Whether you’re founding a new law firm or expanding a current one, at some point or another, you may need to charge a contingency fee.
State regulations govern certain aspects of contingency fees. However, there’s still a fair amount of fine-tuning involved in figuring out how much your firm should charge based on your geographic location, practice area, and other considerations.
What is a contingency fee?
If a lawyer successfully represents a client in a civil case and wins a settlement, a percentage of that amount may be paid to the lawyer as a contingency fee. This previously agreed-upon rate provides a strong incentive for the lawyer to win the case. It also allows clients with little or no money to have legal representation.
On the other hand, if the lawyer doesn’t win the case, then neither they nor the client gets paid—and yes, someone still has to foot the bill for the court fees.
It is important that both the lawyer and the client understand and acknowledge (in writing!) that the contingency fee amount isn’t set by law but is instead negotiable.
Know your local rules
Contingency fee rules vary from state to state. Know your local requirements and check for changes once a year. Lawyers sometimes fail to monitor requirement updates, which over time, can lead to their practices being out of sync with state rules and result in ethics issues. If you’re not sure what the rules are, you can reach out to your local bar association or law society.
It’s also worth noting that contingency fees apply to civil cases, not criminal ones.
Consult with peers and mentors
In general, if a lawsuit is filed, contingency fees represent 40% of the settlement amount. If a lawsuit is not filed, contingency fees typically account for 33.33% of the settlement.
However, even with those generalities and the guardrails provided by state rules, contingency fees vary by locality and practice area. For the best sense of what your firm should charge, you’ll want to talk with peers and mentors in your area.
It may feel uncomfortable to ask, but some of them were likely once in your shoes. Just keep the conversation professional and let them know that you respect and understand their decision if they don’t feel comfortable disclosing how much they charge.
Stay on top of client agreements
A lawyer getting paid through a contingency fee always runs the risk of a client who, rightly or wrongly, refuses to pay the fee. Clients may even complain to the local bar or law society.
To protect yourself against this, it’s essential to stay on top of client paperwork, including an Informed Consent Agreement.
While such paperwork often meant valuable work hours lost to administrative tasks in the past, today’s lawyers don’t have the same excuse. Your practice management system should offer automated document generation tools. Not only does this streamline the entire new client onboarding process, but it also means it’s easy to have an up-to-date, informed consent template for contingency fees.
When you check your state rules for changes to contingency fee requirements each year, you can make any needed adjustments to the template at that time. You can move forward with peace of mind in knowing that current and accurate legal documents will support you, should a client try not to pay.
Contingency fees and your firm
Ultimately, in addition to general resources and state guidelines, we recommend talking with peers and mentors in your area to determine the correct contingency fee percentage for your firm.
And once you’ve set your fee, don’t forget to use your practice management system to help you keep client documents current so that you are better protected when it comes to getting paid!