Contingency fee agreements for Employment Law

Contingency fee agreements (hereafter referred to as CFAs) are also known as damages-based agreements'. These agreements were very popular in the United States and are now increasingly popular in the UK.

The agreements means that if the individual is awarded a monetary award that the firm wins on his/her behalf, they will be entitled to a percentage of it. However, if he/she loses they will not have to pay anything.

The Damages-based Agreements Regulations 2010 set out the pre-requisite clauses that need to be in a CFA. This includes the following:

  • The claim or proceedings to which the agreement relates;
  • The maximum percentage of damages that can be claimed as fees (subject to the statutory ceiling of 35% including VAT);
  • The circumstances by which any amounts become payable as fees; this includes whether the percentage includes counsel's fees, and the circumstances in which other fees become payable, what will happen if the client refuses reasonable offers of settlement, or the representative is forced by the client's conduct to terminate the relationship;
  • The reasons for setting the percentage recovery at that particular level;
  • How to seek a review of the costs, fees and expenses incurred, and under what circumstances;
  • The services provided by ACAS;
  • Whether other methods of funding are available, such as legal aid, legal expenses insurance, etc (NB. your solicitor is under a duty to explore funding methods with you, such as legal expenses insurance under your home insurance policy);
  • Where the agreement is terminated, the representative can charge costs and expenses, but that the agreement may not be terminated: (1) by you, if liability has been admitted, settlement has been agreed, or it is less than seven days before the tribunal hearing; or (2) by your solicitor at all, unless you have behaved or are behaving unreasonably.

CFA's can be very advantageous as it provides access to justice to those that would otherwise not be able to afford it. A Solicitor will not tend to take the case on if it has weak prospects of succeeding so it does not give you false hope.

The disadvantages are that after a risk assessment is carried out (where documents relating to the case are reviewed), a Solicitor may decide not to continue acting under a CFA agreement. The general consensus however is that people do not have much to lose if they sign up for a CFA agreement, especially if they have no other option available to them.