#117 How Lawyers Charge
Legal services are an essential part of running a business but understanding how lawyers charge for their services and knowing what to watch out for can save you some headaches (and money) down the line. So, I’m here to help you unravel the mysteries of lawyer fees together.
In this episode, I’ll take you through the legal requirements we lawyers must follow, finding the right fit for you, understanding how different lawyers in different practice areas charge differently, and the different methods lawyers can use to bill a client.
It's absolutely essential to have open and transparent communication with your lawyer about billing expectations from the very beginning. Make sure you discuss and receive their client service agreement that includes any potential additional charges. This will help avoid any misunderstandings down the line.
One common method of payment for a lawyer is the hourly rate. This is fairly easy to understand and means that you'll be billed for the actual time spent working on your case. Hourly rates can vary depending on the lawyer's experience, expertise, and location.
Now, remember not everything a lawyer does will be charged at their hourly rate. Administrative tasks, such as making copies or sending emails, are often billed separately. These additional charges, known as disbursements or out-of-pocket expenses, can quickly add up, so it's wise to discuss them with your lawyer and have a clear understanding of what to expect.
Another billing method that's becoming more popular is the flat fee or fixed fee. This is the charging method I use in my business with clients and I find it works best for me. This means you'll pay a predetermined agreed-upon amount for a specific legal service. This approach provides transparency and allows you to budget accordingly. However, remember to discuss the scope of work covered by the flat fee to avoid any surprises and, if needed, your lawyer can change and update it if the nature of the work changes.
Sometimes, lawyers may also offer contingency fees, particularly in certain types of cases like personal injury or compensation disputes. In a contingency fee arrangement, the lawyer will only be paid if they win your case or secure a settlement. They'll take a percentage of the amount recovered. While contingency fees can be enticing, be sure to understand the specific terms and the percentage the lawyer will claim if successful.
The devil is in the details!
Finally, we have the retainer fee. You pay your lawyer a fixed amount of money each month for their services. This is useful as you'll know what you're getting from them each month and you'll always be a priority in their caseload.
Tune into this episode to arm yourself with this knowledge about lawyer fees. Whether it's hourly rates, flat fees, contingency arrangements, or retainers, understanding how lawyers charge and what to be cautious of will help you navigate the legal landscape more confidently.
Stay informed, ask questions, and build a strong partnership with your lawyer. With the right legal guidance, you can protect your business and keep those legal headaches at bay!
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[00:00:00] Tracey: Hello everyone and welcome back to another episode of the Rise Up in Business podcast. I am going to talk about a really important topic today, and that is how lawyers charge. It's a topic that comes up a lot, and rightly so. As business owners, we are doing all the things and wearing all the hats, and that includes the finance hat or the financial planning or the books or the records or whatever you wanna call it, if it comes down to the money. When you are working with a lawyer, there's a couple of things that I really wanna shine the light on so that you know how it is lawyers charge and what obligations lawyers have to you around how they charge.
[00:01:05] So let's dive in. When you are looking to engage a lawyer, one of the first things you do, obviously is talk to them to see if they're the right fit for you to see whether they're gonna be able to help you to see whether they're going to be able to assist with whatever it is that your needs are at the time. Different lawyers in different practice areas charge in different ways. I'm gonna take you through those different ways in this episode, but the first thing I wanted to share with you is lawyers have legal obligations to be really transparent with you around their charges.
[00:01:37] So all lawyers are members of a state or territory law society, and each year our practicing certificates need to be renewed. So we've got ongoing legal and professional obligations to the law society, to the court, and to you, our clients. That means that when we are going to work with a client, we need to issue our cost disclosure or our cost agreement, or our engagement letter.
[00:02:04] That can be called various things depending on the law practice and the state or territory that they're practicing in. But the point is they issue you their agreement. So they issue you their service agreement in one shape or another, and it needs to disclose the costs. So you're told upfront how you're gonna be charged and what you're going to be paying. In there it sets out your rights if you have a dispute in relation to what you've been charged. Or what you've been asked to pay because you as the client have rights. So that's important. That's the first thing I wanted to share. Lawyers have professional and legal obligations to disclose to you always what they're charging you and how they're charging you.
[00:02:43] That's the first thing. Something that comes up a lot is when people reach out and they ask me. Questions about previous lawyers that they've worked with, because I get clients, both new clients who haven't worked with a lawyer before, and I get clients that come from other lawyers because they're really unhappy.
