Three types of attorney’s fees
The intricacies of the costs for legal services can often be deterring and confusing to a client. It is important to understand the three different ways — hourly rate, flat fee, and contingency fee — an attorney can bill a client.
Hourly rate is the most common method in the legal industry. It requires a documentation of the time spent on a client’s case. Each task is documented and billed for based on a previously agreed upon rate. Typically, an attorney will bill in 6 or 12-minute increments and those increments become minimum charges. Therefore, here is a tip: to avoid a minimum 6-minute charge for a 2-minute conversation, unless it is an emergency, wait until you have a few questions to ask before calling your attorney. While hourly billing might quickly raise the cost of legal services, it is the fairest method of billing because the client pays precisely for what was received. An attorney’s hourly rate will depend on the experience, reputation, and even location, as rural and small-town attorneys might charge less than big city lawyers.
In certain cases, it is possible to estimate ahead of time the approximate cost of legal services. In such a situation, an attorney can bill a client a flat fee for a specific legal work. For example, estate planning or uncontested divorces might qualify for flat fee billing. It is imperative that the scope of services to be performed for a flat fee is specifically defined to avoid misunderstandings on both sides. Oftentimes, the flat fee does not include the costs incurred in a case. On the upside, the flat fee billing method offers competitive prices and locks in the cost despite any unexpected circumstances, so, the client will receive attorney’s services for the same price regardless of the trial lasting a week or a month. That is the risk the attorney assumes when agreeing to a flat fee. On the downside, if the favorable settlement is offered early in the case, then the client might feel that the work performed did not justify the fee. That is always a possibility and the risk the client accepts when opting for a flat fee. For those reasons, many attorneys tend to avoid flat fee billing.
The third type of billing is a contingency fee. It occurs when a client does not pay upfront but rather an attorney will receive a percentage of the award received by the client at the end. Contingency fee billing is the most common in personal injury cases. Contingency fees typically vary from 25- to 40-percent and while they can be negotiable, the courts or the statute may limit them. The costs of litigation, while upfronted by the attorney, are typically reimbursed from the final award. Contingency fee billing can be a beneficial arrangement for both parties. On one side, the client receives valuable legal services from a motivated attorney without any upfront cost. Oftentimes, the client would not be able to afford legal services otherwise. On the other side, the attorney benefits as well as these types of cases have a potential for a rainfall for an attorney who is willing to work hard and take some risk. However, the contingency fee can consume a substantial share of a client’s final recovery. Despite its advantages, contingency fee billing is not always allowed. An attorney cannot enter into a contingency fee arrangement in certain domestic matters or when representing a criminal defendant.
When you seek legal services, do not hesitate to ask the attorney about the billing practices and fees. And remember to always have your agreement in writing.
Natalia Vander Laan is a Minden attorney practicing estate planning, family law, and workers’ compensation.