Retainers, contingency fees, flat fees…what does it all mean? These are the most common methods of paying lawyers. Some stick to one fee structure while others employ a variety. The type of law they practice usually dictates how a lawyer is paid. Estate planners and family law attorneys often charge flat fees for some of their services. Personal injury attorneys generally work on a contingency basis. Criminal defense lawyers and civil litigators often take retainers and charge an hourly rate. There are exceptions to these generalizations, of course, and other factors apply, such as the simplicity or complexity of a case, and how many hours it may take.
Who doesn’t want a free consultation? Unfortunately, while it makes sense for personal injury attorneys (more below), it doesn’t make sense for all attorneys. If an attorney bills hourly and they take an hour to give a free consultation, then that is one hour they aren’t working on a current (read: paying) client’s case. In that way, it actually costs attorneys money to give a free consultation. One way of mitigating that is to charge a consultation fee.
When an attorney charges a flat fee, it’s usually because the work is relatively routine. For example, an estate planner may charge a flat fee for a simple will. That is because they have a template and, after a consultation, can tweak it to fit the individual needs of their client. Similarly, in family law, an uncontested divorce may be a subject to a flat fee only. Criminal law attorneys may also charge flat fees for routine charges such as DUIs or traffic tickets.
The flat fee is priced to reflect an attorney’s estimate of how many hours it will take based on their experience with previous simple wills or uncontested divorces. For these cases, a consultation fee is often built into the flat fee. All attorneys that charge a flat fee are different, but often, they will include a provision in their engagement agreement that if any complex drafting issues arise, the fee may exceed what they were originally quoted. One example of this is if a person would like a relatively routine will, but also wants to specifically bequeath two hundred items of personal property to various beneficiaries. Including these provisions will likely push the will into the “complex” category because it takes more time.
Simply put: the more time it takes to finish the task, the more it will cost. Instead of a rock solid flat fee, some attorneys will provide a range at the onset of representation. This gives the client an idea, without committing the lawyer to a fee lower than his hourly rate. For example, if a few issues arise, the lawyer can charge the higher end of the range to compensate himself or herself for the extra time it takes, but if the will is truly a “simple” will, then the client will be charged on the lower end of the range.
Despite the portrayal of TV and movies, contingency fees most often only arise in the practice of personal injury law, workers’ compensation, and auto accidents. Such cases are aimed at recovering economic and non-economic losses a person as suffered at the hands of another person or business.
The reason most attorneys do not accept cases on a contingency basis is because they are risky. If a lawyer agrees to only get paid if they are successful, they risk not getting paid for hours upon hours of work. Litigation generally requires significant preparation. Putting 100 hours into a case that does not pay off may result in lost compensation of tens of thousands of dollars. Even for an attorney that charges a rate on the lower end of the spectrum, it could mean $15,000 in lost revenue.
On the other hand, contingency cases can also have huge payoffs, which is why personal injury attorneys are willing to take that risk. Even if some of their cases are unsuccessful and they don’t get any compensation for them, it only takes a few good cases each year to keep an attorney’s doors open. The typical contingency fee is about 33% of the money won, though it can vary depending on the size of the case.
Since lawyers that opt for the contingency fee model are assuming quite a bit of risk, they generally also offer free consultations. Doing so helps them pick and choose the cases they think have a good probability of winning, and thus, a fee for them at the end.
Contingency fees will never be available when it comes to criminal defense, immigration, divorce, bankruptcy, or drafting a contract. The reason for this is simple: there’s no money available at the end of the tunnel from which to get paid. At the end of a criminal proceeding, a person is either found guilty or not guilty or pleas to a charge, so these types of attorney need to charge based on an hourly basis or a flat fee for his or her services.
Retainers and Hourly Fees:
Another popular fee model is a retainer. It is essentially an agreed upon sum of money paid to an attorney before they begin working on a case. We’ve all seen the movies or TV shows where the rich guy has an attorney on retainer for whatever may come up. These circumstances certainly do exist in real life, but they’re a bit more nuanced. If a client finds him or herself frequently involved with litigation, they may have an attorney on retainer. The rich guy example may translate to real life where an individual has one attorney that handles his estate planning, collections, and business contracts because he finds himself needing an attorney with some relative frequency. In these cases, the retainer serves as a placeholder, so if the individual or business needs the attorney for any legal reason in the future, they are guaranteed to have that attorney available to them.
Retainers can also be used in a different way. Sometimes lawyers will require a retainer at the onset of representation. They then put that amount into a separate trust account, which is kept separate from the attorney’s operational account. As the attorney performs work on the case, they bill their clients on a regular basis according to their hourly rate. An invoice is sent to a client – usually on a monthly basis – and the attorney pays himself by transferring the invoiced amount of money from the trust account to the operational account.
Some attorneys opt to keep the retainer intact and collect monthly payments on invoices. (Author note: this is how Lindley Law typically structures our fee arrangements.) In these instances, the retainer is only touched if a client is significantly delinquent on their monthly invoices. The retainer can also be used to pay the final bill, with a refund of the remaining retainer given back to the client at the end of the representation.
Most lawsuits settle before going to trial, but if a trial looks likely, a lawyer may request an additional retainer or “trial retainer.” This is because trials are almost always expensive due to the large amount of preparation required. Take, for example, a three day trial. If an attorney charges an hourly rate of $300 and attends the trial from 9:00 a.m. until 5:00 p.m., that’s a $6,300 for the time spent in the courtroom alone. It does not even take into account the hours in the evening the attorney prepares based on what happened in trial that day or pretrial preparation of exhibits, interviewing witnesses, preparing opening and closing statements, etc. Requiring a trial retainer ensures the client does not balk at their final (probably large) bill and refuse to pay for the costs incurred at trial. If that happens, the attorney can take his or her fees from the trial retainer without having to take the client to court.
At Lindley Law, we charge a consultation fee and primarily rely on a retainer structure with hourly billing to be paid by our clients each month. However, we also pride ourselves on our ingenuity and innovation when it comes to fee structures and can be flexible depending on the practice area and the amount in controversy. If you have a legal issue we can help with, please give us a call at 704-457-1010 to set up a consultation. For more information about our practice areas, please visit our website at www.lindleylawoffice.com.