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Start: Tony Wilson

How legal fees work Add to ...

Ahhh legal fees. Its amazing how this issue often spoils the relationship between lawyers and clients, creates fodder for late-night comedians, yet has vastly improved the standing and reputation of sharks in our oceans. So let’s talk about legal fees, so you have a basic understanding of what’s charged, why it’s charged and what you can do if you don’t like what’s charged.

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Let me say at the outset, I, like most other members of the legal profession are biased when it comes to legal fees. We like them. We charge them. And we collect them.



Why? Because you charge for what you sell. So do we. Like you, if we don’t charge legal fees, we couldn’t afford to pay the rent to our landlords, the salaries to our employees, our payroll and other taxes, our computer, copier, and technology leases, our utilities bills, our lines of credit and the numerous other costs and charges that every business - no matter what it sells - has to pay to stay alive. And we wouldn’t be able to pay our own mortgages and all that we want to do with our personal income, given the many, many, many years we spent toiling in University and Law School without one.



Like it or not, as much as it’s a profession, law is also a “business” and if businesses don’t earn a profit, they wont be in business very long. Numerous legal decisions through the years have allowed us to charge a “fair fee” for our services. But when the best and brightest new lawyers one year out of law school are demanding (and getting) somewhere near $100,000 per year in Vancouver and Toronto, “fair” won’t always mean “cheap”.



Lawyers can charge fees in a few ways. Motor vehicle accidents and some other insurance claims are often done on a contingency fee basis, where the lawyer’s fee is a percentage of the monetary award paid at the end of the day, although this is rarely done by business lawyers or those doing commercial litigation. But you never know. Maybe a particular lawyer may consider a contingency fee arrangement for a commercial law matter in a particular situation.



Some things lend themselves well to “flat fees”, like simple incorporations, simple wills and simple real estate conveyances, although if the job becomes more complicated than “simple,” the hourly rate may apply. But ask your lawyer about flat fees. All they can say is no. Or yes.



Normally, legal fees are charged on an hourly rate that reflects the lawyer’s years practicing at the Bar; a more senior lawyer charging more than a junior one because the former has more experience. The lawyer will input the time he or she took to do certain functions in tenths of an hour, so if a telephone call about a matter (excluding pleasantries) was 12 minutes long, that should be recorded as a point 2 and multiplied by the lawyer’s hourly rate. If a letter to opposing counsel took 30 minutes to draft, that should be recorded as a point 5 times the lawyer’s hourly rate. And so on.



Legal work in larger offices should be done by a person in the office whose hourly rate is the most appropriate and efficient for the function. A paralegal, junior lawyer or articling student with lower rates may well be able to deal with certain functions less expensively for the client than the senior lawyer with a higher hourly rate (i.e. legal research by an articling student; a court application by the junior etc.). So canvas this issue with the law firm you want to use as the lawyer you’re dealing with may be too expensive for you, but others in the office may be billed out at just the right rate.



I’m always asked, “how much do you charge per hour?” for what I do, but when you think about it, this is often the wrong question to ask a lawyer. Hourly rates are part of the equation of what a legal bill will be, but they aren’t the only part of the equation.



It’s often hard for the lawyer to judge at the “get-go”, what the final bill will be for a particular legal function until the job ends because of uncertainty beyond the lawyer’s control. This applies to what litigation lawyers do as much (or more) as it applies to what business lawyers do. It always depends.



From the litigation side, if discoveries take four days rather than the expected two, or the other side is making protracted procedural or other applications before trial, or the trial goes on longer than anticipated, (to name only a few examples), this will lead to higher legal fees, because it’s a function of the lawyer’s time to deal with these additional complications.



Likewise, from the solicitor’s side, drafting or reviewing complicated documents will take longer than drafting or reviewing simple ones. Modified instructions from the client part way through the deal, or the deal going off the rails, or extensive negotiations to keep the deal alive, or legal requirements imposed by federal or provincials laws, or legal requirements imposed by previous judicial decisions, or an unreasonable lawyer on the other side of the file, or a multitude of other problems along the way will take longer to deal with and will cost more legal dollars than if the complications didn’t happen.



But $300 or $400 per hour doesn’t give the client much certainty in terms of what the final bill will be, does it? So the best thing to do is to try to deal with a lawyer who regularly does the kind of work you need done (in most provinces, we can’t say that we “specialize,” even though, in all practicality, many of us do) and ask the lawyer what the range of fees are expected to be for a particular function, agreement or transaction. If the lawyer has “done this kind of work before,” the lawyer should have a fairly good idea of the fees that can be expected at various stages of the engagement, and the things that, in his or her experience, can often send fees higher. I tend to give a range of what I expect for particular documents I draft or particular stages of the engagement, and because I’ve done it before, I generally know what to expect. But if it goes off the rails, or the matter involves more time than I expected, the fee may be higher. My clients will be informed of this hike in my engagement letter, so it’s totally transparent.



