The Pros and Cons of Contingency Fee Agreements

Contingency fee agreements are a popular way to finance legal representation, particularly in personal injury, class action, and probate litigation cases. Under a contingency fee arrangement, the lawyer’s payment is contingent upon winning the case or securing a settlement. If the case is lost, the client does not owe any attorney fees. While this arrangement can be a great option for clients who cannot afford traditional hourly billing, there are both upsides and downsides to consider. In this blog post, we’ll explore the key advantages and disadvantages of contingency fee agreements to help you decide if this is the right choice for your legal needs.

What is a Contingency Fee Agreement?

A contingency fee agreement is a contract between a client and their attorney in which the lawyer’s fees are contingent upon the outcome of the case. Instead of paying an hourly rate or a flat fee, the client agrees to pay the attorney a percentage of the final settlement or award if the case is successful. Typically, this percentage ranges from 25% to 40%, depending on the complexity of the case and the lawyer’s experience.

If the lawyer is unable to win the case or secure a settlement, the client does not owe any fees (although the client may still be responsible for certain expenses, like court costs or expert witness fees, depending on the agreement).

Upsides of Contingency Fee Agreements

1. Access to Justice for Those Who Cannot Afford Upfront Costs

One of the most significant advantages of contingency fee agreements is that they make legal representation accessible to people who may not have the financial resources to pay for an attorney upfront. This is particularly beneficial in personal injury cases, wrongful death claims, and other matters where plaintiffs may be facing financial difficulties due to medical bills, lost wages, or other challenges.

Without the burden of hourly fees, clients can pursue justice without worrying about the immediate costs of legal services.

2. Motivation for Lawyers to Win the Case

Since a contingency fee arrangement ties the lawyer’s compensation directly to the outcome of the case, attorneys have a strong incentive to work diligently and secure a favorable result. Lawyers are highly motivated to win the case, as their earnings depend on it. This can align the interests of the client and the attorney, ensuring that the lawyer is fully invested in the case’s success.

3. No Risk of Paying if the Case is Lost

Under a contingency fee agreement, clients do not have to pay attorney fees if the case is unsuccessful. This eliminates the financial risk associated with hiring a lawyer and gives clients peace of mind knowing they won’t be saddled with legal bills in the event of an unfavorable outcome. This can be especially important for individuals who cannot afford to pay hourly fees and who might otherwise forgo legal representation.

4. Helps Level the Playing Field

Contingency fee arrangements can help level the playing field, particularly in cases where the opposing party has substantial resources. For instance, in cases against large corporations or insurance companies, the client might be at a financial disadvantage if they have to pay hourly fees. A contingency fee agreement allows the client to compete more fairly, as they won’t need to pay the attorney upfront and will only owe a fee if they win.

5. Predictable Payment Structure

For clients, contingency fee agreements often come with a clear understanding of what will happen if the case is successful. While the percentage taken by the attorney may vary, the payment is tied to the final settlement or award, which makes it easier for clients to plan their finances. This predictability can be a relief, especially if the client is going through a challenging time financially.

Downsides of Contingency Fee Agreements

1. Higher Fees if the Case is Successful

While contingency fees can be beneficial in the short term, one of the major downsides is that lawyers often take a substantial percentage of the settlement or award. This percentage typically ranges from 25% to 40%, and in some cases, it can go higher if the case is particularly complicated or high-risk.

While the client may not need to pay upfront, they may end up paying a significant amount of the final award to the lawyer. In high-stakes cases, this can mean the lawyer takes a large portion of the settlement, leaving the client with less than they expected.

2. Potential for Conflict Over Settlement Offers

In some cases, clients and their attorneys may disagree on the best course of action. For example, the lawyer may recommend accepting a settlement offer, while the client may want to continue litigation. Since the lawyer’s fee is based on the settlement amount, the attorney might be incentivized to push for a settlement rather than pursue further litigation, which could lead to a conflict of interest.

Clients should ensure they have a clear understanding of their lawyer’s incentives and establish good communication to avoid these types of conflicts.

3. Ongoing Expenses Can Still Add Up

While clients do not need to pay lawyer’s fees if they lose the case, they may still be responsible for certain expenses, even if the case is unsuccessful. These costs may include filing fees, court costs, expert witness fees, and other out-of-pocket expenses incurred during the litigation process. In some cases, these expenses can add up to thousands of dollars, even if the case does not result in a favorable outcome.

Clients should clarify these costs upfront and make sure they understand what they will be required to pay, regardless of the case’s outcome.

4. Uncertainty Over Final Payment

While a contingency fee agreement provides a clear payment structure based on the success of the case, clients may find it difficult to predict the final outcome. The case might drag on for years, or settlement negotiations may result in a lower-than-expected award, leaving the client with less compensation than anticipated.

Additionally, depending on the complexity of the case, the lawyer’s efforts, and the time involved, the final percentage taken as a fee could be substantial, reducing the overall benefit to the client.

5. Risk of Choosing the Wrong Attorney

When working with a contingency fee agreement, clients may be more inclined to choose an attorney based on their willingness to take on the case, rather than on their experience or expertise. In some cases, clients might select an attorney who is not as well-qualified or who has limited resources for managing a complex case.

Clients should carefully vet their attorneys and ensure that they have the skills, experience, and resources needed to handle their case effectively.

When Is a Contingency Fee Agreement a Good Option?

Contingency fee agreements are particularly beneficial in certain types of cases, including:

• Personal injury claims: Clients who have suffered injuries due to accidents, medical malpractice, or other incidents may benefit from a contingency fee agreement, as they can pursue their case without worrying about upfront fees.
• Employment law cases: Disputes over wrongful termination, discrimination, and wage claims often involve contingency fee arrangements, especially when the client cannot afford to pay hourly rates.
• Probate litigation: In cases where heirs or beneficiaries dispute the validity of a will or trust, contingency fee agreements can make it easier for clients to challenge a decedent’s estate without the financial burden of hourly fees.
• Class action lawsuits: In cases where a group of people sues a corporation or institution, contingency fees can make legal action more accessible.

Conclusion

Contingency fee agreements can be a powerful tool for individuals who need legal representation but cannot afford to pay upfront. They offer significant benefits, such as access to justice, reduced financial risk, and strong attorney motivation. However, there are also downsides, including potentially higher fees, ongoing expenses, and the possibility of conflicts over settlement strategies.

Before entering into a contingency fee agreement, it’s important to fully understand the terms, including the percentage the attorney will take, any potential additional expenses, and the overall risks involved. By carefully weighing the pros and cons, you can make an informed decision about whether a contingency fee arrangement is right for your case.