In general, lawyers can get paid by clients in a few different ways: on an hourly basis, on a flat fee basis, or on a continency fee basis.
Let us explain more about each of these arrangements.
How Do Lawyers Get Paid? (EXPLAINED)
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Contingency Fee Agreement
A contingency fee agreement is an agreement that the attorneys will not get paid up front or on an hourly basis as they do the work.
Instead, the attorneys will do whatever work is necessary for the case.
In the event that the case/lawsuit is successful and there is money recovered, the lawyer will take an agreed upon percentage of those funds to pay himself for the work performed.
This is regardless of the amount of work performed.
There might have been a little work, or a lot of work.
The percentage does not change based upon hours expended.
If the case is not successful, then the attorney does not get paid for the hours invested in the case.
That being said, the attorney fee agreement will likely still require the client to reimburse the attorney for expenses incurred in the case such as witness fees that they attorney already paid for.
The attorney does not always track his time that carefully (like he might in an hourly case) because the hours don’t really matter as much unless it is needed for internal firm administration purposes.
Hourly Fee Arrangement/Retainer Agreement
An hourly fee arrangement is where the attorney gets paid for every hour they work, down to the .1 of an hour (6 minutes).
The attorney gets paid regardless of whether the case is successful or not.
The attorney will likely require that the client place what is called a “retainer” in trust with his firm.
This basically means that the client will give the lawyer a lump sum of money.
That retainer is then deposited into the attorney’s trust account, which is a holding account, not the attorney’s operating account.
The attorney cannot use the money in the trust account until the funds are earned.
To “earn” the money, the attorney must work, prepare a bill, and then submit the bill to the client detailing the work performed and how much of the retainer has been earned.
Once the bill has been submitted to the client, the attorney can pay himself into his operating account the funds in the trust account.
If the client terminates the lawyer, he is entitled to a return of any funds that the attorney has not earned.
The money in the trust account belongs to the client until the attorney earns it and moves it into the operating account.
Flat Fee Agreement
A flat fee agreement is where the attorney gets paid a lump sum up front at the beginning of the case.
The client and attorney agree upon the sum.
This sum is to be the only funds paid to the attorney for the attorney’s time.
This fee is to be paid before the attorney begins work, and is considered earned upon receipt.
The flat fee can immediately leave the trust account and be paid to the attorney’s operating account.
There will be no more money paid to the attorney for the attorney’s time.
The client will still have to pay for case expenses (document fees, filing fees, witness fees, etc) as the case goes on.
The attorney will still submit bills to the client for payment of those fees, and may require that the client pay money into trust to cover those expenses.
A flat fee is paid regardless of whether the case is successful or not.
Why Do Most Personal Injury Lawyers Get Paid On A Contingency Fee?
Most personal injury cases you hear about are handled on a contingency fee.
There are several reasons for that.
But the primary reason is that the average plaintiff(s) in a personal injury case can rarely afford to pay the attorneys their hourly rate on a case.
For example, if a personal injury plaintiff wanted to hire a firm to handle a personal injury case on an hourly basis, the firm would likely demand a huge retainer fee deposit to cover the first few months of work.
This could require that the client deposit anywhere between $10,000 to $25,000 in the attorney’s trust account.
Most personal injury plaintiffs do not have this kind of money set aside, nor do they budget for this kind of case.
Plaintiffs are just average people living their lives, and a retainer deposit for a painfully expensive personal injury case is not something they will be able to do.
Can You Hire A Personal Injury Lawyer On An Hourly Basis?
In many situations, it might be the best option financially to hire a wrongful death attorney on an hourly basis instead of a contingent fee.
For example, in a case that is clear-cut and the fault is obvious, the insurance company might be excited and ready to quickly pay the limits of the insurance proceeds to the plaintiff to avoid spending money trying to fight it.
In that situation, the attorneys earn their 30-40% contingent fee quickly, without having to do much work.
If the clients had had some money to pay for the retainer up front, they could have earned a lot more money for themselves and for the estate.
But again, most plaintiffs do not have the money to pay the initial retainer in such a case, and end up choosing to go with the contingent fee arrangement.
What Else Should You Know About How Lawyers Handle PaymentArrangements?
How The Fee Arrangement Handles Costs/Expenses
Clients often struggle to understand how attorneys fees and costs/expenses are different.
Attorney fees pay for the time the attorneys spend on the case.
Costs/expenses are the expenditures made on the client’s behalf to move the case forward.
Some examples of typical costs are postage fees to mail documents, copying fees to obtain public records, and fees paid to medical facilities to obtain medical records.
If clients do not understand the difference between attorney fees and case costs, the client will be upset to receive a bill at the end of the month, demanding that he pay for potentially hundreds of dollars of case expenses.
Attorneys may or may not demand that the client reimburse (or even pay up front) the non-attorney-fee costs of the case.
But the client should find out what the estimated costs are for the case and when the attorney expects to be paid for them.
The Client Can Dictate How Much The Attorney Can Spend
Since the client has to pay for the expenses incurred by the attorney, the client has the power to tell the attorney “yes” or “no” for expenses.
The client can instruct the attorney to get advance approval for expenses of any dollar amount, or just those to exceed a reasonable amount (like $50, $500, $1000 and so on).
The client has much more input and control than they might feel like in the beginning of a wrongful death case.
Are There Any Reasons Why An Attorney Wouldn’t Want To Take A Case On A Continency?
Yes, there are many.
But the primary reason that a firm might pass on an injury contingency case (and demand an hourly arrangement) is risk.
Lawyers like to get paid, and prefer to work all their cases on an hourly basis with a big retainer in trust.
This type of fee arrangement situation isn’t as exciting as a contingent case, but it makes it easy to pay bills and salaries.
In a contingent case, attorneys bear the risk that they might lose the case.
This would leave them without funds to pay for bills and salaries.
It big loss on a contingent case could even mean the death of a law firm, if the firm doesn’t have sufficient cash flow coming in or reserves to handle a long period between contingent wins.
If the case doesn’t look like a slam dunk, or the firm isn’t willing to bear the risk of a loss, they are not going to be interested in taking on the case on a contingency.
Sometimes firms will agree to do the initial investigation on an hourly basis, with the ability to elect to convert to a contingency later after the investigation reveals more about the situation.
Other reasons include: impending statute of limitations, difficult clients, bad facts, available firm resources, case location, case complexity, incompatibility, and more.
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