(2) Ask for a Flat Fee, a Fee Cap, a Contingent Fee, or a Mix of These.
The traditional method of charging for attorney’s fees is on an hourly basis with a retainer up front. This creates a lot of uncertainty for consumers of legal services, as they have no idea just how much it will cost for their case to be finalized. Because the traditional method is an hourly rate, attorneys feel incentive to spend as much time as they can on a case. While this may be good for the case, it is often inefficient (i.e. if your attorney could have spent half of the time spent researching and still come to the same general conclusion then he or she has wasted your money). This traditional method of hourly billing has its benefits (in that the legal services are usually handled with care), but it comes at a cost (uncertain and inefficient legal fees).
Largely because of the uncertainty and demand for transparency, the legal market has been changing over the past several years. Buyers of services in the current legal market have a lot of power. The market is flooded with attorneys and there are few jobs available for new lawyers. This is good news for you, a consumer of legal services. This increase in competition drives down prices and increases competition. Smaller firms are competing for business and have begun to give way to the market demand by offering alternate billing methods. Alternate billing methods are much fairer to most consumers because of the transparency. Some of these alternate billing methods include flat fees, fee caps, contingent fees, and mixes of these.
A flat fee is a fee that you negotiate with your attorney that will represent the entire amount of the legal fees the attorney will earn, regardless of the outcome of the case. Flat fees are typically charged up front. Costs may or may not be included in the flat fee, but are typically not. Costs generally include things like court filing fees, court reporter fees, expert witness fees, copy fees, postage, personal investigators, travel-related expenses, and any fees or costs assessed against you by the court. These can add up, but if you let your attorney know of your desire to pre-approve costs that are above a certain amount (say $50), then it will help encourage the attorney to limit costs by making it a bother to call you to approve everything. You will also be aware of any cost before having to pay for it and will be able to discuss ideas to cut costs with your attorney as the situation arises.
Some attorneys argue against flat fees by stating that it deprives the attorney of the desire to research as thoroughly or to do as good of a job on the case. This may be true to some extent, although even attorneys who charge flat fees will want to avoid malpractice and the associated liability for mistakes, so the argument is weak. The benefits of a flat fee far outweigh any detriment, as they allow the consumer hiring the attorney to have complete control over the costs of suit and knowledge of exactly what attorney’s fees will be. Additionally, consumers of flat fees are able to effectively shop around and compare prices accurately. As you are shopping around, I encourage you to compare our list of flat fees to other attorney’s flat fees.
Fee caps are another alternate billing method that allows the consumer to help control attorney’s fees. In a fee cap situation, attorney’s fees will normally be charged on an hourly basis and will be limited to a maximum amount, for which the consumer is responsible to pay for regardless of the outcome of the case. Fee caps are similar to flat fees, although they create some room for benefit for both the attorney and the consumer by either: (1) saving attorney’s fees if the case is simple and settles early without much attorney work, or (2) rewarding the attorney with more attorney’s fees than his typical flat fee if the case is more complex than average, but at the same time still providing a maximum fee for the consumer.
Fee caps will typically be set at an amount higher than the flat fee normally charged by the attorney for the same service, but will provide a benefit to the consumer if the case settles early. Deciding to ask for a fee cap instead of a flat fee will depend on the situation: if you think the case will settle quickly, consider asking for a fee cap instead of a flat fee. On the other hand, if you think the case will be drawn out and last a long time, consider asking for a flat fee instead. You may know your opponent better than your attorney will, so you may have a better inkling than your attorney of how drawn out the process will be.
Like with most billing methods, the client is typically responsible for costs beyond the attorney fee cap. Like I stated above, costs can add up, but if you let your attorney know of your desire to pre-approve costs that are above a certain amount (say $50), then it will help encourage the attorney to limit costs by making it a bother to contact you for approval.
If your case is civil in nature and you are the plaintiff (i.e. you are suing someone), then consider asking for a contingent fee. Many attorneys are willing to take certain types of civil cases on contingency. You are probably most familiar with these from advertisements in the personal injury context, where they are relatively standard. While contingency fees are not free, they require no money up front. This is inviting to many people who do not want to shell out a substantial amount of money up front for an attorney or to those who do not have the cash on hand to hire an attorney.
A contingent fee is a fee that is based on the outcome of the case. If you do not win the case, then you will not usually be responsible for any attorney’s fees (you may still be responsible for costs). On the other hand, if you do win the case, or if the case settles, the attorney will take a percentage of the attorney’s fees. Normally this ranges from one third (33.33%) to forty-five percent (45%), and may be adjusted depending on at what stage in the lawsuit the case is settled. When you are shopping around, feel free to compare our contingent rates with other attorneys’ contingent rates so you have a base to compare from.
Costs are handled a little differently in contingency fee cases. Most of the time, the client is still responsible for costs. However, many attorneys are willing to front the costs (i.e. loan the money to you as expenses arise), and some attorneys are even willing to not charge you for costs if you lose the case. When shopping for an attorney for your contingency case, find out whether you will be responsible for costs of suit if you lose the case.
Contingency has its own set of benefits and costs to the consumer: attorneys have “skin in the game,” and so they will normally do their best work on the case and treat it as if it was their own case. However, because attorneys will receive money only based on the outcome of the suit, they will want to settle the case as quickly as possible. Although you may have $100,000.00 in medical bills from a car accident and the opposing party offers to settle the case for $115,000.00, an attorney likely will have incentive to get you to settle your case and quickly earn his share, the $38,333.33, rather than fight for every penny. Your share would be just $76,666.67, not enough to cover your medical bills. In the end, the decision to settle will be yours and not your attorney’s, but the attorney may still have incentive to convince you to settle even if you should not.
Depending on your contract with your attorney, as the case proceeds, he or she may earn a greater share of any proceeds. To demonstrate, if the case settles prior to filing suit, the contract may provide that the attorney earns 33% of any recovery, and if the attorney files suit the number increases to 40%, and then 45% if the attorney ramps up and prepares for trial. This is appropriate because the attorney will invest more time in the case the further it goes, and you will likely keep the ultimate power to agree to a settlement or not. Because of this, there is incentive for both you and your attorney to settle the case quickly. If the judge or jury comes back in the above case with damages including pain and suffering in the amount of $130,000.00, and the attorney receives 45% of the recovery from trial, the attorney will walk away with $58,500.00, and you will keep only $71,500.00, or less than you would have recovered if you had settled at the original $115,000.00 offer. For this reason, it is not always a bad thing for the client that the attorney has incentive to convince the client to settle early.
There are other benefits to the client by having a contingent fee arrangement with their attorney. Contingency arrangements put the risk of the attorney’s fees solely on the attorney, and if the case is a loss, the client is not liable for those attorney’s fees. On the other hand, when added up, the contingent fees an attorney recovers often ends up being more than the attorney would have charged at his hourly rate, but because the attorney takes the risk of getting no fees, it is his reward for taking the risk. Keep this in mind when hiring an attorney on a contingency basis. Again, do your own cost-benefit analysis, and consider just how much risk you are willing to take regarding the case.
Finally, many attorneys are willing to do a mixed fee structure. Mixed fee structures can take almost any form, but typically have some mixture of the above methods of billing. For example, an attorney may be willing to work partially on contingency and partially on a flat fee (i.e. a flat fee reduced by half and a contingent fee reduced by half). Or, a mixed hourly-rate and contingent fee (i.e. hourly rate reduced by half and contingent fee reduced by half). Or even a mixed hourly rate and flat fee (i.e. hourly rate reduced by half and flat fee reduced by half). Be creative! If you find a system that both you and your attorney can agree on you will both likely be happier with the arrangement.