Introduction
According to the American Bar Association, the percentage of lawyers utilising retainer agreements is increasing yearly. In 2019, the percentage of lawyers who use such agreements was around 84%. With such a high percentage, it’s important to know what it is, how it works, and the benefits it provides.
These agreements can take on many forms, from general retainers that secure a lawyer’s availability for a set period to specific retainers that hire a lawyer for a particular legal matter. Regardless of the type, they offer several benefits to lawyers and clients, including predictable revenue, priority service, and cost savings.
To illustrate the importance of such agreements, let’s consider the story of Lisa. Lisa was in a legal dispute with her business partner over the ownership of their company. The dispute had escalated to the point where both parties were considering legal action. Lisa, determined to protect her interests, reached out to a lawyer for help. The lawyer explained to Lisa that they could represent her in the dispute but would require payment in advance.
Initially, Lisa was hesitant to pay upfront, but the lawyer explained that a retainer agreement would provide her with several benefits, including a clear understanding of the scope of work, predictable fees, and priority service. Ultimately, Lisa decided to sign the agreement, and the lawyer was able to provide her with the legal services she needed. In the end, Lisa won the legal dispute, and the agreement helped her save money by providing her with lower rates than hourly billing.
What is a retainer agreement?
A retainer agreement is a work-for-hire legal contract between two parties, i.e., two individuals or a company and a client. It outlines the services the parties will provide and the payment the client will make for those services.
For instance, in August 2022, it was reported that the British Royal Family had hired a law firm on a retainer agreement to represent them in a case related to alleged misconduct within the family. The law firm was hired to provide legal advice and representation for the family as they dealt with the allegations. This demonstrates how retainer agreements are commonly used in the legal industry for lawyers to work on cases and provide legal services, even for high-profile clients like the British Royal Family.
Types of Retainer Agreements
There are different types of retainer agreements, but the two most common ones are as follows:
General Retainer Agreement
This type of agreement is where a lawyer is hired to be available to the client for a fixed period. The client pays a fee to the lawyer to secure their services, and the lawyer is then available to the client throughout the agreement. The retainer fee is not refundable and is considered payment for the lawyer’s availability. For example, a client may hire a lawyer for a year to be available for consultation on various legal matters.
Specific Retainer Agreement
This type of agreement is where a lawyer is hired for a specific legal matter. The client pays a fee to the lawyer to represent them in a specific case or legal matter. The fee is refundable if the case is resolved quickly or the lawyer’s services are not required. For example, a client may hire a lawyer to represent them in a divorce case.
Hourly: A type of agreement where a client pays a lawyer for the time they spend working on a legal matter, usually in increments of hours. The lawyer typically bills hourly and provides the client with regular invoices detailing the time spent on the case. Hourly retainer agreements can provide flexibility for clients who need ongoing legal services but can also lead to higher costs if the case takes longer than expected.
Flat or Block Fee: A type of agreement where a client pays a fixed fee for a specific legal service or set of services. The fee is agreed upon in advance and remains the same, regardless of how much time or work the lawyer puts into the case.
Contingency: A type of agreement where a lawyer agrees to take on a client’s case and only receives payment if the client wins or settles the case. The lawyer’s fee is typically a percentage of the settlement or award.
Hybrid: A type of agreement that combines elements of both a flat fee and a contingency fee. Under a hybrid agreement, a client pays a reduced upfront fee and a smaller contingency fee if they win or settle the case. This type of agreement allows clients to balance the benefits of a flat fee with the incentive of a contingency fee.
Benefits of Retainer Agreement
Retainer agreements provide several benefits to both the lawyer and the client. Some of these benefits include:
Predictable Revenue
Lawyers can rely on the payment made in advance, which provides predictable revenue, ensuring they can cover expenses and support their legal practice. Retainer agreements can provide a steady and predictable source of revenue for lawyers. By securing a client’s commitment to pay for services upfront, lawyers can ensure that they have a consistent cash flow. For example, a law firm may enter into a retainer agreement with a corporate client for a set number of hours each month, ensuring that they have a steady revenue stream.
Priority Service
Clients who sign retainer agreements often receive priority service from their lawyers. Lawyers are typically more responsive to retainer clients, as they have already committed to providing services. For example, if a client has a retainer agreement with a law firm, the firm may prioritise their case over non-retainer clients, ensuring they receive a faster response time.
Cost Savings
Retainer agreements can help clients save money by providing lower rates than hourly billing. By committing to a certain number of hours or services upfront, clients can often negotiate a lower rate with their lawyer. For example, a client who signs a retainer agreement for 20 hours of legal services may receive a lower hourly rate than a client who is billed hourly.
