What is a Retainer Agreement?
A retainer agreement, or retainer contract, is a legally binding document that lays out the terms of a legal service. Every retainer agreement serves two purposes. It gives you, the client, peace of mind knowing that you are protected by law. And for the attorney, it’s a way to ensure that they are protected against any possible issues that may arise in the future. After all, a retainer agreement shouldn’t make you or your attorney believe that something bad will happen.
All a retainer agreement does is set forth the expectations on both the attorney and the client that should be followed at all times. These expectations are quite simple. The client is expected to cooperate with the attorney in doing everything necessary to complete the legal work. You also must bear the costs that can arise through legal representation. The attorney must be honest with the client. They must not do anything illegal , unethical, or fraudulent. The attorney must also account for the money that you have billed them for services rendered.
With these specific expectations set forth in clear language to avoid ambiguity and misunderstanding, a retainer agreement is one of the most important legal documents. It covers all of the primary essentials of the attorney-client relationship and without it, you would have no instructions on what to expect. What’s more is that it would prevent a lawyer from doing things you don’t want or could lead to you being charged unlawful fees.
Key Features of a Retainer Agreement
A sample retainer agreement contains several key elements. The first part of the agreement is this statement in bold font:
YOU ARE WELCOME TO HAVE THIS DOCUMENT REVIEWED BY ANY ATTORNEY OF YOUR CHOICE.
Your lawyer may insist that you hold to the rules, but what do the rules say?
The first two rules, which are mandatory, are as follows:
Rule 1: Scope of representation and allocation of responsibility. A lawyer shall consult with the client to determine, and thereafter abide by, the client’s objectives as to the means to be used to accomplish those objectives. Subject to such consultation:
(a) the client has ultimate authority to determine the purposes to which the legal services performed by the lawyer may be applied; and
(b) a lawyer is required to abide by a client’s decisions concerning the objectives of the representation and means to be used to accomplish them, as well as to carry out the client’s instructions with respect to the means, if the client’s objectives are not illegal or imprudent.
Rule 2: Communication with the client. (a) A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.
(b) A lawyer shall explain a matter to the extent necessary to permit the client to make informed decisions regarding the representation.
The potential client/lawyer must communicate about the scope of work, and fees, before agreeing to work together.
To be sure everyone is on the same page, a lawyer should describe, in plain terms, what the lawyer will be doing. The description should include a time frame.
Include this illustrative example in your retainer agreement, on the first page, if you are fearful of being micromanaged by a client: "Some clients desire to be in contact with their attorneys at all times. Others simply want their attorneys to deal with unexpected developments. Unless you are one of the latter, it is recommended that you confer with your attorney at least once per week."
Then, insert fee arrangements here.
A simple fee arrangement is to state the hourly price, retainer fee, and billing increment. For example: "My hourly rate is $___ pursuant to our stated retainer. Fees are charged as follows: $____ per .10 hours, or portion thereof."
"My monthly retainer is $_____.
It is also helpful to explain the possible charges for such things as: clerical work (e.g., typing, filing, etc.); long distance calls, even locally placed calls; and other charges (e.g., photocopying, messenger service). The law permits such practices.
Make it clear that charges that are unrelated to direct hours will be charged according to industry standard.
Types of Retainer Agreements
Different Types of Retainers
You may have heard of general, special or contingent retainers? These are simply different ways to tell us how our time is going to be committed to you. A general retainer is a commitment paid "up front" for our availability. For example, if our basic hourly rate is $300 and you expect that you will need say 8 hours of retainer time (plus disbursements) this could be covered by a general retainer. The amount of $2400 would be paid in advance. A special retainer may involve a flat fee for a specific type of work, such as a separation and negotiation of a joint agreement. In this case, both parties may feel comfortable paying a set amount, to insure the completion of the work required. A contingent retainer involves an agreement to pay a percentage of funds received on a successful outcome. It is not uncommon for contingency agreements to be reached in the instance of a personal injury matter.
Advantages of Retainer Agreement to Clients
For clients, a retainer agreement provides security and clarity. Clarity comes in knowing the lawyer’s obligation (to the extent that it can be agreed to) to perform services and also in knowing how the costs for those services will be met. Clients don’t want any surprises. A retainer agreement answers many questions that clients have, such as:
- How much will it cost me?
