Legal Definitions - contingency fee

A contingency fee is a payment arrangement where a lawyer's fee for legal services is dependent on the successful outcome of a case. Instead of charging an hourly rate or a fixed fee, the lawyer agrees to receive a predetermined percentage of the monetary amount their client recovers, either through a settlement or a court judgment. If the client does not win or settle the case, the lawyer generally receives no fee for their time, though the client may still be responsible for certain case expenses.

This type of fee structure is often used in cases where a client is seeking financial compensation, such as personal injury claims, employment disputes, or certain business litigation. It allows individuals who might not otherwise be able to afford legal representation to pursue their claims, as they do not have to pay legal fees upfront or as the case progresses. Contingency fee agreements are typically required to be in writing, outlining the percentage the lawyer will receive and clarifying any expenses the client will be responsible for.

Here are some examples of how a contingency fee arrangement works:

• Car Accident Claim: Imagine a person, Sarah, is severely injured in a car accident caused by a negligent driver. She has mounting medical bills and cannot work, making it impossible for her to pay an attorney by the hour. Sarah's attorney agrees to represent her on a contingency fee basis, meaning they will take 33% of any money Sarah receives from a settlement or a jury award. If the attorney successfully negotiates a $150,000 settlement for Sarah, the attorney's fee would be $49,500. If, however, the case goes to trial and Sarah loses, her attorney would not receive any fee for their time, though Sarah might still owe for court filing fees or expert witness costs. This arrangement allows Sarah to pursue justice without upfront financial burden.
• Wrongful Termination Lawsuit: A former employee, David, believes he was unfairly fired from his job due to age discrimination. He has lost significant income and is struggling to find new employment, so he cannot afford to pay a lawyer an hourly rate to sue his powerful former employer. David finds an attorney willing to take his wrongful termination case on a contingency fee. They agree that the attorney will receive 40% of any compensation recovered. After months of negotiation and litigation, the attorney secures a $200,000 settlement for David. The attorney's fee would then be $80,000, allowing David to recover damages he otherwise might not have been able to pursue due to financial constraints.
• Breach of Contract for a Small Business: A small graphic design firm, "Creative Designs," completes a large project for a client, but the client refuses to pay the final $75,000 invoice, claiming the work was unsatisfactory without valid justification. Creative Designs needs to recover the payment but doesn't have a large budget for a lengthy legal battle. They hire an attorney on a contingency fee basis, agreeing that the attorney will receive 30% of any amount successfully recovered. The attorney successfully sues the client and secures a judgment for the full $75,000. The attorney's fee would be $22,500, enabling Creative Designs to recover its owed funds without having to pay legal fees upfront, which could have been a significant burden for a small business.