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What is Contingency Fee?

What Is A Contingency Fee?

Have you come across a legal services advertisement promising to represent a client with a case and only charge fees when the client gets paid? In these “No Win, No Fee” cases, the lawyer or agency charges a contingency fee for representation.

In most forms of legal practice, lawyers receive monetary compensation for their services. A contingency fee constitutes a type of payment for a lawyer or legal agency’s services calculated as a percentage of the client’s settlement in a case. Simply put, these are legal fees contingent upon the client winning the case and receiving a settlement or court award.

Unlike hourly charges, contingency fees involve arrangements between the lawyer and the client to pay after a case. Don’t confuse this with pro bono representation, where the lawyer offers legal representation without charge.

How Contingency Fees Work

Law firms are businesses, so you would expect them to charge a fee for the services they provide. Charging a contingency fee constitutes one way to represent a client, particularly one with a strong case but limited financial capacity at the start of the case.

The lawyer and the client enter into an agreement on which the fee is contingent upon before the case starts. The lawyer and the client sign the contingency agreement, which states the payment method for the fee and expenses. The attorney and the client must enter into their contingency fee agreement in writing to reduce the possibility of misunderstandings, especially with new clients.

The agreement further spells out a fraction or percentage that the attorney will take when the case concludes.

Cases That Use Contingency Fees

Attorneys often use contingency forms of payment in civil and personal injury cases, such as:

In complicated or costly cases where the client has limited funds, the lawyer will analyze the particulars of the case to assess the risks of the contingency.

Personal injury lawyers will typically prefer contingency fees in cases that involve clear liability and reasonable risk. In civil litigation, lawyers will agree to represent a client who has the means to collect the settlement after judgment, such as through the defendant’s insurance policy.

While helpful in many cases, attorneys don’t use contingency fees in every case. The law prohibits charging contingency fees in straightforward and clear-cut cases where the lawyer expects a quick and obvious win. In such a case, the lawyer should offer the client a reasonable rate of service based on how much effort the representation takes and expenses incurred.

The laws that govern contingency fees and when a lawyer can or cannot use them vary by state. In Texas, the Texas Disciplinary Rules of Professional Conduct prohibits lawyers from using contingency fees in criminal cases. The rules of professional ethics also prohibit lawyers from charging contingency fees in family law cases. Charging a contingency fee in a divorce case, for instance, may come off as condoning and even encouraging the divorce.

How Much Is A Reasonable Contingency Fee?

The percentage or fraction of the contingency fee the lawyer will receive depends on many factors. For example, a legal firm may have different layers or even tiers of rates and fees that it charges depending on the case.

Typically, the contingency fee falls between 33 and 40 percent of the final settlement. However, the actual amount may go higher or lower depending on the agreed contingency agreement. The agreement must outline the methods used by the lawyer or firm to determine the fee. If the amount of contingency fee depends on the case’s outcome, the agreement should specify this.

The exact amount the lawyer charges will depend on the specific factors of the case, but the two most important are:

  1. The complexity and risks of the case, and
  2. The costs of litigation.

Complexity and Risks

The riskier a case, the less likely a lawyer will opt to charge contingency fees. More complicated cases may also attract a higher percentage of contingency fees. Conversely, relatively straightforward or common cases likely to conclude quickly with a favorable outcome will attract a lower contingency fee percentage.

Costs of Litigation

A contingency fee agreement typically outlines litigation expenses the lawyer or firm will foot, but the client will pay upon conclusion of the case.

These costs will vary case by case, but they typically include:

  • Court charges and filing fees;
  • Discovery costs such as the costs of hiring a court reporter;
  • Costs of expert witnesses;
  • Costs of obtaining case evidence and exhibits; and
  • Other overhead costs.

Advantages of Contingency Fees

No Upfront Fees

By far, the most important advantage of a contingent fee arrangement is that the client does not need to pay anything upfront. Thus, this arrangement helps the client get full legal representation without worrying about huge legal bills while the case proceeds.

Lawyer Incentives

Lawyers in a contingency arrangement will put their utmost effort and even go the extra mile to ensure the client wins the case. After all, if they do not win, they do not get paid. This provides enough incentive to make lawyers do everything they can to ensure the client receives the best possible settlement.

No Costs for Losses

Contingency fee cases are aptly known as ‘No Win, No Fee.’ If the outcome of a case in a contingency fee arrangement does not come out favorably, the client does not need to pay any hefty legal fees. However, the contingency agreement may make the client liable for administrative costs regardless of how the case concludes.

Disadvantages Of Contingency Fees

  1. Contingency fee arrangements have one major disadvantage: They could cost the client more than a regular hourly rate fee, as the ultimate cost will reward the lawyer for his or her risks in taking the case.
  2. Time and unforeseen circumstances can influence the perceived value the clients get from the case. For instance, the client owes the agreed percentage of contingency fee regardless of whether the case concludes in a day or a year.
  3. Lawyers are selective when it comes to contingency fee cases. They will often avoid cases that do not promise an easy victory or negotiate a higher fee if the case involves higher risk.

Contact an Experienced Personal Injury Attorney

Contingency fee agreements often prove beneficial to clients who have a solid claim, particularly in personal injury cases, but cannot afford the costs of litigation upfront. If you believe you have a strong and uncomplicated case, you can likely negotiate a reasonable contingency fee with a lawyer.

Do you wish to pursue litigation for injuries you’ve sustained due to another party’s negligence, but you cannot afford the costs of litigation? Take the right step today and discuss your chances with an experienced personal injury attorney to get professional advice regarding your chances at trial.

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