When A Fixed Fee Needs An Hourly Rate
by Ed Poll
An interesting scenario arises regarding fixed fees when the client terminates the relationship before the services are concluded, then formally challenges the fee the set by the lawyer.
How does a firm bill the work already done versus work yet to be done, especially when the fee agreement is silent on the subject?
The question is set against the ethical requirement that a lawyer must refund any advance payment of a fee that has not yet been earned. Even a fixed fee must be placed into the client trust account.
Must there be reference to the time spent on the matter, which returns the engagement to a dynamic hourly billing dynamic?
Although fixed fees/alternative fees are designed to reduce conflict between attorney and client, should a dispute arise, how does either side test the reasonableness of the fee if a disagreement arises?
Bring the question into focus by considering the example of an attorney who has an estate planning practice in which estate plans are provided for flat fees that are non-refundable. In a hypothetical instance, a client requests an estate plan, the lawyer completes the documents and sends them to the client for signature, the client changes her mind and, worse, now wants the fee refunded.
As a matter of professional courtesy, the lawyer makes a fee adjustment accepted by the client. Months later, however, the client files a challenge with the state bar questioning the attorney's fee structure, and bar counsel requests a record of hours billed to reach a resolution.
The case revolves around the fact that, according to the Rules of Professional Conduct, fees must be "reasonable." Each jurisdiction has its own standards that define that term, meaning a lawyer must be able to defend the fee and the fee structure. Using an hourly standard is only one method of doing so.
There is no jurisdiction that requires fees be charged by the hour or that a record of hours be maintained. If a flat fee meets the standard of being "reasonable" and the client knowingly accepts the fee in a written fee agreement, the lawyer charging it is within the Rules of Professional Conduct.
Even so, the fact is that any attorney is safer, whatever billing methodology is employed, when keeping track of time expended. Where billings may come into question, particularly in a fee dispute needing to go before an arbitration panel, the tried and true method of demonstrating what was done usually comes back to hourly metrics.
If a client agrees to value billing, one might ask, why should it matter whether we keep track of time? The answer comes back to defining a "reasonable" fee. If a client wants to dispute whether a value charge for a service was reasonable, a time record can provide useful backup documentation.
But no lawyer should ever let it come to that. Good client relations and effective, frequent communication between attorney and client will make sure such disputes don't arise and/or are settled quickly, such that value is expressed in a way that is clear to the client and makes a convincing case about the reasonableness of the fee.
© 2012 Edward Poll & Associates, Inc. All rights reserved.
Ed Poll principal of LawBiz Management Company, is a nationally recognized coach, law firm management consultant, and author who has coached and consulted with lawyers and law firms in strategic planning, profitability analysis, and practice development. Mr. Poll has practiced law on all sides of the table for 25 years-- as a corporate general counsel, government prosecutor, sole practitioner, partner, and law firm chief operating officer and been a consultant to small and large law firms for 20 years.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.