This is one of the most common tag lines you will find in personal injury advertising. And one of the most common discussion points when you are meeting with you lawyer. It is true, but there is more to lawyer fees that the client should understand.
It is true, your lawyer is accepting 100% of the investment of time and money into your case, and nearly 100% of the risk.
When you hire your lawyer, it is a business agreement and there is a contract. The reason why you often hear lawyers claim they work for free unless they get a recovery for you is because the business agreement, or contract they use, is called a contingency agreement. A contingency agreement is different than a traditional business agreement with a lawyer or law firm. I’ll explain.
Under a traditional business agreement with a lawyer you pay a set amount of money upfront (say $5,000) and then you would be billed every month for the time and the costs spent on your case that month. If a lawyer spends 40 hours one month and they charge $200 per hour, you would get a bill for $8,000.
With the average court case taking anywhere from 18-24 months to get to trial these days, you can see how a traditional agreement could get very costly, very fast. Unless you are a business with a legal budget paying for your legal fees, the average person would not be able to afford that kind of agreement. And since personal injury cases are always involving an individual, a different type of agreement is necessary – the contingency agreement.
Here is how a contingency agreement works.
A lawyer agrees to give up being paid an hourly fee each month in exchange for you agreeing to pay a percentage of any recovery the lawyer obtains. The size of the percentage varies, but there are some industry standards. I would suggest the most common contingency contract is one third of the recovery if the case is resolved at some early point in time, and forty percent if the case gets beyond that date. This cut off date is usually the setting of a trial date.
Note: I should note here that California has a set contingency fee structure for medical malpractice cases, so if you have a medical malpractice case, the percentage is set by the laws of California.
Well, since you are not paying the lawyer every month, and since a jury may ultimately not award you anything for your case, the lawyer is taking on a large financial risk of working for a year or two or longer on a case and never being paid for that work. That risk is being rewarded by allowing the lawyer to charge a percentage of the recovery. The higher the risk, the higher the percentage.
The lawyer under a contingency agreement also agrees to pay all the costs of the lawsuit for you. That means you are not paying anything out of pocket to bring the lawsuit. The lawyer pays for all of the court costs, costs to obtain records, costs to investigate the case, costs to hire experts, and any other cost that may come up in the case. However, you are ultimately responsible for paying these costs back to the lawyer after the recovery is made. Think of this as a loan to you. While not always true, you can generally expect to pay about 10% of your recovery in costs. This repayment of costs is in addition to the lawyer fees. So you will pay the lawyer a percentage of the recovery, and then you will also pay the lawyer back for all of the costs paid on your behalf.
Let’s look at an example.
You go to trial and the jury awards you $200,000. Let’s say your lawyer paid $20,000 in costs, and the contingency agreement is for forty percent. The lawyer fees percentage is calculated on the total gross value, before any other deductions are made. Under this example, the lawyer’s fees are $80,000. After paying the lawyer fees there is $120,000 remaining. You then pay back the loan for lawsuit costs of $20,000. Therefore, after fees and costs, you would receive $100,000. If you still owed medical bills, you would then need to pay them back out of the $100,000.
Lawyer fees can be anywhere from 33 1/3% to 40%, and costs are usually around 10% of the recovery. That seems like a lot, right? It is a lot, but here are the three reasons why it makes sense:
The costs associated with a personal injury lawsuit make hiring a lawyer on a contingency agreement a smart idea.