Most attorney-client relationships start the same way—with a fee agreement or engagement letter. Sometimes lawyers view the fee agreement as nothing more than a contract for legal services. It certainly is that, but also is so much more because it shapes everything that comes after the retention and provides the framework for the relationship.
- Identify the client
All fee agreements should clearly define those persons and entities to be represented. Obvious though this requirement may be, it is one of the most frequent sources of later trouble for lawyers. Identifying the client is relatively simple in many cases where you are representing just one person and taking direction solely from that person. The same task gets significantly more challenging when you are asked to represent multiple entities and possibly shareholders, all while taking direction from a different person who is an officer of the company.
It is important to get this right. First, it enables you to evaluate and manage potential conflicts of interest between clients. Moreover, just as you must make clear who the client is, sometimes you also must make clear who the client is not. The last thing any lawyer wants is to get sued by someone who, unbeknownst to the lawyer, thought they were being represented.
- Scope of the representation
The scope of the representation should be clearly defined. Explicitly laying out what the lawyer will and won’t be expected to do protects both the attorney and the client. On the front end, it protects the attorney from situations where a client wants the lawyer to handle other matters that the lawyer did not agree to handle. On the back end, it protects the lawyer from being criticized for not handling other matters. A clearly defined scope also protects clients by communicating what matters the lawyer won’t be handling, so that the client can engage other lawyers to protect their interests on those other matters.
- The rate or basis of the fee
How and how much the lawyer will charge is an important part of the engagement. But in addition to clearly identifying the basis of the fee, lawyers need to clearly state if and how hourly rates will change during the course of the representation, how expenses will be handled, the right to withdraw for non-payment, as well as the use or replenishment of retainers.
- Negotiating the fee agreement
While an engagement agreement is simply a services contract, in one important way it is much more than that. Negotiating a fee agreement with a prospective client is different than the negotiations for any other contract. The Supreme Court of Texas has made it clear that lawyers have a duty, at the outset of the representation, to “inform a client of the basis or rate of the fee” and “the contract’s implications for the client.” That means that you must—before you even have a contract—explain to the client the pros and cons of that agreement for the client.
- Fee sharing
If you are going to share fees, that must be spelled out as required by the ethics rules. Fee-sharing means two or more lawyers (not in the same firm) representing a single client in the same matter. This applies to nearly all types of fee arrangements, including referrals, joint ventures, retention local counsel, or the use of contract lawyers. But it does not apply to separation or retirement agreements after representation starts.
Under the ethics rules, if you are going to share fees the division must be (a) in proportion to the services provided, or (b) between lawyers who assume joint responsibility. The engagement letter or fee-sharing agreement must:
- Be in writing,
- Signed by the client before the time of association,
- Identify all lawyers or firms,
- Identify the basis of the division,
- Show how much each lawyer will get, and
- Be reasonable when viewed as an aggregate fee.