A contingency fee is a form of payment to a lawyer for their legal services. In contrast to a fixed hourly fee, in a contingent fee arrangement lawyers receive a percentage of the monetary amount that their client receives when they win or settle the case. That is, generally in a contingency fee agreement, the lawyer only receives compensation if the lawyer has successfully represented the client. Further, the amount the lawyer receives is contingent upon the result the lawyer obtains and often on the phase of litigation in which the dispute settles. Contingency fees are particularly common in personal injury cases, where the successful lawyer is awarded between 20% to 50% of the recovery amount.
Model Rules of Professional Conduct 1.5(c) requires a contingency fee agreement to be in writing signed by the client, that it state the method by which the fee is to be determined and must clearly notify the client of any expenses for which the client will be liable, among other mandates. Upon the conclusion of a contingent fee matter, the lawyer is required to provide the client with a written statement stating the outcome of the matter. However, Model Rule 1.5(d) prohibits contingency fee agreements for domestic relations matters—such as divorce cases—and for the representation of a defendant in a criminal case. Most states, including California and New York, have adopted such prohibitions on contingent fees.
Advocates of contingency fees contend that contingency fees: (1) improve access for indigent clients by enabling people who could not otherwise afford counsel to assert their claims; (2) provide incentive for attorneys to seek client success; and (3) enable clients to shift risk of losing to the lawyer.
Critics of contingency fees assert that contingency fees: (1) encourage too many frivolous suits; (2) incentivize contingent fee lawyers to settle too soon and for too little; and that (3) contingent fees are usually too high relative to the risks that attorneys bear in a particular case.
[Last updated in July of 2022 by the Wex Definitions Team]