Compared to other professional services, legal fees are relatively expensive. US attorneys can charge an average of $50 to $100 per hour, with some specialists billing over $300 per hour. While others may think attorney’s fees are outrageously costly, it’s essential to remember lawyering is a high-pressure job requiring extensive skills and experience.
Fortunately, you do not have to spend a fortune to hire a lawyer. Some offer clients their legal services on a contingency basis. It is a typical billing arrangement in personal injury lawsuits, especially those arising from a car accident.
A contingency fee basis is an agreement whereby lawyers receive payment for their services only after winning the case. The payment comes in the form of a percentage of the final settlement amount. However, there is no fixed estimate of how much lawyers take from the settlement award.
Like other billing options, this method has pros and cons. Hence, make sure you ask your personal injury attorney about your billing arrangement to understand its implications. Lawyers may also offer other billing alternatives that fit your financial disposition.
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|Key Takeaways |
What is an attorney’s fee?
Lawyers are not solely profit-oriented, but they deserve to earn a reasonable amount for their services. An attorney’s fees reflect their hard work and loyalty to a client. However, since no laws specify its price and calculation, non-legal professionals may perceive it as inconsistent. Several factors affect an attorney’s fees’ fluctuating value.
Attorney’s fee as compensation
Attorney’s fees or lawyer’s fees are the compensation lawyers charge their clients for legal services rendered. It is the professional fee for representing the client’s rights, causes, and interests. It may cover the following costs:
- Drafting of legal documents, like pleadings and contracts
- Retainer fees
- Acceptance fees
- Appearance fees
- Participation in alternative dispute resolution, like arbitration
In the US, the “American rule” applies. This rule requires every party in litigation to pay their respective lawyer or law firm, regardless of who wins the case. Its purpose is to avoid discouraging plaintiffs from filing lawsuits due to fear of prohibitive costs.
Attorney’s fee as indemnity for damages
Besides being a form of payment from clients, attorney’s fees can also be a reward during a court trial. This practice is evident in personal injury cases where claimants often incorporate lawyer fees in their prayer for relief. The opposing party may reimburse the claimants for hiring a lawyer and relevant legal costs if they win. However, the grant of attorney’s fees depends on the court’s sole discretion.
The Attorney’s Fee Clause
It is standard to set the agreement for payment of lawyer fees in writing. Most retainer or representation contracts reserve a section called the attorney’s fee clause. It is a declaration stating the client shall pay their lawyer for legal representation and other pertinent services. Additionally, this section may outline how lawyers bill their services.
The three most common components of attorney’s fee clauses are the following:
- The conditions of recovering attorney’s fees;
- The beneficiaries; and
- The scope of attorney’s fees
These components allow lawyers and clients to customize their engagement. For example, if the parties wish to engage in a retainer program, clients may expect their attorneys to be on-call. Non-performance of this duty may result in the forfeiture of attorney’s fees.
Some lawyers also offer their services in bundles or packages. This arrangement often requires a one-time payment covering all legal services until a case ends. In this case, lawyers may no longer demand the payment of attorneys fees after they have been paid.
The attorney’s fees clause can also be unilateral or multilateral. Under the unilateral clause, the prevailing party becomes the sole beneficiary if the court grants attorney’s fees. The multilateral clause indicates that the losing party must pay the prevailing party’s attorney’s fees. Some states, like Florida, do not allow unilateral attorney’s fees clauses.
Attorney’s Fees vs. Case Costs
People often mistake legal fees for case costs. However, they are distinct concepts. Moreover, lawyers may ask both from their clients.
Case costs are expenses relating to the preparation and processing of cases. They cover miscellaneous expenditures that enable lawyers and their staff to utilize court facilities.
Unlike lawyer fees, case costs do not function as wages. They do not pay for the efforts and expertise of lawyers. Clients must pay them regardless of the attorneys’ performance or the case’s outcome.
Here is an enumeration of what usually falls under case costs:
- Filing fees
- Expert witness fees
- Reproduction costs
- Mailing and postage costs
Ways of Billing
Lawyers and clients should indicate what billing method applies to their service agreement before pursuing legal actions. Being upfront with your intentions and expectations can reduce the risk of internal conflict.
Clients may choose from several billing methods. Some options may allow them to pursue legal actions regardless of their financial capacity. Below are the common billing methods:
Lawyers often bill clients by the number of hours spent on the case, especially for long-term arrangements. In this type of billing agreement, lawyers should specify how long they worked on specific projects and set consistent hourly fees.
Flat-rate billing is a pricing model that charges an upfront price for a specific period or project. For example, a lawyer may charge $1,500 as a package deal to facilitate a client’s marriage annulment. Clients may no longer pay additional fees after paying this amount.
A contingency fee basis is a billing arrangement whereby a lawyer takes a percentage of the court settlement awards upon winning the case. Clients do not pay an engagement fee. If the lawyer loses the case, they may not demand compensation from the client.
Opting for this billing method does not mean clients are exempt from paying for out-of-pocket expenses. They still need to pay for miscellaneous costs depending on the contingency fee agreement. Lawyers may request clients pay for filing fees and other court costs.
Supporters of the contingency fee basis consider this method as pro-poor since it allows parties without sufficient money to hire lawyers. As a result, they may file their case.
Alternative fee arrangements
Billing methods depend entirely on the discretion of the clients and their lawyers. Some parties create specific instructions for billing. In other instances, they choose to mix standard billing methods. For example, a company may set hourly rates for civil cases while a flat rate for labor cases.
Pro bono originates from the Latin phrase “pro bono publico,” meaning “for the public good.” It refers to services attorneys render for free and in the spirit of volunteerism.