Engagement letters are the norm now in British Columbia and other provinces. It’s a contract which spells out what the law firm will do, what it won’t do, and what it will charge for its services. It will normally set out the hourly rates of the lawyer (or lawyers) doing your work, and it might include an estimate for handling the matter (or handling stages in the engagement).



Disbursements (that is, the law firm’s out of pocket expenses) will be accounted for, and added to the bill. If you have a problem with postage, photocopying, long distance telephone charges, and printing costs, deal with the lawyer at the time of the initial engagement so everyone knows what the deal is and what it isn’t. Frankly, the bigger your file is, the more clout you may have to negotiate these things. But remember, the lawyer you “negotiate” with can still say “no thanks, find someone else”.



A payment in advance or “retainer” is often requested if the client is new to the firm. It’s drawn during the engagement, and if the matter costs less than the retainer, the balance is returned. If it costs more, then the lawyer may well ask for the retainer to be replenished before doing any more work. If your legal bills are over the terms of the engagement letter or the invoice (i.e. net 30), the law firm will have the right to stop work until its paid unless other arrangements are made. If the accounts are over 60 or 90 days, law firms may well involve a collection agency or start an action to recover fees. You’d do the same thing with accounts receivable in your business, so why shouldn’t we do it in ours? You aren’t a bank and neither are we. Certainly an even better practice is for the lawyer to communicate with the client regularly about fees so there are no surprises, and for the client to deal with the lawyer over an account it doesn’t agree with so the issue doesn’t linger.



It’s up to the lawyer as to whether he or she will charge for an “initial consultation.” Usually when I get a “cold call,” it’s from someone who’s read my books, articles and other publicly available information on the Web.

I’ll often spend quite a bit of time with them on the phone for free just to save them from having to fight downtown traffic and pay for parking. But I’ll have to make a judgment at some point during the call whether I’m talking to someone who’s just shopping around for free advice. Telling them at some point in the call that to go further, I’ll need them to sign an engagement letter and pay a retainer will separate the tire kickers from the serious clients, because at some point, I have to get back to the work that pays the bills.



I don’t believe lawyers should be “taxi drivers” and bill their time for every second they work on a file. Time on a file should be a guide only, and on large projects there’s always give and take, because usually, you don’t want the client to fire you and find another lawyer. I’ve had a lot of the same clients for 10 years or more, and if there’s a big bill, we always talk about it before I send it; in part, so we can massage the amount before it goes out, and also because clients like to be kept informed and included in the decision. My clients also pay right away when they’ve agreed on the bill before it formally goes out. Communication is the key to happy clients, and lawyers.



Lawyers can charge more than their hourly rate if the service was worth more. So if 15 minutes of my sage advice saved a client $500,000 because of my knowledge and experience, I’m entitled to charge more money based on the value that I’ve provided. That’s because the advice was worth more than $100 and saved the client a bundle.



But you might have a dispute with a lawyer about an account. Every province has a way that clients can challenge the legal fees charged by lawyers, and judicial officers are charged with assessing whether an account is a fair fee in the circumstances. The law society in your Province will have a tab on its web page about how to challenge a lawyer’s account.



You can always fire your lawyer if you aren’t happy, and if you aren’t getting good, responsive service or good advice at a fair fee, you should. However, your lawyer has no obligation to forward your file to you or your new lawyer unless the old account has been settled. Your new lawyer may not be able to do anything without the old file, but that’s the point. It’s called a solicitor’s lien, and it’s quite normal.



Finally, lawyers can fire our clients too. I’ve done it a few times, very politely, over the past 25 years when clients are unreasonable, disrespectful or don’t pay their accounts, and it still amazes me how upset they get when it’s me that does the firing. “You can’t do that!” they say. Oh yes I can. It’s a relationship, and it has to work both ways. I like what I do and I really like my clients. But life’s too short to work for people I don’t want to work for.





Special to the Globe and Mail

Vancouver franchise lawyer Tony Wilson is the author of Buying A Franchise In Canada – Understanding and Negotiating Your Franchise Agreement and he is ranked as a leading Canadian franchise lawyer by LEXPERT. He is head of the Franchise Law Group at Boughton Law Corp. in Vancouver and acts for both franchisors and franchisees across Canada, many of whom are in the food services and hospitality industry. He is a registered Trademark Agent, an Adjunct Professor at Simon Fraser University and he also writes for Bartalk and Canadian Lawyer magazines.

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