By Robert Wenzel
When creating a new attorney-client relationship, one of the most important factors that needs to be established are the fees that the lawyer will be charging. There are a number of different types of attorney fees and the type of case or the work that will be done can play a role in determining what kind of fee the lawyer will apply.
Retainer Fee
Oftentimes, a new customer will be required to pay a retainer fee to an attorney. A retainer fee establishes the relationship between the lawyer and client and is similar to a down payment. How a retainer fee works is the customer pays a specific amount of money (for example, $3,000) to the attorney. When the law firm begins work for the client, any time spent working on the case will be taken out of the retainer fee. Once the initial deposit has been exhausted, then the company will begin to bill the customer.
However, there may be cases where a law firm is able to complete all the necessary work for the client without using the entire retainer amount. If this situation arises, any unused portion of the retainer would be returned to the customer.
There are a number of different ways that a lawyer may bill a client. The most common method employed is an hourly rate, where the customer is charged a certain amount per hour for any work that is done. In addition, there may be different amounts that a client may have to pay per hour depending on the work that is performed and who completes the task. A customer will pay a lower hourly rate for a junior associate who drafts a motion compared to a partner who appears with the customer at trial or in court.
A different type of hourly rate is a blended rate, which is when a law firm gives a client a uniform hourly cost regardless of which attorneys work on the case. The company determines the blended rate by blending the anticipated amount of work to be done by the attorneys with higher billing rates with the percentage of work to be completed by the lawyers who have lower billing rates.
In some instances, an attorney may also charge a discount rate to a customer. For example, lawyers may sometimes offer lower rates as a way to gain new business or offer discounts to clients who spend over a certain monetary amount on a monthly basis.
Another type of fee is a fixed fee, which is a set amount that the attorney charges the customer for legal services regardless of the outcome. Some examples of cases that may employ a fixed fee are bankruptcies and divorces. A fixed fee can be useful for a client because they know how much they will have to pay the attorney up front for any services. A fixed fee case can force the lawyer to work in an efficient manner and estimate up-front the number of hours that they will need to work on a specific case.
An additional form of fees is contingency fees. Contingency fees are commonly applied when an attorney represents a Plaintiff in a lawsuit. Any fees that a lawyer may earn in a contingency fee case are dependent upon the results of the case. For example, an attorney may earn 25 percent of an award if the lawsuit settles before going to trial. If the case goes to trial but settles before going to the jury, then the lawyer may be awarded 33 percent of the settlement amount. If a jury delivers a verdict in favor of the Plaintiff, then the attorney may recover 40 percent of the award.
When taking a case on a contingency fee, it would benefit both sides to determine any money that the lawyer may receive if the Plaintiff is successful in their case.
However, if the Plaintiff does not win the case, then the attorney will not receive any financial consideration for their work. The only money they would be able to receive from the client would be for any expenses incurred during the case, such as any money associated with filing the original lawsuit with the court.
At the same time, a lawyer may have a contingency fee case when representing a Defendant. In a defense case, the attorney would be awarded a certain percentage of any monetary damage that the Defense avoids having to pay at the conclusion of the lawsuit.
A further type of fee that an attorney may utilize is a combination fee. A combination fee usually combines several different types of lawyer fees. For example, a combination fee may have a lower hourly billing and collect a percentage of the award (such as 10 percent).
Additionally, a capped fee is sometimes employed by law firms. A capped fee is where a client pays the attorney at an hourly rate up to a maximum amount. If the lawyer requires more hours to complete the work beyond the maximum, then they do not bill the customer for the additional time.
Another type of fee that attorneys sometimes employ is a target fee, which is when a specific case is billed on an hourly basis up to a certain target that the lawyer estimates. If the attorney completes the work in a time frame that is less than the estimate, the lawyer would be entitled to a percentage of any applicable savings. However, if the number of hours exceeds the estimated target, the attorney would bill the client at a discount hourly rate.
In certain kinds of cases, task billing is used. Task billing is when a law firm or attorney sets a standard rate for tasks that need to be completed. For example, a case that uses task billing may see the lawyer charge a client $100 to draft an answer to the complaint or $200 to draft discovery for the opposing side. Task billing is sometimes used when it is fairly common to use the same types of forms and procedures, such as in a divorce proceeding or a personal injury case.
In addition, an attorney may employ value billing. Value billing is where a lawyer earns a set amount of money for their work. Depending on the results achieved by the attorney, then there may be an agreed upon increase or decrease in what the attorney is paid.
There are many factors that a client and lawyer need to discuss before determining what billing system to use. The attorney needs to determine which method will allow them to perform the highest level of work while maximizing profits. At the same time, the customer needs to determine how much they want to pay for representation while still receiving a favorable award.
Once both sides mutually agree on the billing system that will be used, it would be beneficial to draft a fee agreement. Both sides would then know how fees will be determined, paid and when any money is due. Furthermore, all parties can agree to modify the fee agreement as needed.
Furthermore, if an attorney offers a free consultation, the potential client can always discuss any fee arrangements prior to hiring the lawyer. This will allow the customer to get a better idea of what they may be facing financially prior to hiring counsel. The consultation can also allow the client to see if they are comfortable with a potential attorney. Lastly, the consultation could allow the lawyer to get an understanding of the case and the merits and potential drawbacks that the customer would be facing.