C. Confirming the Arrangement

After you decide to retain a lawyer, it is necessary to discuss a variety of points concerning fees to eliminate potential misunderstandings.

Clarify the fee. Most attorneys generally charge a modest fee for the first visit to the office. Fees should be charged only when actual time is spent working on a matter. Charges are based on the amount of time and work involved, the difficulty of the problem, the dollar amount of the case, the result, the urgency of the problem (for example, an arbitration hearing that the attorney must handle the day after he is contacted will command a higher fee than the same hearing that takes place in a month), and the lawyer's expertise and reputation in handling your type of problem. Operating expenses and office overhead are elements that may also affect the fee arrangement.

Frequently a lawyer cannot state exactly how much will be charged because he is unable to determine the amount of work that is involved. In such a case, ask for an estimate of the minimum and maximum fee you can expect to pay. If it seems high, do not hesitate to question it. If necessary, state that you intend to speak to other lawyers about fees.

The fee arrangement is comprised of several elements, which you must clearly understand. Costs are expenses that the attorney incurs while preparing a case or working on a matter (e.g., photocopying, telephone, mailing, fees paid to the court for filing documents). Be certain the fee arrangement specifically mentions in writing which of these costs you must pay.

Attorneys use different forms of fee arrangements. In a flat-fee arrangement, the lawyer is paid a specified sum to get the job done. Most lawyers offer a number of services which are performed on a flat fee basis (e.g., review or preparation of an employment contract and other standard services). In a flat-fee-plus-time arrangement, a sum for a specified number of hours is charged. Once the lawyer works more hours than are specified, the client is charged on an hourly basis. However, most lawyers use an hourly rate, which can range from $175 to $300 or more. Under this arrangement, you will be charged at a fixed hourly rate for all work done. If you are billed by the hour, ask if phone calls between you and the lawyer are included. If so, ask that you be charged only for calls exceeding a certain amount per month. This can be justified by arguing you should not be charged when the lawyer fails to clarify a point, obtain additional information, or discuss news regarding the progress of the case. (See page 307 for a sample hourly retainer agreement.)

In a contingency-fee arrangement, the lawyer receives a specified percentage of any money recovered via a lawsuit or settlement. Contingency-fee arrangements are common in employment-related collection disputes (such as to recover commissions or other monies due). Some clients favor contingency-fee arrangements because they are not required to pay legal fees if their case is unsuccessful. However, some types of contingency fees are not permitted. For example, a lawyer cannot agree to structure the size of his fee based on the type of verdict obtained for a client in a criminal proceeding. Contingency fees are also looked on unfavorably by courts and disciplinary boards in matrimonial actions because they are viewed as encouraging divorces. So, too, are contingency fees in employment suits that exceed maximum allowable percentages (typically 40 percent). (The sample retainer agreement on page 310 illustrates a modified contingency-fee arrangement sometimes used by the author.)

Always spell out contingency arrangements in writing to prevent problems. The agreement should state who is responsible for costs in the event you are unsuccessful. All provisions should be explained so they are clearly understood; be sure to save a copy for your records.

There are distinct advantages and disadvantages in using different fee arrangements. For example, in a flat-fee arrangement you know how much you will be charged but do not know how much care and attention will be spent on the matter. The hourly rate might be cheaper than a flat fee for routine work, but some dishonest attorneys "pad" timesheets to increase their fees. In addition, although contingency-fee arrangements are beneficial to clients with weak cases, they sometimes encourage attorneys to settle "winner" cases for less money than go to court. This is why, no matter what type of fee is agreed upon, it is essential to hire a lawyer who is honest and has your best interests in mind at all times.

Ask for a receipt if you pay for the initial or retainer in cash.If a retainer is required, inquire whether the retainer is to become part of the entire fee and whether it is refundable. The retainer guarantees the availability of the lawyer to represent you and is an advance paid to demonstrate your desire to resolve a problem via legal recourse. Ask if the retainer and other fees can be paid by credit card. Be sure interest will not be added if you are late in paying fees. Request that all fees be billed periodically. Insist that billing statements be supported by detailed and complete time records that include the number of hours (or partial hours) worked, a report of the people contacted, and the services rendered. Some lawyers may be reluctant to do this, but by receiving these documents and statements on a regular basis, you can question inconsistencies and errors before they get out of hand, be aware of the amount of the bill as it accrues, and pay for it over time. The sample monthly billing statement on page 312 is the kind of bill the author prepares for all his clients who are charged on an hourly basis. Insist on nothing less.

Tip:Most important, request the attorney to automatically and timely send you copies of all incoming and outgoing correspondence so you will be able to follow the progress of the case.

Understand what legal fees are deductible.Legal fees are tax-deductible provided they are ordinary and necessary business expenses. This means that the cost of legal fees paid or incurred for the "collection, maintenance, or conservation of income" or property used in producing income can be deducted. Deductions are also allowed for legal fees paid to collect, determine or refund any tax that is owed. Ask the attorney whether fees paid are deductible. Structure the fee arrangement to maximize tax deductions and ask for a written statement which justifies the bill on the basis of time spent or some other allocation to support the claim. Keep the statement in a safe place until tax time, and show it to your tax preparers. Accountants and other professionals often clip copies of the statements directly to the return so the IRS won't question the deduction.

The following is a summary of deductible legal fees:

• Attorney fees paid to negotiate severance pay and other post-termination benefits

• Attorney fees paid to obtain a tax ruling

• Attorney fees paid to negotiate an employment agreement

• Attorney fees paid to fight the enforcement of a restrictive covenant precluding you from earning a living

• Attorney fees paid to file a lawsuit to collect wages, commissions, or other compensation

• Attorney fees paid to oppose a suspension or disbarment of a professional license

• Attorney fees for services tending to increase or protect taxable business income (e.g., defending inherited stock)

Other Items to Clarify During the Interview

Will the attorney be available?Complaints often arise because of poor communication. At the initial interview, ask the lawyer what his normal office hours are. Advise him that availability is very important to you. Request that he return phone calls within twenty-four hours. Insist that his secretary or associate return phone calls if he will be unavailable for extended periods of time, but make it clear you will not call him unnecessarily.

Will the lawyer work on the matter immediately?The legal system is often a slow process. Don't stall it further by hiring a procrastinating lawyer. Insist that the attorney begin working on the matter as quickly as possible. Ask for an estimate of when the matter will be resolved. Include this in the retainer agreement for protection.

Are there hidden conflicts of interest?Lawyers must avoid even the appearance of impropriety. For example, when a lawyer represents you but previously represented your former employer in another case, there is an inherent conflict that limits his ability to zealously promote your best interests. Ask the attorney up front if he perceives any potential conflict of interest (e.g., is he related to or was he ever employed by the person you are suing?). An attorney must decline representing a client when his professional judgment is likely to be affected by other business, financial, or personal interests. If a lawyer is disqualified, his associates and partners are also forbidden to serve you.

How will funds be handled?Lawyers are obligated to keep client funds in separate accounts. This includes.findlaw unearned retainer fees. The rules of professional conduct state that a lawyer cannot commingle client funds with his own, and bank accounts for client funds must be clearly marked as "Client Trust Accounts" or "Escrow Accounts."

A lawyer must notify the client immediately when funds are received. You must also receive an accurate accounting of these funds. This consists of a complete explanation of the amount of money held by the attorney, its origin, and the reason for any deductions. Be sure that you receive this. Ask for a copy of all checks received before the attorney deposits the funds into his lawyer's trust account. Tell the attorney to place your funds in an interest-bearing escrow account. Later on, when the funds are remitted, be sure the interest is included in the amount returned to you.