What is a Contingency Fee?

It’s Wednesday evening and you just got off work, but you remember that you need to pick up some ingredients for dinner. You make a detour to the local grocer to pick up some chicken and carrots on your way home – it’ll only take fifteen minutes. As you’re strolling through the aisles, you don’t see an unmarked puddle of standing water and slip. While falling, you break your arm as well as injure your neck. As a result, you spend the evening at the hospital and leave with a medical bill for $6,000. The next day, you wake up sore and unable to leave the house. You can’t go to work but need to continue working to support your family, not to mention the medical bill you incurred the night before. What do you do?

For many, filing a personal injury lawsuit against the grocer is the only available form of relief. However, lawyers are expensive and you can’t afford to pay a lawyer, especially if you don’t win. So, how do you afford to pursue your rights to compensation for your injury that is now affecting your family? Through a contingency fee agreement.

A contingency fee agreement is an agreement between you and the lawyer stipulating that you are not required to pay the attorney an hourly rate, or at all if your lawsuit is not successful. So how then does the attorney get paid if your lawsuit is successful? In a contingency fee arrangement, the attorney will retain a percentage of the proceeds in lieu of a fee.

In most states, the contingency fee is limited by the state bar or judicial authority -- typically one-third of the award. Thus, if you hire an attorney on a contingency fee arrangement whereby you agree that the attorney receives about 33% of the award, an award of $100,000 would be split in to $66,666 to you and $33,333 to the attorney. While often controversial, contingency fees provide access to legal relief for those who cannot afford the high costs of lawyers, often charging $300 or more per hour and spending hours on each case.

In many situations, contingency fees result in the lawyer receiving more than he or she would have through hourly billing. However, the increased payout is a result of the increased risk that the lawyer takes. In a conventional hourly billing arrangement, the lawyer gets paid no matter the outcome – meaning that your pursuit of the $100,000 could cost you $10,000 despite not receiving a judgement in your favor. Comparatively, the contingency fee means the lawyer only gets paid if you win, which means that the lawyer takes the risk of not being paid should the case be unsuccessful.