Guide to Legal Service Agreements
It is almost certain that at some point in a legal career or business, there will be a need to enter into a legal service contract (sometimes referred to as a retainer agreement) with a client. This scenario arises most likely when an attorney who runs a solo practitioner firm or a small firm is asked to provide legal services to a specific individual.
A legal services contract is basically an agreement between the client and the attorney outlining the scope of legal services being provided, the terms of payment for legal services, and anything else that is relevant to the attorney-client relationship. This agreement is prepared by the attorney , since he or she knows the intricacies of providing legal services, but it is almost always based upon terms that are agreed upon between the client and the attorney, prior to its drafting. In this way, both the attorney and the client have a record of the services being provided and the terms under which they are being provided.
Legal service contracts are signed by both the attorney and the client at the point the agreement becomes effective. At this point, the attorney should proceed with providing the legal services as specified in the agreement.
Core Clauses Within a Legal Services Agreement
It is essential for any legal services contract to have the key clauses dealing with the scope of the engagement, fees, confidentiality, termination and dispute resolution.
Scope of Services. It is critical for clients to define the scope of services. This protects the client at an initial stage against an overly broad interpretation of retained services as well as at the end of the engagement in terms of determining what services were retained. This clause may also provide for other services that are not included, such as appeals or potential future litigation. In large or complex matters, the scope of services section may be several pages long. This is particularly helpful when the scope of services may change for various reasons during the representation.
Fees. The fees charged by attorneys vary widely and great care should be taken in selecting attorneys who will charge reasonable fees. The issue of fees has never been addressed more scrupulously by the ABA than in a statement issued in 2002. The model rules provide that a lawyer shall not make an agreement for, charge, collect, or collect a contingent fee for representing a client which is clearly excessive. Factors to consider in reviewing fees by geographic area include population, exorbitant costs of living, whether the attorney’s fees are the main factor or whether legal services are so inexpensive in the applicable area that the attorney’s fees would be excessive for even the most complex matters. Considerations with respect to lawyers not associated with large firms include consideration of the attorney’s actual experience at trial and other significant matters, the success of the attorney in dealing with special circumstances or problems that the client has faced in obtaining legal counsel and special recognition by peers. This applies not just to results obtained, but also to efforts made.
Confidentiality. Considerable care and thought should be given to confidentiality issues in the engagement agreement. Matters that should be considered include whether engaged to handle securities matters; disclosing the retainer agreement to regulators; information about clients’ shareholders, organizational charts, salaries, clients’ technology systems, general business practices, risks involved in litigation, information related to privileged communications; trade secrets; information about key employees; clients’ intellectual property; privileged communications; comments to public news media. If appropriate, the engagement letter should provide that the attorney may disclose certain confidential information to third parties.
Termination. Engagements by clients of law firms may be terminated at any time for good cause; reasons potentially constituting good cause include lack of skills, lack of diligence in handling case, failure to inform client or failure to send timely bills. Like doctors, lawyers may withdraw from a matter for good cause but must still continue to handle the case for a reasonable time after notice of withdrawal. In larger matters, the engagement letter or agreement may provide for a committee to meet at periodic times to review progress of the representation.
Dispute Resolution. Disputes between clients and law firms concerning a legal services agreement are typically resolved in professional responsibility boards of the state attorneys’ office through fee arbitration programs or more recently in some states through mediation. When lawyers and clients agree to alternative dispute resolution procedures in their engagement agreement, disputes are frequently first presented to the firm’s managing partner and then to a panel of partners.
Sample Format and Organization of a Legal Services Agreement
It is essential for each legal services contract to be properly laid out so that its provisions are easily understood and the various elements of the contract are clearly spelled out for the benefit of the parties involved. It is helpful in this instance to have the contract set up in typical legal fashion, with numbered sections and specific provisions under each enumerated portion of the contract. This eliminates confusion by placing the reader on notice as to the specific provisions of the contract. Additionally, clear indentations and separations between sections give the reader a visual clue that the language in that area of the contract is somewhat separate from what precedes and may follow it.
For instance, numbered sections are traditionally employed, such as "1," "2," etc., that allow the reader to easily locate a specific provision of the contract quickly. In conjunction with the numbered sections, subsection headings should be used to identify the topic of each sub-section. For instance, the body of the contract might have headings such as "I" at the left margin, with subsequent sub-sections employing slightly less indented headings such as "A." and "B."
Finally, the contract should be printed in a legible typeface to ensure clarity of its provisions. It is important that the contract also has sufficient space between sections and paragraphs. While some may attempt to limit the amount of paper and space consumed with a contract by putting the most amount of text on each page, the legacy of good practice among contract drafters has always tended to be to use generous spacing and leave sufficient room between sections and paragraphs to accommodate any future addendums or attachments to the contract.
