As part of determining how much your small law practice should charge clients for your work, you need to also consider the various pricing options, such as hourly billing, contingency fees, fixed fees, and alternative fee structures. This article focuses and fixed or flat fees and retainers.
Under fixed pricing, or "flat fee arrangement," a fixed amount is paid by the client up front and covers all of the work to be performed. This model is commonly used in criminal and misdemeanor cases. Due to the intricate and time-intensive nature of handling criminal matters - multiple court appearances, lengthy pleadings and unforeseen motions - criminal cases may not be well suited for hourly rates, and ABA Model Rule 1.5(d)(2) prohibits the use of contingency fees.
This model is also useful for form-intensive matters where the amount of work can be fairly predictable, such as straightforward personal bankruptcy, uncontested divorce, will drafting, and routine immigration matters. These kinds of cases can be complicated by the client's circumstances, so prior to accepting a case for a flat fee, it is important to ask the right questions during client intake. These questions should help uncover any red flags that would make a flat fee a disadvantageous pricing arrangement.
There are many different kinds of retainers so it can be easy to be confused. As explained in Understanding Retainers and Flat Fees, general retainers are paid to an attorney for them to be available to perform services, while special retainers generally take the form of security from which payment is deducted as it is earned, or an advanced fee for future work to be performed. This advanced fee retainer is similar to the flat fee concept. Ideally, the retainer amount should reflect a certain number of your billable hours at a given hourly rate.
The different types of retainers can be used in a variety of types of cases, but in any given case, the parameters of the arrangement should be explicitly defined. The following questions should be be considered:
- If the retainer is simply to secure the attorney's availability, what is the payment arrangement for the actual work to be performed?
- If the retainer is security from which earned fees are deducted, how do the parties define completion of the work? And what happens when the retainer is depleted? If the retainer is to be replenished, what is the amount? Are there benchmarks the attorney must reach before the retainer is to be replenished?
- If the retainer is an advanced fee payment, what work does it cover?
Advanced fees are allowed under the Model Rules, but any unearned portions must be returned to the client. Issues can arise as to when advanced fees are earned, writes Gregory Hanthorn in Ethical Principles Applicable to Alternative Fee Arrangements and Other Areas, so he recommends explicitly addressing that in the fee agreement.
The Understanding Retainers and Flat Fees article contains recommendations for attorneys which are worth reading in their entirety, and includes the advice to always use a written fee agreement, avoid the term "non-refundable", and always keep time records for work performed on a flat fee. See pages 139-144.
Finally, attorney fees must be reasonable and the factors listed in ABA Model Rule 1.5(a)(1-8) can assist in making that determination. You should also always be sure that the proposed fee agreement complies with the specific rules of your state.