What Is A Fee Agreement?
A fee agreement is essentially a contract between a client and their attorney, explaining how they will be charged for the legal services provided. When you enter into a fee agreement with a client, you are entering into a contract that requires you to perform those services according to the terms and conditions you have set forth in the agreement.
It is the attorney’s duty to make sure the legal services are provided according to the terms of the contract, and it is the client’s duty to pay for those services. This means the client has a legal obligation to compensate you for your services as long as you did what you agreed to do (assuming you were able to do that work competently and in a legal manner).
So why bother with Fee Agreements? For starters, they reduce your firm’s exposure to and the costs of lawsuits, including emotional costs, if you are disputed by a client over your legal services . When both parties are clear on the terms of the agreement and have agreed to them, you must then be close to 100% certain that you won’t have problems in navigating this relationship going forward.
Secondly, having Fee Agreements require that your legal services are not a one-way street. Having Fee Agreements can be advantageous in any number of ways, such as:
To quickly review, legal fees can be based on a number of different factors, including:
Any arrangement agreed on should then be laid out in the Fee Agreement, including explaining:
When you start your engagements with clients by having Fee Agreements, you can expect to be in a better position when it comes time to enforce their terms. Are Fee Agreements a guaranteed way to avoid disputes? No. But they are a good way to significantly limit them.
Different Types of Fee Agreements?
Flat Fee
When deciding the appropriate fee agreement, you will want to consider whether the prevailing practice in the applicable practice area supports the use of a flat fee arrangement. Unfortunately, some practitioners, especially those new to the field, struggle to determine how to best structure their fees. Because there isn’t a lot of case law or other authority to support the decision, some attorneys may be reluctant to enter a flat fee agreement.
Flat fee agreements can benefit both attorneys and clients
If a flat fee agreement is offered, the cost of the entire matter is specifically settled up front. Flat fee agreements work best if it has been determined that the scope of work has an easily identifiable end or that you’ll be able to setup a reasonable range as to what your fees will be irrespective of what the final fee for services may end up being.
Hourly Fee
Some areas of practice are more readily suited to the hourly model. For example, litigators and employment attorneys are considered to use the standard hourly fee arrangement to their advantage in the business development setting due to the fact that their client’s exposure is unknown. Moreover, clients faced with the possibility that a case will require appeal after it reaches the trial conclusion are even more prepared to accept the risks associated with an hourly fee.
Contingency Fee
Working on a contingency fee basis is a common occurrence among personal injury attorneys as well as businesses who represent clients in the area of consumer class actions for the products they sell. Contingent fee agreements are of course only appropriate where there is a fee recovery provision in the applicable statute. Of course, whether the client has an ability to pay is always a factor to consider.
Costs
In addition to structuring the fee, you also need to address what costs will be covered by the firm. The law is clear that certain costs can be passed through to the client. For example, should be uncontroversial that the client is responsible for filing fees, transcript expenses, similar litigation costs, and expert witness fees, as those are expenses incurred as part of litigating a case. As with fees, it is acceptable and reasonable for the firm to advance these costs and then ultimately seek reimbursement from the client. However, one thing that should be abundantly clear is that certain costs, such as court filing fees or expert fees are not a cost of the law firm, and therefore not a charge that can be advanced by the law firm.
Important Elements That Should Be Included In A Sample Fee Agreement
A sample fee agreement should include the scope of work, which unequivocally states what matters you will be working on. It can also be divided into categories such as asset pricing, transactions and advising to be more specific. It is also important to include payment terms. You can either state that you will send monthly or quarterly invoices or have a fixed fee agreed upfront. It is not uncommon to have an upfront retainer with additional payments due at certain times. In addition to payment terms, you should also include a confidentiality clause to explain which matters cannot be discussed externally, unless first agreed with the client. These fee agreements often state that they are binding without your signature, as long as the terms are clearly understood by both parties. These agreements often include clauses that describe how to handle disputes that may arise. Sometimes they simply state that if issues cannot be resolved through mediation, litigation in New York will be the next step. This often discourages frivolous litigation.
The Legal Significance Of Fee Agreements
When a lawyer and client enter into a fee agreement, their understanding of the agreement’s terms will be important if there are any future disagreements as to the scope of the legal work or the amount of fees charged. Leaving vague terms in fee agreements could result in the parties having an argument as to what was actually agreed upon, and whether a later dispute is covered by the fee agreement. Nothing in the California Rules of Professional Conduct expressly requires a retainer agreement to be in writing, but Rule 4-200(A) of the Rules of Professional Conduct prohibits excessive fees. The fee paid by clients cannot exceed the "reasonable value" of the legal services rendered. Davis v. Keever (2015) 239 CA4th 854, 879.
The burden of proof under the California rule is on the lawyer to prove by a preponderance of the evidence that the fee is reasonable. Davis v. Keever at 879. The court has the authority to award less than the total amount charged if the charge is found to be in excess of a reasonable value. Zarabia v. Miller (2010) 187 CA4th 635, 642. Additionally, if a retainer or deposit is paid prior to services being rendered, that money must be preserved in trust pending the completion of services or conclusion of the matter. Trust Account Handbook, State Bar of California, Chapter 2.6; Zerbe v. Heiman (2012) 208 CA4th 175 (Undeposited retainer funds were held in trust and the failure to deposit the funds in trust constituted a violation of professional conduct).
For numerous reasons, lawyers sometimes discount fees for various reasons, including to keep competitive rates, to secure a matter, or as a human response to a client who may be in financial distress. But under Zarabia, a court may well apply a "reasonableness standard" that does not give much weight to a lawyer’s decision to discount fees below the reasonable value of the work provided.
