However, with a glut of lawyers vying for the same clients and finances being difficult for many needing legal representation, attorneys are being forced to reconsider the way they charge clients. No longer is the hourly rate the sole venue for attorney pay, although certainly it will never completely vanish.
More and more, clients are clamoring for alternatives to hourly billing. To remain competitive, countless attorneys are adapting, albeit slowly, to other ways of being paid for their legal expertise.
Alternatives to the Hourly Rate
“Hourly pay actually reduces the overall fees that can be earned,” says Allen Rodriguez, founder of Strategic Legal Consulting in Pasadena, California. When lawyers are able to provide a similar work product to different clients, such as with Living Trusts, for example, a flat fee method of payment is a sound alternative to the hourly rate, he says. “An experienced attorney will know how long it will take” to provide a specific service, he says.
“Every law firm can come up with alternative fee arrangements,” says Michael Moradzadeh, managing partner of Rimon, P.C., in San Francisco. Over the years, Moradzadeh says his firm has not only charged clients on an hourly basis, but has also employed substitutes such as flat fee billing, taking equity in a client’s company and even a mixed rate. In that last scenario, the firm charges a lower hourly rate and, if they successfully prosecute a matter, earn additional pay via a contingency fee.
Another alternative involves deferred compensation. In such a scenario, the law firm gets paid a minimum amount at the onset of a case with the balance delayed until a pre-determined time, perhaps six months or a year later. “It’s basically like a loan,” says Moradzadeh.
In Rodriguez’s mind, deferred compensation is an excellent alternative to the hourly rate when a client is a start-up, assuming the company proves successful. In essence, the law firm “aligns its own success with the success and future of the start-up,” he says.
“The Internet and the ease of purchase impacts the free market system of law,” says Rodriguez, whose 13-month-old business advises lawyers on ways to practice law smarter. He cites Rocket Lawyer and Legal Match as just two of the ever-growing number of entities offering legal services on the Internet whose presence “disrupts the staid model of hourly fees.”
He cites the “current state of austerity” as another reason behind the move toward alternate billing. Ten to 12 years ago, law firms were doing “really well,” says Rodriguez, but today, in general, not so much.
According to Moradzadeh, certain areas of law lend themselves more readily to alternative fee agreements than others. Intellectual property and transactional work are two such examples. Conversely, there are specific legal practices where alternate fees might not be practical, such as family and criminal law. When outcomes are unpredictable or the inherent risk is huge, alternate fees might not be appropriate, he says.
What’s So Great About Alternative Billing?
Beyond the reality that an increasing number of clients are demanding substitutes to the hourly billing model, benefits exist for both lawyers and clients when appropriate alternatives are adopted. “The alternative fee agreement gives flexibility” by increasing the ROI and cash flow for a law firm, suggests Rodriguez.
Moradzadeh’s law firm charges $500 an hour, a fee he considers on the lower end of the spectrum considering its San Francisco location (the firm has lawyers in 12 cities). He says his peers charge upwards of $800-$900 an hour. “We charge less because we have lower overhead,” he says. Their lower hourly rate is not the only way the Rimon firm distinguishes itself from others. Creative ways of earning a living is another.
According to Moradzadeh, both clients and lawyers benefit from alternate fee arrangements. When clients are billed other than hourly, “they don’t have to worry every time they talk to their attorney that they are getting billed” for every second, he says. Not only does that help clients budget their funds, Moradzadeh says alternate billing is actually a “more fair way to pay” for legal services. Why? Because clients pay for “value rather than time,” he says.
Another reason Rodriguez encourages lawyers to embrace substitute fee arrangements is grounded in the truth that Americans aren’t as prone to establishing long-term relationships with professionals as they once were. Because of that, “alternate fee arrangements help the lawyer adapt to that reality,” he concludes.
Tami Kamin Meyer is a writer and attorney licensed to practice law in Ohio, both the Southern and Northern Districts of Ohio and the US Supreme Court. She serves as Of Counsel for the Consumer Attorneys of America, a national law firm based in Florida. Her byline has appeared in several publications, including Ohio Lawyer, Ohio Lawyers Weekly, Ohio Super Lawyer, Corporate Secretary, GC Mid-Atlantic and the ABA Small and Solo Practitioners newsletter. In 2007, a study guide she wrote about filing personal bankruptcy was published by Quamut, a division of Barnes and Noble.Last modified on Wednesday, 04 September 2013