Before you hire an attorney for your business, you need to know how attorneys get paid and how attorney retainer agreements work.
First, we'll look at ways to pay an attorney, then at how a retainer works.
Ways to Pay an Attorney
The way you pay an attorney depends on the type of case and whether you want one-time work or a continuing relationship.
Attorneys set their fees based on a number of factors, including the amount of work the attorney will need to do for your case and the complexity of the case. Some factors that determine the amount of the fees are:
- The billing rates for each level of professional working for your business, based on each person's experience, specialty area, and their level (partner, associate, paralegal, for example)
- Novelty and complexity of the issues
- The difficulty of problems encountered
- The extent of the responsibility involved
- The result achieved, and
- The efficiency of the work, and customary fees for similar legal services.
The most common pay arrangements are:
Contingency fees. In this case, the lawyer gets a percentage of what you receive if the case is decided in your favor. If you lose the case, your attorney gets nothing, but they may still charge for their costs. Contingency fee percentages are negotiable.
Flat fee. This type of fee is often used for one-time tasks, like creating a will or a simple bankruptcy filing.
Hourly rates. Some lawyers charge a set per-hour fee. An experienced attorney might charge a higher hourly rate but do the work more quickly. Be sure to get a written estimate of hours before you sign an agreement.
Retainer. A retainer is a down payment on expenses and fees.
How Retainers Work
A retainer is paid in advance, for legal services that will be rendered. When you talk to an attorney about a retainer you may discuss one of three different types:
General retainers are fees for a specific period of time, not a specific project. You are basically paying the attorney to be available for discussions and questions about legal matters during this time. For example, you may want an employment attorney on retainer to help you deal with issues that come up with employees.
A retaining fee is a deposit or lump-sum you pay in advance. The attorney must (by law) deposit that money in a trust account to draw from as work is done. If there is money left in the trust account at the end of the project, you get that back.
A special retainer is a flat fee that you would pay for a specific case or project. Many states prohibit this type of retainer because it means you can't discharge the attorney until the end of the project.
You might pay your lawyer a $5,000 retainer to handle a contract issue for you. As the attorney works on your case, they will keep track of every letter written, every document researched, and every 10 minutes spent on your case.
All amounts for time and charges are taken from the retainer, and the attorney should give you an accounting of activities each month, including the amount left on the retainer. If the charges are more than the retainer amount, you'll most likely have to pay additional fees, depending on the agreement.
State Laws on Paying Attorneys
State ethics rules and state bar associations have rules of professional conduct, including rules for disputes and for making sure attorneys charge reasonable fees. Check with your state's bar association for more information.
Before You Agree to Hire an Attorney
An attorney should give you a description of their fees, preferably in writing, and some states require that lawyers put their fees in writing before taking a case. You should also see details of fees for services like copying documents, court filing fees, or research costs.
What Is Included in a Retainer Agreement?
One way to make sure that you have a complete understanding of the fees is to thoroughly review the retainer agreement with your attorney before you sign it. There is no such thing as a "typical" retainer agreement, but some common features are included in most:
- A description of the compensation (what you will pay for services), including how the fee is calculated. You should get a list of the hourly rates for the different levels of attorneys in the practice.
- How the attorney will work from the retainer. They will hold the retainer in trust until a specific amount of fees are incurred, then they will use the retainer amount to pay those fees. This description includes details on when the attorney will ask for an additional retainer amount.
- Additional costs should be listed. These are charges in addition to the retainer fee, such as court costs, costs incurred during the discovery process such as for depositions, travel expenses, postage, copying, and long-distance phone charges.
- Billing frequency and terms. Bills or statements are usually sent out monthly, showing the costs for the previous month and the amount of retainer fee remaining. Additional costs, or additional retainer amounts, are often due "upon receipt.:
- How fee disputes will work. Each state has regulations describing how fee disputes must be handled. Some states allow arbitration of these disputes.
If You Don't Pay the Retainer
What happens if you don't pay? The attorney might charge you a service fee or interest on the overdue balance or take out a lien on your documents or other property the attorney has. In other words, you won't get your stuff back until you pay the attorney's bill in full. The agreement with your attorney should spell out the attorney's right to charge you for non-payment.
How the Retainer Trust Account Works
Attorneys are legally and ethically obligated to deposit your retainer fee in special trust accounts, not in their business accounts. An attorney will then transfer funds from that account into her business account periodically as the case progresses—usually on a monthly basis. Transfers occur after your attorney earns the money by performing services on your behalf.
Check the Work Billed
It's up to you as the client to make sure that transfers made from the retainer are supported by time spent on the case.
You should receive an update letter at least every month as you work with your attorney or other professional. The letter should include an accounting statement with details of the work that was done on your behalf and billed against the retainer. The accounting should include time billed for each item of work done or contact made, with a total for the month.
If you don't get a letter or an accounting statement every month, ask for one. Spend time looking at to make sure you understand all the parts of the bill, including attorney time and other charges.
The Benefits of a Retainer Arrangement
A retainer arrangement benefits both the client and the attorney. The attorney has the assurance of being paid monthly or at least on a regular basis. This is particularly helpful if a client is slow in paying.
The retainer arrangement is also beneficial for the client because it provides an estimated budget for legal fees. Depending on the nature of your case, however, it's not uncommon for a legal matter to "blow up," requiring much more time and effort to resolve.