Red flags in personal injury engagement letters
A personal injury engagement letter governs the entire attorney-client relationship: fee percentages, cost allocation, withdrawal rights, and lien terms. This article identifies six common clauses that disproportionately favor the firm and explains which clauses a claimant can negotiate or refuse to sign.
Red flags in personal injury engagement letters
A personal injury engagement letter governs the entire attorney-client relationship: fee percentages, cost allocation, withdrawal rights, lien terms, and dispute-resolution procedures. The engagement letter is fully negotiable before the claimant signs. After signing, modifications require mutual written consent and rarely happen mid-case. This article identifies six common clauses that disproportionately favor the firm and the specific language a claimant should request instead.
Why the engagement letter matters more than the consultation conversation
An engagement letter is a binding contract that controls the financial outcome of the case. Statements made in the consultation about fees, costs, or communication do not survive into the contract unless they are written into it. The claimant who relies on verbal assurances loses the dispute every time when the engagement letter is silent or contradicts the verbal terms. Reading the engagement letter carefully and negotiating problematic clauses is the single highest-leverage step a claimant takes before retaining counsel.
Red flag 1: contingency calculated on gross recovery
The standard contingency fee can be calculated on gross recovery (before case costs) or net recovery (after case costs). On a $300,000 settlement with $30,000 in case costs and a 33.33 percent contingency, the gross method gives the firm $100,000 and the claimant $170,000. The net method gives the firm $90,000 and the claimant $180,000. The choice is set by one sentence in the engagement letter. The claimant should request net recovery calculation in writing. See contingency fee structures explained.
Replacement language for a claimant-friendly contingency clause
Attorney fee is 33.33 percent of net recovery, calculated after deduction of all case costs and expenses advanced by the firm. The attorney fee does not include any case costs, which are reimbursed separately from the net recovery.
Red flag 2: case costs owed on loss
Most personal injury engagement letters waive case-cost reimbursement if the case loses. Some firms reserve the right to bill the claimant for advanced costs if the case loses or if the claimant fires the firm. A clause that reads "client agrees to reimburse all costs and expenses advanced by the firm regardless of outcome" exposes the claimant to a five-figure bill in a losing case. The claimant should refuse this clause and require explicit language that the firm absorbs costs in a no-recovery case.
Replacement language
Case costs are advanced by the firm. The firm absorbs all advanced costs in the event of no recovery, and the client owes no reimbursement of costs in that circumstance.
Red flag 3: automatic step-up clauses without notice
A step-up clause increases the contingency percentage at defined case stages: 33.33 percent pre-suit, 40 percent on filing the lawsuit, 45 percent on commencement of trial. The step-ups are common and reasonable. The red flag is a step-up that triggers without clear notice to the claimant. The claimant may not realize that filing a lawsuit, often a routine procedural step, just increased the firms fee by 6.67 percent of the entire recovery.
Replacement language
The contingency rate steps up only with written notice to the client and the client's written acknowledgment of the step-up. The firm will provide the notice at least 14 days before any step-up takes effect.
Red flag 4: lien-on-file clauses for prior firms
A claimant who switches firms mid-case may owe a fee or expense reimbursement to the prior firm. The new firms engagement letter should address this explicitly. A clause that reads "client agrees to be solely responsible for any claims by prior counsel" leaves the claimant on the hook for prior-firm fees that the new firm should be settling on the claimants behalf. The claimant should require that the new firm coordinate with prior counsel and that any prior-firm payment comes from the firms share, not the claimants.
Red flag 5: unilateral withdrawal rights
Most engagement letters allow the firm to withdraw for cause: nonpayment of costs by the client, irreconcilable difference about strategy, ethical conflict. A clause that allows the firm to withdraw "at the firms discretion" without specifying cause leaves the claimant exposed to mid-case abandonment, often near the statute of limitations. The claimant should require the engagement letter to list specific withdrawal grounds and require 30 days written notice.
Red flag 6: mandatory arbitration of fee disputes
A clause that requires arbitration of fee disputes between the claimant and the firm shifts the dispute out of court into a private forum often selected by the firm. Some state bars operate fee-arbitration programs (California, New York, others) that are claimant-favorable; private arbitration clauses may not point to these programs and may impose firm-favorable rules. The claimant should require any arbitration clause to point to the state bars fee-arbitration program if available, or to AAA consumer arbitration as a neutral fallback.
Red flag 7: settlement authority without explicit consent
The decision to accept or reject a settlement offer belongs to the client, not the attorney, under the rules of professional conduct in every state. Some engagement letters include language that grants the attorney apparent settlement authority within a range or in specific circumstances. A claimant should require explicit language that no settlement is accepted without the claimants written approval of the specific dollar figure.
Clauses the claimant can usually negotiate
- Net vs gross contingency. Almost always negotiable; firms have a default position but will switch if the client asks.
- Pre-suit rate. Negotiable for high-value, clear-liability cases.
- Step-up triggers. Add a written-notice requirement.
- Cost-on-loss provision. Firms with strong financial position can absorb costs.
- Communication protocols. Write specific communication frequencies into the letter.
- Exit rights. Add a 30-day cooling-off period where client can terminate without obligation.
Clauses the claimant typically cannot negotiate
- The basic structure of contingency (a contingency fee is a contingency fee).
- The firms cost-advance protocols.
- The duty of confidentiality and the attorney-client privilege.
How to read an engagement letter before signing
- Read the entire document slowly, with a highlighter for each section that mentions money.
- Compare the fee terms to the consultation conversation; raise any discrepancies in writing.
- Identify any clause that could leave the claimant owing money if the case loses or if the claimant fires the firm.
- Ask for written copies of any side agreements or fee schedules referenced in the engagement letter.
- Take the engagement letter home and sleep on it. A reputable firm will allow at least 24 hours for review.
To find personal injury attorneys whose engagement letters allow negotiation, use the directory at injury-lawyer.help. Browse California, Texas, Florida, New York, or any of the 50 states. For the structured-intake matching service, use the get-matched form.