The single most important question on a potential client’s mind when a client enters a lawyer’s office is–HOW MUCH IS THIS GOING TO COST!? And rightly so. Believe it or not, this anxiety affects lawyers as well as clients, and can make for tense interactions between lawyer and client. It is difficult to talk to clients about money, but without requiring fees (often up front) any law office would be forced out of practice. It is the lawyer’s (as well as his support staff’s) sole livelihood, and his compensation is probably more modest than one might think. With the sheer amount of new lawyers joining the field each and every day, competition is fierce and salaries of lawyers in general are on the gradual decline. Some lawyers are paid very well at the end of the day, but these lawyers are in the top percent of earners. The average lawyer in a local or small firm in the first ten (10) years of practice makes between fifty thousand ($50,000) and seventy thousand ($70,000) per year, contrary to popular belief.
While this may seem like a substantial income to some people–and it admittedly can provide a comfortable living–there are many expenses that a lawyer must pay. Most lawyers have substantial student loan debt. Many lawyers have college and school loans totaling $100,000 or more. This is greater than or equal to mortgage payments on a starter house for most people! In addition, there are many societies, groups, licensing, and continuing education costs the lawyer must continually pay–just for the privilege of practicing law. Before the lawyer even receives this compensation however, he must first compensate his office staff, pay for all supplies, pay for subscriptions, legal research databases, malpractice insurance, office supplies, and rent, to name just a few.
These days, and especially in small to medium-sized firms, young lawyers are generally compensated based upon the revenue they generate. Firms cannot afford to take the risk of entrepreneurial loss in the lawyer’s first few years of practice. (Very few young lawyers can generate enough business in their first few years of practice to justify even a modest salary.) In tough economic times, law firms will instead ask the young lawyer for a contribution based upon provided space and advertising, usually a percentage of the revenue that the lawyer brings in the door (e.g. – 40% of the lawyer’s earned fees in a given month).
Now that we understand that the seemingly exorbitant fees paid to a lawyer are not going directly into his or her pocket, we can address the types of fees and when they are appropriate. The first of these (and the easiest to understand) is the flat fee. A flat fee is something similar to how a mechanic or a physician might charge. It is a single price for a particular service performed. It includes all fees due and owing, but does not include costs paid on the client’s behalf (e.g. filing fees or depositions, etc.). Flat fees are generally due and owing to the lawyer before the work begins, and technically belong to the lawyer or his/her firm immediately upon receipt. Flat fees are particularly appropriate in criminal cases and cases where the amount of work, from start to completion, is readily ascertainable.
The next type of common fee is a contingency fee. A contingency fee is desirable to clients, because no fees are paid up front (except for any fees or costs incurred on the client’s behalf). The client’s fee instead relies upon a successful recovery or judgment against a defendant, and the lawyer will typically deduct his fee from the final settlement or judgment prior to compensating the client for his/her portion. No fees whatsoever are due to the lawyer if the lawyer does not recover a settlement/judgment from the other party. This type of fee generally encourages the lawyer to be most aggressive, and can only be afforded to plaintiffs in civil cases. These are only appropriate in cases involving money judgments, and they are absolutely prohibited in criminal and family cases.
The third and most common type of fee is an hourly fee. This fee is usually accompanied by a payment commonly referred to as a “retainer”. What is most often meant by “retainer” is a “special retainer”, an advance payment made as a deposit against future legal work performed. Work is usually billed on a periodic basis, e.g. monthly, and the deposited funds remain as the client’s until they are billed as the work is performed, and clients must be sent invoices reflecting their balance(s) on the same basis. In this case, if representation is terminated by the lawyer or the client, the client is entitled to a refund of whatever funds remain in the lawyer‘s trust, i.e. the balance after all billed time spent on the client’s behalf has been deducted. Each lawyer or firm has its own policy with hourly minimums and minimum special retainers. You should check your lawyer’s firm policy on billing prior to initiating a lawyer-client relationship. Also, some lawyers will charge for initial consultations, and some do not. Again, check to see what your lawyer‘s policy is before setting up an appointment.
If you have any questions about lawyer billing or legal fees, please give us a call. We at SFT Lawyers do not charge for initial consultations, and we have no hourly billing minimums. Call for a FREE CONSULTATION today! (219) 841-5683.