Attorneys are usually paid an hourly rate for their time or on a contingency basis, which means they agree to perform work in exchange for a share of the recovery. Attorneys who accept work on a contingency fee basis normally take cases in which the potential recovery is large and their clients don’t usually have the resources to pay an hourly rate.
These types of arrangements are common in personal injury and employment cases where the attorney represents the plaintiff. In some cases where one business is suing another, a law firm may be willing to represent a plaintiff on a contingency fee basis.
The main incentive for attorneys is financial. Depending on the facts, the area of law involved and the number of plaintiffs, a lawsuit could pay a successful attorney tens or hundreds of thousands of dollars, perhaps millions of dollars.
For clients, there are costs and benefits to hiring a personal injury attorney on a contingency basis.
- If you have limited financial means this allows you to obtain quality legal representation without paying anything out of pocket. There would be no up-front fees or hourly billing.
- If a recovery can’t be negotiated and a trial results in a verdict for the other party, there would be no attorney’s fee.
- The interests of the lawyer and client align. They both have a financial stake in a successful outcome. The lawyer has an extra incentive to work diligently and obtain the best results possible (all attorneys have an ethical obligation to zealously represent the interests of their client, no matter how they’re paid). If the attorney is paid for his work on an hourly basis, as much as he wants his client to be successful it makes no difference as far as his or her compensation.
- Because of the link between compensation and success, an attorney has incentive not to take cases that lack a solid legal foundation or sufficient evidence. Since taking baseless and frivolous lawsuits would be unethical and a waste of time that could be spent on better cases, an attorney working on a contingency basis should only take cases with at least a reasonable chance of success. Attorneys getting paid hourly, though they should be ethical and avoid baseless cases, may be less concerned about the chances of a positive outcome.
There are possible downsides to accepting a contingency fee arrangement.
- If the case settles early, the attorney may earn a substantial share of the settlement without spending a lot of time or effort. Some attorneys agree to accepting a smaller share early in the legal process but a larger share as the amount of work increases. If a case settles earlym the attorney may add up all of his or her time and accept his or her normal hourly rate, which may be much more affordable for the client given the settlement.
- The representation agreement may allow the attorney to easily “fire” you. Given how much financial risk the law firm may take, they may want a lot of leeway in leaving a case. If the client disagrees with the attorney on certain issues that the attorney thinks may make it more difficult to be successful, the client may need to find another attorney.
How contingency fees are calculated can vary on the type of case, at what point in the litigation process it’s resolved and what the local, going rate may be. It can range from a third to a half of the recovery. Clients may need to pay for costs (including filing fees and costs associated with depositions such as a court reporter and transcription) as they occur or costs may be deducted from a recovery, then the attorney would be entitled to a share of what remains.
Depending on the type of case and the strength of the evidence, a lawyer working on a contingency fee may accept considerable risk because he or she won’t be paid unless there’s a favorable settlement or verdict. The attorney’s share must be high enough to justify the risk as there may be no payment at all. A higher contingency may be asked in cases that may be more difficult to prove.
Contingency fee agreements can vary depending on the attorney, the applicable ethics rules and state law. Attorneys accept this kind of payment despite the high risks because the end result may be lucrative. For clients this arrangement potentially permits a high level of legal representation without having to pay for it out of pocket, even if the case isn’t successful.