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What’s The Difference Between Contingency vs. Hourly Fees?

 

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When clients come to a personal injury attorney they may be suffering myriad physical and emotional injuries. Many times, this may be the worst time in a client’s life. Their personal injuries may range from broken bones to catastrophic injuries that will affect their lives and finances indefinitely. The last thing that they want to be worrying about is the type of fee arrangement different attorneys use and if they can afford the help.

In personal injury law there are many different ways that an attorney may charge clients for their services. Each payment method offers pros and cons to both the client and the attorney.

The first, and most common, payment method for charging personal injury fees is through a contingency agreement.  A contingency fee agreement is a written agreement between the attorney and client in which the client may hire the attorney without putting down an initial payment, or monthly payments as the case is ongoing, and the attorney collects their payment from a percentage of the judgment once the lawsuit is complete. A contingency fee agreement should be put in writing prior to the client hiring the attorney, and must state how the fee will be determined, including the percentage that the attorney will be paid (regardless if the case is settled or goes to trial) and whether expenses (court costs, travel expenses and expert testimony fees) will be included before or after the percentage is calculated.

A contingency fee benefits clients that do not have the money at the outset to pay the attorney’s hourly rate.  Additionally, if the client does not win their case, they will not owe the attorney any fees, unless the fee agreement specifically states the client must pay named expenses. Furthermore, an attorney will be more likely to keep on top of a contingency fee case and work hard so that they obtain a favorable outcome and get paid. However, contingency fees also bring some negatives to clients. At times it may be difficult for the client to find an attorney that will take their case on contingency because the attorney may analyze the case and find that there is too high of a risk that they may not win and consequently not be paid for their time and work. Additionally, there is no certain way of knowing how long a case may take. Clients may become frustrated if a case, in which they thought might take a year, settles in one week, and they still have to pay their attorney the agreement’s fixed percentage.

Attorneys also face benefits and determents when agreeing to a contingency fee. If an attorney accepts a case on contingency, they have the possibility of making substantially more money then they would if they were charging the client hourly. However, they also have the possibility of putting in time and money and losing the case; or winning a case that goes longer than expected and does not bring in the amount the attorney first projected. Some factors that attorney may look at when deciding to take a case on contingency include: the amount of damages at stake, the likelihood of success (this is not just win or loose, there are percentages in between), how many hours it would take to get to a favorable outcome, fees the attorney must pay upfront, the duration of time (weeks or years) it will take to get paid, and the opportunity cost of not making hourly income while working on contingency.

A second payment method for charging personal injury fees is an hourly fee. An hourly fee is straightforward and determined by the client and the attorney prior to working on the case. The fee may fluctuate between clients based on the complexity of the case and the standard rate charged in the community. It is in the best interest of the client to get an estimated time of work from the attorney before they sign the agreement. With an hourly fee agreement, the client will be billed in agreed upon increments, such as by the hour, by the quarter hour, or even every ten minutes. Therefore, each time an attorney researches your case, takes your phone calls, or otherwise works on your case, they will bill you for the time spent.

If a client chooses to pay an attorney hourly, they will benefit because an attorney will be much more inclined to pursue their case. Additionally, if the client can afford to pay an attorney hourly, they will only be charged for the amount of work done by their attorneys (whether a week or a year), and the attorneys will not receive a windfall at the end of the case. However, if a client does not have the money to pay an attorney initially, they will not be able to pursue this payment option.

An attorney benefits from charging clients hourly because they will be paid whether they win or lose. Additionally, they will be paid consistently instead of through a lump sum that may not be realized for weeks or years. This is important for small firms that may not have the capital to cover all the upfront expenses of a case on contingency.  However, the attorney will be giving up the opportunity to make much more through a contingency agreement than they would make hourly.

Some attorneys decide to take a different approach and charge clients a hybrid of both hourly and contingency fees.  The attorney would offer to take on the case at a greatly reduced hourly rate, coupled with a lower than standard success-based contingency fee.

This arrangement benefits both the attorney and the client because they are both making a substantial investment in the case. The client is more likely to be able to afford the attorney, and the attorney does not have a total risk of loss by taking the case. Additionally, even if the case is not resolved favorably, the firm would not suffer a devastating loss because the hourly rate still covered their necessary fees. For cases that resolve favorably, both the client and the firm will receive a percent of the judgment.

Ultimately, both the client and attorney must look out for their best interests, and analyze what fee agreement is right for their unique situation. However, the most favorable outcome is one in which the client is accurately compensated for their damages, and the attorney is accurately compensated for their hard work in obtaining a favorable outcome.

 

 

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