A contingent fee is a lawyer payment arrangement in which the attorney’s fee is a percentage of whatever money you recover from your case, and nothing if you recover nothing. You pay no hourly bill while the case is pending. The law firm takes on the financial risk of the litigation, and in exchange it collects an agreed share of any settlement or judgment at the end. This is the standard way personal injury, employment, and most other money-damages cases get funded.
How the Percentage Works
The fee is a share of the recovery, usually between one-third and 40%. The exact number depends on the case and how far it has to go before it resolves.
Many agreements use a sliding scale that increases as the case gets more work-intensive. A common structure runs 30% if the case settles before any lawsuit is filed, 35% if a lawsuit has to be filed, and 40% if the case goes all the way through trial. A second type of sliding scale works in reverse, dropping the percentage as the recovery gets larger. An attorney might take 40% of the first $15,000, 35% of the next $30,000, and 25% of anything above $50,000, on the theory that once the recovery crosses a certain size, the client’s share should grow faster than the lawyer’s.
These percentages are negotiable. A lot of people don’t realize that. If the case looks straightforward or the expected recovery is unusually large, you can ask for a lower rate. The lawyer doesn’t have to agree, but some firms will counter with a hybrid: a reduced percentage plus a modest hourly rate.
What the Written Agreement Must Cover
Every contingent fee arrangement has to be in writing and signed by you. Professional conduct rules require it, and an unsigned agreement creates problems for everyone if a dispute comes up later.1American Bar Association. Rule 1.5 Fees
Before you sign, confirm the agreement spells out:
- The percentage at each stage, including whether it changes if the case settles before suit, after filing, at trial, or on appeal
- How case costs (filing fees, expert witnesses, medical records) are handled, and whether they come out of the recovery before or after the attorney’s percentage is calculated
- Who pays the costs if you lose — some firms absorb them, others require you to reimburse regardless of outcome
- What triggers the fee, including whether it applies to structured settlements paid over time
When the case ends, your lawyer has to give you a written statement showing the total recovery, the fee calculation, every expense deducted, and the amount you receive. Read that statement carefully. It’s the receipt for the entire financial relationship.1American Bar Association. Rule 1.5 Fees
One more backstop. Even where no specific cap applies, the fee must be “reasonable” under professional conduct rules. Courts weigh the difficulty of the case, the amount of work, the result, and what other lawyers in the area charge. A 40% fee on a two-year trial will almost always hold up. The same 40% on a matter that settled after one phone call might not.1American Bar Association. Rule 1.5 Fees
Costs Are Separate From the Fee
The contingent fee pays for the attorney’s time and expertise. It does not pay for the out-of-pocket expenses of running the case. Those costs are separate, and they add up faster than most clients expect: court filing fees, service of process, expert witness charges, medical record retrieval, deposition transcripts, and more. In most contingent fee arrangements, the firm advances these costs during the case and recoups them from the settlement at the end.
The question that most affects your take-home amount is whether costs come out before or after the attorney’s percentage is calculated.
Gross Method vs. Net Method
Picture a $100,000 settlement with a 33% fee and $5,000 in case costs.
Under the gross method, the attorney takes 33% of the full $100,000 ($33,000), and then the $5,000 in costs comes out of your remaining $67,000. You receive $62,000.
Under the net method, the $5,000 in costs is subtracted first, leaving $95,000. The attorney takes 33% of that ($31,350). You receive $63,650.
The net method puts $1,650 more in your pocket on these numbers, and the gap widens as costs grow. It’s a page-three detail that directly affects what you walk away with, so look for it before you sign.
If You Lose
When the case produces no recovery, the fee is zero. The lawyer earns nothing for the work. The costs are a different question. Some firms absorb all advanced costs on a loss. Others require you to reimburse them regardless of outcome. Your agreement should state which, and if it doesn’t, ask before you sign. A $10,000 bill for expert witnesses on a case you lost is the kind of surprise worth avoiding.
Where the Law Caps or Bans Contingent Fees
In some categories of cases the law overrides whatever your fee agreement says.
