The More Fee Agreements Change, the More they Stay the Same

In 1944, the Hennepin County Bar Association published its “Minimum Fee Schedule,” setting forth the permissible rates for various types of legal services. Although office consultations could be charged at the very reasonable rate of $10.00 per hour, minimum fees attached to lawyers’ charges, such as a minimum of $250 for appearing before the Minnesota Supreme Court, $100 minimum for preparing a bankruptcy petition and schedules, and 15% of the first $500 in a collection action. Estate planning, family law, and criminal matters are conspicuously absent from the schedule.

No “competent and conscientious lawyer” could go below the minimum fees without “incurring the temptation to slight his [sic] work . . . thus injuring his [sic] reputation” and “being unfair to his brother [sic] lawyers who are endeavoring to maintain proper standards of professional competency and diligence.”

Much about lawyers’ billing practices have changed in the last 75 years. Mostly gone are the days when a lawyer would send out an invoice listing fifteen or twenty tasks that had been accomplished in the past month, single-spaced with no paragraph breaks, followed by an apparently arbitrary dollar figure at the end. “Block billing,” as it is sometimes called, has been banned by insurers and corporate clients, even when all the tasks in question were completed on a single day. More common is that lawyers are expected to break out tasks and time separately or at least indicate within a paragraph of billing how much time has been devoted to each task.

And yet, despite the declaration in 1975 that fee schedules violated anti-trust laws,[1] few lawyers advertise their fees or attempt to compete with each other on price. Anecdotal evidence suggests that clients seeking to file a Chapter 7 bankruptcy or defend a DUI may price-shop by calling multiple lawyers, but one is hard-pressed to find an attorney’s website that states the lawyers’ hourly rates.

Flat fees. A 1994 Hennepin Lawyer article, titled “Is Hourly Billing Proper?” quoted a recent New York Times piece that declared “The billable hour as we know it is dead in the practice of law.”[2] Flat fees, contingent fees, and other alternatives would soon displace the odious hourly fee. Apparently, the future is not here quite yet. The Clio Legal Trends report for 2017,[3] which aggregated data on the tens of thousands of attorneys using Clio’s on-line practice-management software, showed that roughly 18% of lawyers used flat fees to bill clients, an amount that had not changed materially over the past five years. Flat fees tend to be used in the same areas of practice that have relied on flat fees for several decades: criminal law, estate planning, immigration, and bankruptcy work.

The problem here, if there is one, cannot be laid solely at the feet of lawyers. When pundits talk about how great flat fees are, they tend to overlook several factors. Hourly rates are a standard way of charging for time across our economy, from non-exempt hourly workers, to trades, to professional services. A large body of federal and state case law interpreting statutory attorney-fee provisions measures a lawyer’s work by the hour, with perhaps a lodestar applied to the hourly rate. Insurance companies have rigid rules for paying attorneys to defend cases, all based on hourly rates. The value of discharged attorney’s work in a quantum meruit claim on an attorney lien may be measured on an hourly basis.

At the same time, some lawyers are becoming more creative in designing fee structures to meet their client’s needs. These include blended hourly rates, fee collars, success fees, minimum fees, and fee caps. Contrary to popular belief, it is medium and large-sized firms, rather than solos and smalls, that have shown some of the greatest creativity in fee arrangements.

Costs. Photocopy and phone charges seem to have mostly disappeared from lawyers’ invoices. Charges for photocopies may be subject to sales and use taxes; few firms seem to want to go through the administrative burden of charging and reporting sales taxes for a few photocopies. The days of charging $1.00 / page for faxes printed on special thermal paper are, thankfully, long behind us.

Instead, one concerning trend is that some lawyers impose an “administrative fee,” typically between $100 and $250, to cover some of the photocopy, legal research, and other expenses they may incur but cannot otherwise recapture from clients. These administrative fees are fraught with ethical pitfalls. First, if the fee is intended as a flat fee that will not be placed in trust, then it probably must comply with Rule 1.5(b), MRPC, which means there must be a specific set of disclosures in the representation agreement. The Office of Lawyers Professional Responsibility strictly construes Rule 1.5(b), causing angst to many well-meaning lawyers. Second, if the representation ends prematurely, the unused balance will have to be refunded. It is not clear whether lawyers charging these administrative fees have contemplated how such a refund would be determined. Even if not clearly a violation of an ethics rule, I have seen questions about administrative fees prolong ethics investigations. The better practice is clearly to just incorporate any administrative costs into the lawyer’s hourly rate or flat fee for the representation, just like you do for the lights, the rent, Keurig cups, etc.

My prediction for 2044: attorneys will charge for their time pretty much the way they do right now.

(This article was originally published in the May 2019 issue of Hennepin Lawyer).

[1] See Goldfarb v. Virginia State Bar, 95 S.Ct. 2004 (1975).

[2] R. Curtin, “Is Hourly Billing Proper?” The Hennepin Lawyer 28 (May/June 1994).

[3] Available at (last visited Apr. 1, 2019).

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.

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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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