In personal injury cases, both a client and a lawyer might wonder, ‘How much do lawyers take from a settlement?’ It’s a fair question — after all, clients would want to make sure they’re not giving away more than they should. At the same time, lawyers want to ensure their livelihood by not shortchanging their legal services.
Here, we’ll discuss how lawyers receive their legal fees in a personal injury claim and how payments are determined.
This article can be used by personal injury claimants who are curious about how much they should pay their lawyers. This can also be used by lawyers who are looking to set the fees they’re about to charge their clients.
How much do lawyers take from a settlement in personal injury claims?
The amount of lawyers’ fee in Canada is generally governed by the agreement of both the lawyer and the client. However, this agreement is subject to the rules, codes, and restrictions imposed by law and the regulating authorities of lawyers, i.e. the law societies.
As for personal injury cases, lawyers’ fees are somehow unique, since most personal injury lawyers and law firms charge clients on a contingency basis. Under this arrangement, a lawyer will be paid a certain percentage of the award of compensation (when adjudged by a court) or the settlement money (through out-of-court settlement negotiations) to be received by the client.
It follows that if the lawyer does not win the case for the client, they will not be paid at all. The client will not even be liable to the lawyer after the case is lost, except for some disbursements. This is why it’s called ‘contingency,’ because it’s conditioned on the lawyer winning the case.
For instance, at the start of the lawyer-client engagement, both parties agree that whatever amount of award or compensation is, the lawyer will get 30% of the said amount.
Watch this video for to learn more about contingency fees, as explained by a personal injury lawyer:
For more information about contingency fee arrangements, contact any of the best personal injury lawyers in Canada as ranked by Lexpert.
How is contingency fee calculated in Canada?
The regulations by the provincial and territorial law societies do not impose a specific amount that a lawyer can charge their clients under a contingency arrangement. Being a contract, a retainer agreement shall contain all legal costs to be agreed by both parties, including the percentage of contingency fees to be used.
Among the lawyers and law firms in Canada offering contingency fees, the most common is to charge between 20 percent and 40 percent from the settlement or award of damages. Still, this depends on the agreement between the parties and other factors.
The agreed percentage is then multiplied to the total settlement or award (excluding the disbursements and other costs, as these are separately paid by the client). The remaining amount will go to the client.
However, there are certain considerations that lawyers must take note of when it comes to contingency fee computations:
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fair and reasonable: in all cases, even in other fee arrangements, a lawyer’s fee must be fair and reasonable based on the circumstances of the case and the work exerted by the lawyer
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basis of contingency fee: the percentage for contingency fee can be based either on a court-awarded compensation, or on a settlement award, excluding the disbursements and costs (but with exceptions in some provinces, such as in Ontario, where the amount on which a contingency fee is based can now include costs)
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limit on the maximum amount: while there’s no maximum amount set for contingency fees, it must not exceed the amount that the client will receive under an award or a settlement
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disbursements and taxes: other expenses that are disbursed by the lawyer in advance for the client can be recovered, in addition to (or excluding) the contingency fee due to the lawyer
Here’s another video that explains how contingency fees work:
Looking for firms offering their services on a contingency basis? Reach out to the best personal injury law firms in Canada as ranked by Lexpert.
Factors in determining the percentage of contingency fees
Still based on what should be fair and reasonable, a contingency fee is based largely on the percentage or rate agreed upon by the lawyer and the client. For lawyers, there are a lot of factors to consider when deciding how much the percentage should be:
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complexity of the case: a simple case, or that which involves minimal parties and with no other legal complications, will justify a smaller rate for contingency fees; otherwise, this will take up a lot of the lawyer’s time and preparation, which calls for a larger rate
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ways of closing the case: related to a case’s complexity are the legal methods to be used to reach and award; if it may only involve settlement negotiations with smaller chances of going to court, a smaller contingency fee would be fair; if it results in a personal injury litigation, legal fees would also increase
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expertise of the lawyer: an experienced personal injury lawyer will usually charge a higher percentage of contingency fees, although other lawyers may also charge a larger percentage, regardless of experience, based on other factors
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potential amount of damages: this seems tricky, since typically lawyers and firms would charge a bigger rate if the potential amount of damages is larger; however, some would also charge a lower rate, since the final contingency fees would be enough already, considering the base amount is high
Lawyers and firms should be able to evaluate the case based on these factors to arrive at a commensurate contingency fee. Also, these factors would guide clients in calculating their net proceeds from the settlement or award of damages.
