In this issue, I want to discuss a very important client relations tool: the fee agreement. When I see fee agreements that describe only how the lawyer expects to be paid, I see a missed chance to express a more welcoming tone for the client as he or she enters your client list.
WHY FEE AGREEMENTS?
Let’s say you are sitting across from a new client who has never used the legal system before, has unbridled expectations, has little idea how legal fees are handled, fears what your fees may be, and cannot fully define the scope of representation that he or she needs. This is a “perfect storm” for financial risk to you without a fee agreement. By their very nature, legal matters are very often “customized bundles of services,” and a fee agreement reduces to writing what the parties are contracting for. You especially need to consult your jurisdiction’s rules for when written fee agreements are mandatory, such as in contingent fee matters. It is best to also consult ABA Model Rule of Professional Conduct 1.5(c).
Fee agreements can take numerous forms. Many state bars and Canadian provinces offer sample agreements on their websites or through their practice management assistance programs. The ABA offers The Essential Formbook series, which includes sample fee agreements. Use these resources to draft your own fee agreement. You may need to draft several different forms, depending on your practice area and particular client situation. Fee agreements evolve over time, but be alert and keep your agreements from becoming too wordy or redundant.
STRUCTURING THE AGREEMENT
I suggest the following basic framework for a fee agreement.
First, delineate the parties. Ascertain who the client is when two or more people are meeting with you and asking you to take a matter, and clearly state that in the agreement. In corporate representation, it is especially important to know whether the client is an officer, an employee, a managing board or some other entity.
You must also clarify the scope of representation. For many matters, what you are agreeing to do may be very easily determined. Certain other matters may have circumstances that cause uncertainty about what outcome may be possible. Be careful about being too broad. A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent.
Fees, costs and billing practices constitute the most complex and emotional part of the fee agreement. The nomenclature I recommend is outlined below:
- Fee is the amount payable to the firm for the services of its personnel, including the lawyer.
- Cost is the amount payable for amounts that are receipted, such as filing fees, travel, photocopying at FedEx, expert witnesses, etc.
- Expense is the amount payable for recovering the lawyer’s overhead, such as telephone, fax, photocopying, etc. Some jurisdictions allow an added flat percentage of fees, in place of itemization, to recoup these expenses.
- Retainer is the amount payable for securing the availability of the lawyer for a period of time or a particular matter.
- Advanced fee deposit is the amount payable that goes into the lawyer’s IOLTA and is gradually drawn out for fees, costs and expenses. Consider using an “evergreen” advanced fee deposit. In this case, evergreen means the balance is never zero. Sample language might be: “This acknowledges receipt of your advance fee deposit in the amount of $5,000.00 for fees, costs and expenses. Payments will be drawn against this amount and reported to you. We will bill you for additional advanced fees and cost deposits if the current balance is below $1,000.00.”
- Flat or fixed fee is the amount payable for the services of the personnel in the law office. Costs and expenses are in addition to the flat fee.
- Billing practices is the description of the frequency of invoicing and what will be contained in those invoices. It may include timekeeping conventions, the payment due dates, interest penalties and other details so the client knows what to expect and when. Consider showing the client a sample billing.
A lawyer must also make clear that the agreement does not guarantee a particular result. Regardless of how straightforward a matter may be, avoid predicting the outcome. The fee agreement should include a statement that the lawyer cannot guarantee any result. Managing client expectations is difficult enough without putting your credibility at risk. A good policy to follow is to under-promise and over-deliver.
The duties of the lawyer and client should be clearly laid out. This is known as the “we do/you do” list. Clients often have little idea of what is expected of them during a matter, so clarifying as explicitly as possible just who does what is best. For example, the lawyer will do the following:
- Advise the client of his or her rights and responsibilities.
- Be candid with the client about the problem, its prospects for success, the time it may take, and the advisability of accepting any settlement.
- Represent the client’s interests in and out of court.
- Negotiate a settlement when possible and if advisable.
- Keep the client reasonably informed about the status of the case.
- Discuss courses of action, alternatives or consequences.
- The client also has responsibilities and must do the following:
- Be on time for appointments and not take up an excessive amount of time with visits or phone calls relating to minor details or petty matters.
- Discuss all facts of the matter and not withhold information about the case.
- Bring the necessary information and documents to the first appointment.
- Notify the lawyer of changes or any new developments in the case.
- Return the lawyer’s telephone calls.
- Appear at meetings and depositions.
Be sure to sign the agreement along with the client. If the client used an interpreter or you provided one, add language to the agreement that states that it was interpreted into the client’s native language and by whom. Or if a fairly large number of your clients speak a language other than English as their primary language, you might consider translating your basic fee agreements into those clients’ primary tongue.
Also consider the option of a third-party payer acknowledgment. Sometimes in criminal or family law matters, a third party such as a parent may pay the legal bills for the client. Add language that notifies that the third-party payer may not interfere with the client-lawyer relationship and its privileged communications.
Throughout the process, think of your fee agreement as a client relations tool. Keep it intelligible, informative and friendly.