The More Things Change, the More Hourly Billing Will Stay the Same

Sphinx1 The More Things Change, the More Hourly Billing Will Stay the Same Tuning in to the live tweets last week from the opening of the Association of Continuing Legal Education conference in New York City (it may sound dull, but they are a hard partying group!), there was much talk at the plenary session about  the allegedly irrevocable changes occurring in the legal profession because of the fallout from the Great Recession. Familiar themes: hourly billing is evil, the leveraged-associate model is on its way out, law firms will never be the same, etc. This has been the drumbeat of blawggers, consultants, and plenary speakers for at least two years now. I think they get a kick out of seeing the color drain from lawyers’ faces.

Fortunately, the old French saying remains true: The more things change, the more they stay the same. Seemingly huge upheavals often have less long-term impact than we expect.  After 9/11, many people thought we would all be singing Kumbayah for at least a generation. Ten years later, the music has faded.


According to statistics published by the ABA, there are about 1.2 million lawyers in the country, about 74% of whom are in private practice. Of those 900,000 or so lawyers, 76% practice in firms of fewer than 20 lawyers, and the vast majority of those lawyers are in firms of five or fewer lawyers.

In what areas do most solo and small firm lawyers practice? By my own estimates: Family, criminal, personal injury, workers compensation, insurance defense, estate planning and probate, plaintiffs’ employment law, consumer, bankruptcy, and small business litigation and consulting. In other words, predominately individuals and small businesses.

The issues that large firms are facing—large corporate clients wising up to the abuses of the billable hour, competition from international mega-firms—are not likely to affect the vast majority of solo and small firm practitioners. For lawyers representing individuals, the law is local. Family and criminal law attorneys, for example, face little competition from lawyers outside their geographical area. Individuals in need of legal services tend to seek out lawyers in small firms that are close to their homes or businesses, where the cost structure is lower and where they get personal attention. That is not likely to change.

Regarding legal billing structures, personal injury and plaintiffs’ employment lawyers have had an “alternative” fee structure for decades: contingent fees. That is not likely to change. Criminal, bankruptcy, and many estate planning lawyers have been using flat fee billing for years. The concept is nothing new to them.  It seems unlikely that their practices are headed for a revolution.

As for the solo and small firm attorneys charging on an hourly fee basis, particularly the litigators, their practices are unlikely to change either. Moving from an hourly fee to a flat fee billing structure requires a lawyer to take on risk. Family law clients  often make their own problems and are unpredictable once a custody battle or other dispute gets underway. Even when the client is an angel, the opposing party or their counsel can unexpectedly drive up the costs of the matter. Why would lawyers want to assume the risk for their clients’ issues? My guess is most lawyers take on enough risk already when they agree to represent a client and will not offer to take a financial stake in the client’s problems.

The clients of solo and small firms also tend to be less subject to the abuses of the billable hour and therefore less likely to seek alternative fee arrangements. Many solo and small lawyers routinely write off the time for short phone calls and e-mails, discount travel time, and reduce bills for unproductive or administrative work. Smart lawyers include all that written-off time on their bills; the clients can see that they are paying for value (a common refrain by flat fee advocates), not to line the lawyer’s pockets. Associates in small firms are more often employed to help get the work done, often at a lower hourly rate, rather than to pad the bill.

There are other entrenched practices in the legal profession that will weigh against changes in the fee model for litigators. There is a substantial body of case law that requires attorney fee awards pursuant to statutes or fee shifting agreements in contracts to be calculated based on an hourly fee. Attorneys liens are typically determined on a quantum meruit (read: hourly) basis. The Rules of Professional Conduct identify the time spent on a matter as an important factor in assessing the reasonableness of a fee. Insurance companies often hire and reimburse lawyers for representing insureds based on hourly fees, except perhaps for the most routine matters. Some areas of practice have clearly changed—many corporations that hire outside lawyers for immigration and intellectual property matters have shifted to small firms and are requiring flat fees. But these tend to be project-based assignments with predictable time requirements and outcomes.

It is healthy to have a debate about the best practices for any industry. Some change in the legal industry will occur over time. But if you are sitting at a CLE plenary session about the practice of law and feel your head spinning, excuse yourself and go splash some water on your face. You need not worry that you will be out of a job by the time you get back to the session.

