Fee Arrangements

Two people pointing at a paper

Rule 3.6-1 of the Model Code addresses lawyers’ fees and disbursements in broad strokes, stating: “A lawyer must not charge or accept a fee or disbursement, including interest, unless it is fair and reasonable and has been disclosed in a timely fashion.” The commentary sets out a non-exhaustive list of factors that may be considered in determining whether a fee is fair and reasonable.1 Some factors are prospective, while others can only be assessed in hindsight. Lawyers should be prepared to consider and reconsider whether their fees are fair and reasonable as a file evolves.

Beyond principles of fairness and reasonableness, the Model Code also stipulates that competent lawyers act in a cost-effective manner.2 This means lawyers should think carefully about how they charge for their services, ensuring any fee arrangements are not only fair and reasonable, but also cost-effective in the circumstances.

As a matter of professional responsibility, fee arrangements should be thoroughly discussed and agreed upon before a lawyer is retained and should be confirmed in a written retainer agreement. The commentary to Rule 3.6-1 states a lawyer “should provide to the client in writing, before or within a reasonable time after commencing a representation, as much information regarding fees and disbursements, and interest, as is reasonable and practical in the circumstances, including the basis on which fees will be determined.”3

In order to have an effective and transparent discussion about how fees and disbursements will be charged in a particular matter, lawyers should understand the various types of fee arrangements that exist. While it is beyond the scope of this Toolkit to canvass the benefits and risks of various types of arrangements, numerous resources provide detailed guidance on different types of fee structures, and the benefits and risks of the various options. Lawyers should also be alive to ways in which different fee arrangements may make legal representation and services more or less accessible to the public.

This section of the Toolkit provides brief summaries of the most common types of fee arrangements lawyers may consider. Having knowledge of potential options will help lawyers communicate effectively with clients or potential clients at the outset of the retainer and ensure the arrangement agreed upon is clearly set out in the retainer letter. Further, if a lawyer is open to discussing alternatives with the client at the outset and allowing the client to select their preferred billing method, this can result in better “buy in” from client with respect to how their file is being billed.

Learn more:

  • Lawyers’ Insurance Association of Nova Scotia, “Law Office Management Standards - #5 – Retention and Billing” (June 13, 2015)
  • Richard Reed, Win-Win Billing Strategies, Alternatives that Satisfy Your Clients and You (United States: American Bar Association, 1992)
  • Sally Dyson, Budgeting and Negotiating Fees with Clients: A Lawyer’s Guide (Peoria, IL: Ark Group, 2011)
  • Toby Brown and Vincent Cordo, Law Firm Pricing: Strategies, Roles and Responsibilities (Peoria, IL: Ark Group, 2013)
  • Laura Slater, The Lawyer’s Guide to AFAs and Value Pricing (Peoria, IL: Ark Group, 2014)

Hourly Fee

Legal fees are commonly billed using an hourly rate for time spent on a client’s file including phone calls, emails, meetings, research, preparing documents, dealing with correspondence, appearing in court, and anything else involved in the file. Hourly rates typically depend on a lawyer’s skill and experience,4 for which a lawyer’s number of years at the bar is often used as a proxy.

The prevalence of the billable hour is relatively recent. In the first half of the twentieth century, lawyers commonly charged for their services using prescribed tariffs or “value billing” that took into account factors such as the “work done, market rates, client outcomes and client means.”5 However, value billing came to be criticized as opaque and highly subjective, dependent “on lawyers’ good faith in estimating the value which they had provided”6 while tariff billing was seen as “anti-competitive and directed at preventing lawyers from reducing their fees below a certain level.”7

The billable hour has come under significant criticism of its own. In a 2004 article, (now Justice) Alice Woolley observed the billable hour can lead to three general kinds of unethical billing:

  1. Hourly billing incentivizes lawyers to “do work because it generates hours rather than because it provides benefit to their clients”, such that clients pay for work that accomplishes nothing;8
  2. Clients are billed for time not actually spent on their matter either due to lawyers’ failure to keep contemporaneous time records or through questionable use of billing increments;9 and
  3. “[H]ourly billing, when combined with minimum billing targets, creates at best the temptation to be dishonest [by padding one’s time] and, at worst, dishonesty in fact.”10

Nevertheless, many lawyers and clients favor the billable hour model because it is an objective way of determining how much to charge for services rendered. Even when the retainer contemplates hourly billing, it is important to recognize that the amount of time spent on a client’s file is but one of the many factors identified in the commentary to Rule 3.6-1 for determining a fair and reasonable fee.

