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On Balance

Five (More) Things to Consider When Drafting Fee Agreements, Pt. 2

By Megan Zavieh

On Balance by Megan Zavieh

Eager to be hired, lawyers often overlook the importance of the fee agreement. It’s understandable. We want to make things simple for clients. And, of course, we expect the relationship to go smoothly. The terms of fee agreements typically come into play when there is a breakdown in the attorney-client relationship. Then, certain terms that seemed relatively unimportant when you were getting hired suddenly take on great importance.

In “Everything a Lawyer Needs to Know When Drafting Fee Agreements, Pt. 1,” we explored the first four items you should address in an attorney fee agreement:

  • Identity of the client
  • Scope of work
  • Fee amount
  • Payment terms

Here are five more areas of concern.

The Next Five Critical Components of Your Fee Agreement

1. Terms Upon Termination

When non-payment or other breakdowns happen, and the representation terminates before the services are all rendered, the situation becomes ripe for discontent and confusion. In your fee agreement, spell out what will happen if the relationship ends early. For example, you will refund advances for costs held in your IOLTA if they have not been spent or committed, you will fulfill payment obligations to third parties if they have been incurred on the client’s behalf, you will refund unearned fees (be sure to include how that is calculated), and you will return the client’s file.

The client will also have obligations, such as to pay any balance due to you and perhaps to pay any costs incurred but for which funds have not yet been deposited with you.

2. Liens on Recovery

Depending on their state and practice area, lawyers typically do not have a lien on any recovery by the client in the matter unless there is an agreement creating that lien. That agreement is often contained in the fee agreement using specific language approved by the state bar or by statute.

In some practice areas, recovery is not anticipated, so lawyers leave out the lien language. This is not surprising given that the language seems superfluous, can put off some clients, and often requires a separate acknowledgment (such as initials on that paragraph of the agreement). However, if there is any chance of a recovery and you are concerned about being paid down the line, lien language can protect you.

Absent a properly created lien, you are not permitted to hold client funds for payment of your fees without the client’s consent. So, if you end up recovering funds for a client and depositing them in your IOLTA, you are required to turn those funds over to the client even if they owe you for fees.

3. Dispute Resolution Clauses

We don’t expect to have to resolve a client dispute when we enter into a fee agreement, but if we have to, it is a good idea to have written into your contract just how you will resolve it. A forum selection clause, arbitration clause, or reference to the state’s fee arbitration program are all useful to include. This is also a place to state whether each side will bear its own costs of the fee dispute resolution or whether the attorney’s fees are recoverable.

4. Client Obligations

Clients often think of the fee agreement as a place the lawyer sets out her many obligations and the client agrees to pay. That is largely true, but the client has obligations beyond payment. One that can be very important to state in the fee agreement is the client’s obligation to keep you informed about their whereabouts and how to contact them. If you need to respond to discovery or a motion or otherwise take action on a client’s behalf, and you cannot reach the client, you can get in quite a pickle. You cannot act on the client’s behalf on some matters without consulting with the client, but you also cannot simply fail to respond when you have an obligation to do so.

Setting out the client’s obligations in the fee agreement helps drive home their importance.

5. Potential Changes in Law

Not all practice areas worry about the law changing radically, but change is par for the course in others. For example, in immigration law, a client may be eligible for a form of relief on the day they hire you, but by the time the filing is ready, the law may have changed and they are no longer eligible.

Banking and other financial regulation are also areas where sweeping reforms could eliminate a practice specialty practically overnight.

Your fee agreement can be used to protect you if a major change in the law impacts your client. Be sure to include language covering what will happen to your obligations and the client’s fees if the work you are hired to do suddenly becomes untenable for some reason beyond your control.

Tread Carefully When Drafting Attorney Fee Agreements

Fee agreements are critical contracts in the attorney-client relationship. Use the components listed here and in Part 1 to create a comprehensive fee agreement that can stand up to scrutiny and be useful should the attorney-client relationship fall apart.

Related:

“Fee Tale: This Is Not Your Father’s Client Engagement Agreement” by Jared Correia

“Getting the Fee You Deserve” by Bob Denney

“Avoiding Common Trust Accounting Errors for Well-Intentioned Lawyers” by Megan Zavieh

“Getting Paid: The Power of Following Up” by Ruth Carter

Illustration ©iStockPhoto.com

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Megan Zavieh Megan Zavieh

Megan Zavieh is the creator and author of “The Playbook: The California Bar Discipline System Practice Guide.” At Zavieh Law, she focuses her practice exclusively on attorney ethics, providing representation to attorneys facing disciplinary action and guidance on questions of legal ethics. Megan is admitted to practice in California, Georgia, New York and New Jersey, as well as in multiple federal courts and the U.S. Supreme Court. She podcasts on Lawyers Gone Ethical, blogs on ethics at California State Bar Defense and tweets @ZaviehLaw.

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