The More Things Change, the More Hourly Billing Will Stay the Same is a post from Lawyerist.com. The original content in this feed is © 2013 Lawyerist Media, LLC. This feed is provided for private use only and may not be re-published.

A Family and Friends Plan for Your Law Firm

family dinner11 A Family and Friends Plan for Your Law FirmA family member or close friend calls you one day with a “quick” question. Seems she has a dispute with a neighbor or she just got denied a promotion or she needs to tell the renter of her duplex to stop smoking in his unit. She knows you are really busy but was wondering if you would mind looking into it or just writing a letter or making a phone call for her. She hates to bother you but she does not know any other attorneys and really needs some help with this problem.

So, do you agree to help? The answer differs for each attorney. Some swear against representing friends and family on the theory that no good deed goes unpunished. If the case turns sour, you lose the friendship or become a persona non grata at family get-togethers. Plead ignorance as to that area of the law, refer the matter out, and keep your nose clean.

Some lawyers, on the other hand, feel it is their obligation to help out a family member or friend. Remember when Joe helped you re-roof the garage? How about when Stacey brought your family meals for a week when your spouse was hospitalized? And you are unwilling to write a simple letter? Loser.

Basics. Let us say you decide to help this person. Keep in mind that regardless of whether she is going to pay you, she is your client. In fact, she probably became your client during the first phone call or the conversation in the family room during Thanksgiving dinner. She asked for legal advice and provided you with confidential information, you listened, nodded your head, made some noncommittal remarks, and did not give her any sign she should stop talking. She’s a client. Make sure you treat her like one.

Representation agreements. In most jurisdictions, ethics rules require representation agreements only for contingent fee matters or advance payment of availability or flat fees that will not be placed in a trust account. Nevertheless, a representation agreement is a good idea for all client engagements, including those you may do for free. Legal Aid and other pro bono lawyers always have their clients sign representation agreements. Even where no money is being paid, the client should understand the scope of the representation, what obligations the client has to cooperate with the lawyer, and how the client or lawyer may end the representation. This is no less applicable to friends and family (F/F) than it is to other clients. Signing a representation agreement also shows that you are taking the matter seriously and you expect the same from your clients.

Fees. If you do not charge the F/F a fee, you risk that if the matter becomes more complicated than you anticipated, you may become resentful that you are working for free, do a poor job, or let the case “mature” under a pile of files that do generate fees. Charging a fee, however, may give the impression that you are greedy and deserve to be the butt of lawyer jokes. See paragraph three, above.

One compromise is to agree with the F/F that you will provide them with several hours of legal services for free. After that first two or four or whatever hours, you will expect them to pay your bills. If your rate is $250 an hour, that is like giving them $500 or $1,000 right off the bat. Difficult for them to later say you did not treat them fairly when you gave them that much in free services.

You could be more elaborate and say that after the first four hours free, you will bill at one-half your rate for the next X hours, and then the full rate after that. However it is done, the idea is to convey to the F/F that your time is valuable, that they have to participate as well, and that you do not intend to make their very irritating case your life’s work unless they are willing to pay for it. Even if you would have felt guilty about charging your best friend for legal work, you are likely to feel less guilty after you have put in a number of hours free. The invoices also provide a permanent record of what work you did for them, which may help avoid recriminations later.

Getting out. Having an exit strategy is a particularly good idea when representing friends and family. Your personal relationship may lead you to get in deeper than you anticipated, with no good way to extract yourself once you are up to your hips in your client’s stuff. The time to think about getting out is at the beginning, when you are drafting the representation agreement. Think carefully about what the scope of your services will be and how to define when you will be done.

Confidentiality. Remember, no matter what happens, all of the information you receive during the representation of friends or family is confidential. No matter how badly it blows up, or how you are maligned in your circle of friends, or who whispers about you in grandma’s pantry, keep your mouth shut. No name-clearing, no setting the record straight.

Hopefully, if you take some of the steps outlined above, you will maintain long and happy relationships with your family and friends. At least that’s the plan.

(photo: toastforbrekkie)

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A Family and Friends Plan for Your Law Firm is a post from the law firm marketing blog, Lawyerist.com

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Watch out for ethics bumps in flat fees

stack of money11 Watch out for ethics bumps in flat feesAs alternative billing approaches go, flat fees have many fans. Clients like to know exactly what a particular legal service will cost and lawyers like to leverage experience they have gained in providing the same service to others. Sometimes a flat fee even lets a lawyer spend more time on a matter because there’s no concern that the client will feel the lawyer was trying to run up the bill by spending more time on legal research or clever drafting. Flat fees are also important for clients who are at a high risk of future nonpayment. 

