The Best Damned Fee Agreement You Ever Wrote!

We all remember the lecture from the Professional Responsibility class we were required to take in law school: ALWAYS use a written fee agreement!

In addition to the obvious – a well-drafted fee agreement helps you avoid a bar complaint later on – putting your terms and conditions in writing is just common sense. Yes, our grandfathers did deals on a handshake and their word was their bond. Sure they did! And then there was a lawsuit over what exactly was agreed upon. There’s a reason the ABA Model Rules of Professional Responsibility include eighteen rules regarding the Client-Lawyer Relationship.

I was as guilty as the next lawyer: I used to use an engagement letter based on one I used at my former Big Law employer. It had all the basics covered – what the fee was, how billing is handled, and who was responsible for the work. It didn’t cover much else, but it was about seven pages of legalese that sounded good and looked pretty important, and I figured it would protect me.

Until I kicked into contract review mode, that is. I realized a few things were missing, others were overly broad or vague, and that the most basic tenants of contract drafting were not followed. How could I ask clients to hire me to write contracts for them if the very contract I handed them to enter into with me was unintelligible at best.

So I started tweaking it. I based my current fee agreement on a letter agreement for services which I drafted for a client. It is written in plain English with little to no legalese. It is also relatively short – four pages – and includes a separate detailed Scope of Work. And it clearly delineates parts of the agreement using headers. I’m not done tweaking it, but I’ve gotten my fee agreement pretty close to my ideal.

I won’t give you a copy of my fee agreement, mostly because it probably wouldn’t be of much use. You really have to tailor it to the way you run your practice. For example, I say that I want my clients to take advantage of my client portal for secure communication. You may not offer that. In any case, what I can do is outline roughly what makes up a good fee agreement and encourage you to look yours over with a critical and nuanced eye.

Scope of Work

The Scope of Work section of any fee agreement is crucial. It outlines the initial proposed work the firm will do and the fee it will charge for that work. Mine also includes any additional recommended work that we may have discussed but which is NOT included in the original Scope of Work. This helps avoid confusion as to what is and is not included in the fee, and it prevents “scope creep.” Scope creep is what happens when a project starts getting incrementally bigger as the needs of the client expand during the course of work. Inevitably, unless you provide a detailed Scope of Work making it clear otherwise,  the client expects to get that “extra” work for free as they will assume it is included in the Scope of Work. Also, be as clear as possible about what you will charge for the work. If you are charging a flat fee plus costs, enumerate the costs so your client knows what is expected. If you are billing by the hour, say so clearly in your Scope of Work. If you are billing on contingency, make that crystal clear, twice.

One more note about the Scope of Work: you should be able to append additional scopes of work to the agreement and the agreement will remain binding as amended by such scopes of work. That way, one agreement is all you ever need with that client, even if you raise your fees later on.

Other sections correspond to one of two categories of things you should address in your fee agreement: things that you ought to always have in a contract; and things you should put in your contract because of bar and/or court rules.

The things you should have in every contract you draft, and therefore also belong in your fee agreement, include:

  • choice of law, jurisdiction and venue in case of litigation;
  • a mediation or arbitration requirement (as appropriate);
  • a merger clause that makes it clear that this is your entire agreement and supersedes any prior agreement;
  • a termination clause stating that the client may terminate you at any time, and under what circumstances you may terminate the client; and
  • a statement that the agreement may only be amended in writing signed by the parties.

The things you should have because your state bar association requires it will vary, but I have the following:

  • a statement regarding client confidentiality and a separate statement regarding the unconfidential nature of certain electronic communication;
  • a statement regarding handling of amounts placed into my IOLTA account for safekeeping;
  • a statement that a conflict check was performed and the results thereof;
  • a statement that the client is responsible for costs and fees; and
  • a statement regarding the firm’s billing practices.

Each statement is brief, but I try to address every concern raised by those eighteen rules regarding the Client-Lawyer Relationship!

In the event that you perform work on a contingency fee basis, be sure to double check your bar association rules. In Florida, for example, we have a statutorily-required statement that we must attach to contingency fee agreements (which MUST be in writing) that outlines the client’s rights.

Additionally, at least here in Florida, when a litigation matter concludes, whether by settlement or through judicial process, you and the client (and any referring counsel with whom you have a formal fee-splitting arrangement) must sign a Closing Statement that shows a breakdown of all the moneys paid, attorney’s fees and costs before you disburse any funds. That is probably worth mentioning in your fee agreement.

Again, this has been an on-going process tweaked for my practice needs, tailored to my clients and for compliance with the rules of my jurisdiction. 

The key point is: all fee agreements need to be reviewed on an on-going basis.  Don’t just assume because someone else has used theirs for years without incident that it will work for you, your clients or your jurisdiction.

