Understanding a Fee Agreement

When you hire an attorney to represent you either in a criminal case, personal injury case, contract dispute, etc. you generally will sign an attorney client agreement which should include a fee agreement.

Generally, there are 4 ways that attorney’s charge legal fees: 1) flat fee, 2) contingency fee, 3) retainer and 4) a hybrid agreement.

A flat fee agreement is an agreement to complete legal services for you for a flat rate. It could be that you hire an attorney to draft a simple will for you and they charge $500. You would pay the attorney the $500 and the attorney would do the work for you whether it took them an hour, several hours or a couple days. The advantage of an agreement like that is that the costs are fixed. You as the client know that the work you get done will be at a set price. There are no “surprises” because it's at a fixed flat rate.

A contingency fee agreement Is an agreement where the attorney takes the case and represents you at no out-of-pocket expense to the client. This is typically done in a personal injury case. For example you're involved in a car accident and you sue the insurance company and or the other driver. The attorney would pay for the cost of litigation and you would only have to pay the attorney if the attorney recovers a fee either through a settlement or through a trial verdict. You have to examine contingency fee agreements closely because often times the attorney gets their percentage which is usually between 33% to 40% of what is recovered plus their expenses. You also have to deduct from the eventual settlement any kind of lien put on the case and this is typically done if you were sent to be seen at a number of doctors, chiropractors, etc. Those “liens” generally aren't paid by the attorney and will be subtracted out of whatever settlement is reached or if the attorney wins your case at trial. So far example, if you are in a simple car accident and the attorney settled the case for $10,000, the attorney’s fees would be approximately $3,333 to $4,000 plus costs (filing fees, photocopies, faxes, etc.) and if you saw a doctor and if you had X-rays done and if you were referred to a chiropractor, then those costs would come out of the settlement. So at the end of the day you might be looking at only getting $3,000 out of a settlement totaling $10,000.

A retainer agreement is an agreement where you pay a retainer fee, say $1,500, and then the lawyer bills you at the hourly rate agreed upon in the agreement and that billable hour amount comes from the retainer fee. For example, if you hired an attorney to represent you in a DUI case for $1,500 and the hourly rate was $300 an hour and the attorney works for 4 hours on your case he would send you a bill for $1,200 which then would be taken out of the $1,500 retainer agreement. If the attorney didn't do any other work on your case you would be entitled to the $200 that was left over from the retainer agreement. If the attorney worked for 10 hours on your case at $300 an hour then he would have used up all $1,500 of the retainer fee agreement and then you would owe the attorney an additional $1,500 for his services.

A hybrid agreement can be a combination of the different agreements above. For example, you might hire an attorney to represent you in a criminal case (retainer fee agreement) and then in a civil action (contingency fee agreement). Or you might hire an attorney to create a corporation for your business (flat fee agreement) and then represent you in a civil case over a contract dispute (contingency fee agreement).

The point in all this is to know what you are agreeing to as the client and go over the agreement with your attorney so that it is fully explained. I’ve counseled several clients on agreements and why they didn’t get as much of the settlement or jury award as they originally thought and it is usually because they didn’t really understand the agreement. If you are an attorney, consider spending extra time explaining your agreement or put in hypotheticals in your agreement so the client and have an example of what to expect when you win their case.
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