How does a lawyer get paid in Canada?

Discussing how does a lawyer gets paid can sometimes be a touchy subject because of some concerns about how it should be properly done. However, knowing about these methods and their legal implications is a great help for every lawyer.

In this article, we’ll answer the question “how does a lawyer get paid?” Aside from lawyers, this article can also be used by law students who are wondering about the ways to collect legal fees from their future clients.

How are most lawyers paid?

There are four common arrangements on how a lawyer gets paid in Canada:

1. Hourly billing
2. Fixed or flat fees
3. Contingency fees
4. Retainer fees

We’ll discuss these arrangements below; you can also watch this video to know more about these fee arrangements:

Learn more about the country’s legal education institutions through our comprehensive list of Canadian law schools.

1. Hourly billing

The most common method to measure how much you’ll be paid by your client is hourly billing. Here, your legal fees are charged at an hourly rate against the total time you’ve spent on a client’s case (called the billable hours). This includes the case buildup, until it reaches the court, and a decision is rendered, such as:

• preparing and researching legal documents  
• corresponding with the court or other party
• meeting and communicating with the client (e.g., phone calls, emails)
• appearing in court

The hourly rate usually depends on your skill, experience, and expertise on the matter. Other factors include location and the length of time you’ve been called to the bar.

Who uses hourly billing?

This is used in most civil cases and litigations. It’s also used in instances when you cannot estimate in advance the exact time you’ll need to prepare a client’s case, among other tasks. It’s also used for shorter legal consultations and when the client is not yet sure whether to retain you or not.

Advantages

When done properly, using billable hours is an objective and concise way of measuring your legal fees for the services you’ve rendered. The scope of work can also be adjusted at any time, without affecting any pre-agreed fees.

Disadvantages

Clients may be wary of this type of arrangement, because it may result in an open-ended cost for them. On your part, it may also be a struggle to monitor your hours, down to the last minute, without the appropriate tools. For this, you can use a practice management solution as proof of your billable hours.

2. Flat or fixed fees

Flat or fixed fees is another type of fee arrangement for paying lawyers which is true to its name. For every transaction and legal matter, there’s a fixed or flat fee for that.

Some examples of transactions that use this type of fee arrangement are:

• preparing a will
• closing deals related to real estate
• small claims cases
• other routinary legal tasks

This method of paying lawyers can be compared to hourly rates, since flat fees are billed regardless of the hours you’ve worked on the task or case. Also, in flat fee arrangements, you have an idea how much time you’ll need to complete what your client asks you.

Who uses flat or fixed fees?

It’s typically used by clients when engaging a lawyer for a short period or for a one-time transaction.

Advantages

Clients can choose what services they need and will pay for. On the other hand, you’re assured that you will be paid right away for the legal services you’ve done.

Disadvantages

There’s this risk that when clients are not satisfied with the result, they will be asking for refunds or reimbursements of the flat or fixed fees they’ve paid. One solution is to rationalize the fees by percentage (e.g., half of the fees are for finishing the legal document, and the other half is for closing the deal).

3. Contingency fees

A contingency fee is a type of arrangement where a lawyer is only paid:

• if their client’s case has been decided with finality; or
• when parties in the case have reached a settlement

Before you take on their case, you and the client must agree on a certain percentage or fixed amount. The condition is that you’ll only get it if you can win their case or when a settlement is reached because of your efforts. In other words, your legal fees are dependent (or contingent, hence the name) on you winning your client’s case.

Aside from your legal fees, you and your client can also agree on recovering certain costs and disbursements from the award or settlement made in their favour. Alternatively, it can also be agreed whether these costs and disbursements can be recovered, regardless of the result of the case.

Who uses contingency fees?

This type of fee arrangement is common to personal injury cases, product liability cases, and class actions, where a part of the settlement or court award is given to you as your legal fees.

Advantages

Your client would not have to pay legal fees upfront, or continually pay monthly fees, when you agree to represent them. Since a case may take longer to be resolved, they’re also not burdened with any continuing fees.

Disadvantages

A risk on your part as a lawyer is that you may not be paid for any legal services rendered if you lose the case. Although it’s different from the perspective of the client, since they won’t have to pay for anything.

To know more about contingency fee arrangements in the context of disability claims cases, watch this video below:

Check our article on what lawyers make the most money in Canada to find out which legal practice area earns more.

