New Lawyers Practice of Law

Review Your Hourly Fee Agreement

ThinkstockPhotos-481542709Hourly billing for legal services has been criticized for, among other things, discouraging attorney efficiency and providing the client with no predictability of cost (see, e.g., ABA Commission on Billable Hours Report 2001-2002) and has even been declared dead. But traditional hourly billing is still the most common type of fee arrangement in many types of practices. If you go the hourly route for at least some of your practice, review these points to be sure you are following best practices and are in compliance with the law.

The advantage to hourly billing from the attorney’s perspective is that it reduces risk to the attorney. The disadvantage is that the attorney doesn’t benefit from efficiencies such as reusing research or a complaint from a prior case. Hourly billing may be most appropriate when the total time spent won’t be completely in the attorney’s control, such as in cases of defending a deposition or attending a trial.

When it comes to your hourly fee agreement, make sure to do the following:

  • State the basis of compensation. An agreement required by Bus & P C §6148 must set out the “basis of compensation including, but not limited to, hourly rates, statutory fees or flat fees, and other standard rates, fees, and charges applicable to the case.” Bus & P C §6148(a)(1). Include a provision on the hourly amount the client will pay. If there will be different hourly rates for partners, associates, paralegals, etc., state each rate. Include any variations from the rate, such as a minimum charge for a court appearance.
  • List the activities. The list of activities that might be undertaken should be reasonably comprehensive so that the client is apprised fairly of the entire range of activities for which he or she might be charged. In particular, try to list potential activities for which you will charge, but for which the client might not expect to be billed, e.g., participating in telephone conferences, returning telephone calls, or making photocopies.
  • Cover possible fee increases. Whenever you want to retain the right to increase the hourly rate to be charged to the client, the agreement should apprise the client of that possibility and provide for advance notice of the increase. You may want to include a clause such as this in your agreement:

Attorney’s hourly rates are adjusted from time to time (usually at the beginning of every year) and may change during the course of this agreement. However, Attorney will not change any of the rates set out above without first providing Client at least _ _[number, e.g., at least 30]_ _ days’ written notice of the proposed changes. [If such notice is given, Attorney and Client agree to negotiate in good faith with respect to such proposed changes and execute a written amendment to this agreement reflecting the agreed-on rate changes. If Attorney and Client cannot reach an agreement with respect to the proposed changes, this agreement shall terminate and no further legal services will be rendered on Client’s behalf under the terms of this agreement.]

  • Follow the rules carefully if you want to include an attorney’s lien. An attorney in a noncontingent fee case who wants to secure payment of attorney fees and costs through a lien on amounts obtained for the client must comply with Cal Rules of Prof Cond 3-300. That is, the attorney must obtain the client’s written consent to the lien after disclosing how the lien may affect the client, advising the client to seek independent legal advice, and giving the client a reasonable opportunity to seek the advice.
  • Know when court approval is needed. Whenever the party whose interests you’re representing is a minor or person with a disability, anticipate the possibility that court approval of the fee agreement may be required. See e.g., Fam C §6602 (fee agreement by or on behalf of minor for services in litigation); Prob C §2644 (contingent fee agreement by guardian or conservator).

For everything you need to know about drafting a fee agreement that’s fully compliant with California law, including a sample form hourly fee agreement, check out CEB’s Fee Agreement Forms Manual, chap 1.

Other CEBblog™ posts you may find useful:

© The Regents of the University of California, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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