All About Attorney Fee Contracts: What You Should Know

What is an Attorney Fee Contract?

An attorney fee contract is a type of contract that governs the terms of the legal services that an attorney will provide in exchange for fees. It establishes the terms of the relationship between the client and the attorney and can be verbal or written. In many states, the rules of professional conduct applicable to attorneys require attorneys to use written contracts with their clients for fee agreements.
An attorney fee contract is important for both attorneys and clients . The client needs to know what he or she is entitled to under the contract terms, and the attorney needs the security of knowing that the contract is enforceable in a court of law. For example, if a client does not pay his or her bill, the attorney needs a written fee contract to establish the amount due on the account. If so, then the attorney can file a statement of claim and notice of lawsuit with the courts or small claims court where the office is located and ask the court for a judgment against the client.

Different Types of Attorney Fee Agreements

There are several different types of attorney fee agreements. Each type of fee agreement has its pros and cons and will differ depending on the needs of the Firm and the client. The type of fee agreement that a client enters into will depend largely on the type of legal services that the client requires.
Hourly Fees. This method of billing is probably the most widely used. The attorney bills for the work performed based on the time spent working on the case. The hourly rate charged by the attorney will depend on the type of case and the experience of the attorney. All attorneys will bill in 15 minute or 6 minute increments. Attorneys charge different clients different hourly rates. It is important to realize that different attorneys in the same firm may bill at different rates.
Advantages to the client: If you get a quick result in a case, your total legal fees will be less since you will be billed based on the amount of time it takes to pass the final order. Disadvantages to the client: If your case takes a long time, your fees could add up very quickly, especially if you are not involved in the case and do not review the attorney’s billing statements. You may not be aware of how many hours have been spent on your case.
Contingency Fee. The term "contingent" means that the attorney gets paid only on conditions that a certain event occurs such as winning a lawsuit. In other words, if you win the case, then the attorney receives a percentage of the recovery as a fee. This type of fee agreement is most often used in personal injury and workers compensation cases depending on the circumstances.
Advantages to the client: You owe nothing up front for fees and pay nothing unless and until the case is won. Disadvantages to the client: If you lose the case, then you do not have to pay the attorney fees but you will most likely be responsible for your attorney’s costs. If you win the case, you will have to pay attorney’s fees and costs. An experienced attorney most often charges a lower rate contingent fee which can save a lot of money.
Flat Fee. The attorney will agree to represent you for a set fee. The attorney will advise you on the work that the attorney will perform for that flat fee. Some attorneys also charge a retainer to open a file which will be applied toward their fees.
Advantages to the client: This works for both simple cases and complex cases because the client will know the cost of the case before paying any fees. Disadvantages to the client: If the case takes longer than expected, the attorney will probably not be able to devote the time necessary to handle the case. The attorney will probably assign the case to an Associate Attorney in the office.
Hybrid Fee. You may be able to combine fee billing methods. There may be some aspects of the case where you can pay a flat rate legal fee and some aspects that are billed at an hourly rate. An attorney will be most willing to decrease the hourly rate for some aspects of the case while some aspects of the case will definitely be billed at their standard hourly rate.

Basics of an Attorney Fee Contract

Generally, attorney fee contracts for representations can be oral or written. Written agreements are desirable and are almost universally used in business. Some courts hold that oral fee agreements are enforceable, while others hold that a written agreement is necessary to avoid the proscriptions of professional conduct rules concerning fee sharing with non attorneys (e.g., a referral fee to a lay person or organization). However, even if an attorney could enforce an oral agreement, it is probably unlikely that litigation would be advisable if it could be avoided by using a written contract to begin with. A valid attorney fee agreement begins with a clear and complete description of the scope of the work to be performed on behalf of the client. For example, it may be necessary to define the type of litigation or business transaction involved. As a corollary to this, it is often advisable to describe in great detail which work will not be included in the representation. Likewise, it may be necessary to disclaim any warranty as to the results of the representation, regardless of the scope of the work. The next most important component to an attorney fee contract is the amount to be charged for the work. Many firms now use flat fees, though this is really only appropriate for non-controversial work (non contested divorces, drafting wills and trusts, establishing corporations, etc.). In addition to flat fees, hourly fees are also common. The standard of reasonableness generally governs the determination of an hourly fee. If the fee is reasonable, then there will rarely be a dispute over payment. However, if this is not negotiated up front, then it should be in the contract — preferably on the first page of the contract to avoid a future dispute on the applicability of a general clause buried deep in the contract. There may be a variety of charges, each based on different events in the course of the work. In addition to chargeable time, such as for phone calls, meetings and research, there may be charges for overhead items such as copies and faxes, as well as court costs and other charges. If applicable, these should be separately described on the front page of the contract and then included in the general fees and charges described later in the contract. While most contacts never have to deal with fee collection issues (because of a contract, etc.), a couple of common pitfalls arise. It is important to note for large firms that the application of retainer fees should be carefully detailed, including provisions for when the retainer funds run low. There should be no doubt in the mind of the client that the retainer should not be a "honey pot" from which the firm can dip with abandon to collect their bills. Finally, it is also advised that there be an unambiguous right to terminate the agreement. In the absence of a clear right to terminate, the client may be "trapped" in the contract, no matter how bad it is.