Creating A Fee Agreement Step By Step
To clarify the complexity of this process I have broken it down to demonstrate the methodical approach I recommend when making your fee agreement explicit. First, you should declare the parties involved in the agreement by naming the client and the provider. Clear and accurate identification is essential. But in doing so, you should be careful not to over specify, and repeat names needlessly. Ease of reference is the key here. When having to refer to a party in the body of an agreement, the space-saver term (such as client or provider) should be used to avoid excessive repetition. Secondly you should provide clear definitions where necessary. This allows any legalese that may creep into your document to be specifically defined and thus avoided . Using standard, simple, everyday terminology leaves less room for confusion and interpretation. Third you should be specific. Explain the service being provided without being ambiguous. Include hours of work, method of delivery, the results to be expected and the approximate completion time. Vague agreements may prompt difficult, time-consuming and costly disputes between parties that could ultimately lead to dissolution. Fourth, certain terms such as indemnity and confidentiality must be included. Although not all these terms may apply to your practice, you should at least try to address some of these issues so you are prepared for any eventuality. Finally, Schedule A must be added to provide details of the consumption-based pricing model and the rates for all applicable services.
Reviewing And Negotiating A Fee Agreement
Clients should rely on fee agreements to protect their best interests, but if an attorney has drafted the agreement, it is in their favor so client should take extra care to get what they want. It is very important to review a fee agreement thoroughly before signing. An attorney who wants your business may tell you how long the agreement is, and may even note there are a lot of fees, but those fees may be so overwhelming, or so stacked in the attorney’s favor, that you agree to everything without reading it. It pays to at least skim the agreement. When reviewing the agreement: An attorney may indicate the services provided meet your needs, but the truth is the services they decide to provide might change over the course of the case, and you might be left in an unfortunate situation later. To protect your interests, be sure the scope of the work is clearly defined in the agreement, and that both you and the attorney agree on what the scope is. Don’t assume the attorney will not charge for phone calls to discuss the case. After all, much of the work to be completed in her case can come from those calls. Be sure you cover that explicitly in the agreement, and in particular be sure you feel comfortable with the cost to be charged. If you are hiring an out-of-state attorney who will be working with an attorney in your state, either because the attorney is licensed in both states or because they will be working hand in hand with an attorney in your state, be sure to ask about additional fees that may be incurred. For example, the out-of-state attorney may charge $200 per hour, but the attorney in your state may charge $300 per hour, and you will be billed for both. That would be $500 for every hour the attorneys work on your case. You may pay for one or both of them in some or all of the work they do for your case – the rates are high and so you may not need both to be constantly working on things. Some attorneys may be happy to have one drafts things and another provide input rather than having them both write or prepare notes for the other. You may negotiate the terms you want. If the attorney is highly rated and you feel he is the best person for your case, but you know there are things in the fee agreement you cannot agree to, again, do not sign it. Instead, speak with the attorney to work through the things you are not comfortable with. He will be happy to have you as a client when he can negotiate some of the $500 an hour away. He will negotiate to keep you as a client.
Some Common Pitfalls And How To Avoid Them
Mistake #1: Forgetting to Collect the Fee Upfront
As noted above, even though we are required to refund any unearned fees, clients sometimes claim that they should have received a refund of all the fees they paid. This will be less likely to happen if you don’t collect fees until after the task is completed, but who wants to wait? The best solution, if you don’t collect fees upfront, is to charge a "non-refundable consultation fee". Then, if a client claims s/he is entitled to a refund of fees, you can say: Sure…just as long as you agree that I can keep the non-refundable consultation fee. A corollary to this is that you should make sure your fee agreement specifically provides for what is covered by the non-refundable fee. Otherwise, the client may claim she paid for that as well, and expect a refund on that amount as well.
Mistake #2: No Deadlines
Sometimes clients want to extend deadlines, even ones which were agreed to or set by the court. It’s a good idea to have deadlines in your fee agreement and to specify what happens if they aren’t met. For example: Failure to appear at a court date will result in withdrawal of counsel. Rescheduling court dates will be charged to the client at an hourly rate of $250 per hour.
Mistake #3: No Termination Clause
Fees and costs can sometimes add up to substantial amounts before a case settles. Sometimes, as litigation proceeds, either a client decides it’s not worth the money to continue or the lawyer realizes the case has no merit. In either situation, it’s important to know whether the client can terminate the agreement, whether you can withdraw as counsel without permission of the court, and what happens to the retainer. Also, if a case is unsuccessful, how do you get paid for the additional services you provided? These are all issues that should be clearly addressed in your fee agreement.
Sample Templates And Other Resources
Sample templates and resources are an important tool for creating a basic fee agreement template that can be easily customized to fit the specific needs of your practice or your clients’ matters. Some may use a fillable PDF option where they can type in the information, others may download the template and customize it as desired.
The Michigan Bar Association provides a Capped Fee Agreement that is helpful to new and seasoned lawyers. It contains an introduction, the scope of the work both in what services are included and what is excluded. It also includes language about how the charges against the cap will be tracked and if there is a balance of the cap at the end of the matter. The final sections include a clause about the termination of services and setting out what payments are owed at the conclusion of the representation (such as an outstanding balance to the capped amount , or paid in full for services rendered).
Here are a few links to websites that provide sample templates and forms: The Minnesota Bar has several fee agreement forms available. Again, here is a good example because there are forms for hourly cases, fixed fees and capped fee agreements and for escrow agreements. The American Bar Association has a Section of Litigation group that shares resources and samples on many topics, such as fee agreements. You can rely on these sample forms as a basis for your firm’s forms. You can also search for programs that can help you put one of the templates together. For example, Rocket Lawyer has the option to create a Customized Fee Agreement. You pay for the document you make (fees are between $39.99 and $45.99) and you have access to it to update and revise.