle.

Another item to note is that contingency fee arrangements are illegal in criminal cases and family law cases.

Should You Agree to a Contingency Fee Arrangement?

If the only thing holding you back from getting legal help is financial constraints, a contingency fee system is likely the best option. You should, however, base your decision on the details of your case. For example, how much compensation are you likely to receive? After the litigation expenses have been deducted, can you pay your lawyer and still have sufficient money left over to cover your other expenses? Keep in mind that you can’t make any changes once you sign the contingency fee agreement unless your lawyer also agrees to them.

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