What Is a Contingency Fee Agreement?
A contingency fee agreement is a written contract between a client and a lawyer. It is one type of attorney representation agreement. It explains how the lawyer will be paid if they win or settle the case. This payment setup is called a contingency fee. Instead of charging an upfront or hourly fee, the lawyer agrees to take a percentage of the money recovered from the case.
ABA Model Rule 1.5 (c) requires contingency fee agreements to be in writing and to explain how the fee is calculated. Contingency fees must be reasonable and not excessive in nature. When the agreement is properly written and signed, it generally becomes enforceable under state law. This type of agreement can help clients access legal services without paying up front. It also gives the lawyers an incentive to achieve a successful outcome.
When to Use a Contingency Fee Agreement
Contingency fee agreements are most commonly used in cases where a client cannot or does not want to pay legal fees upfront. So, they enter into an agreement with the lawyer, agreeing to pay them a percentage of the money they may receive if the case is successful. This also gives lawyers a reason to work towards a successful outcome.
This is why this type of agreement is mostly used in cases where there is a chance to recover money, such as:
- Personal injury cases, such as car accidents, slips, and fall claims
- Employment disputes, including wrongful termination or workplace harassment
- Medical malpractice claims, where a patient alleges harm from a health care provider
- Consumer claims, such as fraud or defective products
With that said, contingency fees are not allowed in every type of case. For example, lawyers generally cannot charge contingency fees in most criminal cases or in certain family law matters, as per ABA Model Rule 1.5(d).
Contingency Fee Example
To understand how contingency fees work, consider the case where a client hires a lawyer after a car accident. They sign a contingency fee agreement that gives the lawyer 33% of any settlement or court award they receive if the case is successful.
If the case settles for $90,000, the lawyer would receive $29,700, and the client would keep the remaining amount after any deductions.
If the client recovers no money, the lawyer does not receive a fee under the agreement.
What to Include in a Contingency Fee Agreement
A contingency fee agreement should outline key terms that both parties agree to, such as:
- The fee percentage
- The services that are covered
- How costs and expenses are handled
- What happens if the case is not successful
Attorney and Client Information
Your contingency fee agreement form should include the full names and addresses of both the attorney or law firm and the client. This helps clarify which parties are entering the agreement.
Legal Matter Description
Describe the legal issue the lawyer will handle. Keep it clear and specific to your actual situation. For example, this could include a personal injury claim, employment dispute, or any other type of case.
Contingency Fee Structure
Explain how the lawyer will be paid. State the percentage of the recovery the lawyer will receive if the case is won. As per ABA guidance on legal fees and expenses, contingency fees typically range between 25% and 40% of the recovery, depending on the case and when it resolves. For example, a case that settles early may have a lower percentage than one that goes to trial. If the client recovers no money, the lawyer usually does not receive a fee.
Costs and Retainer Fee
State who will be responsible for any costs related to the case or any additional payments, such as filing fees, expert witness fees, and investigation costs. These costs are separate from the lawyer’s contingency fee.
The contingency fee agreement should explain what services are included. In most cases, the contingency fee covers all legal work related to the case. This includes any pre-litigation services, such as drafting a demand letter. If any services fall outside this scope, you can use a legal invoice template to bill these costs separately.
Some states limit contingency fees in certain cases. For example, California Business and Professions Code § 6146 places limits on fees in medical malpractice claims.
Termination and Withdrawal
Explain how termination will be handled in case the client chooses to end the agreement or the lawyer withdraws from the case. State how fees would be handled for any work already completed prior to termination.
Final Terms and Acknowledgment
The client should acknowledge that they have read and understand the terms of the contingency fee agreement. The lawyer should clearly explain the fee structure to them in case they need further clarification. Both parties should agree to the terms and accept that no outcomes are guaranteed.
Signatures
Both the client and the lawyer should sign the agreement. Once both parties sign the agreement, it becomes legally binding.
Sample Contingency Fee Agreement
Take a look at the sample contingency fee agreement template below to understand what details you should include in yours. Once you’re ready, use our guided form and answer a few simple questions to complete yours. Then, download your free contingency fee agreement in PDF or Word format.
