Lawyer Fee Agreements and Retainers

When you hire a lawyer, you will normally enter into a written fee agreement with the lawyer. It is good practice to enter into a formal written agreement for legal services, as a fee agreement will make clear the amount of the lawyer's fees, when and how those fees are earned, and what portion might be refundable if the legal matter is resolved more easily than anticipated or if you decide to switch to a different law firm.

While lawyer fees can vary significantly depending upon the lawyer's skill and reputation, the lawyer's field of practice, the nature and complexity of a case, the local economy and legal market, and even based upon the lawyer's salesmanship, all legal fees must be reasonable. If there is a chance that a lawyer will earn a large fee for a relatively small amount of work, that should be disclosed to the client up-front, in writing, and in understandable terms.

What Should a Fee Agreement Include

The most important aspects of a fee agreement include the amount that the lawyer will charge for services, and the amount of any retainer. If the lawyer is performing work on an hourly basis, the hourly rate and billing practices should be disclosed, including any minimum billing increments. If the attorney will charge on any other basis, such as a flat fee basis, that should be clearly disclosed along with the amount of the fee.

Fee agreements cover may other aspects of the attorney-client relationship. A fee agreement may thus address:

  • Office costs and expenses that are chargeable to the client, and the amounts that will be charged (e.g., copying costs, the cost of electronic research services, transcript costs, mailing costs, travel costs);
  • Other costs and expenses that are chargeable to the client, such as process server fees, deposition fees, and court fees; Fees for experts, investigators and consultants, if needed;• Fees for other lawyers who may work on the case, if needed;
  • How often the client will be billed;
  • The extent to which bills will be itemized;
  • File retention policies; and
  • The lawyer's duties if the lawyer's representation of the client ends before the client's legal matter is concluded.

A retainer agreement for a law firm may allow for substitution of lawyers within the firm, such that the lawyer you meet during your consultation may not be the lawyer who represents you, or that lawyer may rely upon other lawyers within the firm for certain tasks or court hearings. If you want specific work, or all work on your case, performed by a specific lawyer, make sure that your wish is reflected in your fee agreement.

A client who is concerned about cost may require a lawyer to provide notice when legal fees approach a specified amount, or when expenses are going to be incurred that exceed a specified threshold. Any such requirement should be in writing, and included within the retainer agreement.

What is a Retainer

A retainer is a payment made to a professional, such as a lawyer, in advance of the performance of services. As fees are earned, the fees are deducted from the retainer. When the retainer is exhausted before work is complete, the professional may require an additional retainer or may start billing for additional work performed. If the work is complete before the retainer is exhausted, the remaining balance is refunded to the client.

In its pure form, the unearned balance of a retainer is always refundable. Nonetheless, sometimes the term "retainer" is used to describe a legal fee arrangement where an unearned balance is not refundable.

For example, a client may want to reserve a specific amount of an attorney's time each month, and pay a retainer for that number of hours. The attorney can keep the time available based upon the retainer agreement, but the contract with the lawyer may provide that the fee is earned whether or not the client uses all of the reserved hours.

It is important for lawyers to be careful with the language they use when describing money they hold as a retainer, as a retainer remains the property of a client until it is earned by the lawyer. For example, the term "non-refundable retainer" is confusing, and may even raise ethical issues for the lawyer.

By the same token, a lawyer must be careful not to mischaracterize client funds as having been earned, when those funds do in fact represent an unearned retainer, and must not commingle unearned client funds with earned fees. Any advance paid by a client toward fees and costs should be held in an appropriate trust account until earned.

Types of Legal Fees

A lawyer's fees may be calculated in a number of ways, including on an hourly basis, on a task-based basis, or by a combination of means. Common approaches to legal fees and billing include:

Hourly Fees

When a lawyer works on an hourly fee basis, the lawyer keeps track of hours worked and charges the client for that time at an agreed hourly rate. Law firms often bill in increments of five or ten minutes, or in six minute increments (a tenth of an hour) rather than billing by the minute. Time is usually rounded up when calculating hours worked.

Engagement Fees

Sometimes, taking a case will require a law firm to hire additional staff, forego work, or reserve attorney time that might otherwise be used to perform services for other clients. In those circumstances, the attorney may charge a fee in association with taking the case, above and beyond the fees that are earned performing the client's legal work, in order to cover the expenses of taking the client's case and to ensure that the firm will not experience a financial loss if the client stops working with the firm before the case is complete.

As it is not a retainer agreement nor applied to work yet to be performed, an engagement fee is normally deemed to be earned upon receipt.

Flat Fees

Some lawyers will negotiate flat fees for legal work. Flat fees may encompass all work to be performed on the case, or the fee may be staged so that additional fees are charged based upon the work necessary to complete specific work on the case.

For example, in a criminal case, a lawyer might charge a flat fee to represent the client for an arraignment and probable cause hearing, an additional flat fee for additional work required before trial, and an additional flat fee to take the case to trial. In the alternative, the lawyer might charge a flat fee for work prior to trial, then switch to an hourly fee for trial.

A lawyer's fee agreement may provide that the flat fee is earned once the lawyer commenced work on a specified phase of the case, with the fee being fixed in amount no matter how much or how little work the lawyer performs during that phase of a case.

Although many lawyers offer free initial consultations, some lawyers charge a flat fee for an initial consultation with a client. The client should know in advance the amount of any consultation fee.

Contingency Fees

A contingency fee involves an agreement that the lawyer's fee will be a percentage of the money recovered in your case. Contingency fees are common in personal injury and employment discrimination cases. While a contingency feel will often exceed an hourly fee for the same services, the client does not have to pay any lawyer fees out of pocket, and if the recovery is less than expected the lawyer's fee is reduced in proportion to the recovery.

Under typical state ethics rules, contingency fee agreements must be in writing. States typically forbid contingency fees for specific types of cases, such as criminal cases and certain family law cases.

Some claims, such as civil rights cases, may allow for a possible attorney fee recovery by a successful plaintiff. When that may occur, contingency fee agreements may grant the law firm the discretion to accept the attorney fee award instead of the contingency fee.

Minimum Fees

Sometimes a lawyer will charge a minimum fee for specific services performed by a client. For example, while performing office work on an hourly basis, the lawyer may charge a higher fee for court appearances, such as billing a minimum of a half-day (e.g., four hours) for court appearances that take less than four hours, and a full day (e.g., eight hours) for court appearances that take longer than four hours in a single day.

Statutory Fees

In some cases, a statute may define how an attorney's fee is to be calculated. For example, it is common in workers' compensation cases for fees to be defined or limited by statute, with a lawyer prohibited from charging a fee in excess of the statutory fee. Statutory fees are often subject to review and approval by a court.

Referral Fees

In most states, lawyers can charge a fee to another lawyer for successfully referring a case or client to the other lawyer. Under typical rules of ethics, the referral fee must be disclosed to the client and agreed to by the client. A referral fee should not increase the cost of representation. Not all states permit referral fees.

Before you Sign

Before you sign a fee agreement with a lawyer, make sure you read it carefully. The lawyer may prefer that you sign on the spot but, absent urgent circumstances, don't hesitate to ask for time to fully review the document, even if that means signing the agreement at a later date.

Make sure that the agreement accurately reflects your understanding of the legal fees you are expected to pay, how they are calculated and when they are due. If the agreement is not consistent with your understanding, you should request corrections before you sign.

Copyright © 2017 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on May 7, 2018.