Paying and billing for legal services during tough times

The economic fallout from the coronavirus pandemic has yet to be fully realized. Almost daily, we hear of major companies facing financial hardships. Our clients and potential clients are, and will be, trimming budgets. For many, addressing legal issues and paying for legal services may fall lower on the to-do list.

With less money to spend, individuals may choose to forgo hiring lawyers and do their own legal work, such as making their own will or separation agreement, self-representing in court, or, for organizations, keeping legal work in-house. Alternatively, they may just postpone or forgo their legal matters altogether. As such, it is important for lawyers to be sensitive to clients’ financial situations to ensure that we can continue to meet their legal needs. To this end, lawyers should be open to alternatives to charging by the hour. Creating a fee arrangement that works for the client can provide more certainty that you will be paid for your work.

Contingency fee arrangements

Contingency fee arrangements have long been used in personal injury litigation. It is increasingly common to see it considered and adopted for other types of litigation, such as estate matters. Last year the multinational law firm Kirkland & Ellis announced a new focus on alternative fee arrangements for commercial cases, including pure contingency fees. Their rationale was that it would allow them to break into the plaintiff-side commercial market more aggressively, and as a way to have their lawyers try more cases.

It may be worthwhile to explore whether your practice area can incorporate contingency fee arrangements to make it easier for clients to afford legal services.

Third-party litigation funding 

Litigation funding agreements with a private lender may be a solution for some who need to push forward with litigation, and where a contingency fee arrangement may not be possible. Third-party funding has always had the advantage of equalizing the playing field when the opposing party has deep pockets. It also encourages lawyers to take on riskier cases as there is some comfort in knowing expenses can be covered. Lastly, it allows clients to manage and spread the risk of protracted litigation. The interest rates would need to be strongly considered, and the client will need to weigh whether such rates are worth the ability to offset risks to somebody else.

Unbundled legal services

Unbundled legal services, also known as targeted legal services, limited scope retainers and discrete legal services, are aimed at specific parts of a client's matter. This could include assisting in a case conference or mediation, appearing on an application, or drafting and reviewing documents. It requires the client to do more legwork to save costs, forces the client to have a better understanding of their role in the process, and gives more responsibility to them for the outcome of the matter.

Task and flat fees

Rather than an hourly rate, firms can charge by the task. One could have a flat fee for document review, which could be adjusted depending on the complexity of the documents and the matter. For litigation, block fees could be charged for certain stages of a proceeding. One could charge block fees up to a trial, and then switch to an hourly arrangement for preparing and conducting the trial.

Flat fees give certainty to the client, allowing them to better budget for their legal matter. It also motivates the lawyer to work efficiently. It is an effective way to shift from an hourly rate/billable hour mindset to a task/goal-oriented one.

Legal expense insurance 

Legal expense insurance, or after-the-event insurance, is becoming increasingly popular in the personal injury field. This assures clients that adverse costs awarded against them, and some of their expenses, will be covered by insurance.

Typically we see such insurance on a firm-wide basis and not a file-by-file basis. The fact that your client would automatically have this insurance with your firm could be used as a reason to hire you.

Capped hourly rates 

While you may have considered or have been asked to reduce hourly rates, this should be an option of last resort. Rather than decreasing rates, lawyers might consider freezing or capping them, particularly under circumstances were clients are cutting their own prices. Alternatively, blended rates may be an option. This is where the average of the rates of all the people working on the file is used as the hourly rate. 

Technology, and passed-along savings

Technology affords us the possibility of paperless systems and virtual meetings; saving on printing costs and travel time to meetings could mean significant savings for your clients. By adopting these processes and communicating the advantages to clients, they may be more inclined to proceed with a matter.

Lawyers are in a very cost-sensitive market right now. Disregarding this fact and billing the way we always have will result in losing legal work. Being open to alternative methods of funding legal work, however, will go a long way to ensuring clients are still coming to you — even in times of economic hardship.