Our final guest author this week is Mike Banks, COO of Fund & Grow. Summary of what you’ll learn: Hiring a lawyer for your business can be an expensive affair, irrespective of the type of legal problem you’re dealing with. What’s more, legal fees are complicated, so it’s usually difficult to understand beforehand how much you’ll need to pay. In this article, we’ll walk you through the different methods through which a lawyer’s fees are calculated, and tell you ways in which you can reduce them.
Written by Mike Banks
Mike Banks is the COO of Fund&Grow. He invests in Real Estate in Tampa Bay and surrounding areas.
At some point or another, you may need a lawyer for your business – whether to draft founder agreements, review contracts, handle employment issues, or deal with a lawsuit.
The good news is that, in most cases, you shouldn’t have to pay an arm and a leg for the attorney’s services.
Before we tell you the different ways in which you can reduce legal expenses, let’s discuss the various types of attorney fees.
What are the different ways in which attorney fees are calculated?
There are 3 main ways.
- Hourly rate
This is the most common method of fee calculation.
It depends on various factors, such as location, case type, firm, as well the lawyer working on your case.
The hourly rate usually ranges from anywhere between $100 – $400 an hour, although some are more expensive.
In the case of the hourly rate method, the firm keeps a record of how many hours they’ve worked on your case and then bills you accordingly.
You’ll need to pay the hourly fees due, irrespective of whether you win or lose the case.
- Flat fee
Flat fees are fixed upfront for a specific service.
The amount can be anything that you and the lawyer agree upon.
Flat fees are generally set for uncomplicated cases where the scope of work is limited.
For example, if you want to draw up a simple will, you can usually get the lawyer to charge you a flat fee.
- Contingency fee
In this case, you’ll pay the fee only if a specific predetermined outcome is reached – perhaps if you win the case or reach a settlement.
As an example, let’s assume that you hired a lawyer to sue a doctor for medical malpractice.
As payment, you agree to give the lawyer 40% of the settlement amount.
The lawyer will receive fees only if you win the case.
With contingency cases, attorneys are incentivized to settle cases and not go to trial to maximize the return on their time.
If you lose, there may or may not be fees required for out-of-pocket expenses that the lawyer has to incur – this should all be discussed upfront.
What you should know about legal fees
Before you get into an agreement with a lawyer, you should keep the following rules in mind.
This will help you negotiate the lowest fees without compromising on the quality of service.
- As far as lawyer fees as concerned, there is no standard rate. The charges will depend on a variety of factors like the type of work and the going rate for similar cases, the lawyer’s reputation, and so on.
- For simple cases, it’s a good idea to comparison shop. Interview a number of lawyers to get an idea of the fee range. Then pick the attorney who suits you best. Avvo.com and Martindale.com are good places to see how attorneys are rated.
- A lawyer who charges you extremely low fees may not necessarily be good for you. If they are inexperienced, the drawback will likely cost you more in the long run.
- At the same time, you don’t always need to go after the best. If it is a simple requirement, such as drawing up a health care proxy, there is no point in hiring the best lawyer because any decent attorney can do a perfectly good job.
- Contingency fees don’t always make sense – especially in cases where it’s obvious that the other party is at fault. In other words, there’s no point in paying 30 – 40% of the settlement amount to your lawyer when you know that the ruling is likely to be in your favor or the case will settle prior to going to trial. Contingency fees are preferable when the risk that you’ll lose the case is greater, or it may span a long period of time and/or may require a lot of billable hours and expert witness fees.
How can you reduce your legal fees?
If you keep the above points in mind before you start looking for a lawyer, you’ll go a long way in keeping the fees low.
Apart from that, remember to:
- Negotiate with your lawyer
Some of the ways in which you can reduce fees include negotiating:
- flat fees instead of an hourly rate
- hourly rates that’ll be limited to a pre-agreed maximum amount for the entire job
- fees that are partly fixed and partly based partially on the outcome. This is also known as a success fee – in such cases, you pay hourly fees at reduced rates, along with a bonus if the attorney achieves a specific result.
- depending on how busy an attorney is, especially for a sole-practitioner, he/she/they may be able to negotiate a lower hourly rate rather than lose your business to someone else.
- Figure out the billing method for hourly rates
Here, you should know about the billing increment concept.
In case of hourly rates, the billing increment, or billing unit, is the shortest amount of time for which the employee will bill you.
Let’s say you are paying an hourly rate of $120 and the billing unit is 15 minutes.
In that case, each increment or unit is $30.
Now, billing units are not divisible, so if the work requires lesser time, you’ll still need to pay for a whole increment.
For example, let’s say the lawyer makes a 5-minute phone call on your behalf. In that case, you’ll need to pay $30 – the full fee for one billing increment.
You may be able to negotiate with your lawyer to bill at 6-minute instead of 15-minute intervals – this can save you hundreds of dollars.
Continuing our example, if the hourly rate is $120, a five-minute phone call would now be billed at $12 instead of $30.
When you’re being billed at an hourly rate, it is also important to understand how experienced the lawyer is – for example, an inexperienced lawyer may charge you half the rate of an experienced lawyer but take three times as long to do the work.
For the same reason, whenever you engage the services of a law firm, you must be wary if you are told that a young associate is being assigned to your case at a lower rate.
Even if the firm claims that the associate is being supervised by senior partners, they may take an inordinate amount of time to finish your work, or bill you for research or on-the-job learning.
- Review the retainer agreement closely
The retainer agreement acts as a contract between you and your lawyer – it states the work to be done and associated fees.
Read it carefully to make sure that it contains all the fee-related arrangements you made during your negotiations.
The agreement should also contain details like how often you’ll be billed and the billing increments/units that will be used.
Finally, check to see if people, other than the attorney you hired, will work on the case, and at what rate they will be billed – e.g., secretaries and paralegals often bill at a much lower rate.
Going through the agreement closely can help you identify any clauses that might enable the lawyer to charge beyond your expectation. If you see any such thing, speak to your attorney before you sign the agreement.
- Watch out for signs of overbilling
You have legal rights that protect you if your attorney tries to overbill you.
Look out for:
- Bills that are not itemized.
- Excessive staffing – if your matter is small and uncomplicated, there’s no need for several attorneys to be working on your case.
- Excessive time to complete tasks, such as legal writing or researching.
- Failure to delegate – a highly paid lawyer should not waste time on routine legal research and writing – instead they should get that work done by a junior lawyer or paralegal who charges lower rates.
- Double-billing – the lawyer is not allowed to bill more than one client for a one-time effort that’s being used in multiple cases.
- Lawyer training expenses – you should not be responsible for the time it takes to train a new lawyer in a new area of law.
- Unannounced rate changes – a lawyer can’t suddenly start billing you at a higher rate that’s different than what’s contained in your agreement.
- Charges pertaining to time spent on billing or collections – if you and your lawyer have a discussion over the billing amount, the lawyer can’t charge you for that time.
- Unreasonable charges relating to office overhead, administrative work, clerical services or secretaries, receptionists, and photocopy operators.
If you’ve been billed on any of the above, you should dispute that charge as you may not be liable for them.
- Understand if you can help the attorney in any way
For example, if your attorney needs certain records like a copy of a birth certificate, then you could write the letter to request the same, instead of having your lawyer do it.
You could also set up an arrangement with the lawyer to split the work.
For example, say, you draft an agreement or fill up a form using a standard guide.
The lawyer will then just need to review and finalize it – this will save them time and effort and, in turn, reduce the fees you’ll need to pay.