The first thing many clients ask is: How will I pay for my case?
There are two main ways clients pay attorneys: 1) contingency, or 2) hourly rates.
Contingency means that payment to your attorney will largely depend on the outcome of your case. Contingent fee agreements are most often used in personal injury matters. A person who is injured in a car accident, through the fault of someone else, may not have the money to pay for an attorney and should not be required to pay out-of-pocket in order to obtain compensation for their loss.
In contingent fee agreements, the attorney will pay expenses to handle the case up front (i.e., costs to file your complaint with the court, to obtain medical records from your doctors and hospitals, etc.) so that the client does not have to use their own money to cover expenses.
A standard contingent agreement calls for the attorney to be paid one-third of the money the client receives, either from settlement, mediation, arbitration or trial. For example, if you are injured and receive $100,000 in a settlement, your attorney will receive $33,333.33. Keep in mind, your attorney is also entitled to reimbursement for the expenses they paid in handling your case. Using the $100,000 example, if the expenses are $5,000, your attorney will receive the $33,333.33 in fees, plus reimbursement of $5,000 in expenses ($38,333.33), meaning you will receive $61,666.67.
Clients sometimes ask why the expenses are not subtracted first and then the one-third contingency fee deducted. Under that scenario, and using the same $100,000 example, the attorney is reimbursed $5,000 first (leaving $95,000) and then the attorney receives one-third (or $31,666.66), meaning that the client receives $63,333.34.
The reason why expenses are not paid first is that it discourages attorneys from fronting the necessary expenses to fully-litigate your case. In the first example, the attorney received $33,333.33 in fees, whereas in the second example they received $31,666.66. Unless the expenses are deducted at the end, an attorney might be motivated to keep the expenses low which could hurt the client’s case if the attorney does not obtain all of the necessary medical records or reports. Therefore, expenses are deducted after the one-third attorney’s fees in order to remove this potential conflict.
Contingent fee agreements are an excellent way for clients to obtain legal representation without having to pay litigation costs up-front. That means the attorney takes a risk that they may not be fully-compensated for their efforts, especially if the case goes to trial and the client is not awarded any money. Therefore an attorney may decline to take a case on a contingent basis unless there is a reasonable likelihood that the client will recover an award for their loss.
While one-third recovery plus expenses is the most-common contingent fee agreement, it is always important for a client to read and fully-understand any contingent fee agreement they enter into with an attorney.