I’m sure you have thoughts on this, questions, contributions based upon your practice area or jurisdiction.  Please share!

All opinions, advice, and experiences of guest bloggers/columnists are those of the author and do not necessarily reflect the opinions, practices or experiences of Solo Practice University®.

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8 comments on “The Best Damned Fee Agreement You Ever Wrote!

  • Suzanne – Great list, and good advice about state specific requirements. One provision that is important to include in jurisdictions like DC and MD and potentially others where flat fees are NOT treated as earned on receipt (and instead must go into trust account) is a schedule defining when fees are deemed earned so that the attorney can disburse funds throughout the course of representation instead of having to wait until the end to collect the fee. So for example, let’s say that a lawyer charges (and is paid) a flat fee of $10k to represent a client in a DUI. In DC, that money has to go into the trust account, and can be withdrawn only “as earned.” In an hourly fee case, you’d send monthly invoices and disburse $s earned accordingly. But hourly invoices defeat the purpose of the flat fee. Therefore, the Fee Agreement should state: Fee is $10k to be disbursed from Trust Account as follows (these are hypothetical percentages – just make up your own to roughly correspond to value of work performed) : 30% following signing retainer agreement, 30% after arraignment and remainder after trial or other resolution of case; agreement should also specify that because flat fee is for resolving case, entire fee will be disbursed if case is resolved before any of these points. That guards against situation of lawyer taking $10k fee, making a compelling argument and getting the case dropped in 3 days – and having to refund $s if milestones in the retainer haven’t been achieved.
    Again – this is only necessary in jurisdictions where flat fees must go into trust, and even in those jurisdictions check specific rules to see if this approach applies.
    I hope that you will continue to post updates to your list based on comments you receive in response to this post. Thank you!

  • Fantastic post. As a follow-up to what Carolyn said, some jurisdictions have provisions allowing for flat fees to be considered property of the attorney on receipt as long as certain guidelines are met. California has not yet adopted this but it is included in a proposed update to the rules that I hope will be approved soon. This appears to be taken largely from the Washington rules.

    In these jurisdictions you must clearly define the scope of representation, the total amount of the fee, and the terms of payment. You must state that the fee is the lawyer’s property upon receipt. You must state that the fee paid does not terminate the client’s right to terminate the attorney-client relationship and that the client may be entitled to a refund of a portion of the fee if the work is not completed.

    The proposed rule in California states that if you follow all these rules you do not have to place the funds in the client trust account. The committee reports indicate that this is largely adopted to appease the criminal defense bar. The full text of the proposed rule can be found here: http://ethics.calbar.ca.gov/LinkClick.aspx?fileticket=UxTo5yyvgWI%3D&tabid=2161

    To anyone who has worked under a fixed fee arrangement like Carolyn mentioned above, does this sort of language sound like more trouble than it is worth, or will it make things easier for attorneys working under fixed fee arrangements?

    • Regarding Paul’s question, of course, it would be easiest if you could treat flat fees as earned on receipt and leave it at that! And of course, if you are in a situation where you don’t have any cash flow problems and can leave the entire fee in your trust account til representation is over, that would work too (though I am not sure if that could constitute co-mingling, i.e., if you work for the $10 k over a period of 4 months, do you earn any of it during that period – and if so, do you have to remove it from the trust account?)

      But actually, my flat fee agreements (which have evolved over the years) are so much simpler to draft and administer than my hourly agreements used to be. When you take a retainer fee for an hourly arrangement, you may have to/want to spell out in your agreement the decrements in which you bill time and how frequently invoices will be rendered (monthly? each time there is activity?) With the flat fee, it’s a basic 1, 2:I’ve been retained to do this, my deliverables are this, you pay me as follows: 30% after initial appearance, 30% after discovery, 30% before hearing or upon resolution (just like a contractor). When it’s time to bill, they know what’s due, no hourly rates or long lists, just pay me this amount.

  • Good overview of an important, yet often overlooked topic. I also add a “file destruction” provision that provides the client’s permission to confidentially destroy the file X years after conclusion of the matter. Except for NY, the client file in our office is their property, therefore the lawyer cannot discard or destroy it. Some bars have ethics opinions providing a process for lawyers to discard files without client permission after 5-7 years, but these often contain onerous requirements. Best to agree with the client in advance that the file can be destroyed in X years if the client doesn’t ask for it. A brief follow-up letter prior to actual destruction is both a courtesy to the former client and a marketing communication!

  • From Jay Foonberg:

    I bet there might be a major defect in your fee agreements which I hope you will correct after reading this .

    I do not disagree with the requirement of a written fee agreement, but if you make it thick enough with everything that might be in there, it could well be worthless if it is so complete that the client would not be able to understand it and would need to be advised by an independent lawyer before signing.. A fee agreement with a client has no value if the client does not understand it.

