In many litigation-oriented legal matters, the attorney representing the complaining party who suffered a loss (plaintiff) will take a percentage of the money received from either a settlement or a jury verdict (or judge’s award) as the applicable fee. This type of fee arrangement is common in lawsuits involving money damages, such as for personal injury, medical malpractice, worker’s compensation, employment discrimination or wrongful termination, etc. (Conversely, it is common for attorneys who represent the defendant in such matters to charge an hourly fee.)
Contingency fees are usually expressed as a percentage, and the payment of the fee is contingent upon success at trial or the client having prevailed in the legal matter. The fee may be based upon a percentage of the dollar amount or the value of property secured or won for the client, such as a contract. For this reason, attorneys carefully assess a potential lawsuit to determine the likelihood of success before they agree to represent a prospective client on a contingency fee basis.
Most contingency fee agreements quote a fee between 25 and 40 percent of the settlement, verdict or award. Importantly (see below), this percentage may be based on the gross settlement/verdict amount, or (less commonly) the net amount after deductions for costs and expenses.
Many contingent fee arrangements have a sliding-scale basis similar to the flat fee with add-on charges for complication. For example only, a contingency agreement may stipulate that if the legal controversy is negotiated to a settlement prior to the filing of a lawsuit, the fee will be 25 percent of the settlement amount. If the case continues and is settled in the interim between filing and trial, the fee will be 33.33 percent (the oft-quoted one-third attorney fee). But if the attorney must try the case, the fee will be 40 percent. Again, this sliding scale is meant to reflect the amount of work the attorney does at each stage of the litigation.
Contingency fees are not appropriate in all legal matters, and may in fact violate state ethics rules (see below). In divorce cases, for example, angry spouses may be determined to “bleed the other spouse dry” with hefty legal fees, and do so by challenging each and every settlement clause in court. Contingency fees are generally not permitted in criminal defense matters and most divorce cases. Likewise, it would be inappropriate for an attorney to charge a fee con-tingent upon whether or not the client is awarded custody of children (some states do allow contingency fees in property divisions based upon a percentage of the value of property secured for the client).