Negotiating an Attorney Fee Contract

Negotiating an attorney fee contract, or at least bringing the subject up with your prospective attorney, is important to getting the best result, but be careful not to overplay your hand. The two biggest areas ripe for negotiation are the amount you will be charged and the payment terms.
Amount: As discussed above, the amount of your attorney fees is generally not negotiable for a contingency fee – it tends to be a fixed percentage. But for an hourly and retainer fee arrangement, the amount you will be charged for your attorney’s services is often something to talk about. For example, ask whether the amount charged for certain services can be reduced in any way. There are some services that for various reasons simply don’t tend to require as much time as others. Moreover, certain services tend to be required more with some clients than with others, so there is room for flexibility if the attorney is willing . If your prospective attorney is tough here and says they will not reduce the amount charged for any service, consider shopping elsewhere if you’re serious about getting the best deal.
Payment Terms: The biggest point in favor of a contingency fee arrangement is that you will not have to pay out of pocket, except, (in most cases) for the initial filing fee, and will only have to pay once you collect. It can ease a lot of financial strain.
However, in certain cases, a retainer fee isn’t such a bad thing, especially if you’re the type of client who likes to be in control. You will have more control over the lawyer’s services since you can stop for any reason. And while you have already paid the retainer fee, you can get the remaining funds back.
Typically with a retainer, an initial retainer fee will be due upon hiring the attorney, and the attorney will bill against that retainer until it runs out. At that point, the attorney will bill you on a monthly basis until you either settle your case or are ready to stop the relationship.

Legal Issues and Client Rights

The legal implications of entering into an attorney fee contract are substantial, as they govern one of the most significant issues in the management of a legal matter. When entering a fee agreement, an attorney and client should consider the following client rights:

• A client has a right to a clear and understandable attorney fee contract. This contract will at a minimum contain the identity of the law firm, the names of the attorneys who will be working on the matter, the hourly rate of those attorneys, the specific area of law involved, a description of the anticipated work, the rate of compensation for paralegals and law clerks, and any special billing terms such as a retainer payment or a requirement that the client pay for expenses up front. Clients and their attorneys are also free to negotiate more elaborate terms, such as whether the time spent on a certain matter is going to be billed hourly or as a flat fee, or the protocol for handling work not contemplated when the contract was drafted.
• A client has a right to the prompt return of all property that the client deems necessary to the continued prosecution of his or her case. Many clients think that the timekeeping records generated by the law firm are their property, but this is not necessarily true. Clients can request these records, however, and they should be provided at a reasonable cost.
• A client has a right to terminate the attorney-client relationship without giving any reason. That right exists at any time, but it is subject to reasonable notice. If a client chooses to terminate the relationship with an attorney for reasons such as an ongoing disagreement about fees, or because the client has filed a complaint with the state bar or otherwise publicly embarrassed the attorney, the attorney has an ethical duty to continue representing the client until the situation is resolved, so as not to further embarrass or prejudice the client.

It is important for clients to understand these rights when entering into an attorney fee contract. Because the attorney-client relationship often covers several months, or even years, many clients desiring to end the relationship are surprised by their attorney’s refusal to withdraw from the matter until it has been resolved. Along these same lines, however, it is crucial that clients and their attorneys genuinely agree on the terms of an attorney fee contract to avoid disputes later down the line. To stay out of trouble, it is critical that the parties to the agreement understand their rights and obligations, because there are few areas of representation that can lead to more contention.

Common Mistakes

The biggest mistake that I see clients make when signing an attorney fee contract in a personal injury case is signing without reading the entire contract. I understand that most people don’t have a lot of understanding of contracts and probably just want to trust their lawyer to do right by them. When you read the contract, you may understand some of it, but not all of it. When that happens, you need to ask questions of your lawyer or a paralegal so you fully understand what you are signing.
Typically with a personal injury case you sign a contingency fee contract. This just means that you will not owe the lawyer a fee unless your case is successful. In most cases that means that you will not owe them unless money is recovered for you through a settlement or a court verdict. However, there are some line items in the contract that require you to pay the lawyer some money before a settlement or court verdict is awarded. These line items might be a retainer or just some out of pocket costs of the attorney. It could be a small amount or a large amount.
It is extremely important that you know exactly what you are getting into with every contract that you sign with an attorney. Do not be rushed by the attorney or their staff to sign without reading everything that you are about to sign. When in doubt , question what you don’t understand about the contract. Before you take on any legal matter you should be sure that it is what you really want to do and what it is going to cost you to do. If you are not in understanding with your attorney on these issues, you should not be afraid to find a different attorney. You want to be sure that the relationship between yourself and your attorney is crystal clear before you sign any contract.
Here is a great example of an attorney fee contract that was sent to me to review by a family member of a client. Upon review I was able to point out some issues that the client had. There was apparent language that was not explained correctly to the client. The client signed the contract and then upon future review decided that they were not happy with the contract and wanted to know if they had to follow through with the agreement. The answer as to this particular situation is that the client must follow through with the contract terms, however, it is important to understand that contracts are negotiable.