- Before you hire an attorney on a contingency fee basis, make sure you understand the risks to you and how to protect your rights.
Learn which areas of law generally involve contingency fees and what you should consider before hiring a contingency fee lawyer.
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.