Requirements for contingency fee arrangements

To protect your and your client’s interests, there are more stringent requirements when it comes to contingency fee arrangements as set by the law societies.

For instance, the Law Society of Ontario (LSO) prescribes the following requirements before you can enter into a contingency fee arrangement with your clients:

• you must have published a general maximum contingency fee percentage on your website; or you must disclose this general maximum contingency fee percentage to the client right on your first engagement
• costs may be included in the calculation of the contingent fee
• you must use the Standard Form Contingency Fee Agreement by the LSO, subject to certain exceptions

4. Retainer fees

Retainer fees are considered as an advanced payment or a deposit for the legal services that you’ll do in the future for your client. In this method of paying lawyers, whenever your client needs something, you’ll send them the appropriate accounts, which will then be charged from the retainer you’re handling.

At the end of a specified period, or when the legal matter is resolved, you’ll have to return any remaining funds out of the retainer. If the client wants to, the retainer may also be renewed, where an additional amount will be deposited on it. The client may also be required to renew the retainer if the amount runs out before the legal matter has been resolved.

Who uses retainers?

This type of arrangement is good for clients who transact with their trusted lawyer regularly. It’s also for clients who anticipate many legal transactions in a given period (e.g., in a year) because of the nature of their profession.

Advantages

On your part as a lawyer, you’re assured that any work you do for your client is paid immediately, and in full. As for your client, they can expect in advance how much they would need to get quality legal services from you.

Disadvantages

Before the start of the retainer, computing how much should be deposited may be a challenge. Also, the cost of each transaction must be initially agreed upon or promptly disclosed to the client, to prevent any disputes.

What laws govern lawyers’ compensation?

Laws that govern the legal profession of each province or territory will have some provisions that are related to how a lawyer gets paid. In addition, the code of professional conduct of each law society will outline how lawyers can charge their clients.

We'll discuss some of these rules on lawyers’ compensation; to be sure, it’s also wise to specifically check with your law society’s codes of professional conduct.

Legal fees vs. disbursements

The codes of professional conduct use the terms legal fees and disbursements regularly. There are differences between the two:

The distinction between the two is disregarded in some fee arrangements. For instance, in flat or fixed legal fees, the total amount may cover both the legal fees and the disbursements, which justifies the higher amount when fees are negotiated this way.

General rule when paying lawyers

Of course, you’re allowed to charge your clients for any legal fees and disbursements. However, the amount must be fair, reasonable, and has been promptly disclosed to the client.

This is according to the Model Code of Professional Conduct (the Model Code). All codes by provincial and territorial law societies are also patterned after this Model Code, which is drafted by the Federation of Law Societies of Canada (FLSC).

The need for proper documentation

These standards have been fairly adopted by most law societies, since there are no standard lawyers’ fees.  It also means that fees must be contractually agreed upon by both you and your client.

That is why there are forms, such as retainer letters, to help you document all agreements with your client. The document must also be regularly updated whenever there are changes to your agreement.

What makes fees fair and reasonable

The codes of professional conduct have provided some factors on what it means for a lawyer’s fee to be fair and reasonable. Below is what the Model Code of the FLSC provides as to what is considered fair and reasonable:

These factors are always relevant, especially when you’re negotiating an agreement with your client, or when enforcing the agreement on them. But how these factors play out depends on each case and client.

Prohibitions when charging clients

Here are some of the regular prohibitions when it comes to lawyers’ compensations:

• Refunds for disbursements must be for actual costs: you can’t profit from any disbursements made for your client (e.g., charging interest, increasing the costs). As such, you’re only allowed to charge the actual cost of the disbursement that you paid on your clients’ behalf.
• Non-disclosure of fees and other costs: at the start of your lawyer-client relationship, you must have already disclosed all information about fees, costs, disbursements, interest, etc. Otherwise, you’re not allowed to collect any of these, unless there’s prior consent and proper documentation on the matter.

How a lawyer gets paid: points to ponder

To recap: how does a lawyer get paid in Canada? There are four ways:

• hourly rate
• flat fees
• contingency fees
• retainer fees

Each of these methods has its own legal implications which you must consider for a flawless relationship with your client.

Knowing these can also help you avoid any potential administrative sanctions. Whether we like it or not, conversations on money can be awkward at first, but there’s no other solution but to discuss them head on.

Bookmark our legal education and law schools page for more resources on how a lawyer gets paid and other topics.