Lawyers in a class action usually take between 20% and 33% of the settlement fund, with a judge setting the exact figure. Class members pay nothing out of pocket. The firm advances every cost, works on contingency, and collects its fee directly from the settlement before the remaining money is distributed. What percentage lawyers take on class actions depends on the size of the settlement, the method the court uses to calculate the fee, and the type of relief the class receives.
A large empirical study of federal class actions from 1993 through 2008 found a median fee award of roughly 24% of the recovery, with most mid-sized settlements landing in the 25% to 33% band.1United States Courts. Attorneys’ Fees in Class Actions: 1993-2008 Fees below 20% and above 40% happen at the extremes. Employment cases averaged around 27%. Tax cases came in near 11%.
The Bigger the Settlement, the Smaller the Percentage
One pattern is consistent across the data: as settlement size climbs, the fee percentage drops. Courts call this the mega-fund rule, and it matters because the headline number on a large settlement rarely tracks what any one class member actually receives.
For settlements under $1.1 million, the mean fee was about 38%. For settlements between $5.3 million and $8.7 million, fees averaged roughly 23%. Once a settlement crosses the $100 million mark, fee percentages drop well below 20%, and for settlements above $500 million, most awards fall below 10%.1United States Courts. Attorneys’ Fees in Class Actions: 1993-2008
The reasoning is partly mathematical. Doubling a settlement from $50 million to $100 million does not require double the attorney hours; the added recovery often comes from leverage built earlier in the case. Courts also resist awarding a fee so large it overshadows the recovery itself.
How Courts Set the Fee
Judges use one of two methods, and sometimes a combination.
Percentage of the Fund
The more common approach awards the attorneys a flat percentage of the total settlement. This is where the 20% to 33% range comes from, and where the mega-fund discounts apply.
The Lodestar Method
The alternative adds up every hour the legal team reasonably spent on the case and multiplies by a reasonable hourly rate. That base number is the lodestar. The judge may then apply a multiplier, typically between 1.0 and 3.0, to reflect the risk the firm took and the quality of the result. Multipliers of around 4.0 appear in exceptional cases.
Many courts combine the two. A judge may approve a percentage fee and then run a “lodestar cross-check” to confirm that the resulting dollar figure is reasonable against the hours actually worked. The cross-check catches cases where the percentage alone would produce a windfall relative to the effort.
Attorneys cannot set their own fees. Federal Rule of Civil Procedure 23(h) requires the fee request to be made by formal motion, and the court must review the facts and state its conclusions before approving the award.2Cornell Law School. Federal Rules of Civil Procedure Rule 23 – Section: (h) Attorney’s Fees and Nontaxable Costs The judge weighs the size of the recovery, the difficulty of the legal issues, the skill the attorneys demonstrated, and the financial risk the firm carried by taking the case on contingency.
What Actually Comes Out of the Fund Before You Get Paid
Two separate deductions reduce the settlement before money reaches class members: litigation costs and attorney fees.
Litigation costs are the out-of-pocket expenses the firm advanced to keep the case moving: court filing fees, expert witnesses, deposition transcripts, travel. In large cases these can run into the hundreds of thousands of dollars. They are reimbursed to the firm from the fund.
Attorney fees are the lawyers’ compensation on top of those costs. A straightforward example shows how the arithmetic plays out:
- The case settles for $10 million.
- The firm’s litigation costs total $500,000, reimbursed from the fund.
- The court approves a 25% attorney fee, calculated on the $10 million gross fund: $2.5 million.
- That leaves $7 million for the class.
- If 100,000 people file valid claims, each one receives $70.
This is the fundamental tradeoff. Class actions provide access to compensation no individual could have recovered on their own, but the per-person payout is often modest.
When the Defendant Pays the Fees Instead
Not every class action takes the attorney fee out of the class’s recovery. In certain types of cases, federal statutes let the court order the defendant to pay the plaintiff’s attorneys separately. Civil rights cases are the most prominent example. Under 42 U.S.C. ยง 1988, a court may award a reasonable attorney’s fee to the prevailing party in actions enforcing federal civil rights laws.3Office of the Law Revision Counsel. 42 U.S. Code 1988 – Proceedings in Vindication of Civil Rights Similar fee-shifting provisions appear in employment discrimination, consumer protection, and environmental statutes.
