Watch Those Fees

Despite the favorable press, value billing schemes (be they flat fees, fixed fees, minimum fees with change orders) may run into Rule 1.5(b) issues if not properly handled. The thing to remember is that not all forms of lump sum payments can be classified as non-refundable.

Non-refundable retainers (or engagement fees) are “paid, apart from any other compensation to ensure that a lawyer will be available for the client if required” (see: Restatement 3rd, The Law Governing Lawyers, sec. 34, Comment e). According to the Restatement, a fee can be non-refundable if and only if the attorney is to be additionally compensated for the actual work performed. The typical engagement fee should be designed to cover the reasonable costs needed to set up a client file and prepare for the particular matter. Basically an engagement fee is reasonable if it bears a reasonable relationship to the income sacrificed or expense incurred by the attorney’s accepting the client/client’s matter (e.g. cost of turning away other clients, hiring new associates, keeping up with the relevant law).

However, if the advanced payment is to cover the lawyer’s services to the client, making that payment non-refundable will be contrary to public policy because it will compromise the client’s ability to discharge the attorney and secure other counsel. Remember, the client can discharge an attorney at any time for any reason and the attorney is entitled only to the reasonable value of services performed.

When working with fixed fees, good practice would suggest that (a) the retainer agreement list landmarks and the portion of the fee that will be considered earned at those points in the matter and (b) the fee is deposited into the attorney’s trust account until it is earned.

One thought on “Watch Those Fees

  1. Thanks, Bruce, for these helpful comments. I am just getting back into private practice after 17 years of working for state government. Your brief article here has brought the difference in the retainer and the non-refundable retainer into focus for me. BT

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