Range of percentages in a contingency fee agreement
To make client intake processes easier, a lawyer or firm can set up different ranges of percentages that they can use on a client’s case when doing the contingency basis.
An example of this is as follows:
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10% to 20%: these would be the simplest cases, such as a car accident that involves just two parties, or where the filing of a case in court is unnecessary because a simple settlement negotiation would suffice
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25% to 35%: with 30% as the most common percentage of contingency fee, these would involve typical personal injury cases, which starts with settlement negotiations, and may end with a civil case filed if the negotiations fail; these cases may also drag for months, or even around one to three years
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35% and above: the most complex, most difficult, and most time-consuming cases should be in this bracket of contingency fee percentages; an example of this are cases that fall under the catastrophic injury assessment criteria, which are set by the provincial and territorial laws, or for long-term disability cases
These are just guides to help lawyers figure out what percentage they should use for a case, and for clients to understand the reason for such percentage. Of course, any percentage will do, provided that both the lawyer and the client agree to it.
Other costs to be paid to a lawyer in personal injury cases
Aside from the amount that a lawyer can recover in a settlement or court award, there are costs and disbursements that the client should pay, regardless of the case’s outcome.
These may include the following:
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legal fees: when the case cannot be settled anymore, and it’s due to be filed in court, there are several fees that should be paid immediately (e.g. filing fees, fees for witnesses) which the lawyers sometimes pay in advance to prevent any legal consequences
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admin costs: all other expenses that the lawyer incurs for the handling of the case (whether for court filings or during the settlement process) can also be reimbursed against the client, such as photocopy and printing expenses, courier fees, among others
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taxes: another type of cost that is charged to the client, win or lose, is taxes on the contingency fee and even on the disbursements (e.g. HST)
If the lawyer wins the case, it can be deducted from what is due to the client, on top of the agreed contingency fee. If the case is lost, the client would have no choice but to pay these costs from their own pockets. Either way, what costs must be paid should be detailed in the retainer agreement.
Although there’s no preventing the lawyer from waiving these fees, a higher contingency fee or any other agreement with the client can be considered. Again, this goes back to the rule that lawyer-client relationship is contractual in nature; whatever their agreement is, it should be put on paper.
Other ways to pay legal fees in a personal injury case
While contingency fees are the most common method of paying a lawyer in a personal injury case, there are other legal fee arrangements that clients and lawyers can choose from, such as:
- hourly fee
- flat rate or fixed fee
- limited scope retainer
- blended fee arrangements
The goal is always to meet the ends of justice, but without sacrificing the legal fees due to a lawyer. With this, lawyers and clients can agree on any fee arrangement suited for the legal matter on hand.
Example of how much lawyers take from a settlement or award
To help clients understand how contingency fees work, let’s put it to the test.
Let’s say Mr. X was injured in a motor vehicle accident, where Mr. Y was the cause. Being a simple case, Mr. X’s lawyer estimated that 25 percent contingency fee is alright. Mr. X agreed, prompting the lawyer to take up the case.
After the settlement with Mr. Y, the total compensation awarded to Mr. X was $125,000 (which is a combination of general and special damages). Applying the previously agreed percentage to the actual compensation, Mr. X’s lawyer will be receiving $31,250 out of the $125,000. Mr. X will then be receiving the net amount of $93,750.
However, any other cost and disbursement made by the lawyer on Mr. X’s behalf can be recovered, on top of the $31,250 contingency fee.
How much do lawyers take from a settlement: laws to know
Our legal system recognizes two things: the public’s need for legal representation, such as in personal injury cases, and the lawyers’ need to charge reasonable fees for their services. To address these two, contingency fee agreements are allowed in personal injury cases.
While this basis is just one of the many ways that lawyers can recover their duly deserved fees, there are a lot of considerations when finding out how much lawyers take, both in a settlement or in an award given by the court.
To find out how much lawyers take from a settlement, hear from the best in the field of personal injury through our directory of Canada’s Largest Law Firms.