In this video, you get answers to these questions:
- What should you know before hiring a contingency fee lawyer?
- What are important considerations when hiring a contingency fee lawyer?
- What is a contingency fee agreement?
- What other options do you have when paying an attorney?
- What practice areas are more likely to work on a contingency fee agreement?
- Why should you be cautious about entering into a contingency fee agreement?
Before you hire an attorney on a contingency fee basis, make sure you understand the risks to you and how to protect your rights. This article provides some considerations to protect your interests.
Learn which areas of law generally involve contingency fees and what you should consider before hiring a contingency fee lawyer.
Table of Contents
What is a contingency fee?
A contingency fee is a payment to an attorney that is only owed if the attorney wins money for you.
Why are contingency fees frustrating to clients and lawyers?
Contingency fees can be frustrating to either the client or the attorney. Often, one of them gets a bad deal:
- If a case settles quickly or recovers a lot of money, a client may feel frustrated that the attorney was paid more than the attorney deserved.
- If a case goes longer than expected or recovers little money, the attorney may be frustrated by how much effort was invested for such a low fee.
In other words, contingency fees are rarely accurate: Either the attorney or client gets shorted. Attorneys understand this risk, so they are selective in the cases they take, improving their odds. Still, clients paying a large fee to an attorney may feel frustrated.
Are contingency fees available for all legal areas?
No. Some people think contingency fees are available for any legal area. Their impression of attorneys is shaped by attorney TV commercials with slogans like
- no win, no fee,
- we don’t get paid unless we win, or
- you don’t pay unless we win.
The truth is, contingency fees are only available for a few areas of law, which happen to be presented frequently on TV.
Often contingency fees are available for:
- Car accidents, boat accidents, work accidents, and other personal injuries
- Fair Debt Collection Practices Act (FDCPA) violations against creditors for harassing debtors
- Defective products that cause injuries
Sometimes contingency fees are available for:
- Employment law and hourly wage issues
- Collection of large debts
Rarely are contingency fees available for:
- Real estate
- Business litigation
Never are contingency fees available for:
- Criminal defense (DUI, traffic, drug, and other charges)
- Divorce and similar family law issues
- Drafting a contract, will, trust, or other legal documents
- Starting a business
- Registering a trademark, copyright, or patent
Why don’t all lawyers use contingency fees?
Lawyers often dislike contingency fees for a number of reasons:
- There is a risk the lawyer will get paid nothing.
- There is a risk the firm will get paid too much and the client may be frustrated by that.
- The lawyer’s fees are delayed until collected from the opposing party.
For these reasons, many attorneys avoid contingency fee work.
How do lawyers decide whether to accept contingency fees?
Here are some of the factors lawyers consider when determining whether to accept a case on a contingency fee basis.
The lawyers who frequently accept contingency fee cases
- often practice in an area where contingency fees are common (see the list above),
- often represent people without resources to pay by the hour; and
- carefully select cases to ensure they won’t lose.
That last factor is a big one. A lawyer will accept contingency fee cases where the lawyer is likely to be paid well. Lawyers can’t stay in business if they accept a bunch of weak cases.
What is a typical percentage for contingency fees?
In general, contingency fee percentages range from 33% to 40%, depending on the amount the client could potentially win, the strength of the case, and other factors. I have seen contingency fees as high as 50% (for small cases) and 15% (for very large cases).
- Typical: 33% (one third) to 40%
- Highest I have Seen: 50%
- Lowest I have Seen: 15%
What is a fair percentage for contingency fees?
A fair percentage depends on the circumstances and risk involved. It is based on a number of factors.
One factor affecting contingency fees is the amount of out-of-pocket expenses the firm will need to cover the case. These include mediation fees, court reporter fees, transcript fees, expert witness fees, filing fees, etc. Although the client may ultimately be responsible for these expenses, the firm may not ever recover them, resulting in losses of both time and money if the case does not result in enough money.
Under Minnesota law, the factors to be considered in determining the reasonableness of a fee include the following:
- the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
- the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
- the fee customarily charged in the locality for similar legal services;
- the amount involved and the results obtained;
- the time limitations imposed by the client or by the circumstances;
- the nature and length of the professional relationship with the client; and
- the experience, reputation, and ability of the lawyer or lawyers performing the services.
In other words, since every case is different, these factors will need to be applied to the individual facts and circumstances of your case.
Why might you want to avoid contingency fees?
Normally, people who hire a lawyer on contingency do not have the option of paying the lawyer’s hourly rates because they simply can’t afford them. To seek justice, they must accept a contingency fee arrangement.
If you are hiring a lawyer on contingency, keep in mind that the lawyer is first concerned about ensuring the lawyer benefits from the deal. In general, lawyers are far more experienced with contingency fees than clients, so lawyers know better how to calculate contingency fees so the lawyer is not disadvantaged.
Experienced attorneys do not take contingency fee cases if it is a bad deal for them. For example, attorneys routinely reject being paid on contingency for small financial cases, complex cases, and time-consuming cases. However, attorneys routinely accept contingency fee cases that have the potential to win a lot of money, are simple, and will not take much time.
