Controlling Costs: The Contingency Fee

In this article, you will learn what a contingent legal fee is, when it is useful, and how to control the costs of it.  A "contingency fee" is normally based on an agreed percentage of the money recovered by your lawyer for you as a result of negotiation or trial.  It is used in situations where you are claiming money.  Most personal injury cases are handled in this manner, as well as debt collections.  Contingent fees are not allowed in criminal and domestic relations cases.

A contingency fee enables you to retain a lawyer even though you do not have the money to pay in advance of recovery.  If there is no recovery, there is no fee.  On the other hand, you probably will have to pay court filing, motion and jury fees, deposition costs and similar charges in any event, as few law firms are willing to pay these expenses out of their pockets.

There are two significant ways to control the cost of contingent fee arrangements.  First and foremost, do not agree to a single percentage no matter what stage of the proceeding your money is collected.  To do otherwise may encourage settlements too early and too low, since discovery and trial phases involve substantial time and effort.  Also, to pay the same fee whether your money is collected after one letter or a lengthy trial means that the fee will probably not be commensurate with the actual effort involved.

To offset these inequities, simply agree to a sliding scale of percentages, one for each of the major phases of a legal matter.  In the example of a personal injury matter, settlement after a demand letter and before filing of a lawsuit might be 10%.  After filing of a lawsuit, but before discovery could be 20%.  During discovery could be 30%, and during trial, 40%.  Although 40% for trial may be more than what a single percentage for the whole case might be (usually a third), it more accurately represents the effort involved and gives the lawyer more incentive during the difficult trial period.  Since most cases are settled, you will probably end up paying less than a third of your money for legal fees.

The second way to control the cost of contingent fees is to subtract the expenses of the lawsuit from your recovery before calculating the contingent fee.  If you subtract the $2,000 of expenses you have already paid to the courts and other outside parties from a $10,000 settlement, the lawyer’s fee at a third is $2,666.  If you don’t subtract these expenses first, then the “same” fee is $3,333, a significant difference.

Obtain free initial consultations with several lawyers and discuss the above particulars with each of them.  Legal fees are negotiable, and do not let any lawyer tell you otherwise.  Contingency fee agreements must be in writing in California.  Ensure that all of the above matters are provided for in detail in the agreement.  While you are at it, make sure this agreement provides that any settlement check be made out jointly to you and your lawyer and deposited into the lawyer’s client trust account.  Ensure also that your lawyer is not authorized to settle your case prior to your informed consent.

Notice: The purpose of this article is to provide information, rather than advice or opinion. It is accurate to the best of my knowledge as of the date of the article. I have no duty to update this article. The information, examples and suggestions presented in this article have been developed from sources believed to be reliable. This article should not be viewed as a substitute for the guidance and recommendations of a retained professional and should not be construed as legal or other professional advice. In addition, I do not endorse any actions addressed herein, unless they are produced or created by me.  I recommend consultation with me or other competent legal counsel and/or other professional advisors before applying this material to any particular factual situations.

"Bruce, Thank you for the notes…I like all the thoughts you added about the employment agreements.  Thanks again for all your help."

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