Learn more:

Flat Rate or Fixed Fee

Alternatively, a lawyer may charge a fixed fee for specified services regardless of the time involved. Whereas a billable hour model offers clients transparency, a flat-rate service model provides clients with cost certainty.

In a Slaw post, John-Paul Boyd, QC describes how a flat-rate service model can benefit lawyers and clients alike:

Under this model, the client can pick and choose which and how much of a lawyer’s services he or she will buy, at a fixed rate which is determined up front. The client and the lawyer are protected from the client’s frustration if a legal issue is not resolved before his or her resources are exhausted. The lawyer gets a file with a fixed scope of required labour and a minimal potential of becoming a dog file, with payment up front and a minimal likelihood of collections issues, and a file free from the tyranny of recorded time.11

Boyd emphasizes a flat rate is not appropriate for every legal problem, and suggests fixed fees are best suited for services that “have a low potential to go sideways; … are limited in scope; and … can usually be accomplished within a predictable period of time.” While addressing clients’ affordability concerns, flat fees should be profitable to lawyers in the short-term and “[balance] the money lost on files that get out of hand in the long-term.”

Boyd provides the following tips and suggestions for lawyers who decide to offer services at a flat rate:

  1. Use a written retainer agreement that spells out exactly the services you are going to perform and the rate you are charging. If there are any related, ancillary services that could be included in the work you are performing, like filing a separation agreement you have drafted in court, state whether you will or will not be performing those services.
  2. Carefully consider the amount of your flat rates. Your rates should take into account affordability to the client, the value of your services to the client, the time you would normally spend performing those services, the economies of templates and form-based processes, and the cost to you of files that go sideways.
  3. When performing services that have a high risk of going sideways, add an escape clause to your retainer that allows you to convert your work from a flat rate to an hourly rate. However, if you adopt this approach, you must be crystal clear about the conditions that will trigger the change and the notice you will give to the client, and you must rigorously track your time from the outset of the file.
  4. Review your retainer agreement with your client and ensure that he or she knows exactly what is and is not included in your flat rate.
  5. Ask for payment at the start of the file, rather than waiting until its conclusion to bill.
  6. Be clear about any disbursements that are foreseeable and whether you or the client will be covering those costs. If the amount of disbursements is known, ask the client to provide you with funds to cover those disbursements, in addition to your flat rate, at the start of the file.12

Learn more:

Capped Fee

A capped fee is where a lawyer charges an hourly rate up to an agreed maximum. With a capped fee, unlike with a fixed fee, the client gets the benefit of the work potentially being completed for less than the maximum, while the lawyer takes the risk that the work may take more time than budgeted.

Sometimes, capped fees are provided with “risk collars” where the lawyer obtains a percentage of the unbilled fees within the cap in the event the matter is resolved with less effort than expected, and if the matter takes more effort than expected, the client gets a percentage discount on any hours worked above the cap. This type of risk balancing can better align the interests of lawyer and client.

Contingency Fee

Under a contingency fee arrangement, a “lawyer’s fee is contingent, in whole or in part, on the outcome of the matter for which the lawyer’s services are to be provided.”13 Contingency fee agreements are subject to governing legislation, which varies significantly between jurisdictions.14

As discussed in the commentary to Rule 3.6-2, as well as agreeing the lawyer will receive a particular percentage of the amount recovered by the client, a lawyer and client may agree that “in addition to the fee payable under the agreement, any amount arising from a costs award or costs obtained as a part of a settlement is to be paid to the lawyer.” Generally, this would justify the lawyer receiving a smaller percentage of the award than would otherwise be agreed to. Lawyers and their clients must also determine in advance whether a client will be required to pay for disbursements regardless of outcome, and if so, whether disbursements will be billed on an ongoing basis or at the conclusion of the matter.

