Negotiating Contingency Fees Without Being a Jerk

[helpmomout]

My question relates to legal practice in the state of: California

I am at the beginning of a period during which I will interview lawyers regarding a unpaid wages & wrongful termination case. I have spoken to two attorneys thus far, both of whom indicated a 40% contingent fee. I was not thrilled with either of them because it was clear that neither had read the employment contracts (total 5 pages) that I had provided beforehand.

I feel that 40% is high, especially given that the relevant statutes allow the employee's attorney to recover fees from the employer if a suit is filed and the employee wins.

I would like to either negotiate the rate down or negotiate to have any fees awarded by a court deducted (at least in part) from my fee. However, I don't want to make myself seem like a cheapskate / pain in the ass / undesirable client. My questions for this post are:

1) In California, is it considered uncommon for potential client to negotiate the contingency fee? negotiate deduction of court-awarded fees from the client's fees?
2) Is negotiating a fee seen as a sign that a client will be undesirable to deal with?

I realize that the answer is "it depends" and that I can ask for anything and the attorney can say yes/no to anything, but I would like to understand typical practice in my area (San Francisco, California).

[flyingron]

Contingent fees are always going to be in the 33% range to cover the risk that they might not recover anything. It matters not to an attorney that they are allowed to collect fees on contingent fee cases because that's only going to pay the prevailing rate and they're going to get their money from the award anyhow.

Your other option, if you feel you have a solid case, is to pay the attorney yourself and then you can collect the legal fees to recoup what you paid them.

What makes you think you have a valid wrongful termination case? Most people who think they do, don't. Wrongful termination doesn't mean it wasn't fair you were fired, only that the firing was either contrary to some in force contract or in a way prohibited by law.

[Taxing Matters]

I feel that 40% is high, especially given that the relevant statutes allow the employee's attorney to recover fees from the employer if a suit is filed and the employee wins.

Not exactly. While I don't know the exact statutes under which you would litigate the claims, where a claim for attorney's fees may be made it is YOU that gets to claim the recovery of reasonable attorneys fees that you had to expend to litigate the matter. It is not the lawyer's own claim; the lawyer will add the claim for attorney's fees to your case if you win. Note that what the court actually awards you for attorney's fees and what you actually pay for those fees may not be the same.

This distinction matters for several reasons, not the least of which is that what you are awarded in a wrongful termination and unpaid wage case will be taxable income to you for federal and California income tax, and that will include what you are awarded for attorney's fees. And unfortunately as a result of the Trump 2017 tax act, you no longer may deduct legal fees you pay that are not business expenses.

I would like to either negotiate the rate down or negotiate to have any fees awarded by a court deducted (at least in part) from my fee. However, I don't want to make myself seem like a cheapskate / pain in the ass / undesirable client. My questions for this post are:

1) In California, is it considered uncommon for potential client to negotiate the contingency fee? negotiate deduction of court-awarded fees from the client's fees?
2) Is negotiating a fee seen as a sign that a client will be undesirable to deal with?

Most clients don't negotiate the fees. Just like most people don't negotiate their fees for a doctor or negotiate the prices they pay for things at the store for that matter. Rather, Americans tend to shop different providers for the best deal, but for some reason don't try to actually negotiate price with a particular provider. People in other countries are much more comfortable bargaining on price on pretty much everything. Indeed, in some countries bargaining is expected and considered part of the fun of the whole process. But even though Americans don't typically negotiate prices (other than for a few things like buying cars and houses) it is possible to negotiate price with almost anyone for anything, if the seller/provider is at all willing to do it. It might be hard with a huge corporation like Amazon, but I've negotiated price even with some large retailers before. You don't know what you'll get until you try.

With most lawyers, you won't be viewed as a potentially troublesome client simply for asking for a lower fee. A lot depends on how you do the negotiating. Much my work is done with hourly fee agreements since in my areas of practice the ability to charge contingent fee is restricted. My hourly rate is a bit higher than average for my area, but I also have unique experience that other attorneys here do not have. Some clients do negotiate on fee (particularly corporate clients), and I'm willing to come down on the fee for some of them. I don't regard potential clients badly simply for asking for a lower fee. But if the manner in which they do it suggests they'll be a pain in the butt, then I'll take a pass on representing them even if they eventually offer my regular fee or even more.

Understand that with contingent fee, the lawyer takes a risk that the lawyer will walk away with no fee even after putting in a lot of work on your case. No case is a truly guaranteed winner, though some cases come close. Most however have some definite degree of risk, and wrongful termination cases often are hard to peg in terms of how likely it is that you will win. Unpaid wages cases are easier, but most unpaid wage claims are not all that huge. In any event, part of what you are paying for with a contingent fee is the shifting of risk from you to the lawyer. You only pay a fee if you win. And if you win, the recovery of attorney's fees from the employer further reduces your risk. But if you lose, you pay nothing and the lawyer has lost all the time put into it. That is a considerable benefit to you over paying out of pocket under an hourly fee or other arrangement. So a lawyer may come down a bit from 40%, but I'd not expect a huge cut in the contingent fee here.

