THE MANY FACES OF FEE AGREEMENTS
When was the last time you sat down at a new restaurant and placed an order without first looking at the menu? Probably never.
A lawyer’s menu is their Retainer Agreement. If you are not inclined to order a $100.00 meal from a restaurant without first looking at their menu then why would you hire a lawyer without first reviewing their retainer agreement, asking questions, and negotiating more favorable terms, like asking the Chef to go easy on the sauce.
The fee arrangement you have with your lawyer will necessarily impact how much money you will pay for the legal services provided by your attorney. An attorney’s fee or hourly rate will depend on many factors and while some are objective, many are not. Some objective factors include the layer’s level of experience and reputation, the novelty or difficulty of the legal issues involved in your case and what’s at stake. Some subjective factors include your apparent ability to pay (does the lawyer know you have money?), the “time” spent on your case and, frankly, the attorney’s looming overhead such as rent, utilities, office equipment, computers, etc., all of which will likely impact the fee charged.
There are several common types of fee arrangements used by lawyers:
- Contingency Fees: The lawyer’s fee is based on a percentage of the amount awarded in the case. If you lose the case, the lawyer does not get a fee, but you will still have to pay expenses “disbursements.” Never confuse the two. Fees and expenses (disbursements) are separate and distinct financial obligations from the attorney’s contingent fee. If the layer says that you will never be responsible for costs and expenses, then make sure that promise is in writing. Contingency fee percentages vary. In many states, a one-third fee is mandatory. Some lawyers offer a sliding scale based on how far along the case has progressed before it is settled. Courts may set a limit on the amount of a contingency fee a lawyer can receive. This type of fee arrangement may be charged in personal injury cases, property damage cases, or other cases where a large amount of money is involved. Lawyers may also be prohibited from making contingency fee arrangements in certain kinds of cases such as criminal and child custody matters. Contingency fee arrangements are typically not available for divorce matters, if you are being sued, or if you are seeking general legal advice such as the purchase or sale of a business.
- Flat Fees: A lawyer charges a specific, total fee. A flat fee is usually offered only if your case is relatively simple or routine such as a traffic ticket, drafting a will or power of attorney, writing a letter, or an uncontested divorce.
- Hourly Rate: You are billed for the time the lawyer works on your case. The lawyer will charge you for each hour (or portion of an hour) that the lawyer works on your case. Thus, for example, if the lawyer’s fee is $300 per hour and the lawyer works 10 hours, the fee will be $3,000.00. This is the most typical fee arrangement in non-personal injury type cases. Some lawyers charge different fees for different types of work (legal research versus a court appearance). In addition, lawyers working in medium to large firms typically have different fee scales with more the senior members charging higher fees than junior members, associates and paralegals.
- Consultation Fee: The lawyer may charge a fixed or hourly fee for your first meeting where you both determine whether the lawyer can assist you. Be sure to check whether you will be charged for this initial meeting.
- Retainer Fees: The lawyer is paid a set fee, perhaps based on the lawyer’s hourly rate. You can think of a retainer as a “down payment” against which future costs are billed. The retainer is usually placed in a special account and the cost of services is deducted from that account as they accrue. Many retainer fees are non-refundable unless the fee is deemed unreasonable by a court. A retainer fee can also mean that the lawyer is “on call” to handle your legal problems over time and since this type of fee arrangement can mean several different things, be sure to have the lawyer explain the retainer fee arrangement in detail. Also, be aware that any unused retainer must be refunded to the client when the attorney-client relationship ends. Make sure the attorney provides you with a detailed accounting or legal bill showing all charges, costs and expenses takes from the retainer.
- Statutory Fee: The fees in some cases may be set by statute or a court may set and approve a fee that you pay. These types of fees may appear in probate, bankruptcy, worker’s compensation, or other proceedings.
- Fee Shifting. Similar to Statutory Fees, some court rules and statutes permit the winning party to recover attorney’s fees from the losing party. In addition, some contracts contain fee shifting provisions.
- Referral Fee: A lawyer who refers you to another lawyer may ask for a portion of the total fee you pay for the case. Referral fees may be prohibited under applicable state statutes or codes of professional responsibility unless certain criteria are met. For instance, in some states, only a Certified attorney may pay a referral fee. Just like other fees, the total fee must be reasonable and the client must agree to the arrangement. Many states have a state and local associations where one can obtain information about the appropriateness of a referral fee.
Because there are so many types of fee arrangements available, a client should ask what costs and other expenses are included in the fee. Does the fee include the lawyer’s overhead and costs or are those charged separately and at what rate? How will the costs for staff, such as secretaries, messengers, or paralegals be calculated and charged? In contingency fee arrangements, make sure to find out whether the lawyer calculates the fee before or after expenses and be aware that many states have specific rules to address this issue.