[00:02:59] Well, let's face it, we don't leave professional service providers do we if we are happy, um, and if we're getting our needs met, and clients do come along to me and they ask me to give them some advice and guidance around some grievances or some issues that they have with previous lawyers or previous service providers. One of the big things is fees and charging, and there's a lack of clarity often around what it is that the lawyer was supposed to do, promised to do, agreed to do, what they actually did and what they charged.
[00:03:29] So you hear me a lot on this podcast, talk about your client service agreement and how they serve so many purposes for you, particularly around managing client expectations. Well, that extends to us as lawyers too. So us as lawyers, we really should have stellar client service agreements or engagement letters so that you know exactly what you're getting and exactly what you're paying for if you don't, red flag. Okay, so when we get down to the different ways lawyers charge, this can be confusing because like I said earlier, different practice areas, different lawyers practicing in different practice areas, charging different ways. I'm gonna take you through them. Now. The first one I wanna talk about is the hourly rate.
[00:04:09] So this is really common amongst multiple practice areas where you go to see a lawyer and you say, this is what I need done. How much is it gonna cost? They say, how long's a piece of string? We just don't know. Therefore, we'll charge you on a time spent basis. It's really common in family law matters, in litigation and dispute matters, even some commercial matters.
[00:04:29] It's really common because you don't know at the beginning what's going to be required in a litigation matter. For example, if you've been sued, you don't know what steps are going to need to be taken, how long it's gonna go for, what interlocutory applications are gonna be made. You just don't know. So in those circumstances, lawyers will say, we'll charge you at our hourly rate, here's our hourly rate, and we'll give you a fortnightly or a monthly bill. It'll set out all the work we've done and you pay for that. And this is where you see line items like telephone call with client, perusing email from client perusing and considering email and responding to client.
[00:05:08] This is where we see all that, and this is where you see lawyers charge in six minute increments, so charging billable units, so if an hourly rate is fixed, it gets broken down in the system. You bill every six minutes. The system spits out an invoice at the end of the fortnight or the end of the month, and all those little six minutes are all added up and the client gets the bill.
[00:05:30] That way of charging, conserve its purpose. Sometimes I don't like it. I've moved away from it deliberately and intentionally. And if you know me or if you've been listening on for a while, you'll know why I've moved away from that and you, you know how I charge now and I'll talk about that as well, but that's the typical traditional hourly rate way lawyers will charge. Some practice areas, lend themselves to a contingency fee or no win, no fee. So we've all seen the ads on TV or the back of a bus, personal injury, worker's compensation, come and see us. No win, no fee, nothing to pay, all of that. That lends itself to a situation where lawyers will agree to take on a matter for you, but they're not gonna charge you for their fees unless you win.
[00:06:18] Now with that, like most things, the devil's in the details. So you need to understand what it is that you do actually have to pay for along the way. Because when they say no win, no fee, that applies to their fees, but it doesn't apply to disbursements. So things like medical expenses or reports, things like that, that you still often need to pay along the way.
[00:06:39] Some lawyers will actually fund that for you if they've made an assessment of your case early on, and they think, you know what, this is a really good case. It's got really good prospects, and because the client, um, or the plaintiff doesn't have the financial means to pay these expenses along the way, sometimes they'll do it. But it'll all be set out in their engagement letter or their cost agreement with you.
[00:07:02] The devil's in the detail to understand what it is that you need to pay for. What's on contingency? So what don't you have to pay for unless you win? But like all things, we need to be aware of the downside and our risk. And in cases like that, I've heard too many stories where clients become confused because they think they've got nothing to lose.
[00:07:25] They'll give it a crack when the actual reality is it's all well and good to say it's contingency. No win, no fee. If we don't win, I don't pay, but you can end up with a cost order against you if you lose, which means if you lose, you actually have an order, a legal order that you have to pay the other side's legal costs.
[00:07:45] So devil's in the detail, drill down into the agreement and the terms and make sure you know what your exposure is. So contingency, no win, no fee. That's the second one. But it only applies to those types of cases, so it doesn't apply to criminal law, for example, or business or commercial law, like what I do, it only has a place in certain areas.
[00:08:07] So hopefully that shed a little light if you've been wondering about that. Then there's the flat fee or the fixed fee, or even value-based pricing, and that's where lawyers like myself will speak to a client, crystallize or clarify the scope of work, what it is that you need help with, and they will give you a fixed fee.