Social Security Disability
If you hire a lawyer for a Social Security disability appeal, federal rules cap the fee at the lesser of 25% of your past-due benefits or $9,200. The $9,200 ceiling took effect November 30, 2024.2Federal Register. Maximum Dollar Limit in the Fee Agreement Process
Claims Against the Federal Government
In Federal Tort Claims Act cases, the fee cap depends on where the case resolves. For claims settled at the administrative level before any lawsuit is filed, the attorney cannot collect more than 20% of the recovery. Once a lawsuit is filed, the cap rises to 25%. A lawyer who exceeds these limits faces a fine of up to $2,000 or up to a year in prison.3Office of the Law Revision Counsel. 28 USC 2678 Attorney Fees Penalty
Class Actions
In class action lawsuits, the judge decides what the attorneys earn, not the fee agreement. Courts commonly award fees between 25% and 33% of the settlement fund, with the percentage tending to drop as the fund grows. In settlements above $100 million, courts have approved fees as low as 10% to 12%.
State Caps on Specific Case Types
A number of states impose their own percentage limits on contingent fees, particularly in medical malpractice. These caps often use a declining sliding scale, allowing a higher percentage on the first portion of the recovery and lower percentages as the total climbs. If your case falls into a regulated category, the state cap controls even if you voluntarily signed something larger.
Where Contingent Fees Are Not Allowed at All
Two categories are off-limits everywhere.
Criminal defense attorneys cannot charge a contingent fee. Tying the lawyer’s pay to an acquittal or favorable sentence is seen as creating incentives that could distort professional judgment. Criminal defense is billed hourly or on a flat fee.1American Bar Association. Rule 1.5 Fees
Divorce, custody, and support cases also prohibit contingent fees when the fee depends on securing the divorce or is calculated as a percentage of alimony or property. Giving a lawyer a financial stake in those outcomes conflicts with the policy of encouraging reconciliation and protecting children. Attorneys who violate either prohibition face discipline and potential forfeiture of their fees.1American Bar Association. Rule 1.5 Fees
The Tax Trap on Non-Injury Settlements
The IRS treats you as having received the entire settlement, including the share that went directly to your lawyer. A $300,000 settlement with a $100,000 contingent fee is $300,000 of gross income on your return, not $200,000.4Justia US Supreme Court. Commissioner v. Banks, 543 U.S. 426 (2005)
Whether that causes a real problem depends on what kind of claim produced the money.
Physical injury settlements are generally excluded from taxable income under federal tax law. Car accidents, slip-and-falls, medical malpractice for physical harm — the whole recovery, including the attorney’s share, is usually tax-free, and the contingent fee creates no tax issue.
Employment discrimination, civil rights, and whistleblower settlements are taxable, but Congress built in a fix. You can deduct attorney fees and court costs as an above-the-line adjustment to income, which effectively taxes you only on the net amount you kept. The deduction is capped at the income you received from the case in the same tax year, but that rarely matters for lump-sum settlements.5Office of the Law Revision Counsel. 26 U.S. Code 62 – Adjusted Gross Income Defined
Other taxable settlements get the worst treatment. Breach of contract, interference with business relationships, non-physical emotional distress: the full recovery counts as income, and there’s no above-the-line deduction for the legal fees. Congress permanently eliminated the miscellaneous itemized deduction that used to cover these fees, so you can end up owing tax on money that went straight to your lawyer and never passed through your hands. Talk to a tax professional before settling any case that doesn’t involve physical injury.
If You Fire Your Lawyer Mid-Case
You can fire your attorney at any time, for any reason. Doing so doesn’t wipe out the financial obligation.
When you terminate the relationship before the case settles, the contingent fee contract itself dies, because the contingency — your recovery — hasn’t happened under that lawyer’s watch. The former attorney’s remedy is to seek the reasonable value of the work actually performed, under a doctrine called quantum meruit (“as much as deserved”). A court weighs how many hours were invested, how complex the work was, and how much of the eventual outcome came from that lawyer’s effort.
Sometimes the quantum meruit recovery ends up equal to the full contingent percentage, especially if the fired lawyer did most of the substantive work and the new attorney essentially inherited a case ready to settle. Sometimes it’s much less. Switching lawyers doesn’t give you a free ride on the first one’s work.
Costs are a separate matter. If the original attorney advanced filing fees, expert charges, or other expenses, you’ll almost certainly owe reimbursement for those. Check what your fee agreement says about advanced costs when the relationship ends early, both before you sign and before you make the switch.