HOW DO LAWYERS GET PAID
One of the first objectives in establishing the lawyer–client relationship is defining the terms of payment. Hiring a lawyer or law firm to analyze or resolve your legal issue is always an option, but often comes with a price tag you may not be willing to pay. From a practical standpoint, it follows that prospective clients should consider and understand the varying types of lawyer compensation agreements before entering into any legal representation or fee agreement.
Generally speaking, there are three broad types of lawyer compensation agreements: hourly fee agreements, continency fee agreements, and flat fee agreements. There are also variations of these agreements prospective clients should also be familiar with.
Hourly Fee Agreements
Hourly fee agreements are perhaps are the most common agreements entered into by the lawyer and client. Under this type of agreement, the lawyer is paid an agreed-upon hourly rate for all legal services rendered on the client’s behalf until the matter is ultimately resolved. Hourly fee agreements are typical in matters involving business and contract disputes, divorce proceedings, white collar crimes, fraud, and complex criminal cases. The hourly rate for the particular legal matter is always disclosed and agreed upon by the attorney and client in advance and in writing. Although lawyers’ hourly rates are variable, they are regulated by Bar Association and state specific laws. Generally, lawyers’ hourly rates are required to be reasonable as compared with other lawyers of similar experience, expertise and practice area.
Most lawyers that enter into an hourly fee agreement with their clients require an up front payment (a retainer) prior to dedicating any work pertaining to your matter or legal issue. The retainer functions as a deposit or down payment for legal services the client is likely to incur. Once the retainer is exhausted, it is typical for lawyers to require that it be replenished before further legal services are provided. The terms of replenishing the retainer once it has been completely depleted are typically outlined in the fee agreement or lawyer’s engagement letter. Any portion of the retainer that is not consumed is returned to the client at the conclusion of the representation. Bar Associations throughout the United States have strict rules regulating the maintenance and of retainer payments made to lawyers. For example, in California, lawyer’s are required to maintain a separate client trust account for the purpose of storing client funds.
Contingency Fee Agreements
Contingency fee agreements provide compensation to lawyers for legal services based upon a percentage of the final recovery amount obtained on behalf of the client. This particular type of agreement is primarily used in association with personal injury matters, but us commonly used in other types of actions as well. Contingency fee agreements typically entitle the lawyer to about one-third, or 33.3% of the gross recovery, though in certain circumstances can be as high as 40% depending upon several variables. For instance, if the lawyer elects to file suit, he may command a higher percentage of the recovery amount based upon the added costs associated with litigation. Typically, the contingency fee percentage charged by the lawyer is directly related to the likelihood of recovery and the dollar amount of that recovery. It is also important to note that contingency fee agreements are only practicable for lawyers when there is a reasonable expectation that there will be some financial return at the end of the day, whether by settlement, judgment, or at the conclusion of a trial.
Modified or Hybrid Contingency Fee Agreements
A variation of the standard contingency agreement is called a modified or hybrid contingency agreement. This is an agreement that incorporates both an hourly fee rate and a contingency fee.
In this type of agreement, the lawyer’s hourly rate and contingency percentage are substantially reduced. The modified contingency fee agreement provides the attorney and client with the ability to proceed with a case where the probability for recovery is limited or uncertain. This type of agreement can also be implemented in matters that are complex or that have the potential to tie up a lawyer’s practice for an exceedingly long duration. A potential client can also pitch a modified contingency fee agreement to a lawyer as an incentive to take a case that he may not normally accept under different circumstances.
Flat Fee Agreements
Where a legal matter is presents itself as transparent and well-defined, attorneys typically charge a flat fee. A flat fee agreement sets out the entire fee amount payable by the client to the lawyer, for all legal services rendered by the lawyer in connection with the client’s matter. In cases involving flat fees, the lawyer projects what he reasonably believes the representation will cost up front. This type of fee agreement is typically used in criminal cases, incorporation, trademark filings, estate planning and bankruptcy filings.
Fixed Statutory Fees
In certain cases, a lawyer’s legal fee is fixed by law. Whether by a state specific law or by a federal statute, the award or payment of a lawyer’s legal fees is generally invoked in cases involving matters of public concern. For instance, cases involving violations of an individual’s constitutional rights.