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What are Contingent Fee Agreements?

Some attorneys will accept cases on a contingency fee basis. In short, this means that the client does not pay attorneys fees unless the client is successful in his or her case. In many situations, particularly personal injury cases, this is beneficial to the plaintiff who may not have the money to hire an attorney pursuant to a traditional fee agreement but might be willing to pay the attorney out of a future award or settlement.

The Details of a Contingent Fee Agreement

A contingency fee agreement is a written contract between the attorney and the client. The attorney’s fee for working the case is typically calculated as a percentage of any future court judgment or settlement related to the case.

The Pros and Cons of Contingent Fee Agreements

The most important benefit to this type of fee agreement is that it allows some clients to access the court system when they would not otherwise be able to afford an attorney. It also serves as a motivation to the attorney who needs to be successful in the case in order to get paid. Finally, it might serve a benefit to potential defendants and to the court system by weeding out cases that do not have a good likelihood of winning. Plaintiff attorneys are unlikely to assume the risk of working for free if they do not believe that they will be successful in the case. Attorneys who are paid by the hour, however, may be more willing to take a chance on a case without a strong likelihood of success.

On the other hand, contingency fee agreements may lead some attorneys to minimize the number of hours spent on cases for the greatest return. Further, they might end up costing clients more money than fixed fee agreements if the agreement is for a high percentage of their eventual recovery. 

The Ethical Considerations of Contingent Fee Agreements

The American Bar Association’s Model Rules of Professional Responsibility allow attorneys to take into account whether a fee is fixed or contingent when they enter a fee agreement. Generally, attorneys can earn more pursuant to a contingency fee agreement because of the inherent risk in the fee arrangement and because of the delay in payment.
The Model Rules of Professional Responsibility are the basis for many state rules of professional responsibility. They go on to explain that a contingent fee must be in writing. The written fee agreement must clearly explain the percentage of the eventual settlement or judgment that will be the attorney’s fee. It must also explain who will be responsible for court costs and other litigation expenses and when those expenses will be paid. It should also clearly inform the client that court and litigation expenses will need to be paid, regardless of who prevails.

Finally, there are a few situations when contingency fees are prohibited. Those situations include domestic relations cases. For example, an attorney cannot represent a client under an agreement that makes the attorney’s fees contingent on a divorce being granted. Further, an attorney cannot represent a defendant in a criminal trial on a contingency basis.

Contingent fee agreements are important and helpful to many plaintiffs and plaintiff attorneys. However, in order for them to be ethical and legal they need to be explicit and reasonable.

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