Contingency fees are tied to the success or failure of your lawsuit or other transaction. If your lawyer is successful in winning your claim or negotiating a business deal, he or she receives a fee calculated as a percentage of what you are awarded in a court ruling or the value of what you gain in a deal. If the lawsuit or transaction fails, your lawyer may receive an agreed-upon flat fee or disbursements only or perhaps nothing at all.
Historically, lawmakers were reluctant to allow contingency fees because they feared it would encourage frivolous lawsuits since clients pay nothing at the start, and that some lawyers may only take on cases that they were reasonably certain would win. That said, paying for legal representation up-front can be prohibitive in many cases. By allowing contingency fees, people have greater access to justice, especially those who cannot afford a lawyer and those who do not qualify for legal aid.
Contingency fees can be a good thing for the client but this type of fee arrangement should be considered carefully. Under the Ontario Solicitors Act, contingency fee agreements must be in writing between the lawyer and client — with court approval required in some cases, such as large class action lawsuits. Also, contingency fees are not allowed in criminal, quasi-criminal or family law matters. Among other things, the contingency fee rules also state that the following be included in the agreement:
- if the lawyer's fee is to be a percentage of the amount recovered, the agreement must specify the percentage and that it excludes any amount received in respect of costs and disbursements,
- the contingency upon which the fee is to be paid,
- allows the client to collect full payment for an award of costs, even if it exceeds the amount payable under a contingency fee agreement, if the award is used to pay the client's solicitor,
- a statement that the client retains the right to make all critical decisions regarding the conduct of the matter,
- if the client is the plaintiff, a statement must be included stating that the lawyer shall not be paid more in fees than the client recovers in damages from the lawsuit,
- a simple example of how the contingency fee will be calculated,
- a description of disbursements, and a statement about whether the client is responsible for payment of the disbursements or taxes.
Also, the law precludes lawyers from collecting both the contingency fee and legal costs (unless approved by a judge), and gives the court the right to review contingency fee agreements.
If you and your lawyer are considering entering into a contingency fee arrangement, investigate whether it truly is the best deal. The typical contingency fee may be anywhere from 10% to as much as 45% of what you may be awarded. You must decide if this is a fair amount in your situation. In deciding whether the percentage is appropriate, it is a good idea to consider:
- what the estimated costs would be based solely on an hourly rate or fixed fee,
- the complexity of the legal matter,
- who pays for any up-front expenses, and
- what, if anything, you may be required to pay if the case fails.
Always discuss what fees will be charged and how your case will be handled before entering into an agreement with your lawyer.