The Proper Fee Agreement - ABA YLD 101 Practice Series

By Mark O'Halloran

Compiled from "The Proper Retainer Agreement and Bill: Solid Writing, Strong Planning, and Prompt Payment" provided by the ABA YLD Member Service Team and ABA YLD Law Practice Management Committee at the ABA Midyear Meeting, Miami, FL, 2006-2007. Source material provided by Youshea A. Berry and Brian S. Faughnan

A good starting point for any attorney looking to draft the fee agreement is the determining the rate. The types of rates that can be charged for legal services can vary by the work being performed. Understanding rate differences will help the drafting attorney to determine which rate to use for any particular circumstance. The first, and easiest rate is the Time Basis, which is simply the number of hours worked multiplied by the per hour charge. Of course, charges for an attorney's time working on a case will likely be more than paralegal time or other office staff time. Different hourly rates based on different levels of staff involvement are called Blended Rates. Adding a higher billing rate if the attorney receives a favorable result is called Value Billing. A Flat Fee can be used to set the rate for specific matters or tasks. For example, an attorney may decide to set a flat fee rate for reviewing a contract or for a consultation. Attorney's using a Contingency Fee earn a percentage of the client's recovery plus out-of-pocket expenses. Fees set by law are called Statutory or Probate fees. Attorneys fortunate enough to be able to bill clients just to guarantee the attorney's availability will want to use a Non-Refundable Retainer.

After selecting the rate best suited to the client's case, take time to explain the fee agreement to the client. Make sure that the client understands that the fee agreement is a legally binding contract. Talking to the client about the fee agreement avoids the sticker shock felt by clients receiving their first bill. Be clear about the policies and penalties in the event the client makes a late payment, and be sure to comply with local laws regarding the maximum amount of interest chargeable to the client. Include a discussion about what will be done to collect late payments. Alternatives include using a collection agency, submitting to local dispute resolution programs, and stopping work for the client. Suing the client should be the last resort.

Whenever an attorney accepts funds from a client, it is important to distinguish between money that is being paid as a Retainer from money paid as a Deposit. As was discussed above, a Retainer involves consideration paid in exchange for a commitment of the attorney's future availability to provide legal services. Local rules should be consulted, but generally retainer funds may be deposited into the attorney's operating account. A Deposit is money paid to an attorney that is tied to the provision of legal services. Again, the local rules should be consulted, but Deposit funds must generally go into an IOLTA account.

Every well-drafted fee agreement needs to include certain essential provisions. In addition to obvious provisions, such as the agreement date, the parties to the agreement, and attorney and client address information, the fee agreement should include or consider including provisions discussing the following topics:

  • Scope of representation;
  • Fee amount and Deposit or Retainer, including any limitations on what the fee does not cover;
  • Whether costs will be reimbursed or paid by the client directly;
  • Whether or not other attorneys will be involved, and the use of experts, investigators, etc;
  • Billing cycle information and payment due dates;
  • Terminating services or withdrawal;
  • No guarantees;
  • Client responsibilities;
  • Confidentiality;
  • Trust account rules;
  • Late payment penalties;
  • Preferred method of correspondence; and
  • Fee and Fee Agreement disputes.

Additional provisions may include the minimum or maximum fee and the existence of malpractice insurance. When discussing these provisions with the client, give them the opportunity to ask questions about the fee and cost arrangements. To avoid cost disputes, be specific about how much the client will be charged for copies, phone calls, mileage, etc. Sign the agreement with them, and provide the client with a copy. If the agreement needs to be updated, make sure your client understands the changes, and that the agreement reflects your needs and experience.

It should be noted that a written fee agreement is not required in all jurisdictions. However, having one is a good business practice and will protect you and the client when disputes arise. Consulting the local rules is recommended, but the ABA Model Rules can be a guide. Of relevance to a retainer agreement, be aware that Rule 1.5(a) states that fees must be reasonable, while Rule 1.5(b) states that contingency fee agreements must be in writing. An attorney can't contract out of certain obligations, like competence at Rule 1.1 and decisions belonging to the client at Rule 1.2(a). Also of note is rule 1.2(c), which addresses restricting the scope of an engagement. Rule 7.1 commands that a lawyer shall not make a false or misleading communication about the lawyer or the lawyer's services.

With every client engagement for which a fee agreement is drafted, there will come a day when that representation will end. Whether that day is a happy one or a sad goodbye, it is a good practice to end each representation with a disengagement letter explaining that representation for that particular matter has concluded. While the practice is not required in every State, the candid letter makes clear the attorney's intent to conclude representation, and provides written documentation that the client was notified of that fact, in case a dispute should arise down the road.

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About the Author

Mark O'Halloran is a member of the Member Service team for the ABA Young Lawyers Division.

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