Best Practices in Selecting Legal Counsel Part 4: Know the Fee Arrangement
One of the most common reasons for complaints being filed against lawyers with their governing professional boards is a dispute over a fee arrangement. Unfortunately, lawyers often fail to provide appropriate clarity on what fee arrangement the client should expect. An attorney-client fee agreement should always be in writing. An exchange of e-mails is certainly sufficient to constitute a written fee agreement, but many lawyers still insist on a signed, physical document. The fee agreement should state very clearly the basis for determining the fee that will be charged.
The most common fee agreement in an hourly rate engagement, with a specified hourly rate for each lawyer or category of lawyer that will work on a specified matter. Hourly rate fees still have their place in a modern law practice, particularly when the matter will involve factors outside of the lawyer’s control (such as negotiations with another party), or when the attorney-client relationship is repetitive and on-going. Fixed rate fees for a specifically defined scope of services can also be appropriate (such as for filing certain documents). Sometimes a blended hourly rate and fixed fee arrangement is appropriate, so that the lawyer is responsible for the factors within the lawyer’s control (e.g. drafting the first draft on an acquisition agreement), and the client is responsible for the risk of factors outside of the lawyer’s control (e.g. negotiations with the other side over the agreement). Contingency fees are another common fee arrangement, but that arrangement is more typical in a litigation or other dispute resolution process.
In working with start-up companies, the client often suggests payment for legal services with a class of equity in the company. This arrangement raises ethical questions for the lawyer, and can have unfavorable tax consequences if not properly structured. Equity for fee arrangements are not inherently good or evil, but they must be structured with great care so as to not create conflicts of interest or other unintended consequences to the attorney-client relationship.
The bottom line is that the fee arrangement should be fair to both the client and the lawyer. Seeking to get legal services “on the cheap” is a recipe for both parties to be disappointed. Use this standard: are the fees being charge fair and reasonable for the services being rendered.
Hint: Clients who pay their invoices quickly tend get the same kind of quick service from the lawyer.