The place where lawyers tend to get in trouble ethically with flat fees is when they want the fee to be both flat and nonrefundable. From a definition standpoint, calling a fee “flat� merely says what the amount will be and says nothing about when the client is expected to pay, when the fee will be considered earned, and what portion (if any) the client will get back if the client is unhappy or just decides the lawyer is ugly.

One way to handle the flat fee is to have the client pay the amount up front, put it in the lawyer’s trust account, and state in the representation agreement when the fee will be considered earned, so that the lawyer can take it out of trust and put it in the business account.  This works well for document-intensive projects, such as an estate plan or an incorporation. But even in a criminal matter the agreement could be that 25% of the fee is earned after the arraignment, another 25% after the omnibus, and the rest after trial, with all of the fee earned at any time a plea bargain is reached.

Most lawyers who use flat fees, however, see them also as a way of avoiding having to place funds in a trust account.  Of course, one could avoid trust account issues by having the client pay after the work is done, but getting the money up front is a key part of keeping a law practice afloat.

This is where the ethics problems start.  Traditionally, lawyers in many jurisdictions have only been able to accept a flat fee, payable in advance, and earned upon receipt (i.e. “nonrefundable�) if the fee was considered an availability retainer.  In other words, “I’m willing to take on your manslaughter case, but it could be such a big case that I will have to a) hire additional staff and/or b) turn down other business, so the only way I can agree to do this is if you agree that once you pay me my $50,000 fee, I won’t have to return it if you change your mind a month from now.�  In some jurisdictions, the Rules of Professional Conduct require that the lawyer make special written disclosures to the client about the non-refundable aspect of the fee and that the fee will not be placed in the trust account (if any portion was refundable up front, then it wouldn’t be earned, and it would have to go in the trust account). 

Inevitably, a client comes back a short time after paying the lawyer the fee, after very little work has been done on the case, and says that the client has changed his or her mind so they’d like a refund. The lawyer says, sorry that wasn’t our deal, and the frustrated client complains to the ethics authorities. 

Smart lawyers both follow the technical rules and give the client back some money.  Not-so-smart lawyers . . . well, they spend a lot of time trying to convince the ethics authorities that it was reasonable for the lawyer to charge a 5-figure fee for very little work.  At the end of the day, all fees must be reasonable.

In criminal, bankruptcy, and federal court matters, to name a few, it really can be difficult for a lawyer to withdraw once he or she gets started, and it can be challenging to figure out ahead of time how much work a case will require.  Availability retainers make sense if a lawyer focusses on one of these areas — some cases will be resolved quickly, some will go to trial, and hopefully it will all work out in the end. 

But for practice areas in which lawyers are typically paid hourly, the trend toward lawyers insisting on non-refundable retainers has been troubling to some ethics authorities. Lawyers sometimes take what would just be an ordinary retainer headed for the trust account, call it “nonrefundable� and both deposit it in the business account and refuse to return any money to the client who quits before the work is done. 

This isn’t something that keeps me awake at night.  Lawyers are very heavily regulated — when I remodeled my house, I wrote huge checks to a contractor, and there was no “trust account� in sight.  I think there’s very little risk that a family law attorney who takes a $3,000 retainer up front to start a divorce isn’t going to earn all of that money. But it’s also not fair to the client to set up the retainer in such a way that the lawyer can get paid for not working, especially if there’s no particular cost to the lawyer. Lawyers have to ask themselves if there’s a good reason for making the fee non-refundable, other than to avoid the hassle of using a trust account. 

So keep quoting those flat fees to clients. Just watch out for the ethics bumps.

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Watch out for ethics bumps in flat fees is a post from the law firm marketing blog, Lawyerist.com

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Using reverse contingent fees for clients caught in the mortgage mess

One difficulty in representing clients who are “under waterâ€� on their mortgages is how the lawyer should get paid for his or her time negotiating a better deal for the client. The client is heavily in debt, but if the lawyer shines, the client could save tens of thousands of dollars. In a listserve post […]

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Using reverse contingent fees for clients caught in the mortgage mess is a post from the law practice blog: Lawyerist