A contingency fee agreement is a written contract in which your lawyer is paid a set percentage of whatever money your case recovers, and nothing at all if the case produces no recovery. The percentage usually runs between 33% and 40%, but what you actually keep depends on how the fee is calculated, who pays the litigation costs, and whether your case falls under a statutory cap.
How the Percentage Works
One-third of the recovery, or roughly 33%, is the common starting point. Fees of 40% are standard for cases that go to trial or involve significant complexity. Some agreements use a sliding scale tied to how far the case progresses: 25% if the claim settles before a lawsuit is filed, 33% after litigation begins, and 40% if it reaches trial or appeal. Other sliding scales turn on the amount recovered, with a higher percentage on the first portion and a lower percentage on amounts above a threshold. Whatever structure applies, the exact tiers belong in writing.
The percentages are not fixed by law in most cases. They are negotiable. Lawyers are more willing to accept a lower rate when liability is clear, damages are high, or you walk in with strong documentation already assembled. Cases with disputed liability or thin insurance coverage carry more risk for the attorney, and you should expect less flexibility there. You can also propose a sliding scale even if the lawyer’s standard contract doesn’t include one.
Gross Recovery vs. Net Recovery
This is where many clients get surprised. Your agreement will say whether the percentage comes off the gross recovery (the total before litigation costs are subtracted) or the net recovery (what’s left after costs). The gap is real money.
Take a $100,000 settlement with a 33% fee and $5,000 in litigation costs. Under the gross method, the attorney takes $33,000 first, costs come out next, and you keep $62,000. Under the net method, costs come out first, the attorney takes 33% of the remaining $95,000, which is $31,350, and you keep $63,650. That $1,650 difference widens quickly on larger cases. Most firms calculate on the gross amount, so ask before you sign.
Costs Are Not the Same as Fees
The contingency fee pays for the attorney’s time and expertise. Litigation costs are the out-of-pocket expenses the case generates: court filing fees, deposition transcripts, expert witness retainers, process servers, medical record retrieval, postage, and investigators. In a complex case, these can reach tens of thousands of dollars.
Most attorneys advance these costs during the case and deduct them from the recovery at the end. The critical question is what happens to those costs if you lose. Some agreements treat advanced costs as the attorney’s risk, so you owe nothing if the case fails. Others make you responsible for costs regardless of outcome. ABA ethics rules require your agreement to clearly identify any expenses you owe whether or not you win.1American Bar Association. Model Rules of Professional Conduct Rule 1.5 Fees Read that section carefully. “No win, no fee” does not always mean “no win, no bill.”
Statutory Caps on Attorney Fees
Certain case types have legally imposed ceilings on the contingency percentage.
Claims against the federal government under the Federal Tort Claims Act are capped at 20% if the case resolves during the administrative process and 25% if it goes to federal court. An attorney who exceeds those limits faces penalties.2GovInfo. 28 USC 2678 – Attorney Fees
Social Security disability cases are capped at 25% of past-due benefits or $9,200, whichever is lower.3Office of the Law Revision Counsel. 42 USC 406 – Representation of Claimants The Social Security Administration pays the attorney directly out of back benefits, so you never write a check.4Social Security Administration. Fee Agreements Several states also cap fees in medical malpractice cases, often with sliding scales that decrease as the recovery grows.
Where Contingency Fees Are Used, and Where They Aren’t Allowed
Contingency arrangements are the default in cases built around recovering money for an injury or financial loss: personal injury claims (car accidents, slip-and-fall, defective products), medical malpractice, wrongful death, employment discrimination and wrongful termination, Social Security disability, and consumer class actions. Employment cases often also involve statutory fee-shifting, where a losing employer can be ordered to pay the plaintiff’s attorney fees on top of damages. In class actions, the court approves the fee from the total class recovery.
Two categories are off-limits. An attorney cannot charge a contingency fee for defending a criminal case, because tying defense pay to the outcome of a criminal trial could distort the advice given to a client facing prison. Contingency fees are also prohibited in domestic relations matters when the fee depends on securing a divorce or is tied to the amount of alimony, child support, or property division.1American Bar Association. Model Rules of Professional Conduct Rule 1.5 Fees
What the Written Agreement Must Cover
Ethics rules require every contingency fee agreement to be in writing and signed by you.1American Bar Association. Model Rules of Professional Conduct Rule 1.5 Fees An oral contingency arrangement is unenforceable in most jurisdictions. Before you sign, confirm the agreement spells out:
- The exact fee percentage at each stage of the case, including any change if the case settles, goes to trial, or reaches appeal.
- Whether the percentage is calculated on the gross recovery or on the net after costs.
- Whether the attorney advances litigation costs, and whether you owe anything for those costs if the case is lost.
- The scope of representation: what services are covered and what falls outside.
- How either side can terminate the relationship and what financial obligations survive.
When the case ends, the attorney must give you a written closing statement showing the total recovery, itemized deductions for costs and fees, and the net amount you receive. If you’re handed a check without one, ask for it.
Firing a Contingency Attorney Mid-Case
You can fire your contingency attorney at any time. No agreement can take away your right to choose counsel. A discharged attorney generally cannot collect the full contingency percentage, but is entitled to the reasonable value of work already done, calculated on an hourly basis under a principle called quantum meruit. If the case later settles or produces a verdict under a new attorney, the original attorney can assert a lien against the recovery to secure payment. In practice, the new attorney usually pays the former attorney’s claim out of the total fee, so you shouldn’t end up paying more than the contingency percentage you agreed to with replacement counsel.
The math shifts if a settlement offer was already on the table before the firing. Some courts treat the contingency as having been earned in that situation and allow the original attorney a larger share. If you’re unhappy with your lawyer, raise it early, before significant work has been done and before offers are pending.
Taxes on Your Recovery
Tax treatment depends on the type of claim. Settlements and verdicts for physical personal injuries are generally not taxable income. For most other categories, including employment discrimination, breach of contract, and defamation, the IRS treats the full recovery as taxable, including the portion the attorney takes as a fee.
The Supreme Court confirmed this in 2005, holding that when a recovery is income, the entire amount is taxable to the plaintiff, even the share paid to the attorney under a contingency agreement.5Legal Information Institute. Commissioner of Internal Revenue v Banks Without a special rule, a plaintiff in a $500,000 employment discrimination case with a 40% contingency fee would owe tax on the full $500,000 while keeping $300,000.
Congress carved out relief for some case types. If your claim involves unlawful discrimination or you are a whistleblower, you can take an above-the-line deduction for attorney fees and court costs, which effectively cancels the tax on the lawyer’s share. The deduction is capped at the amount of the recovery included in your income for the year.6Office of the Law Revision Counsel. 26 USC 62 – Adjusted Gross Income Defined For taxable cases outside those categories, the full-recovery tax exposure remains. Talk to a tax professional before you sign off on any settlement so the bill doesn’t catch you off guard.