Conclusion: contingency fees are often unfair
Attorneys who are selective about the contingency fee cases they accept will succeed financially. Attorneys who take small or difficult cases on contingency may struggle financially. As a result, people may feel frustrated because their lawyer makes a lot of money from little work, or people feel frustrated because no lawyer will take their case.
In conclusion, contingency fees are generally a very inaccurate (some would say “unfair”) way to pay attorneys, but since people may not have the funds to pay usual attorney rates, our justice system permits the use of contingency fees. Only in rare circumstances will our firm take a case on a contingency basis.
What should you know before hiring a contingency fee lawyer? I’m Aaron Hall, an attorney in Minnesota representing business owners in the Twin Cities area. Today I’m going to talk to you about important considerations before hiring a contingency fee attorney.
First and foremost, keep in mind that this is an agreement between you and the attorney regarding how much the attorney’s going to get paid. And so as you might imagine, there’s no better expert on this agreement than the attorney. The attorney is looking out for herself or himself first and foremost. They’re not necessarily trying to make sure that it’s a really good deal for you. They need to make sure they’re going to get paid. And a contingency fee agreement is especially crucial because the attorney might not get paid anything.
Here’s how a contingency fee agreement works. You’ve heard the commercials. “If I don’t get pay…” Or, “If you don’t make money, I don’t get paid,” what lawyers will say. In other words, the lawyer getting paid is contingent on you getting money. That seems like a really good deal for you. In other words, you don’t have to pay the attorney by the hour. You don’t have to pay some sort of fixed fee. The only way the attorney gets paid is by getting a cut of the proceeds the attorney wins. What could be wrong with that? It seems like your interest is directly aligned with the attorney.
Let’s look at it this way. If the attorney is getting 40% of whatever the attorney recovers, wouldn’t the attorney want to get the most possible? Not necessarily. And here’s the catch. Attorneys need to get paid for the time they put in. So let’s say you’re an attorney and I tell you, “You can earn $5,000 for a 100 hours of work or $6,000 for 200 hours of work.” Which would you rather do? Well, of course you’d rather get paid 5,000 for a 100 hours of work.
Let’s use a simpler example. Let’s say an attorney is hired to represent you because you got in a car accident and, after putting in three hours of time, the insurance company offers $10,000 to you. Well, the attorney thinks to him or herself, “Hey, if I’m getting a third of $10,000 after just a few hours of time, that’s pretty good money. Do I really want to spend another 50 or a 100 hours litigating this? And maybe I wouldn’t get any money.” So as you can see, attorneys who work on contingency, have a personal incentive to settle early and get settlements quickly before they put in way too much time on something.
People have come to me and said, “I hired an attorney on a contingency fee basis and I don’t think that attorney ever intended to go to trial. The attorney sent a couple letters threatening and when the other side didn’t settle or make a counter-offer, the attorney withdrew from representation.” Now generally that’s permissible. But I understand it’s very frustrating. So what other options do you have? Well, attorneys are paid in a number of different ways. Hourly is one way or a fixed fee is another option. But many times people just say, “You know what? I don’t have the money to pay an attorney by the hour or some sort of fixed fee. And so that’s why certain attorneys, especially in certain practice areas, are more likely to work on a contingency fee arrangement.
Contingency fees are often seen in these practice areas: accidents like car accidents, motorcycle accidents, personal injury, class action lawsuits. You may see a contingency fee there or a fee approved by the court on an hourly basis. But it’s often typically the people who are the parties in the case, the clients, are not having to pay out of pocket for attorney’s fees. There are number of other areas where you might see this, as well. Malpractice might be one of those. Here’s areas where you rarely, if ever, see it. You’re not going to see when one in bankruptcy. You won’t see one in family law, like a divorce. You won’t see contingency fee in criminal law.
Think about it. If the attorney wins in criminal law so that you don’t go to jail, what is the attorney getting a cut of? Nothing. I mean, by winning, you won some freedom. You didn’t have to go to prison, but you didn’t win money. So attorneys typically are going to be getting attorney’s fees or contingency fees when you’re suing for money. It’s pretty clear some money is owed. And maybe there’s even an insurance company, so there’s some guarantee that there is a way to collect money on this. And so the
big question is how much money is owed? You often don’t see contingency fee agreements in business disputes or general civil litigation, because there may be counterclaims going back and forth. And so there’s just too much opportunity to not get paid.
So the really high level, the reason to be cautious about an attorney’s fee, that’s based on a contingency, you may be paying a lot more than you would if you got paid by the hour. Think about it. The attorneys are only going to do a contingency fee if they believe it’s in their best interest to do that. So I’d be cautious about that before entering into a contingency fee agreement.
To find out more tips and pitfalls and considerations before entering into a contingency fee agreement, contact or visit my website at aaronhall.com. There’s a URL in the description below. And for similar videos like this, you can subscribe to this channel or subscribe to our email list.
I’m Aaron Hall, an attorney in Minneapolis, Minnesota, generally representing business owners. Feel free to look in the description below to find out related information.