Reduced Risk
Retainer agreements provide clients with a clear understanding of the scope of work that their lawyer will provide. This can help prevent misunderstandings and ensure clients receive the legal services they need. For example, if a client signs a retainer agreement with a law firm for assistance with trademark registration, the agreement will outline the specific services the law firm will provide related to trademark registration.
Factors to Look Into When Signing a Retainer Agreement
Before signing a the Agreement, clients should consider several factors to ensure they get the best possible deal. Here are some of the most important factors to look into:
Scope of Work: Clients should carefully review the scope of work outlined in the the agreement. The agreement should clearly define the legal services the lawyer will provide and include a detailed description of what is and is not covered by the agreement. Clients should ensure that the agreement covers their legal needs and that they are not paying for services they do not require.
Payment Terms: Clients should carefully review the payment terms outlined in the agreement. The agreement should clearly outline the payment schedule, the hourly rate or flat fee, and any additional expenses or fees. Clients should ensure that they understand the payment terms and are comfortable with the payment structure before signing the agreement.
Duration of Agreement: Clients should consider the duration of the the agreement before signing. Some agreements are open-ended and remain in effect until terminated by either party, while others are for a fixed term. Clients should consider their legal needs and the duration of the legal matter when deciding on the duration of the agreement.
Termination Clause: Clients should carefully review the termination clause in the agreement. The clause should outline the circumstances under which the agreement can be terminated and the consequences of termination. Clients should ensure that they understand the termination clause and are comfortable with its consequences.
With LegaMart, clients can easily find and hire the right lawyer and feel confident they get the best legal services. Through LegaMart, clients can compare the profiles of different lawyers, read reviews from previous clients, and request proposals from multiple lawyers. LegaMart can also guide clients on reviewing and negotiating an Agreement, ensuring they are getting the best possible deal.
Major Red Flags In A Retainer Agreement
Excessive Fees or Expenses
The agreement that charges excessive fees or expenses can be a red flag. Clients should carefully review the payment terms outlined in the agreement and compare them to market rates for similar legal services. Additionally, clients should be wary of unexpected fees or expenses not disclosed in the agreement.
One-Sided Termination Clause
The agreement that gives the lawyer the power to terminate the agreement without cause can be a red flag. Clients should carefully review the termination clause and ensure that it allows them to terminate the agreement under reasonable circumstances. Additionally, clients should be wary of any termination clause that imposes disproportionate consequences for termination. For example, it allows the lawyer to terminate the agreement at any time without cause, and imposes a penalty of 50% of the total fee for early termination, may be considered one-sided.
Conflicts of Interest
A retainer agreement that fails to address potential conflicts of interest can be a red flag. Clients should ensure that the agreement contains a conflict of interest provision and addresses the circumstances under which the lawyer may have a conflict of interest. Additionally, clients should be wary of any agreement that requires them to waive their right to pursue a claim against the lawyer for a conflict of interest.
Lack of Communication Plan
If it does not outline a clear communication plan can lead to frustration and confusion. Clients should ensure that the agreement includes provisions for regular updates and communication, including the frequency and method of communication. For example, if it does not specify how often the lawyer will communicate with the client may make the client feel neglected or uninformed.
Lack of Clarity Around Confidentiality
If it does not address confidentiality can be a red flag. Clients should ensure that the agreement includes a confidentiality provision that outlines the lawyer’s duty to maintain the client’s confidentiality and any exceptions to this duty. For example, an agreement that does not specify how the lawyer will handle confidential information may risk the client’s sensitive information.
Limited Scope of Services
One that only provides for a limited scope of legal services can be a red flag. Clients should ensure that the agreement covers all necessary legal services related to their matter and that any limitations on services are clearly defined. Additionally, clients should be wary of any agreement that limits the lawyer’s liability for certain services. For example, if it only provides for drafting a contract but does not cover reviewing or negotiating the contract may leave the client with an incomplete or insufficient legal product.
Conclusion
In conclusion, a retainer agreement is a vital tool that can help ensure a productive and beneficial relationship between a client and their lawyer. By understanding the different types of retainer agreements, as well as the benefits and potential red flags to look out for, clients can make informed decisions about the agreements they enter into. Additionally, by considering important factors such as the scope of services and fee structure, clients can ensure that they are receiving quality legal services at a fair price.
Legal professionals can be valuable resources for clients who have questions or concerns about retainer agreements. A skilled attorney can help review and negotiate the terms of a retainer agreement to ensure that the client’s interests are protected.
Overall, a well-drafted and fair retainer agreement can provide peace of mind for both the client and the lawyer, allowing them to focus on achieving the best possible outcome for the legal matter at hand.
