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Explaining Contingency Fee Agreements

What are the upsides and downsides of contingency fee agreements?  It is important for you to know the benefits and detriments to hiring a lawyer on a contingency fee basis.  By contingency fee, we mean paying a lawyer a percentage of the assets that the lawyer recovers for you in your lawsuit.

The big upside is that you don’t have to pay any money to a lawyer to take your case, and work your case, if you hire that lawyer on a contingency basis.  The lawyer does the work, and usually pays for all of the litigation costs, out of his or her own pocket.  The costs of litigation can be substantial.  Filing fees, subpoena fees, deposition costs, expert fees, and other related costs can be between $10,000 and $80,000 or more.  And most litigated cases last ten to eighteen months or longer—meaning the lawyer will work for that long without being paid a dime by you.

 

The downside is you usually have to pay forty percent of your recovery to the lawyer.  That means if you recover $1 million, then the lawyer receives $400,000.  That can be a much high fee that would have been paid had you hired your lawyer on an hourly basis.

Another upside, is that you only pay your lawyer if the lawyer recovers assets for you.  This may be the biggest upside of a contingency fee agreement.  If you receive nothing, you pay nothing.  The lawyer is taking on the risk of not being paid, and also taking on the risk of not being reimbursed for the costs of litigation.  If a lawyer pays $35,000 for litigation costs, and works eighteen months on your case, and you recover nothing, then you don’t pay a dime.  Meanwhile the lawyer loses $35,000, plus his or her time for eighteen months-worth of work.  Nothing ventured, nothing gained, as they say.

Contingency Fee Agreements From an Attorney’s Perspective

From a lawyer’s perspective, a big upside of a contingency fee agreement is that it frees us up to take all actions we feel are necessary to move the case forward.  When the client pays the costs, the client may not want to pay for all the subpoenas or depositions we would like to pursue.  That means we may have to forego some actions that we would otherwise like to take.  But when we, the lawyers, pay the costs, we get to decide what actions we take because we are paying for the costs out of our own pocket.

Contingency fee agreements have their place.  They are not right for everyone.  If you can afford to pay a lawyer hourly, you probably should do so because it will likely be cheaper at the end of your case.  But if you have no other options, or if you are not willing to take on the risk of paying money and then losing your case, then contingency fee agreements may be right for you.