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How Do Contingency Fees Work?Posted December 28, 2016
By Jonathan Karon
A contingency fee is an alternative to paying your attorney by the hour to handle your case. Instead the attorney receives a percentage of your recovery, but is only paid if you recover through a settlement or judgment. Typical percentages charged usually range from one-third (33 1/3%) to 40% depending on the complexity and riskiness of the case. For Massachusetts medical malpractice cases there is a specific sliding scale of percentage fees, mandated by law, depending on the size of the recovery. In addition, most contingent fee agreements provide that the attorney will also be reimbursed for any case expenses advanced , for example, filing fees, deposition transcripts and expert witness fees. These agreements usually provide that if there is no recovery, the client is not responsible for repaying these advanced expenses. It is possible that in a particular case, an attorney might require you to advance expenses or reimburse them if there is no recovery. All of this is supposed to be clearly stated in a written contingent fee agreement, signed by both you and the attorney. All clients are supposed to receive a copy of the signed contingent fee agreement.
Contingency fees are most often used in personal injury cases, although they are sometimes used in other types of litigation. In Massachusetts contingent fees are not allowed in divorce or criminal cases.
So how does this work in practice? For example, suppose a client signs a fee agreement providing for a one-third (33 1/3 %) contingency fee. The case settles for $100,000 and the attorney has also advanced $5000 in expenses. The attorney is entitled to one-third of the settlement amount which is $33,333.33. The attorney is also entitled to be reimbursed the $5000 in advanced expenses. The client would receive $61,666.67 ($100,000 less $33,333.33 in legal fees and $5000 in expenses.) Any liens for things like health insurance benefits, worker’s compensation or unpaid medical bills would also come out of the client’s portion.
So is this fair? Are personal injury attorneys receiving a windfall? The alternative to a contingency fee is paying an attorney by the hour for all time spent, and the client paying for all the expenses when incurred, whether or not there is a recovery. As experienced litigation attorneys frequently bill at rates in excess of $400/hour, this could be a very expensive proposition. Personal injury attorneys are generally willing to represent clients on an hourly basis, with payment guaranteed (and usually advanced in the form of a retainer) but most clients are not in a position to do so. Contingent fee agreements allow non-wealthy clients to obtain skilled counsel and to pay for the necessary expenses to make sure their cases are properly prepared. It is a way to level the playing field between regular people and large corporations and wealthy individuals. It is true that in some cases the attorney will receive a larger fee than if they had billed by the hour. This makes up for the risk that there will be no recovery and the attorney will not be paid at all.
Ultimately, it’s up to the client whether to enter into a contingent fee agreement. Any good personal injury attorney should be willing to explain the terms of the fee agreement in a specific case, answer any questions and discuss whether a contingent fee agreement makes sense for your case.
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