When fee shifting applies, the attorney fee does not reduce the class’s recovery at all. The defendant pays the fee on top of whatever the class receives, and courts in these cases typically use the lodestar method rather than a percentage.
Coupon Settlements Follow a Different Rule
Some class actions settle not with cash but with coupons, vouchers, or discount codes. Face value on paper is often much higher than the amount class members actually redeem, which is why Congress built a specific guardrail into the Class Action Fairness Act. When a settlement provides coupons, the portion of the attorney fee tied to those coupons must be calculated on the value of coupons actually redeemed, not the face value issued.4Office of the Law Revision Counsel. 28 U.S. Code 1712 – Coupon Settlements
If the settlement also includes non-coupon relief such as an injunction or policy change, the fee splits: the coupon portion uses the redeemed-value formula; the non-coupon portion uses the lodestar method.4Office of the Law Revision Counsel. 28 U.S. Code 1712 – Coupon Settlements A judge must also hold a hearing and make a written finding that a coupon settlement is fair, reasonable, and adequate before approving it.
Incentive Awards for Lead Plaintiffs
The named plaintiffs who stepped forward to represent the class often receive a separate payment called an incentive award or service award. Most fall in the $5,000 to $12,000 range, though awards in the tens of thousands occur in complex cases that demand heavy involvement. The Private Securities Litigation Reform Act bars incentive awards in securities fraud class actions, limiting lead plaintiffs there to reasonable out-of-pocket costs and expenses.
Your Right to Object to the Fee
Rule 23(h) gives class members a concrete right: the fee motion must be directed to the class in a reasonable manner, and any class member may object.2Cornell Law School. Federal Rules of Civil Procedure Rule 23 – Section: (h) Attorney’s Fees and Nontaxable Costs The settlement notice you receive should list the amount of fees counsel intends to seek. If the request looks disproportionate, you can file a written objection with the court before the final approval hearing.
Objections carry weight when they identify specific, substantive problems. An argument that the fee takes an outsized share of the fund and that a lower percentage would leave more for the class is the kind courts take seriously. Generic complaints about lawyers earning too much are not.
Objecting is not the same as opting out. When you object, you stay in the class and try to improve the terms for everyone. When you opt out, you leave the class entirely, give up your share, and keep the right to sue the defendant individually.
A Tax Trap Worth Knowing About
If the settlement compensates you for personal physical injuries or physical sickness, the entire payment is excluded from your gross income under federal tax law. Emotional distress alone does not qualify unless it is tied to a physical injury, though amounts covering medical expenses for emotional distress can still be excluded.5Office of the Law Revision Counsel. 26 U.S. Code 104 – Compensation for Injuries or Sickness
Most other class action settlements, including consumer fraud, wage theft, and securities cases, produce taxable income. Punitive damages and damages for nonphysical injuries get reported on Form 1099-MISC.6Internal Revenue Service. Tax Implications of Settlements and Judgments Here is where attorney fees create the trap. In some situations the IRS treats the gross settlement amount, including the portion paid directly to the attorneys, as income to the plaintiff. The Supreme Court confirmed that rule in Commissioner v. Banks, holding that contingent fees generally represent income to the plaintiff even when the money never passes through the plaintiff’s hands.
Congress softened that result for certain case types. If your class action involves employment discrimination or certain whistleblower claims, you can deduct attorney fees and court costs as an above-the-line adjustment to gross income, so you are not taxed on money that went straight to the lawyers.7Office of the Law Revision Counsel. 26 U.S. Code 62 – Adjusted Gross Income Defined The deduction is capped at the amount of income you received from the settlement. For class actions outside those categories the deduction may not be available, which means you could owe tax on a larger amount than you actually received. If your check is more than a trivial amount, a tax professional is worth the call before filing.