- How much should I anticipate paying up front?
- Are there ongoing costs/fees that I may need to pay (to the lawyer, and then reimbursed for)?
- When will additional funds be requested from me, and how will Mr. Bennett go about requesting them?
- In what ways am I responsible for keeping in touch with Mr. Bennett about this matter? Are there any instances when I’m required to provide information to him, and if so, what?
The billing agreement part of the retainer agreement addresses various issues related to costs after the initial retainer (also known as the up-front payment).
A good retainer agreement often makes explicit or reaffirms that the lawyer will keep a record of time spent on the case and the rate charged. The statement of what is charged for a particular lawyer’s services can eliminate or diminish a potential point of dispute later on. Then, if there’s ever a disagreement over the amount of time spent on a bill, the retainer agreement can be consulted and the issue can be resolved without having to call the lawyer and ask him or her "how long did you really spend on this matter?".
The retainer agreement sets out a number of different ways in which the client can be charged. It should be indicated when the different types of fees may be charged. In this way, the client is aware of the way in which the lawyer may charge for the work performed. That way, if the lawyer does perform a task that’s billed at a higher hourly rate, the client won’t be surprised when a bill is presented that includes that higher type of fee.
Methods of Drafting a Retainer Agreement
Once upon a time, lawyers would slap a retainer agreement together by taking a look at an existing one and then writing their own version. Some lawyers do it like that even now. Taking the form approach is a bad idea. Every retainer agreement needs to be drafted fresh because of the complexities of a specific type of representation. You don’t have to start from scratch, but you need to customize the generic language to fit a particular situation.
When you prepare a retainer agreement, you have to draft one that preserves your right to get paid while being as specific as possible regarding your specific obligations for a particular case. Is the case going to involve going to trial? If so, you will need to include specific language regarding your retainer fee deposit and the billing of certain expenses. Are you going to need to hire experts such as doctors, accountants or other professionals? If so, you need to address in the retainer how their fees will be paid, and the language about your responsibility to pay those experts needs to be strong language.
Often people want to hire a lawyer on a contingent fee basis, but don’t have the financial means to pay a retainer. Or a person might need to hire a lawyer who practices in a field of law that the person knows absolutely nothing about . As a result, many people just sign anything that a lawyer has typed up without getting any idea of what their obligations will be if they lose. It is critical that a client understands those obligations before signing on the dotted line.
Customizing a retainer agreement requires that you actually know something about the representation you’re going to provide for someone and can explain it to the client. Lawyers who take the form approach have no idea what is required. For example, let’s say someone comes in to meet with you who wants to be represented on an insurance claim. The person doesn’t have a lot of education and has never sued anyone before. When you start explaining to the person that they will be responsible for paying your attorneys fees if you lose in court, that person is not going to understand what you’re talking about. If you don’t go back to your office and write a letter explaining it more clearly, then you will likely be the subject of a complaint to the bar association.
Written retainer agreements are critical because they protect clients from unscrupulous lawyers. But they also protect lawyers from unscrupulous clients who think they can win a lottery-like windfall through the judicial system without having to compensate the lawyer who helps them.
Common Errors in Retainer Agreements
A significant portion of the retainer agreements that I have encountered have one or more flaws that can present a problem to attorneys later on. These mistakes can result in issues regarding collectability, a client’s decision to switch attorneys or even a malpractice claim. Some common issues that I have noticed are as follows:
Ambiguous language. For example, you may be using outside vendors in connection with your practice (such as experts or investigators) whose time is being included in your billing. If those time records are not sufficiently descriptive, you may struggle to collect if the tab is particularly high.
Another example is where a paragraph in your retainer agreement says that your fees will be "reasonable," but what happens when a client fails to pay and the issue is litigated? It could be awkward trying to get an arbitrator to rule that your fee was reasonable when there is no specific standard for such a determination specified in the agreement.
Another common example is when the scope of a client’s work changes over time and the retainer agreement does not address any possible change in fees as a result of the changed scope.