[pg1067]

1) In California, is it considered uncommon for potential client to negotiate the contingency fee? negotiate deduction of court-awarded fees from the client's fees?
2) Is negotiating a fee seen as a sign that a client will be undesirable to deal with?

I realize that the answer is "it depends"

Actually, the answers are (1) yes; and (2) not necessarily.

Note that most employment litigation does not result in an award of attorneys' fees.

[helpmomout]

Thank you for the detailed response, and especially for mentioning the tax issue.

Not exactly. While I don't know the exact statutes under which you would litigate the claims, where a claim for attorney's fees may be made it is YOU that gets to claim the recovery of reasonable attorneys fees that you had to expend to litigate the matter. It is not the lawyer's own claim; the lawyer will add the claim for attorney's fees to your case if you win. Note that what the court actually awards you for attorney's fees and what you actually pay for those fees may not be the same.

This distinction matters for several reasons, not the least of which is that what you are awarded in a wrongful termination and unpaid wage case will be taxable income to you for federal and California income tax, and that will include what you are awarded for attorney's fees. And unfortunately as a result of the Trump 2017 tax act, you no longer may deduct legal fees you pay that are not business expenses.

After reading various sources including the one below, I tend to think that employment claims still generate an above-the-line deduction for attorneys fees if the result is not a confidential settlement for something related to sex. However, interest and punitive damages are double-taxed.

https://www.bourkeaccounting.com/blo...t-be-deducted/

I actually (tried to) read IRC section 62(e), which defines the items that remain subject to the above-the-line deduction. It lists various items that I would typically think of as "discrimination", but then includes, as item #18, any provision of federal, state, or local law that is related to the employment relationship.

[FONT=Georgia][SIZE=3]

Most clients don't negotiate the fees. Just like most people don't negotiate their fees for a doctor or negotiate the prices they pay for things at the store for that matter. Rather, Americans tend to shop different providers for the best deal, but for some reason don't try to actually negotiate price with a particular provider. People in other countries are much more comfortable bargaining on price on pretty much everything. Indeed, in some countries bargaining is expected and considered part of the fun of the whole process. But even though Americans don't typically negotiate prices (other than for a few things like buying cars and houses) it is possible to negotiate price with almost anyone for anything, if the seller/provider is at all willing to do it. It might be hard with a huge corporation like Amazon, but I've negotiated price even with some large retailers before. You don't know what you'll get until you try.

With most lawyers, you won't be viewed as a potentially troublesome client simply for asking for a lower fee. A lot depends on how you do the negotiating. Much my work is done with hourly fee agreements since in my areas of practice the ability to charge contingent fee is restricted. My hourly rate is a bit higher than average for my area, but I also have unique experience that other attorneys here do not have. Some clients do negotiate on fee (particularly corporate clients), and I'm willing to come down on the fee for some of them. I don't regard potential clients badly simply for asking for a lower fee. But if the manner in which they do it suggests they'll be a pain in the butt, then I'll take a pass on representing them even if they eventually offer my regular fee or even more.

Understand that with contingent fee, the lawyer takes a risk that the lawyer will walk away with no fee even after putting in a lot of work on your case. No case is a truly guaranteed winner, though some cases come close. Most however have some definite degree of risk, and wrongful termination cases often are hard to peg in terms of how likely it is that you will win. Unpaid wages cases are easier, but most unpaid wage claims are not all that huge. In any event, part of what you are paying for with a contingent fee is the shifting of risk from you to the lawyer. You only pay a fee if you win. And if you win, the recovery of attorney's fees from the employer further reduces your risk. But if you lose, you pay nothing and the lawyer has lost all the time put into it. That is a considerable benefit to you over paying out of pocket under an hourly fee or other arrangement. So a lawyer may come down a bit from 40%, but I'd not expect a huge cut in the contingent fee here.

Thanks for this. I understand that this is a risk-shifting arrangement and that the clients whose cases generate revenue must make up for the clients whose cases fail. At the same time, I would be much happier at 33-35% than at 40%. You mentioned that "unpaid wages cases are easier" and this is likely true here. In addition, my thinking is that the unlawful termination portion will be less time-consuming and less risky than average because the employer wrote so much of it down. I expect little or no he said/she said, etc. Perhaps it makes sense to ask for 35% instead of 40% based on this.

On the other hand, I'm a small fish in a big city. There are certainly bigger clients with bigger dollar amounts out there. In this respect, I am the opposite of your corporate clients.

