“Lawyer on Contingency Fee?” – Who “Swallows” the Expenses?

“Lawyer on Contingency Fee?” – Who “Swallows” the Expenses?

“Be careful who you trust – The devil was once an angel”

– Unknown

ACTUAL CASE HISTORIES: Wendy hired an attorney to represent her in a lawsuit against a former employer. Her agreement with the attorney said that attorney would represent her on a “contingency” basis, meaning that the attorney would be paid only if the lawsuit was successful, and then he would be entitled to 1/3 of the proceeds.

The lawsuit was settled for $90,000, and so Wendy expected that she would receive $60,000 (that is, 2/3 of $90,000), and the attorney would get $30,000 (that is, 1/3 of $90,000). It turned out that the lawyer got his $30,000, but Wendy only received $40,000. How come? The other $20,000 went to pay the expenses of litigation.

Les also hired a lawyer to represent him in a lawsuit against his former employer. He also agreed to a 2/3 split for Les and 1/3 split for the lawyer. The case was, unfortunately, dismissed in favor of the employer. So, the lawyer got nothing, and Les got nothing . . . but Les did receive something a few weeks later: a bill for $25,000 for the expenses of the lawsuit. How come? That is what the attorney’s retainer provided for, unbeknownst to Les. Les even lost money on his “contingency fee” case.

In both cases, each of the lawyers’ retainer agreements provided that the client was responsible for the expenses of the lawsuit, whatever that came to. Sad, because it might have said something different if Wendy and Les had noticed it, and asked to change it.

“Clients beware.”

LESSONS TO LEARN: In any relation involving money, it is important to the success of the relation to enter into a clearly written and fully understandable agreement on all of the terms and conditions of the relation. Nowhere is that more important than in the attorney-client relation.

A lawyer’s retainer agreement is a contract, and should be no less clear and no less understandable than any other contract; maybe more so, especially if they anticipate lawsuits, which can be heavily burdened by costs and expenses.

“Contingency Fee” means “A fee comprised of a percentage of payments received, if any.” While you might think that it suggests “payments received after expenses are taken off the top,” it does not say that. It says nothing at all about costs and expenses.

Costs and expenses of a lawsuit commonly include: (a) Court filing fees; (b) process server fees; (c) expert witness fees; (d) Court reporter costs; (e) photocopying costs; (f) messenger and postage costs; (g) costs related to obtaining medical, government and school records; (h) transcript costs; and lots, lots others. In some cases, they end up being in the many tens of thousands of dollars. And, as noted above, if you lose your lawsuit, you just might also have to pay your employer’s legal costs. BIG OUCH!!

The need to raise – and clarify – this issue early on is important. So many clients get mentally and emotionally distracted in the process of hiring legal counsel; others get intimidated. This particular point often gets lost in the process, but is an important one to focus on before the onset of the attorney-client relation.

WHAT YOU CAN DO: When hiring an attorney, make sure you understand the attorney’s retention agreement. Especially if you are considering hiring an attorney on a “contingency” basis, make sure you understand who “swallows” the expenses. Don’t just focus on the possible amount of money to come your way; focus, too, on the amount of money that may leave your wallet, related to expenses.

1. Who pays the costs? When considering hiring a lawyer to possibly represent you in your case, and discussing his or her fees, don’t be afraid to ask “Who pays for the costs of the case?” It is an entirely appropriate question, and may just give your prospective counsel the message that you are an aware and alert client.

Is one way more “fair” than another? I think attorney and client should share expenses, in the same way they share monies.

2. Don’t be afraid to ask “Can expenses come off the top so that they are shared in the same way as are the proceeds (that is 2/3 to me, 1/3 to you?”) This question need not be presented to the lawyer if he or she makes it unnecessary by putting into the retainer agreement that expense reimbursement “comes off the top.” If the response is that you are liable for those expenses, then it is entirely appropriate and wise to ask if that can be reconsidered, or to find another lawyer.