Rule 6.1 of ABA’s Model Rules of Professional Conduct encourages lawyers to provide at least 50 hours of pro bono services annually. State laws may increase or decrease this obligation.
Understanding Contingency Fee Agreements
On a contingency fee basis, parties mutually agree on the percentage a lawyer takes from the settlement award after winning the case. Lawyers and clients are free to negotiate. They can also refer to recommendations set by the United States Attorney’s Office.
No law imposes a fixed amount or percentage for lawyer’s fees in contingency fee arrangements. However, the amount should be reasonable and proportional to the lawyer’s services. In a personal injury settlement, most attorneys ask for one-third of the award for damages.
However, some lawyers may ask for a higher percentage. One common justification is the complexity or novelty of a case. Others may also ask for more compensation considering how some settlements take longer to finish.
Regulation of Contingency Fees
Under Rule 1.5 of the Model Rules of Professional Conduct, lawyers must not charge unreasonable fees. But they may raise the following factors to justify their claims in the settlement check:
- Time, labor, and expertise level required to resolve the case
- The likelihood of precluding other employment opportunities by accepting the client’s case
- The fee other local lawyers charge for similar legal services
- The settlement amount
- The time limitations
- The nature and length of the lawyer-client relationship
- The lawyer’s credentials
Clients are free to question or negotiate the percentage a lawyer gets from the settlement. They may also dismiss the lawyer at any time should they feel dissatisfied or for other valid reasons.
Holding of Settlement Checks
The insurance company of the at-fault party typically pays for the settlement amount. However, the money will not directly go to the winning party. Instead, the settlement check is usually entrusted to their lawyer.
To ensure the secure handling of the settlement funds, courts require an escrow or trust account in favor of the injury victim or claimant. Once the escrow or trust expires, the winning party’s lawyer will withdraw the money. They will then deduct the case costs and their agreed-upon fee percentage. The remaining portion of the settlement will go to the client.
Rule on Settlement Advances
It is unethical for lawyers to guarantee clients’ loans or provide for their daily needs and later claim them as settlement advances. According to the American Bar Association, these advances impose an immense financial stake in the litigation’s outcome.
The financial assistance lawyers extend to clients may encourage the latter to pursue legal actions. Lawyers should refrain from using their position to fish out prospective clients. It is an unethical practice called barratry.
Although the courts are strict with settlement advances, the prohibition is not absolute. Lawyers billing on a contingency basis may cover their client’s court costs. However, lawyers may not propose a fee-shifting agreement to parties with active or pending cases.
Payment of Attorney’s Fees When You Lose the Case
Attorneys of the losing party may not claim compensation in contingency-based cases. They may only claim administrative costs.
In other cases not governed by contingency arrangements, the American rule applies. Even when a party loses, they will be responsible for paying their lawyers. Along with case costs, they will be responsible for compensating for their lawyer’s work. Clients may not justify their non-payment because they lost the case.
Payment of Attorney’s Fees When You Change Counsels
Parties can terminate their legal counsel even after signing a contingency fee agreement. Lawyers cannot force clients to continue their contract if they are dissatisfied or for other valid reasons. Clients are not obligated to pay their lawyers a percentage of what they could have received after winning the case.
Under other billing methods, clients may need to pay their lawyers for their services rendered up to that point. Some contracts may require them to pay a specific amount.
Lawyer Billing Green Flags
Billing can be a stressful situation, especially for clients. No party should feel pressured into accepting a billing setup proposed by their lawyers. When it comes to billing, lawyers should consider the following practices:
Lawyers should be transparent with their fees to help clients set realistic expectations. In contingent fee cases, lawyers may specify how much percentage they want from the settlement offer.
The billing records should contain specific details to help clients identify what exact services they are paying for. It also helps when lawyers add pertinent dates and actions to make the list more identifiable.
Consistent billing process
Applying the same billing process throughout the attorney-client relationship reduces the risk of disorganization. If there are changes, lawyers should inform their clients and get their approval.
Clients should access the invoices whenever needed. Nowadays, it is ideal if lawyers have an automated billing system. Electronic records are easier to manage since paper trails can be too voluminous.
Responsive to questions
Lawyers should readily respond to clients’ queries and back their explanations with reputable sources. Clients should have their lawyer’s updated phone number for faster communication.
Following these practices can help lawyers alleviate the stress surrounding billing matters and foster a good attorney-client relationship.
Did you know?
American courts did not initially approve contingency fees as payment for legal services because they resemble champerty. It was only in 1908 the American Bar Association recognized the legality of the contingency fee basis by incorporating it under the original Canon 13.
Meet the Best Local Personal Injury Lawyers
Parties can freely negotiate the billing methods applied during their client-attorney relationship. The most common schemes include hourly rates, flat rates, and the contingency fee basis.
Lawyers hired on a contingency fee basis should only take a reasonable percentage of the client’s settlement award. Likewise, they should not abuse their position for personal gain.
The Personal Injury Center understands the importance of working with honest and reliable lawyers. We can connect you with trustworthy attorneys who prioritize your best interest. Take advantage of our free case evaluation to find a personal injury attorney near you.
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FAQs on How Much Do Lawyers Take From Settlement Awards
You may reduce the legal costs by undertaking certain tasks. For example, you may reproduce the evidentiary evidence instead of your lawyer’s staff. It’s advisable to coordinate with your attorney to discuss these matters in detail.
Yes. Clients may question any item on their lawyer's bill. You can even reject charges if they seem unreasonable or excessive.
In most cases, yes. Filing an insurance claim is often straightforward and less tedious than filing a full-fledged lawsuit. However, lawyers may charge higher fees when handling lawsuits.