Engagement Letter – Retainer Agreement (Hourly Fee)
This Hourly Fee Agreement is an agreement between outside counsel and a corporate client for the provision of legal services. Lawyer fee agreements are also called engagement letters and retainer agreements. This engagement letter charges on an hourly basis to outline the parties’ respective duties. Parties use engagement letters (retainer letters) to memorialize the terms of an agreement (between a client and outside counsel). Typically, a client seeks to retain outside counsel in response to an event. For example, such events may include anticipated or ongoing litigation, an investigation, a subpoena, or another legal concern. Other times, the client retains a law firm to represent it in a particular transaction. Additionally, clients retain law firms for general or ongoing legal advice for certain work (for example, general advice about employment matters).
Terms covered by an engagement letter include the scope of the engagement, the parties’ respective duties, fees, and expenses. The engagement letter reduces the risk of misunderstanding between the client and outside counsel by helping to ensure that they have a meeting of the minds about their relationship before any work begins.
Although outside counsel usually draft engagement letters, many in-house law departments employ their own. An engagement letter typically becomes binding when countersigned by the client, although some law firms also make it contingent on the payment of a retainer (advance payment). Some engagement letters are unilateral and are signed by only the law firm.
The engagement letter should:
- Define who the client is.
- Reduce to writing the nature and scope of the engagement based on discussions between the client and outside counsel.
- Specify the duties of outside counsel and the client.
- Describe the calculation of fees and expenses and whether a retainer fee is applicable.
- Include only provisions that the client and outside counsel discussed.
- Address known or potential conflicts of interest.
- Document any special arrangements about the representation to which the client and outside counsel agreed.
- Describe how the parties may handle disputes, such as through mediation or arbitration.
The client may negotiate certain terms in the engagement letter. In addition, corporate clients may have outside counsel guidelines describing the policies and procedures that outside counsel must follow during the attorney-client relationship. Because the client may require outside counsel to acknowledge their consent to outside counsel guidelines in writing, outside counsel should request and review those guidelines before drafting an engagement letter.
Outside counsel should tailor the engagement letter so that it does not conflict with any outside counsel guidelines to ensure agreement between the parties and to avoid confusion about the parties’ respective obligations and expectations. Even if the in-house law department has outside counsel guidelines, the client should incorporate any important terms into the engagement letter, or incorporate the guidelines by reference, to ensure that outside counsel is bound by them.
Hourly Fee Agreements and Arrangements
The American Bar Association’s (ABA) Model Rules of Professional Conduct (Model Rules) provide that outside counsel should communicate to the client the rate for fees and expenses before or within a reasonable time after the representation begins. Therefore, the client and outside counsel typically agree on the rate for counsel fees before the engagement letter is sent to the client.
A client may incur outside counsel fees under any arrangement to which the parties agree so long as they satisfy the governing rules of professional conduct. Historically, outside counsel often charged fees:
- On an hourly basis.
- Contingent on the outcome of a case (for example, a specified percentage of any amount recovered by or awarded to the client).
Clients and outside counsel also often use nontraditional and alternative fee arrangements (AFAs), such as:
- Fixed (flat) fees.
- Blended (hybrid) rates.
- Capped fees.
- Collared fees.
- Bonuses (premiums or success fees).
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