Hourly Verses Flat Fee Billing - Determining Which is Better for Your Case
This guide shows potential clients who are seeking legal representation the general difference between attorneys who charge a "flat fee" verses attorneys who "bill by the hour". Further, the potential client is shown the reason that their case will be handled more effectively in the hourly setting.
The General Difference Between Hourly Billing and Flat Fee BillingWhether you are seeking an attorney for the first time or for a subsequent time, you will likely encounter two types of billing structures in the family law "arena". Those two types of structures include "hourly" billing and "flat-fee" billing.
Hourly billing means exactly what its name implies. Namely, the lawyer (and oftentimes the lawyer's legal staff) charges a certain hourly rate (usually dependent on reputation, skill, experience and credentials) for the work that is done in your case. In this situation the client usually pays a certain retainer down. This retainer amount (if estimated properly) is based on an educated calculation given the facts of your case. An attorney familiar with the practice area (whether it be family, civil etc.) will, after sitting down with you and discussing the facts of your case, assess your situation and determine what legal procedures need to be done in your case. This could involve anything from the amount of time it takes to file a petition to how long the discovery process will likely take to complete and so on. After making this calculation, the lawyer collects a retainer based on this estimation and puts it into a trust account. As the case progresses and the lawyer completes work on the case, the funds are moved from the trust account and are collected by the law firm. During this process the client is entitled to an accounting upon demand. Good law firms usually give their clients a periodic accounting as a courtesy. At the end of the case, if any amount is left over, this is returned to the client. To the contrary, if the account balance runs low during the course of the case, the law firm will often require the client to deposit more into the account in order to proceed with the case.
Flat-fee billing also means exactly what it's name implies. In this situation a client pays a specified retainer amount for a certain type of case. Further, despite how long the case takes or what complications are involved (so long as the case does not morph into another type of case) then the fee does not go up or down. For instance, a divorce with no children and no property might involve a lawyer charging a "flat-fee" of $1,000. Regardless of whether the entire case takes two hours or ten hours, the fee theoretically stays the same.
Which Fee Structure is More Appropriate for Your Case?I want to preface this section by stating that while I am not a huge fan of flat fee billing, there are certain circumstances where it is appropriate, and further, certain attorneys seem to operate without too many issues under this fee structure.
With that being said, I personally believe that hourly billing produces effectiveness in most cases while flat-fee billing does not. Here are the reasons why.
(1) Lawyers in an hourly billing setting are motivated to work on your case, otherwise, they don't earn any fees.
(2) Lawyers in this setting have a plan for your case that might not be the plan for the other cases in the same category in their office. For instance, your case (call it a custody case for argument's sake) might not require discovery. However, another custody case in the office might require 20 hours of discovery. As such, each case gets the appropriate amount of attention that it deserves.
(3) There are checks and balances in an hourly setting. This comes mainly in the form of the accounting. It is easily ascertainable by the amount that the lawyer has billed in the case as to whether or not the lawyer is acting as a fiduciary in promoting the client's best interest or whether the lawyer is acting in a self-serving manner and helping themselves to the client's funds. For instance, if a lawyer's accounting has detailed and necessary transactions then it's likely that the lawyer is doing their job appropriately. To the contrary, if the lawyer has billed large blocks of time without much explanation as to what was done in the case, then likely the lawyer is not doing a good job.
Flat fee cases do not have these advantages. What I have personally observed with lawyers who charge flat fees are the following:
(a) They do not often return calls because they are so busy taking on more cases to meet expenses rather than working and billing in their existing cases.
(b) Cases get "grouped" together in both procedure and importance. Namely, one case that only needed ten hours' worth of work gets the same attention that a case that needed fifty hours' worth of work, and both clients paid the same amount. This results in a disservice to both clients.
(c) Often attorneys do not pay attention to these cases and they sit on a shelf until a hearing comes up. Instead, the attorney should be proactive in the case and not reactive to the other side. However, because flat fee cases breed crowded practices, the attention necessary to properly handle the case is stripped away.
This all being said, if your case is a complex case such as a custody matter or a divorce involving assets that need to be divided, be very cautious of a flat-fee billing structure. It is tempting to not have to pay as much money as is actually necessary. However, your case is too important to be neglected.