    The ABA Law Practice Management Section ( Then Economics of Law Section) turned down the book “How To Start and Build A Law Practice” because I advocated written fee agreements and I refused to remove that chapter from the book. The written fee agreement was deemed objectionable and unethical for the following reasons ( among others).

    1. A lawyer is a fiduciary
    2. A client is a beneficiary
    3. The law presumes that a fiduciary has a superior knowledge than the fiduciary.
    4. Thus the client could not sign until after receiving independent advice from another lawyer.
    5. The independent lawyer would herself want a fee agreement etc.,etc. and the daisy chain would go on and on
    6. There is an inherent conflict of interests as to the amount of the fee.

    The weakness in that position was that the lawyer does not become a fiduciary to that person until an attorney- client relationship is created.

    The Law Student Division of ABA wanted the book and it is now sold LPM and Law Student Division (LSD) with the proceeds divided equally.

    The book has since sold more than 135,000 copies and has made more than $2,000,00 for ABA. I do not keep one penny of the money, but I do keep the copyright so nothing is ever put in or taken out unless I do it. ( The only book published by ABA with this arrangement as far as I know).

    I am hoping to get the 6th edition out before year end after finishing the new book on Client Trust Accounts. The 5th edition is still good except that it does not cover social networking and the latest I phones, tablets and Apps. the fifth edition and the 6th edition as with all of my books is both timely and timeless

    Are you going to put your fee agreement into an app for the whole world to enjoy?

    Jay

    O.K.- Assuming you have read the above, here is the magic clause that I put in almost every fee agreement.

    ” I have been advised by Mr. Foonberg that I have the right to seek independent counsel of my own choosing prior to signing this agreement and have been given sufficient time to do so..”

    I require the client to initial that sentence in the margin and to sign the bottom of the page in addition to signing the fee agreement.

    Just my 2 cents.

  • This conversation is very informative and I’d like to highlight one very important point for those who are new to constructing fee agreements. There is a tendency, as Suzanne intimated, to take a fee agreement from a reputable attorney/firm and assume it simply must be adequate. This is a very perilous assumption.

    Always make a fee agreement your own by doing your due diligence for your jurisdiction and be sure to contemplate other elements unique to your practice. For instance, the nature of your communications may be heavily weighted or exclusively online. Is there a clause for this highlighting issues surrounding confidentiality? If your practicei area has traditional ancilliary work ie: a divorce or employment case could clearly have a bankruptcy issue involved, do you also have a scope of what is NOT included to avoid confusion to the client. Is there a clause requiring the client to notify you within 48 hours of an address or phone change so as not to inpact your ability to represent them? The point is, there is no such thing as a cookie-cutter retainer agreement. While certain language may have some universality, a retainer agreement is an ongoing work-in-progress and needs to evolve.

  • I have thoroughly enjoyed this discussion. A fee agreement should be a work in process. One of the things I include in my agreement is the fact that I operate a “less paper” office and that most of a client’s file will be stored electronically in digital format. I include a record retention provision saying that I will keep hard copies only of documents that require originals to be preserved, and that electronic files may be deleted after 6 years.

    I also tell clients that their information may be stored on-line as part of my backup process, by providers that I deem secure. I believe that client consent to that process is appropriate and may be required.

  • Another point to ponder …. given the recent adaptation of State Bar ethics rules and opinions on use of the cloud in managing a lawyer’s practice, it would appear to be a Best Practice to include an informational provision in fee agreements about a lawyer’s use of “the cloud” for storing client documents. I have drafted a provision for use in mine and welcome all to plageurize it as needed, or make suggestions as to how it might be better.

    14. CLOUD COMPUTING DISCLOSURE. Recent technological advances have dramatically changed the way attorneys and other businesses store, retrieve and access client information. We view these technological advances as an opportunity to reduce costs, improve efficiency and provide better client service. To that end, our firm utilizes “cloud computing,” which refers to software and related services that store information on a remote computer, i.e., a computer or server that is not located at our office’s physical location. Rather, the information is stored on another company’s server, or many servers, possibly all over the world, and our computers used to merely access the information. The advent of “cloud computing,” as well as the use of cell phones, iPads, and other devices that take advantage of cloud services, has raised questions about how lawyers handle client information. Many state bar ethics committees, including the California State Bar, have scrutinized the issues and determined that appropriately secure personal connections meet a lawyer’s professional obligations and that attorneys should (1) use technology in conjunction with appropriate measures to protect client confidentiality, (2) tailor such measures to each unique type of technology, and (3) stay abreast of technological advances to ensure those measures remain sufficient. We are compelled, therefore, to disclose our use of cloud services to you. Please rest assured that we take appropriate precautions to assure that any data stored offsite remains confidential and inaccessible to anyone other than those authorized by us. If you have any questions or concerns, please let us know.

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