An incomplete retainer agreement. Most retainer agreements address only the services you can provide during the scope of the representation, but what if an investigation becomes necessary, or an immediate emergency response is required, or you are hired to do a matter involving the IRS, Department of Labor, SEC, NYS Attorney General or other similar agency? Perhaps the retainer agreement does not specify that you are qualified to do tax law, which means you cannot charge for the hours it takes to educate yourself in that area, nor can you charge a client for doing that research and being retained for that purpose. Similarly, if you are not experienced in securities law, you cannot be retained to do a securities fraud matter, and charge the client hours for learning how to do that type of case.
My suggestion is to annotate the areas of the retainer agreement where you think there may be a problem, and as you become aware of specific problems, to add language that deals with each item as it comes up from time to time. In my experience, doing so can help you be prepared when that first phone call comes in about your retainer!
Legal Aspects of a Retainer Agreement
The legal enforceability of the retainer agreement was aptly described by the New Jersey Supreme Court in Ryerson v. J. Walter Thompson Co., 71 NJ 254, 258 (1976) as followed: It is generally recognized that a written agreement between an attorney and a client respecting the employment of the former and the payment of his fee normally creates a binding obligation upon both parties. The correlative rights and duties are in substantial measure subject to regulation by legislation and may also be affected by court rules but the agreement itself is generally enforceable. At the same time the contract rights of the attorney are affected and limited by statutes concerning attorney’s liens and disciplinary powers of the court. Further, breach of a retainer agreement could potentially have serious ramifications. For example, suppose a partner in a law firm retained the firm, on behalf of the partner, to represent the partner in a dispute regarding the partner’s former expenses or compensation. The partner then leaves the firm, albeit under very good terms, so to speak. If the firm sued that partner for unpaid fees related to the dispute, the partner could argue that the firm does not have standing to sue for breach of the agreement, because it was the partner who was receiving the firm’s legal services – not the firm – and because an attorney cannot sue when he is retained by a corporation, for it is the corporation that owns the right to sue, not the attorney. Indeed, many states have held that an attorney cannot bring an action for unpaid fees against a corporation, as he is representing the corporation and any award of damages would go to the corporation, not the attorney, and therefore there is no privacy interest. Systronics Corporation v. Universe Technical Corp., 254 Va. 48 (Va. 1997). The retainer agreement may help the firm avoid the partner being able to raise the foregoing arguments in defense of a breach of the retainer agreement.
Sample Retainer Agreement Template
Lawyers and clients can use a wide variety of retainer types and arrangements. The following is an example of the types of terms and conditions that may appear in an example retainer agreement. A lawyer and client may use this as a guide in drafting their own retainer agreement.
1. Effective Date
This sample retainer agreement shall be deemed effective as of the date set forth below, to which date all terms shall apply.
2. Engagement of Counsel
The client, Engages, and retains the attorney, as counsel for the client, to undertake representation with respect to the following: (specify the subject matter of the engagement). It is understood that the attorney will not be undertaking representation with respect to any other matters.
3. Fees and Expenses
As compensation for the attorney’s services, the client agrees to pay the attorney: (specify the amount or method of calculating fees applying the following: base fee, hourly fee, contingent fee, flat fee). The client also agrees to reimburse the attorney for expenses and disbursements incurred in connection with this engagement, including (specify applicable expenses such as filing and court fees, process server, deposition, photocopy, phone charges, expert fees, consultants, witnesses, etc.).
4 . Modifications and Changes
The terms set forth in this retainer agreement may only be modified or changed by a signed, written agreement executed by both the attorney and the client.
5. Cancellation or Suspension
This retainer agreement may be cancelled or suspended with or without cause, by the attorney or by the client, by giving (specify number) days written notice prior to the effective cancellation or suspension date.
6. Completion of Services
It is understood and agreed between the parties that the attorney’s representation shall continue until the completion of the client’s matter (specify the matter, e.g., the conclusion of trial and/or appeal).
7. Miscellaneous
A. Entire Agreement. This writing constitutes the entire agreement between the parties.
B. Severability. If any of the provisions of this agreement are held to be unenforceable, all of the remaining provisions of this agreement shall remain in full force and effect.
C. Counterparts. This agreement may be executed in multiple counterparts, each of the same force and effect as if fully executed at one time.
D. Governing Law. This agreement shall be governed by and interpreted according to the laws of the State of (insert State).
Signed this ____ day of ______, 20___.
(a)(Client)
(b)(Attorney)