Summary of Facts Provided
A law firm (the "Firm") represents discharged employees in employment discrimination cases. In some of those cases, reinstatement is available as a remedy. The Firm desires to enter into a fee agreement with those clients under which the client agrees to pay "the greater of fifty percent of any cash lump sum award or the attorneys' fees expended by the lawyers [calculated on an hourly basis] if the client accepts a settlement offer which includes reinstatement of employment". The fee arrangement includes both administrative and judicial proceedings.
Issue and Conclusions
Is the proposed fee agreement permitted under applicable provisions of the Colorado Rules?
A mixed hourly and contingency fee agreement is permitted if the agreement as a whole is reasonable within the meaning of Rule 1.5(a) of the Colorado Rules, and if the agreement otherwise complies with Chapter 23.3, C.R.Civ.P. For example, an agreement which obligates the client to pay a fee equal to the greater of (i) a set percentage of his/her recovery, or (ii) the fee actually awarded by the court, would be permitted, provided the agreement as a whole satisfied Rule 1.5(a)'s test of reasonableness. In such a case, the client's obligation to pay is funded by the results of the representation, and is consistent with most clients' expectations of the way in which a contingency fee arrangement will work.
Although the form of the Firm's proposal is permitted under Rule 1.5(a), it may be inconsistent with its clients' expectations, since many of the clients may not have the financial wherewithal to pay fees on an hourly basis at the time they seek representation, and since relief in the form of reinstatement (as opposed to damages or other monetary relief) probably will not appreciably enhance their ability to pay hourly fees. Such circumstances could easily lead to misunderstandings and disputes. Although the client's ability to pay is not a factor expressly identified by Rule 1.5(a), the Committee believes that an attorney is obligated to fully inform the client of the foreseeable consequences of the operation of a fee agreement. See, Colorado Rule 1.4(b).
The Colorado Supreme and Appeals Courts have not addressed the question of whether a contingency fee of 50% is excessive per se, or, if not, the circumstances under which it might be permitted. There appears to be general agreement among primary and secondary authorities outside Colorado that a contingency as high as 50% might be permitted when justified by the particular circumstances of the representation, including its complexity and risk, and the need for highly skilled counsel. However, those authorities make clear that a 50% contingency is the exception, not the rule, and that an agreement providing for a 50% contingency will be deemed excessive and invalid when not supported by relevant circumstances.
The Committee believes that a 50% contingency fee does not constitute a per se violation of Rule 1.5(a), and may, under appropriate circumstances, constitute a reasonable fee. However, as a matter of policy, and because it is ill equipped to address such questions, the Committee declines to express an opinion concerning whether the Firm's proposed 50% contingency would be reasonable.
The Committee did not comment on whether it would it be permissible for an attorney defending a claim brought by a client of the Firm to offer settlement in the form of reinstatement, conditioned upon a requirement that the employee either waive or compromise his/her statutory right to attorneys' fees. However, the subject of fee waivers in the settlement context has engendered substantial discussion. See, e.g., ABA/BNA Lawyer's Manual on Professional Conduct, at 41:1601-1613.