In the Year 2000: Fixed Fee Legal Services?
In the year 2000 (excuse the cheap Conan O’Brien reference) I’m supposed to have a flying car and a machine that dresses me in the morning. Unfortunately, I have neither. In fact, I would venture to guess that the way in which I get myself ready in the morning for work is not that different than what my grandfather did 60 years ago. The same concept holds true for how law firms bill clients…the traditional hourly billing method.
Now, the hourly billing method has been successful for attorneys and the clients they serve…so there is no need to throw the baby out with the bathwater right away. But it is equally true that in today’s economy, hourly billing can sometimes not be the most economically efficient way of providing legal services to clients.
All that being said, and given the recent cost-cutting focus of large corporations and rich people the world ’round, the law industry is beginning to come around to the notion of Fixed-Fee Legal Services (as this story proves).
What a concept.
Fixed-Fee legal services are already something offered by many attorneys (including your humble author), and a practice that is more prevalent than traditional hourly billing in some areas. The fact that the legal industry as a whole is beginning to entertain the notion makes it newsworthy, but certainly not original.
Fixed-fee has the potential to be both the greatest revelation in attorney/client relations since the introduction of computer technology and, at the same time, the worst idea ever. The key to fixed-fee (and to successful hourly billing) is at all times managing client expectations; understanding the scope of work to be done; and fleshing out the relevant facts before beginning work.
Lawyer Money Stuff: Retainer Fees and Fee Agreements
Money. It’s the reason a lot of lawyers become lawyers in the first place (because they want a lot of it). We all grew up watching Perry Mason, Matlock or LA Law and thought…those guys make good money, I should do that! But how is it that lawyers get paid? And why does paying their lawyer make most clients jittery, sick and/or angry enough to wield a gun?
A Fee Agreement is a required (as in, required by most states in their code of professional conduct for attorneys) contract between an attorney and a client. The Fee Agreement, also known as an Engagement Agreement or Retainer Agreement, represents the understanding between the attorney and the client. For example, “I will defend you from that unfortunate animal cruelty and public indecency indictment from beginning to end, and you will pay me $500 per hour for every hour that I work on your case.” This would be a very basic Fee Agreement. It spells out what the lawyer will do for the client, and what he/she will charge.
A Retainer Fee is a necessary part of the Fee Agreement and payment arrangement among the client and the attorney. Often, an attorney takes on a client for a single, one-off representation. Because of this, and because of the way in which legal representation is front-loaded with costs (the attorney usually expends the most time, and thus bills the most hours, on the front-end of the engagement), the attorney usually requires a Retainer Fee.
This is an up-front deposit by the client which shows that the client is serious enough to put down a significant sum of cash, and assures the attorney that he/she will be paid at least for initial work done for the client. The attorney takes the retainer fee, and starts working. Until the attorney has expended hours working on the client’s matter, he/she is not entitled to keep the retainer (it remains the property of the client and the attorney must keep the retainer fee separate and apart from his own funds). Once the attorney has billed hours to the client, the attorney credits the retainer fee over to his own account. This is the easiest payment an attorney will ever receive (because to get the money, all the attorney has to do is make an accounting entry…way better than arguing with clients).
So there it is…how attorneys get paid…the easy way.
New Post on the Nanny Tax at Grown in My Heart
Just posted here at Grown in My Heart on the so-called “Nanny Tax” talking about the tax aspects of hiring nannies or other household workers.
Hell hath no fury like an employee scorned…
I’ve been meaning to put up a post for a while now about how badly an ex-employee can sting your business…even if you have all the standard non-solicitation and confidentiality provisions with the employee in his or her employment contract.
Prime example: Nelson Piquet, Jr., a former Formula 1 race driver. As can be seen here, here and here; Mr. Piquet and his former bosses at Renault F1 agreed last year that Nelson would crash his car deliberately in order to give an advantage during a race to his teammate. The circumstances surrounding Mr. Piquet’s (and his bosses’) acts are not that important other than for illustration…but the point is this: once Nelson was fired from the team, he got back at his former employer by telling all to the Formula 1 governing body. Chaos ensued for his bosses and his employer.
This happens all too often in small businesses…paying employees under the table…installing one licensed software program on many company computers…and other similar activities occur with the open endorsement of those in charge. Then, once a knowledgeable and disgruntled employee leaves the ranks, he or she decides to get back at his former employer by ratting it out to anyone that will listen.
The moral of the story is obvious…although most business owners play this game to some extent or another despite warnings like this.
Asset Protection if you hit your head…like Conan O’Brien
Conan O’Brien made news last week when he cracked his melon against the Tonight Show floor. Luckily, he was fine with just a minor concussion. Obviously, Conan didn’t set out to slip and fall on his head…but he did. Life happens, including undesirable events. This is why people buy insurance, and why most everyone can benefit from a comprehensive estate plan.
Whenever I talk about asset protection, most people have visions of Learjet rides to Barbados with a suitcase full of cash and exotic trust documents. But asset protection can be as simple as having a comprehensive estate plan, for instances just like Conan’s accident. How can an estate plan serve an asset protection role?
Let’s assume for a moment that after Conan hit his head, he wasn’t fine. In fact, let’s assume that he hurt himself to the extent that he became permanently impaired for the rest of his life…unable to walk, talk, eat or competently make his own decisions. This is bad enough of course, but in the days and weeks following the shock of the accident, Conan’s family and advisors would very likely need to be able to deal with his property…this could be something as complex as executing a major media business deal (perhaps the use of his likeness for a new toy doll to be marketed throughout the United States) or something as simple as selling his house.
Either way…Conan needs to sign. Problem is (at least in our example) he can’t sign…he can barely say his name. Without an estate plan in place, Conan’s wife will have to go to court and obtain a guardianship over him. This will give her the power to deal for him. In addition, she’ll need to get a “bond” in the amount of his total assets…this process can be very, very expensive, time-consuming and emotionally trying.
With a comprehensive estate plan, Conan’s wife would have the power as successor trustee of Conan’s trust and as Conan’s agent under power of attorney for property to deal with his property without the delay and cost of obtaining a guardianship. No business deals lost, no additional emotional strain. Pretty good.
