Attorney Fee Agreement Defined
Attorney Fee Agreements are the essential framework of the attorney-client relationship. Simply put, it is the written agreement between a lawyer and a client setting out the terms of their business relationship. The written agreement sets forth how the lawyers will be paid for their work, attorneys fees, expenses of the litigation, and any circumstances under which there would be no fees charged for their legal work. It is not uncommon for an insurance policy to state that if a lawyer is hired, the insurer will not pay a lawyer’s fee or expenses unless there is a recovery. An Attorney Fee Agreement simply transforms that promise into a legally binding contract.
Without an Attorney Fee Agreement, an attorney could walk into court and incur thousands of dollars in expenses and attorneys fees and attempt to have their client pay them without the settlement dollars being allocated to that purpose. That is, without an Attorney Fee Agreement, a lawyer can be hired on Friday, then fire the next day , and still attempt to collect attorneys fees from the injured person.
The agreement is also required under the New York Judiciary Law § 495 et seq. which states in pertinent part: "Before any nonmember . . . shall be allowed to collect any compensation for legal services rendered in the courts of this state in actions or proceedings in which any attorney has appeared as attorney of record for any party, he shall execute and file with the clerk of the court in which such action or proceeding is pending and obtain an order of substitution." What this means is very simple, if a person is going to pursue an action in New York for New York injuries or causes of action, the lawyer must file and obtain an order allowing them to represent the client.
Avoiding the technical requirements of the law is NOT reason to proceed without an Attorney Fee Agreement. Before any money is spent on an action, it is in the client’s best interest to have a written Attorney Fee Agreement which is fully discussed by the lawyer explaining the payment of fees, expenses, and allocation of settlement funds. An Attorney Fee Agreement allows us to explain the terms and conditions clearly, and allows the client to ask questions freely. Although it is rare, the need for a court proceeding may arise.
The Components of Attorney Fee Agreements
When creating an attorney fee agreement, there are several clauses that are key to include. It’s important to establish the fees you will charge and how your clients will pay you. Consider including all or most of the following clauses in your fee agreement:
Fee Structure: How much will you charge for your services? Will you do additional work only when asked or does this agreement cover everything?
Scope of Work: Address whether the work will cover anything other than what is specifically outlined in the agreement and whether the client will have to pay for any additional work.
Method of Payment: Will the client pay you in full before you start the work or on an hourly basis? Will the attorney or the client pay for any out-of-pocket expenses?
Retainer: Will you require a retainer before starting work and how much will you bill against it?
Agreement Waivers: Document that the client may have to forfeit the retainer if they fail to perform obligations as specified in the agreement.
Termination: What happens if a client terminates the agreement for any reason or if you terminate the agreement?
At the very least, an attorney fee agreement should cover the fee structures, scope of work and method of payment. Ensure that your agreement is clear and open to negotiation where you see fit.
Common Types of Attorney Fee Agreement Structures
As we continue our look at whether you need a new attorney fee agreement, we look at the fee structure. The type of fee structure will usually be one of these four types.
Hourly. The most traditional and common way that lawyers are paid for their work is by the hour. This means that for each hour of work, the lawyer bills a certain amount per hour in an Attorney Fee Agreement. This is often referred to as the "billable hour."
Flat Fee. Some lawyers charge a flat fee for a specific service or set of services. This is very common for things like a simple divorce or a closing.
Contingency Fee Agreement. This is a special kind of hourly fee that is only used in litigation. Instead of an hourly fee, the attorney gets a percentage of any money received in the case. For example, a 25% contingency fee would mean that if the case resulted in a $1,000,000 recovery, that $250,000 is paid to the attorney.
Retainer Fee Agreement. These are used when the lawyer expects the case to require a lot of work ahead and wants to get paid either all or a portion of the hourly fee ahead of time. A separate agreement is required to deal with how amounts not paid are handled in a retainer fee agreement.
Why an Attorney Fee Agreement Template is Helpful
Most attorneys use templated case type forms and engagement letters that have been prepared and revised over the years. There is no reason not to use a templated attorney fee agreement. Here are some reasons to consider.
Consistency of Drafting. Take the time to prepare templates for each of the types of matters that your office handles regularly. This will allow the attorney drafting the fee agreement to be consistent in the information contained in the agreement. In addition, sometimes clerical staff will use the same document regardless of the matter type, often leading to confusion and poor service by the attorney if all of the relevant facts are not included in the agreement.
Efficiency in drafting. It is efficient to use an engagement letter template-simply, fill in the name of the individual client, parties, and relevant dates to the case. This way, the attorney can concentrate on substance instead of form and can increase their efficiency in practice.
Reduction of legal error. Clients who have an attorney fee agreement or other engagement letter that is prepared from a template are less likely to experience attorney error. If the template is properly drafted and prepared, the attorney should have a strong argument against the enforcement of a client’s accusations of legal malpractice for any issues contained within the template agreement. This is because an attorney does not have a "duty" to perform at the level of a flawless or perfect attorney. The duty is to perform at the level of a reasonable, prudent attorney. See e.g., Todaro v. Barlow, 117 Mich.App. 295, 324 N.W.2d 528 (1982). If an attorney prepared and used a templated attorney fee agreement that was in line with the standard and requirements of attorneys in that jurisdiction, an attorney could argue that they met their duty "to perform," even if a particular provision of the attorney fee agreement may not be upheld in court.