In some provinces, contingency fees require judicial approval. Lawyers should keep contemporaneous time records that clearly show the work done on the file in case they need to establish that their fee is reasonable and fair.15

While contingency fee arrangements can be an important tool for increasing access to justice, they can give rise to a number of ethical issues. For example:

  • Contingency fee arrangements potentially allow lawyers to receive a higher overall fee than might otherwise be the case, on the basis that the lawyer is spreading risk across a number of files, some of which will not result in any recovery. However, because a client is only privy to their own matter, a client is poorly positioned to evaluate whether the contingency fee arrangement fairly accounts for the risk being taken by the lawyer.
  • Contingency fee arrangements may give rise to conflicting incentives for lawyers and clients. For example, if a contingency fee arrangement entitles the lawyer to a percentage of any damages award and all of the costs, the lawyer may have an incentive to maximize the portion of a settlement allocated to costs, to the detriment of the client.
  • Even when going to trial may result in a larger award for the client and a commensurately higher fee for the lawyer, if the cost of proceeding to trial will reduce the lawyer’s overall compensation, this may be a significant incentive for the lawyer to push the client towards settlement even if the client might be better off going to trial.16

Contingency fee arrangements also give rise to special ethical issues if a lawyer wishes to withdraw from representation before a matter concludes, or if the client decides to retain new counsel. If the retainer ends before the matter is resolved, a lawyer who has already invested significant time and resources in a matter may lose the chance to share in the proceeds of a settlement or award. Some lawyers take the position they will not transfer the file until the client (or the client’s new lawyer) has paid for the disbursements incurred up to the point of withdrawal. Even if this arrangement is clearly set out in the contingency fee agreement, it may create a significant access to justice issue if the client is unable to pay and cannot find a new lawyer willing to carry their disbursements.17 Some lawyers release their file to the client’s new counsel on an undertaking to pay the first lawyer for their work performed to date out of any eventual settlement or award, in which case it becomes very important for the first lawyer to have accurately tracked their time and work on the file. Some lawyers attempt to take matters a step further, taking the position that if the client terminates the retainer before the matter concludes the lawyer must be paid their hourly rate for work performed to date before the lawyer transfers the file to new counsel. This could be highly prejudicial to a client.

Learn more:

Limited Scope Retainer (Unbundled Legal Services)

The Model Code defines a “limited scope retainer” as “the provision of legal services for part, but not all, of a client’s legal matter by agreement with the client.”18 This is sometimes described as providing “unbundled” legal services: “if full representation is a ‘complete bundle’ or package of legal services, then ‘unbundling’ extracts one or more of those services and offers them separately.”19

Limited scope retainers or unbundled legal services can allow clients who might not otherwise be able to afford a lawyer’s services to nevertheless receive legal advice or assistance where they need it most. A significant proportion of self-represented litigants have been represented by counsel earlier in their action but cannot afford continued legal representation.20 Providing unbundled legal services in appropriate circumstances can meaningfully increase access to legal representation.

The Model Code requires lawyers to carefully assess whether, in each circumstance, it is possible to render services under a limited scope retainer in a competent manner. Agreeing to provide legal services on a limited or unbundled basis “does not exempt a lawyer from the duty to provide competent representation.”21 As stated in the commentary to Rule 3.1-2:

The lawyer should consider the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. The lawyer should ensure that the client is fully informed of the nature of the arrangement and clearly understands the scope and limitation of the services.22

Furthermore, a written retainer agreement is not optional in the case of a limited scope retainer. Rule 3.2-1A requires that “[b]efore undertaking a limited scope retainer the lawyer must advise the client about the nature, extent and scope of the services that the lawyer can provide and must confirm in writing to the client as soon as practicable what services will be provided.”

