Today we will provide information and reviews about To trust or not to trust: what to do with fixed costs? (The first part)
Read the following article to get more information.
Some attorneys are reluctant to try flat-fee billing—not because of confusion about how prices are determined or concerns about cost-effectiveness—but because they believe flat fees raise ethical red flags. The truth is that the vast majority of jurisdictions allow flat-fee billing, but they also impose caveats and restrictions wrapped in complex ethical considerations that are so difficult to follow that most attorneys They refuse billable hours.
So in the first part of this post, I tried to keep things simple by focusing on two questions and concluding with a summary of selected state opinions and ethics rules on fixed costs. In Part II, I’ve linked and summarized 15 jurisdictional policies on fixed fees and asked for your help crowdsourcing the rest. There is also lots of guidance on fixed costs in The Legal ClauseIt.
Two recurring questions about fixed costs:
- Can the fixed fees be paid in advance and if so, should the money be deposited into the lawyer’s trust account?
All jurisdictions allow fixed fees to be paid in advance. But they differ in the way they manage funds. Some, such as North Carolina, Georgia and Massachusetts, allow fixed fees to be deposited directly into the attorney’s operating account. Others, such as California and Maryland, allow attorneys to include fixed fees in their operating accounts by disclosing certain information to their clients. And finally, jurisdictions like Virginia and the District of Columbia require fixed fees to go into attorney escrow accounts, where they must remain until fees are received. However, even with a trust account requirement for fixed fees like in Virginia or the District, attorneys do not have to wait months or years to resolve a case before being paid, but can include a portion of the fees in milestones in their employment contracts. Consider a certain have arrived.
2. Can lawyers make fixed fees non-refundable, and if so, under what circumstances?
Fixed fees raise the issue of refunds because if the service is not performed, the customer needs a mechanism to get the money back, otherwise the resulting fee would be unreasonable. For example, suppose a client pays a $10,000 flat fee for a divorce and a week later tells her attorney that she has reconciled with her husband. If the lawyer has done nothing but open the case, it is unreasonable for the lawyer to retain the full amount. In an hourly billing situation, the client is protected because the attorney returns a portion of the escrow funds left over for work not performed. But the same is not true of fixed fees – because if the payment is treated as income, the client cannot get reimbursed for hiring someone else if the lawyer doesn’t do the work (or does it poorly). Lawyer. This is why most ethical opinions address the issue of fixed and recoverable costs at the same time.
The issue of reimbursement of fixed costs arises where the contracted work has not been performed – and not where it has been performed, but the issue was resolved more quickly than anticipated. Consider a situation in which a client pays a criminal defense attorney $20,000 to defend a charge that the attorney manages to dismiss after filing a three-page pleading. Because the client got what he bargained for (defense against the charges), the lawyer is entitled to the full fee, even if the case only takes a few hours. By contrast, say the same criminal defense attorney charges a flat fee of $20,000 and ignores the case for a year. Here, if the client asks for a refund, the lawyer is obligated to pay some money back because maintaining a $20,000 fee for work that was never done makes the fee unreasonable.
Can lawyers state that a fixed fee is non-refundable? In many jurisdictions, yes – but a non-refundable policy cannot result in an unreasonable charge and must be passed on to the customer. Here’s a drag and drop clause (from The Legal ClauseIt) which you can use:
Payment for these services is considered a fixed upfront fee for the scope of services described. The Client understands that this fee, upon receipt, will be credited to the Company’s operating account and is non-refundable, except as required by the Code of Professional Conduct.
The beauty of fixed cost is that it is simple and straightforward. It is unfortunate that the ethical rules do not govern fixed costs.
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