I realize now that in addition to having questions about fee negotiation, I don't know how to tell an excellent lawyer (who might justify a larger fee) from an average one. I see claims of large settlements and professional awards on attorneys' websites and think of my own industry, where industry awards are less than meaningful.

Aside from "did the attorney read the employment contract before the meeting?", what would you recommend that I consider when seeking to identify an attorney who is above average?

[helpmomout]

Thank you for the detailed response, and especially for mentioning the tax issue.

Not exactly. While I don't know the exact statutes under which you would litigate the claims, where a claim for attorney's fees may be made it is YOU that gets to claim the recovery of reasonable attorneys fees that you had to expend to litigate the matter. It is not the lawyer's own claim; the lawyer will add the claim for attorney's fees to your case if you win. Note that what the court actually awards you for attorney's fees and what you actually pay for those fees may not be the same.

This distinction matters for several reasons, not the least of which is that what you are awarded in a wrongful termination and unpaid wage case will be taxable income to you for federal and California income tax, and that will include what you are awarded for attorney's fees. And unfortunately as a result of the Trump 2017 tax act, you no longer may deduct legal fees you pay that are not business expenses.

After reading various sources including the one below, I tend to think that employment claims still generate an above-the-line deduction for attorneys fees if the result is not a confidential settlement for something related to sex. However, interest and punitive damages are double-taxed.

https://www.bourkeaccounting.com/blo...t-be-deducted/

I actually (tried to) read IRC section 62(e), which defines the items that are subject to the above-the-line deduction. It lists various items that I would typically think of as "discrimination", but then includes, as item #18, any provision of federal, state, or local law that is related to the employment relationship.

[FONT=Georgia][SIZE=3]

Most clients don't negotiate the fees. Just like most people don't negotiate their fees for a doctor or negotiate the prices they pay for things at the store for that matter. Rather, Americans tend to shop different providers for the best deal, but for some reason don't try to actually negotiate price with a particular provider. People in other countries are much more comfortable bargaining on price on pretty much everything. Indeed, in some countries bargaining is expected and considered part of the fun of the whole process. But even though Americans don't typically negotiate prices (other than for a few things like buying cars and houses) it is possible to negotiate price with almost anyone for anything, if the seller/provider is at all willing to do it. It might be hard with a huge corporation like Amazon, but I've negotiated price even with some large retailers before. You don't know what you'll get until you try.

With most lawyers, you won't be viewed as a potentially troublesome client simply for asking for a lower fee. A lot depends on how you do the negotiating. Much my work is done with hourly fee agreements since in my areas of practice the ability to charge contingent fee is restricted. My hourly rate is a bit higher than average for my area, but I also have unique experience that other attorneys here do not have. Some clients do negotiate on fee (particularly corporate clients), and I'm willing to come down on the fee for some of them. I don't regard potential clients badly simply for asking for a lower fee. But if the manner in which they do it suggests they'll be a pain in the butt, then I'll take a pass on representing them even if they eventually offer my regular fee or even more.

Understand that with contingent fee, the lawyer takes a risk that the lawyer will walk away with no fee even after putting in a lot of work on your case. No case is a truly guaranteed winner, though some cases come close. Most however have some definite degree of risk, and wrongful termination cases often are hard to peg in terms of how likely it is that you will win. Unpaid wages cases are easier, but most unpaid wage claims are not all that huge. In any event, part of what you are paying for with a contingent fee is the shifting of risk from you to the lawyer. You only pay a fee if you win. And if you win, the recovery of attorney's fees from the employer further reduces your risk. But if you lose, you pay nothing and the lawyer has lost all the time put into it. That is a considerable benefit to you over paying out of pocket under an hourly fee or other arrangement. So a lawyer may come down a bit from 40%, but I'd not expect a huge cut in the contingent fee here.

Thanks for this. I understand that this is a risk-shifting arrangement and that the clients whose cases generate revenue must make up for the clients whose cases fail. At the same time, I would be much happier at 33-35% than at 40%. You mentioned that "unpaid wages cases are easier" and this is likely true here. In addition, my thinking is that the unlawful termination portion will be less time-consuming and less risky than average because the employer wrote so much of it down. I expect little or no he said/she said, etc. Perhaps it makes sense to ask for 35% instead of 40% based on this.

On the other hand, I'm a small fish in a big city. There are certainly bigger clients with bigger dollar amounts out there. In this respect, I am the opposite of your corporate clients.

I realize now that in addition to having questions about fee negotiation, I don't know how to tell an excellent lawyer (who might justify a larger fee) from an average one. I see claims of large settlements and professional awards on attorneys' websites and think of my own industry, where the length of time that you have been working often determines your largest "success story" and industry awards are less than meaningful.

Aside from "did the attorney read the employment contract before the meeting?", what would you recommend that I consider when seeking to identify an attorney who is above average?