A lawyer acting on a limited scope retainer should avoid acting in a way that suggests the lawyer is providing full services to the client and should be careful not to mislead a court or tribunal as to the scope of the retainer23 and should carefully consider how to handle communication with other parties.24 In some jurisdictions, rules of court specifically require a lawyer to advise the Court if they are acting for limited purposes.25

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Other Alternative Fee Arrangements

Lawyers and clients have and will come up with many other alternative fee arrangements. Examples of other alternative fee arrangements include blended hourly rates (consisting of one hourly rate regardless of which lawyer or timekeeper is working on the matter); fixed or flat fee plus hourly rate (specific services are provided pursuant to a fixed fee while other services that cannot be defined or anticipated at the outset are subject to hourly rates); or hourly rates plus a contingency.

Learn more:

Regardless of which fee arrangement is selected, the method of charging fees and disbursements must be discussed with the client at the outset. Once the lawyer and prospective client come to an agreement with respect to the fee arrangement, it should be recorded in a written retainer agreement.

End notes

1 Rule 3.6-1[1], Model Code p. 61

2 Rule 3.1-1(e), Model Code p. 15

3 Rule 3.6-1[3], Model Code p. 61

4 Law Society of BC, “Lawyers’ Fees”

5 Paul Fruitman, “The billable hour is dead. Long live the billable hour”, 35:1 The Advocates’ Journal 33 (2016) (“Fruitman”)

6 Alice Woolley, “Evaluating Value: A Historical Case Study of the Capacity of Alternative Billing Methods to Reform Unethical Hourly Billing” 12:3 International Journal of the Legal Profession (November 2005) at 347-348 (“Woolley, Evaluating Value”)

7 Ibid at 348

8 Ibid at 871

9 Ibid at 877-879

10 Alice Woolley, “Time for Change: Unethical Hourly Billing in the Canadian Profession and What Should Be Done About It”, 83:3 Canadian Bar Review 859 (2004) at 882 (“Woolley, Time for Change”)

11 John-Paul Boyd, QC, “DIY A2J 5: Provide Some of Your Services on a Flat-Rate Basis”, Slaw (February 12, 2016)

12 Ibid

13 Rule 3.6-2, Model Code p. 62

14 Lawyers should also be aware of any rule changes in their jurisdiction. For example, Ontario made significant amendments to its contingency fee regime effective July 1, 2021, with further amendments coming into effect on January 1, 2022. In response to amendments to the governing legislation, the Law Society of Ontario also amended relevant Rules of Professional Conduct.

15 Law Society of British Columbia, Practice Management Course, Part 7 – Retainers Learning Module, 7. Contingent Fee Agreements continued; Law Society of Alberta, Law Practice Essentials, Part 8 – Retainers, 8.8 Contingency Fee Arrangements – Other Issues; Law Society of New Brunswick, Business of Law Course (users must create an account), Part 4 – Retainer Agreements, Contingent Fee Agreements (continued)

16 These examples are drawn from Allan C. Hutchinson, “A Study of the Costs of Legal Services in Personal Injury Litigation in Ontario: Final Report”, commissioned by Insurance Bureau of Canada (2016)

17 See for example, the Ontario Superior Court’s decisions in Murillo v Turnbull, 2016 ONSC 1906 and Romero v Turnbull, 2015 ONSC 3638

18 Rule 1.1-1, Model Code p. 9

21 Rule 3.1-2[7A], Model Code p. 17

22 Ibid

23 Rule 3.2-1A[2] and [3], Model Code pp. 20-21

24 Rule 3.2-1A[4] and 7.2-6A, Model Code pp. 21, 108

25 See for example: Alberta Rules of Court, Alta Reg 124/2010, r. 2.27(1); Manitoba Court of Queen's Bench Rules, Man Reg 553/88, r. 15.01.1(1)