Lawyer fee agreements: what a contingency fee contract must say

What a fee agreement is#

A fee agreementFee agreement. The written contract that hires a lawyer. It says what work the lawyer will do, how the fee is worked out and who pays the costs of the case. Glossary is a contract. It sets out what the lawyer will do, how the lawyer is paid and who pays the costs of the case. For most car accident claims, the fee is a contingency feeContingency fee. A lawyer's fee paid as a share of what you recover. If there is no recovery, there is usually no fee. Glossary: the lawyer takes an agreed share of any recovery and charges no fee if there is none.

The ABA model rules say the scope of the work and the basis of the fee must be explained to you, preferably in writing, before or soon after the work starts. For contingency fees the rule is stricter: the agreement must be in writing and signed by the client. Some states have written that into statute. In Texas, a contingent fee contract must be in writing and signed by the attorney and client, and in California the lawyer must give you a duplicate copy signed by both you and the lawyer when the contract is made.

What the agreement must say#

ABA Model Rule 1.5(c) lists what a contingency fee agreement must state: the percentage the lawyer takes if the case settles, goes to trial or is appealed, the expenses to be deducted, and whether they come out before or after the fee. It must also tell you about any expenses you must pay whether or not you win.

California's statute is a useful checklist even outside California. It requires the contract to state the fee rate, how costs affect the fee and your recovery, and what you could owe for related matters the contract does not cover, plus a statement that the fee is not set by law but is negotiable. A California contract that leaves out a required term is voidable at your option, and the lawyer is then limited to a reasonable fee.

If another firm will share the fee, ABA Model Rule 1.5(e) allows it only if you agree in writing, including the share each lawyer will receive, and the total fee must be reasonable.

Case costs and who pays if you lose#

The fee pays for the lawyer's work. Costs are the out-of-pocket expenses of the claim: filing and service fees, medical records, police reports, expert witnesses, court reporters and deposition transcripts. In a case that goes to trial, experts alone can be expensive.

Many injury lawyers advance these costs as the case goes along. The professional rules allow it: in Florida, for example, a lawyer may advance court costs and litigation expenses, and repayment may depend on the outcome. That last part is the key question. Some agreements say you owe nothing if the case is lost; others say you must repay the costs either way. The ABA model rule requires the agreement to tell you which.

Florida's Statement of Client's Rights adds a right to be told what you could owe if you lose, including costs owed to your lawyer and any liability for the other side's fees and costs. In some cases, a losing party can be ordered to pay some of the other side's court costs, so the question is worth asking anywhere.

Before or after the fee: why the order matters

Florida's statement also says your lawyer should tell you whether the fee will be based on the gross amount recovered or on the amount recovered minus the costs. Our guide to contingency fees works through more examples.

The closing statement#

When a contingency case ends, the ABA model rule requires the lawyer to give you a written statement of the outcome and, if there is a recovery, what you receive and how it was worked out. In practice, a closing statementClosing statement. A written breakdown given at the end of a contingency fee case. It shows the amount recovered, the lawyer's fee, each cost and lien paid, and what the client receives. Glossary lists:

1. The gross recovery, the total paid by the insurer or the court judgment.
2. The lawyer's fee, with the percentage applied.
3. Each cost, item by item.
4. Liens and medical bills paid, such as a hospital, a health plan or Medicare.
5. The net amount to you.

Florida goes further: until you approve the closing statement, your lawyer cannot pay any money to anyone, including you, without a court order, and every lawyer who shares the fee must sign it. Florida lawyers must keep the contract and closing statement for 6 years.

Settlement money is first deposited in a client trust accountClient trust account. A bank account a lawyer must keep separate from the firm's own money. Settlement checks and other client funds go into it until they are paid out. Glossary: the model rule says client money is held in a separate account, apart from the lawyer's own money. The lawyer must then promptly pay you the funds you are entitled to and, if you ask, give a full accounting. If a lien or bill is disputed, the model rule says the money in dispute is kept separate by the lawyer until the dispute is resolved, while undisputed amounts are paid out promptly. Our guide to medical liens and subrogation explains who can claim part of a settlement.

State rules that add protection#

Each state adopts its own professional rules, and some add contract terms of their own.

Federal law caps fees on claims against the US government, such as a crash with a mail truck: 20% of an administrative settlement and 25% once a lawsuit is filed.

Reading the agreement before you sign#

A short, careful read now can prevent a fee dispute later. It helps to check:

• Every blank is filled in. No empty percentages, dates or names.
• The percentages match what you were told, at every stage.
• The cost clause answers two questions: whether costs come out before or after the fee, and whether you owe them if you lose.
• The scope is clear, including whether your property damage claim and any claim on your own policy are covered.
• You get a signed copy to keep.
• You understand what happens if you change lawyers. The guide to changing lawyers explains what happens to the fee.

If a clause is unclear, ask the lawyer to explain it or to rewrite it. Our list of questions to ask a lawyer covers fees, and the red flags guide covers agreements that should give you pause.