What’s a lawyer fee agreement?
A lawyer fee agreement is a formal written document that lays out the terms and conditions of the relationship between an attorney and a client. These agreements are typically the first substantive communications that a client will have with their lawyer. For the client, it usually represents a checklist of the questions they had and the answers they got. For the attorney, it is an opportunity to demonstrate competence and professionalism. In addition, it is the first opportunity to educate the client on the scope and cost of legal services.
Lawyer fee agreements are not simply boilerplate documents. They should be drafted for the client – within the limits of the law and the Rules of Professional Conduct. These agreements should describe the services that the attorney will provide , along with the costs, payment arrangements, and understanding of the ethical rules. Much like a mechanic or dentist, the law firm should estimate the time and money that will be involved in the legal representation. Openness at the beginning of a client-lawyer relationship is important for more than one reason. A lawyer fee agreement clarifies and focuses the attorney-client relationship. The lawyer’s written fee agreement can help establish the basis for the work done, thus eliminating costly and time-consuming arguments. A well drafted fee agreement should include language that promotes negotiation and resolution of disputes. Thus a lawyer fee agreement should include procedures as to how disagreements are to be resolved as well as the obligations of both parties.
Essential components of a fee agreement template
There are a number of key components that should be found in any lawyer fee agreement, and you can certainly get an idea as to what they are by reading a compliant fee agreement template. At a minimum, the important aspects of a lawyer fee agreement should cover the following elements:
Payment terms – you will want to specify whether your charges will be due hourly, by flat fee or contingency, whether you will require any up-front fees, such as a retainer, and when payments will be due. Keep in mind that your payment terms may also affect your cancellation policies, as well. For example, if your fee agreement requires a retainer and your client cancels prior to the end of the case, they may in fact be entitled to a refund of that retainer (or a portion), depending on how your agreement is crafted.
Retainer – most lawyer fee agreement templates will include retainer policy clarifications, such as how your retainer will be applied (i.e. to your initial fees or ongoing fees); whether you will require a retainer to be paid all at once or in installments; and what happens if your client cancels prior to the end of the case (i.e. are they entitled to a refund or not, and how is it calculated).
Cancellation policy – your cancellation policy should be clearly defined in your lawyer fee agreement template so that your clients understand what their responsibilities are if they choose to cancel the service, as well as what recourse you may have.
Confidentiality – no matter what kind of services you’re providing, confidentiality of your clients’ information is critically important. A non-disclosure clause in your lawyer fee agreement template will help ensure that the information you and your client share remains confidential, and that data integrity is maintained.
Indemnification – you never know when you might get sued, even when you do everything right, and you want to protect yourself as much as possible. Including an indemnification clause in your lawyer fee agreement template places liability for any lawsuits or extraordinary expenses squarely on your client’s shoulders. This means issues that arise out of your client’s negligence or equipment failures are not your responsibility. In addition, determine any remedies you might have against your client if they fail to follow your agreement, by including an attorney’s fees clause, which allows you to recoup reasonable fees and costs should you need to take legal action against them in the future.
Different types of legal fees
There are several different types of fee arrangements that an attorney may enter into with a client; the most common are fixed fees, hourly fees, contingency fees, and retainer-based fees. The choice of payment method often depends on the type and duration of legal services required.
- Fixed fees: As the name suggests, fixed fees are the same no matter how much work it actually takes to complete the project. This allows clients to "know what they’re getting into," and clients often prefer fixed fees (they know exactly how much they’ll be paying right off the bat). For example, typically a will can be drafted for a flat fee.
- Hourly fees: Hourly fees are generally used when the scope of work is difficult to define and/or has the potential to change, either in duration or scope. A family lawyer, for example, may charge an hourly fee for a divorce when there are significant but unknown assets that need to be divided up.
- Contingency fees: A contingency fee is a percentage of a financial award (to the client) that the attorney receives, usually after litigation. Personal injury lawyers often work on contingency, as do some employment lawyers. In other words, you don’t pay your lawyer unless and until you win your case.
- Retainer-based fees: Unlike a fixed fee, a retainer fee is not a flat rate. A retainer fee is a down payment of sorts; the client agrees to pay the attorney’s future bill(s) in one lump sum up front. Retainer agreements can take different forms, but generally an attorney includes an estimate of future costs so the client can agree to these terms up front.
Advantages of using a standard template
Consider these benefits of using a standardized fee agreement template:
Efficiency. A standardized template allows you to quickly and efficiently plug in the client’s name and other pertinent information. It can be customized to your individual practice area, state and/or jurisdiction, and it’s standardized across your entire office. This saves time and frustration when meeting with prospective clients, and makes it easy for anyone in your firm to craft an acceptable fee agreement.
Consistency. Not only does a standardized template streamline the drafting process, it enforces a consistent fee structure for all of your clients. If your templates are designed to ensure continuity in fees and charges, you can avoid unintentional differences in fees charged to various clients.
Legal compliance. It’s critical that your fee agreement complies with the ethical rules for your state. Using a standardized template along with your firm’s internal checklist ensures your fees will be in compliance with the applicable rules and regulations.
Simple software integration. Many fee agreement templates can be integrated into document automation systems, allowing for quick changes in language and other modifications. You can easily change legal jargon to everyday language or vice versa. For example, you can toggle between "a" and "the" as your client’s name requires, or add and remove paragraphs in a matter of seconds.
