Legal Definitions - reverse bonus

A reverse bonus, also known as a reverse contingent fee, is a legal fee arrangement where a lawyer's payment is calculated as a percentage of the money they save their client. Instead of receiving a portion of money recovered or won for the client (as in a traditional contingent fee), the lawyer's fee is based on the amount of financial obligation or liability the client avoids or has reduced due to the lawyer's efforts.

Here are some examples illustrating how a reverse bonus works:

• Example 1: Debt Negotiation

  A small business owner is facing a lawsuit from a supplier demanding $100,000 for unpaid invoices. The business owner hires an attorney on a reverse bonus arrangement. The attorney successfully negotiates with the supplier, settling the debt for $40,000. In this scenario, the attorney saved the client $60,000 ($100,000 original claim - $40,000 settled amount). If their reverse bonus agreement was for 20% of the savings, the attorney would earn $12,000 (20% of $60,000).

  This illustrates a reverse bonus because the attorney's fee is directly tied to the $60,000 in debt the client no longer has to pay, rather than a percentage of money the client received.

• Example 2: Tax Assessment Dispute

  An individual receives a notice from the tax authority stating they owe an additional $50,000 in back taxes and penalties. They consult a tax attorney who agrees to represent them under a reverse bonus structure. The attorney investigates the assessment, identifies errors, and successfully argues for a reduction, resulting in the client only owing $15,000. The attorney saved the client $35,000 ($50,000 original assessment - $15,000 final payment). If the reverse bonus was 25% of the savings, the attorney's fee would be $8,750 (25% of $35,000).

  This demonstrates a reverse bonus because the attorney's compensation is a percentage of the $35,000 in taxes and penalties the client avoided paying due to the attorney's intervention.

• Example 3: Defense Against a Large Claim

  A construction company is sued for $5 million by a client alleging breach of contract and damages. The construction company hires a litigation attorney on a reverse bonus. After extensive negotiation and pre-trial motions, the attorney manages to get the claim dismissed entirely before trial. In this case, the attorney saved the construction company the full $5 million they were being sued for. If their reverse bonus agreement was 10% of the amount saved, the attorney would earn $500,000 (10% of $5,000,000).

  This is an example of a reverse bonus because the attorney's substantial fee is earned not from winning money for the client, but from saving the client from a massive financial liability.