Why Attorney Fee Provisions are So Important for the 'Little Guy'

If you are a small business owner or an individual that is about to sign an agreement with a big(ger) company (or someone with deep pockets) it is probably in your best interest to request an 'attorney fee recovery' provision in your contract. Why? you ask...

As you probably already know, in our Legal System, parties are responsible for their own legal costs no matter who is victorious in a law suit. However, in a case arising from a contract, you can designate the losing party to pay the attorney fees arising from breach of contract within the agreement itself. Such provisions are not only inforcebale but also wise. Why is it in your best interest to have this provision? The short answer is: because $50,000.00 in legal fees mean more to you then to a deep pocket company- and they know this fact. Moreover, they are willing and able (and often do) take advantage of your financial vulnerability.

If the contract lacks an attorney fee recovery provision, you are more likely to settle your dispute for a lot less when your attorney fees become astronomically high and you just want this madness to stop. Sooner or later, your legal costs will become too much for you to bear, and they will be waiting for you to pull the plug or approach them ready to settle. Even if you can afford to litigate your case (when they throw every defense and counter-claim in your direction), if you lose, can you afford to appeal? Even if the trial court rules in your favor, the other side will surely appeal the decision, and your legal fees may continue to grow. The big guys can afford to take your case all the way to the Supreme Court if they have to.

You would be protecting yourself in multiple ways by including such a provision in your contract. Basically, if your claim has merit (and you thus have a good chance of success) the other side may think twice about low-balling you in a settlement or may even heed your demands to avoid litigation all together. You, on the otherhand, can protect yourself by seeking attorney advise about the odds of your success before filing a suit. If your chances of winning are not as great as you hoped then don't commence your action. Finally, the legal system benefits from such provisions because having them in contracts should (theoretically) reduce frivolous law suits- but no promises there...

Of course the situation is different if you are the one that breaches your end of the deal and a case is brought against you. Unless you have a good defense, you may be stuck paying the other side's fees in addition to your own and the judgment. So when signing an agreement, whether its an employment contract, a service contract or a contract for sale of goods, you should be willing and able to keep your end of the bargain, and then and only then will this provision serve in your favor. In sum, if your contract does not already provide for attorney fees paid for by the losing party, it would be prudent to get that in there. In addition, I would have a trusted attorney review your contract to make sure your rights are protected to the fullest.