Fee agreement mistakes to avoid
Fee agreements should seek to address how the engagement with you as a lawyer will work, and they usually do. But you need to make sure that you read and understand what you are signing before you sign your client’s name to the document.
Lawyers often make mistakes in setting up a retainer letter or fee agreement, including by:
- assuming that a new client has read the document carefully, understood its terms and implications, and is ready to tick a box saying that they read it;
- making the fee agreement unduly complex and of such a length that the client (often) hasn’t read and doesn’t understand it (and which could easily be sued later to invalidate the contract);
- not having a checklist or practice note of what the fee agreement needs to include;
- assuming that if it’s on a firm’s letterhead or a partner’s name, it must be OK .
Clients, meanwhile, fail to:
- understand exactly what they are signing;
- realise that lawyers are not always happy to sign their firm’s template retainer letters or fee agreements; and
- see that a fee agreement isn’t just the ‘cost’ of the legal work they want done.
A poorly drafted fee agreement, or one the client fails to understand or react to, may expose a firm to claims of negligence or breach of contract down the track.
Customizing the template
Lawyer Fee Agreement templates for most lawyers should be taken as a starting point for your fee agreements. Most of these templates will not contain the language that addresses your fees, your office policies, your clients who need special language to address certain language issues, your SEC business, etc. These fee agreement templates are in fact basic and you will need to review and modify them to meet your clients’ and your practice’s needs.
Lawyers should review their template fee agreements on a regular basis (every year or two) so that it can be updated to meet changing law, regulatory issues or compliance matters. Keep a dated record of this review. For some lawyers, this fee agreement review process will be an annual "to do" item. For other lawyers, a fee agreement could be reviewed on an "as needed basis" to conform with legal or regulatory changes.
My suggestion would be to use the template provided by your malpractice carrier (which probably will not protect your firm), as a starting point for your template, and then add any language that you need for your practice, and custom your template for your client (for example if you have business clients or investors that have specific needs).
Necessary legal considerations and compliance
FEE AGREEMENT TEMPLATES: THE UNDERLYING ISSUES TO CONSIDER
In addition to drafting an enforceable, clear and comprehensive fee agreement, the lawyer must give due consideration to relevant professional ethics rules and opinions and of course the applicable law. In the arena of legal services, ethical rules focus primarily on non-contingent matters; however, there are a few points worth mentioning.
Lawyers providing services to potential clients in California should be familiar with California Rule of Court, rule 3.1704 which requires attorneys to use "Language Access Act" compliant fee agreements if they have English-speaking and non-English speaking contracts. Similar rules exist in other states.
Because virtually all jurisdictions require full disclosure of fees and costs to be paid by the client, when drafting your agreement, you should always remember that it must be both express and explicit to satisfy both disciplinary counsel and a court if challenged.
There are numerous jurisdictional rules and regulations with regard to cost and fee disclosures. VR 5.4(a) provides that "when engaging, or continuing a relationship with a client, a lawyer shall: . . . (2) Communicate in writing to the client, within a reasonable time, how, the costs and fees will be computed or decided, and the expenses for which the client will be responsible." Waivers of these disclosures are not permitted.
As discussed in section 3, in a non-contingent matter, if the fee agreement provides for an advance retainer, any unearned amounts not expended or otherwise applied must be returned to the client. California State bar Formal Opinion No. 2010-179 (Advance Fee Retainers – Return of Unearned Advance Fees) opines that even if the fee agreement provides that the retainer is "nonrefundable," if the entire retainer is not earned the amount must be returned. If the retainer has already been expended, the firm may only retain that amount if both the nature of the retainer and governing law permit the amounts already expended to be retained. California Civil Code section 2860 provides that every attorney-client contract to provide services for a contingency fee arrangement must include:
A statement describing how recovery of costs and expenses will affect net recovery. If the attorney advances costs and expenses, the client must reimburse the attorney for those costs and expenses upon settlement, judgment, or compromise of the case. There is general agreement among courts and commentators that if neither the contract nor the governing law of the jurisdiction specifically authorize it, the attorney may not offset any unreimbursed costs or expenses against the contingent fee, and must seek reimbursement from the client.
Disciplinary counsel and courts appear to be loath to become involved in retainer fee disputes and there are many disciplinary cases affirming a firm’s right to receive the amount it has earned upon the client’s discharge. As with contingent fee agreements, a contingency or non-retainer fee arrangement should fully disclose that any portion of the retainer not applied or otherwise earned must be refunded to the client once the matter is completed.
Sources for free fee agreement templates
The best place to find quality legal forms is the local state bar association, which typically has a fee agreement template in the form of a library resource. There are also more organized and higher quality legal forms websites where you can find a fee agreement that’s usable for your practice. Attorney Fee Agreement that we offer here is suitable for federal district courts. You can edit it according to your state rules.
When you visit the library, you can look in the area where the Legal Writing reference books are . Most bar associations will have a resources directory of their members. Some bar associations provide multi-state fee agreement templates in their library. Additionally, most lawyer marketing websites have forms.
We recommend that you use it as a starting point. A competent attorney can draft complex agreements. A new attorney may find it daunting to do that work on a contract but should be comfortable using templates and templates. When YOU edit a template, it makes editing a little bit easier to do but as a starting point you are in the right area of the law.