Legal Aspects and Regulations
The choice of jurisdiction is a key consideration for legal services contracts. The law determining the validity of the agreement is that of the jurisdiction in which it is made or performed. Factors such as governing statutes, place of business, and principal place of work may all play a role in this decision. There are also practical implications to the geographic location of the parties. For example, appointing a Rocky Mountain Service Provider for an Alberta contract may require all re-work and dispute resolution to occur in the United States rather than in Canada.
A legal services contract must comply with all relevant laws. Statutory requirements should be considered in relation to the performance of services as well as the contractual provisions themselves. While the freedom of contract allows for substantial latitude in the determination of the terms, it does not, for example, permit the contracting parties to oust the jurisdiction of any relevant employment standards act. Breach of statutory requirements can have adverse cost and liability consequences and can make the contract void.
In addition to the legal and contractual obligations, attending to professional and industry regulations can also be necessary. For example, the Canadian Bar Association Guidelines of the Legal Profession, providing guidance on a range of issues related to the profession, call for lawyers to only accept work for which they are properly qualified. In addition to the ethical considerations of this guideline, the failure to consider it can pose risk to the legal services provider if an insurance policy excludes coverage for negligent or poor quality work.
Modifying a Legal Services Agreement
Most clients and attorneys will want to customize the default template of a legal services contract. The contract contains several boilerplate clauses, many of which do not need to be changed. For example, clients do not generally need to change or add to the provisions for jurisdiction, governing law, indemnification, and confidentiality. A law practice must review the other clauses and determine what will and will not be changed.
Some examples of adjustments needed are:
- Payment terms: The general payment terms of 32 days, including retainer fees, minimum billable hours, and billing increments may need to be adjusted to meet the needs or expectations of the client and to be consistent across the practice .
- Venue and mediation: If the client is from out of state or if there is a shared location in another state, the jurisdiction and venue should be considered carefully.
- Client consultation: When dealing with government agencies, there are often additional consultation meetings required that will need to be built into the contract.
These are only a few of the sample modifications to consider. Ultimately, each client and situation should be reviewed to make sure the contract is optimal for both the practice and the client.
Common Pitfalls to Avoid
While a legal services contract can be invaluable in protecting the rights of all parties involved, it is only as helpful as its components are clear and comprehensive. Here are some of the most common mistakes made when preparing legal services contracts:
Leaving Important Terms Undiscussed
Even the most well worn and written contracts can’t cover every question. Be sure you discuss with your attorney any special provisions you may want in your legal services contract. These include payment schedule, method of communication, expectations for compensating the attorney for emergency changes, and other potentially consequential issues.
Failing to Anticipate Problems
A good legal services contract should not seek to contractually overcome every potential difficulty, but it should also not ignore foreseeable problems. In particular, lawyers need to know what to do in case the client fails to pay the retainer or drops out of the contract early. If you have had problems in the past that the contract could help address, be sure to mention these.
Unrealistic Contract Duration
Very few divorces can be finalized in six months — yet many contracts in Washington DC have such a provision. Your legal services contract should reflect your understanding of your case’s time line. If you think your problem will require more than six months, insist on a longer contract period.
Pushing Too Hard for Legal Services
Lawyers like any other affluent professionals are compensated well for their work. But lawyers who place excessive pressure on their clients may end up disappointing everyone involved. If you believe your lawyer is pushing for more paid hours so that he or she can make a bonus, bring this to your attention. Or if you just feel uncomfortable, consider going to another attorney.
Final Thoughts and Best Practices
The creation of a legal services contract is not a one-time event that should be checked off your list and forgotten. The process does not end after the document is drafted. A contract must be reviewed and modified as necessary every time you add a new legal service or make changes to your existing services.
The following best practices will go a long way in ensuring that your legal services contract is beneficial to both you and your clients:
Add Clarity and Specificity If a legal services contract fails to specifically mention the cost of your services, it may be interpreted to require no payment at all. If a dispute should arise regarding payment, a judge may find that your vague contract was not a legally enforceable contract at all. Be as clear and descriptive as possible when drafting the contract, and add as much specificity as you can. Do not assume that the client will somehow know what it likely costs to use your services or a ballpark figure of your fees. They need to be calculated up front in the contract. By adding clarity and specificity to the contract, you improve its chance of enforceability and better protect your legal interests.
Tailor the Contract to Fit Your Firm’s Services If your law firm offers legal services in multiple areas of the practice , such as entertainment, corporate and family law, you may need multiple contracts or a single contract that includes specific provisions pertaining to each service. Having a single contract for all services may save you time, but it may also result in added legal liability and problems. Be sure that your contract contains the proper clauses for each specific area of your firm’s services and you think it through based on risk and liability.
Include Your State’s Contract Rules Every state has rules when it comes to creating and using contracts, many of which are unique to that particular state. One very practical example is in regards to the date of a contract. Prior to 1985, many state laws required all contracts to include a date; otherwise, those contracts were deemed invalid. Since 1985, all U.S. states have removed the mandatory date requirement from their laws and have adopted a grace period for contracts without a date. Nevertheless, these rules still speak to the importance of knowing your local laws and making it a priority to include them in all business contracts.