3. Don’t be afraid to request that there be a “cap” on the amount of expenses you will be liable to pay. This is a bit of a “stretch,” that is, I believe that most attorneys would be wary of agreeing to that, as it might place a considerable risk on them. If the attorney you are interviewing really seems interested in taking your case to Court, it might be achievable.

Need info about a prospective attorney? Don’t understand an Attorney’s Retention Agreement? Use our Model Letter to Attorney seeking his/her Experience, Billing and Related Info. Just [click here.] Delivered by Email – Instantly! Show you “What to Ask, and How to Ask It.”™

4. Don’t ever lose sight of the fact that, at least to some degree, your attorney sees your case as a business proposition, not a valiant crusade for justice. In business two things are crucial: (1) maximizing revenues and (2) minimizing costs. There’s nothing wrong with remembering that two factors usually predominate business decisions: (1) potential revenues and (2) possible costs. Well, in the “law business” those two factors are in the minds of attorneys, too. As a person entering a business proposition with an attorney, they should both be in your mind, as well.

5. And, don’t forget that some cases end up unsuccessful; who pays the expenses in that event? There is one result that no one thinks about, but should: say a case is dismissed. Who pays for the expenses incurred? It depends on the terms and provisions of the attorney retention agreement: If the case is dismissed, and the Judge orders you to pay the legal costs of your employer, who pays those legal costs? Again, it depends on the terms and provisions of the attorney’s retention agreement. This does not often happen, but it sometimes does.

We offer Checklists and Guides for dealing with many employment situations, including Resigning, Severance, Performance Reviews, New-Job Negotiating, Non-Compete’s, Performance Improvement Plans, and Facing the Merger or Sale of Your Employer. They show you how to prepare for the possible upcoming changes. To review their descriptions, or to obtain your copy, just [click here.] Delivered by Email – Instantly!

6. And, too, remember that “spoken words” don’t matter. It’s only what is in the written retention agreement that matters. Don’t rely on what is told you; what is in the Retention Agreement is what really matters.

Most importantly, consider having someone who is comfortable with reviewing agreements, in general, and perhaps lawyer retention agreements, in particular, review a lawyer’s retention agreement that has been presented to you.

In Summary . . .

No important business relation should be entered into without a clear written agreement. When hiring an attorney for yourself, especially on a “Contingency Basis,” one of the most often overlooked issues is “Who is responsible for the expenses?” You are strongly urged to be both careful and candid with any attorney you are considering hiring regarding this particular subject.

P.S.: If you would like to speak directly about this or other subjects, I am available for 30-MINUTE, 60-MINUTE, OR 120-MINUTE TELEPHONE CONSULTATIONS, just [click here.] Evenings and weekends can often be accommodated.

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation and navigation of work and career issues requires that you think “out of the box,” and build value and avoid risks at every point in your career. We strive to help you understand what is commonly before you – traps and pitfalls, included – and to avoid the likely bumps in the road. For those are considering hiring an attorney, and most importantly on a “contingency” basis, attention to the issue of expenses incurred is wise. Standing up for yourself in this context, and on this issue, is nothing less than wise “navigation and negotiation.”

Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

*A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.

Please Note: This Email Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

Sklover Working Wisdom™ is a trademarked newsletter publication of Alan L. Sklover, of Sklover & Company, LLC, a law firm dedicated to the counsel and representation of employees in matters of their employment, compensation and severance. Nothing expressed in this material constitutes legal advice. Please note that Mr. Sklover is admitted to practice in the State of New York, only. When assisting clients in other jurisdictions, he retains the assistance of local counsel and/or obtains permission of local Courts to appear.  Copying, use and/or reproduction of this material in any form or media without prior written permission is strictly prohibited. All rights reserved. For further information, contact Sklover & Company, LLC, 45 Rockefeller Plaza, Suite 2000, New York, New York 10111 (212) 757-5000.

Repairing the World,
One Empowered – and Productive – Employee at a Time™

© 2019, Alan L. Sklover All Rights Reserved. Commercial Use Strictly Prohibited and Enforced.