Lawyers set fees for clients using a variety of arrangements. Some attorneys charge for their work by the hour, while others charge a fee contingent on the outcome of the case. A third option is to charge a fixed fee, where you charge a set price for the services you provide.Fixed fees offer benefits to both the lawyer and the client. You are able to set the value of the service provided, while your client can limit the cost of pursuing specific legal options, all at the beginning of the case. As a result, fixed fee agreements may reduce the possibility of fee disputes and increase the likelihood of carefully documenting the scope of representation.
EARNED ON RECEIPT / NONREFUNDABLEAlthough fixed fee agreements offer several potential advantages, they must be set up properly to avoid unintended consequences. Fixed fees may be labeled “earned on receipt,” or “nonrefundable,” or both, but if either term is used, then you must take certain steps to comply with ethics rules, both in drafting the agreement and in selecting the account in which to deposit the funds.
Oregon Rule of Professional Conduct 1.5(c)(3) prohibits lawyers from entering into an agreement for a nonrefundable or earned-on-receipt fee, unless the fee is charged based on a written agreement that explains:
- The funds will not be placed in the lawyer trust account, and,
- The client may terminate the lawyer at any time, and as a result, may be entitled to a refund of all or part of the fee paid, if the services for which the fee was paid are not complete.
UNDESIGNATED FIXED FEESYou may also choose to charge a fixed fee, but opt not to label the fee as “earned on receipt” or “nonrefundable.” If paid in advance, and not designated in writing as “earned on receipt” or “nonrefundable,” then the fee is considered client property. As a result, the funds must be placed in your lawyer trust account and only withdrawn when earned, pursuant to Oregon RPC 1.15-1(c).
EXCESSIVE FEESWhether classified as “earned on receipt,” “nonrefundable,” or left undesignated, fixed fees must still comply with the prohibition on excessive fees found in Oregon RPC 1.5(a)-(b). As explained in Formal Opinion 2005-151, the excessiveness of a fee may be determined at the outset of representation, as well as at the completion of legal services. Oregon RPC 1.5(b) lists factors to consider when analyzing whether a fee is reasonable, including the time, labor, and skill required to properly perform the legal service, as well as the fee charged.
TIP: Beware of including clauses in your fee agreement that suggest the fee is subject to change without notice. Formal Opinion 2005-97 makes clear that a fee agreement modification that benefits the lawyer requires an explanation of the proposed change, its effect on the client, and client consent. The modification must also be objectively fair.
Well-drafted fixed fee agreements offer many benefits, including setting clear expectations about the scope of representation, as well as limiting the likelihood of fee disputes. Moreover, you can choose to collect the fixed fee at the outset of the relationship, ensuring there are sufficient funds to provide the intended legal services. Drafting fixed fee agreements takes care and a keen eye toward the ethical rules and opinions regarding fees and client property. If you drafted your fixed fee agreements some time ago, then the New Year is an excellent time to review your templates to ensure your documents are compliant with the ethics rules, and also that your agreements provide sufficient clarity for your clients.