[00:08:25] This is the space I operate in. So when a client comes along, because I've been doing this for so long, I know what's involved. I know what I need to do. I know how to best meet my client's needs. I'm prepared to back myself, and I'll actually say to you at the outset, this is the work we're gonna do together.
[00:08:42] This is what you will pay for this work. This is what you'll pay. So there's absolute crystal clear clarity. I will say to you, if the scope changes and you decide you also want X, Y, and Z, I'll give you another fee proposal then, but with lawyers like me, you'll always know upfront what it is you're required to pay.
[00:09:01] So no surprises. So lawyers that operate in this space have recognized that clients aren't served well by the traditional hourly rate. Clients don't want that. And as a business owner myself, the reality is we like to be able to insert our figures into our budget and our financial plans and our spreadsheets so we know what it is that we're paying for.
[00:09:25] No surprises. So the fixed fee or the flat fee, or the value-based pricing fee, all sits under this umbrella where a lawyer will say to you at the beginning, this is how much you have to pay. We didn't used to see this a lot, but over the four years that I've been running this business, I'm seeing it more and more.
[00:09:43] And I'm really heartened to see that because it's a sign of the times I think, where lawyers are starting to listen to the clients and what the clients want, which I think is fabulous and, and we should all be doing more of that. And the last one I wanted to talk about is the retainer fee. So, we all know what a retainer is. We pay a certain amount each month for services, and lawyers can operate on retainer as well. In fact, they often do. You will be paying your lawyer a fixed amount of money and you will be knowing what it is that you're getting from them each month.
[00:10:14] Now, whether it's documents that you need or whether it's a lawyer to be on call, whether it's advice around the clock. Whether you've gone into a retainer arrangement just for one or two quarters because you're going through a particularly stormy chapter in your business and you need that round the clock support, or you need that priority support.
[00:10:31] Lots of lawyers act for clients on this basis so that the client has the peace of mind that they've got their lawyer on call, they're gonna take priority, and they're not going to ring up one day and the lawyer says, sorry, I don't have capacity or availability for the next week and a half, and I can't help you.
[00:10:44] So there's benefits to the retainer, but again, clarity around the amount that's being paid and the services that are being received over each time period. So what we've got there is the different ways lawyers charge hourly rate contingency or fixed fee, or flat fee billing.
[00:11:01] Retainer. We also get into those additional services. So always if there are additional things that you need from your lawyer which haven't been captured in your arrangement or your engagement letter or your cost agreement, they'll be charged extra. So, like I said a moment ago in my practice, if we agree on a certain scope of work that you need from me and certain level of support that you need.
[00:11:24] If something changes and if that changes and I need to do something different or something more, I'll always advise you in advance upfront what that's gotta be because you are in control and you can make a decision on whether or not you wanna do it. Sometimes that advanced transparency doesn't occur with lawyers, and this is where I see a lot of criticism. Where clients only realize that they've been charged for additional things when they receive an invoice.
[00:11:53] But there was a line in the cost agreement that said, we'll charge you more if we had to do more. So again, the devil's in the details. So my hot tip here is when you're working with a lawyer, make sure you do read that cost disclosure or that engagement letter that they send you so that you know what you're paying, how you're being charged, and when you'll be charged.
[00:12:13] So that's a little takeaway for this episode. Because of all the different ways that lawyers can charge, it's really important to work out what's right for you. So when you're about to engage a lawyer, like I said at the beginning, of course you've spoken to them to see whether there's an alignment and whether they're the right fit for you, but understanding how they charge.
[00:12:31] And when you'll be required to pay and how you'll be required to pay is just as important in any professional relationship, I would suggest, because we need to know what's expected of us in the relationship, and we need to know how that professional service provider works. Some lawyers will invoice fortnightly, monthly.
[00:12:48] Standard practices for lawyers to request funds to be held in their trust account in advance. Some will offer payment plans. They're all just a little different, and each practice, and each lawyer has their own nuances, so taking the time to understand how that works will serve you very well going forward. So I hope that's been helpful in unpacking for you how lawyers charge and what those different charging methods look like.
[00:13:12] If you've got questions, please don't hesitate to reach out. I'm always here. You can book in for a free chat and ask all your questions. I'm so happy to help. As always, thanks so much for listening. I'll catch you next time.
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