Editing Your Attorney Fee Agreement Template
It’s unlikely that an attorney is going to pick a fee agreement template and use it as-is without tailoring that agreement to meet the needs of a client or the legal services being provided. There are a few customization considerations to keep in mind when tailoring your agreement, including:
• Determine whether your agreement will refer to the client as "client," "client(s) (individually or collectively)," "customer," or some other term. If the client will be an entity, there will need to be a comma after the name to represent that additional parties will follow.
• Tailor the "Scope of Services" section to match the anticipated work and responsibilities to be undertaken by the lawyer. Will the work be performed directly by the attorney, by a junior lawyer, via referral to local counsel, etc? Consider adding a sentence with a disclaimer about the level of experience and the work to be performed .
• The article contains a number of assumptions, including, for example, that the attorney will provide the service directly, not through local counsel, that only a portion of the retainer is considered "advance fees," and that the attorney will retain all billed amounts until the retainer is depleted, etc. If any of these assumptions do not match your approach for providing services, revise them accordingly.
• Decide whether the fee agreement is a "general" fee agreement (retainers and/or hourly fees) or one specific to contingent fees. If it is for contingent fees, it should contain the information required by rule and would not include the "HIPAA" section that should be required in general agreements, because there are no HIPAA-restricted records with respect to contingent fee matters.
Legalities and Compliance Issues
However, before choosing a template, attorneys need to ensure that the language and format of the document are fully in compliance with the various statutory and ethical requirements in their states. Most states currently require some sort of writing outlining the terms of a fee arrangement. However the rules, regulations and the case law on what constitutes an acceptable fee agreement differ widely.
According to the American Bar Association Model Rules, all attorneys are obligated under Rule 1.5(b) to "provide the client with a written statement within a reasonable time after commencing the representation, stating the (1) terms of the rate of the fee, including whether the client is responsible for payment, and (2) expenses for which the client will be responsible."
In some states, such as Ohio, there is no specific statute requiring attorneys to have a written fee agreement but instead are required under the Ohio Rules of Professional Conduct to communicate the basis of the fees to the client before or within a reasonable time after commencing the representation.
A fee agreement is a contract – therefore, sometimes it’s imperative to have at least a basic understanding of the general contract principles and rules which govern attorney-client relationships.
For example, some rules of contract law mandate that a contract for services must be supported by consideration – that is, by the tangible return of something equivalent in value. In some states, attorneys must provide a tangible product for which they will be paid – an acceptable example of consideration in the legal field is the drawing up of a will or other legal document for a set fee. However, if you are drawing up a slip and fall for an injured client and working for a contingent fee, you are NOT required to get any type of tangible consideration for your services according to a New Jersey court.
Different jurisdictions have different requirements for what can be construed as "reasonable compensation" for services rendered. For example, while the ABA Model Rules state that "a lawyer may not charge a client an unreasonable fee or an unreasonable amount for expenses," they do not define what an "unreasonable" amount is – that’s left to each state’s version of the rules.
The American Bar Association’s Formal Opinion #93-379 outlines the specifics of how an attorney should compute a reasonable contingency fee, including considerations such as the difficulty and complexity of the matter; the amount of time spent on the case, the attorney’s experience and professional reputation in the area of practice, the nature and character of the employment; the amount of money involved in the case, the attorney’s skill, experience and reputation in the practice area; and, the amount of time expended by the attorney.
How to Choose an Attorney Fee Agreement Template
The details that are appropriate in an attorney fee agreement template vary, however, with the type of service being provided and the nature of your relationship with the client. For example, in a case where your situation is that you’re representing a client on a flat fee basis for a local real estate closing, and the client is a repeat customer with whom you have a long-standing relationship, it may be appropriate to have a very simple fee agreement.
But if you’re working on a contingent fee basis in a divorce or personal injury or medical malpractice case, or representing business entities, your attorney fee agreement template should be more detailed. Comparing types of legal services required by clients with the attorney fee agreement provisions that make sense for those services is the best way to get a handle on what should be included in the template for your own attorney fee agreement for the services you’re providing.
Attorney Fee Agreement Template Forms
There are many attorney fee agreement templates available on the internet. A place to start looks at attorney fee agreement templates from Mondaq and Rocket Lawyer.
Another important place for attorney fee agreement templates is the Ohio State Bar Association. The Ohio Bar provides alternative attorney fee agreement templates. They have alternatives for hourly and flat fee agreements which include contingency fees, division of fees between attorneys, marriage dissolution or post-decree matters. The Ohio Bar has a general law firm retainer agreement as well. The Ohio Bar provides guidance on when and how a written fee agreement is appropriate. The Alimony Blog also offers an Ohio attorney fee agreement template as well . The Canadian Bar Association summarizes considerations for retaining legal counsel and how a fee agreement can be used to clarify roles and responsibilities of the attorney.
Many states have adopted their own ethics rules governing fees and fee agreements. The Maryland Attorney General has a consumer alert with information regarding attorney fees. The Vermont Bar provides examples of questionable attorney fee arrangements and how a written agreement can clarify when fees are earned for ethical purposes. The New York City Bar Association has an FAQ on lawyer’s fees and states that they do not formally approve fees but should be discussed in a retainer agreement. The State Bar of Texas has a brochure regarding Hiring a Lawyer and provides information on alternatives to traditional hourly fees including flat, contingency, value-based or blended alternative fee arrangements.