Can a Single Fee Agreement Combine Flat Fees and Hourly Fees?

In flat fee cases, sometimes the attorney wins and sometimes she loses. But sometimes an attorney stands to lose much more badly than others. Take a family law or immigration matter, for example, where the client is represented on a flat fee and then commits a criminal law violation. May a fee agreement specify that work beyond a specified scope be billed at a flat rate? In other words, may a lawyer combine flat fee work and hourly work in a single fee agreement?

A rigorously scientific survey conducted over lunch (n=6) suggests the answer is no. (In other news, the bánh xèo – Vietnamese savory pancakes – at Long Provincial are outstanding.) Several experienced colleagues, who regularly use flat fees, all believed that a single agreement may not combine a flat fee with hourly engagements. We’ll call these “combined fee agreements.”

The survey results caused me to panic, since I’ve been using combined fee agreements in two ways:

1. Multi-stage cases. We’re an immigration firm. Bringing our foreign clients into the U.S. generally involves a multi-stage process: initial petition followed by application to the U.S. State Department. Because the second step involves substantial variance from case-to-case, we often bill the first step on a flat-fee basis and the second step hourly.
2. Hedging. We also use combined fee agreements to plan for the possibility a case will become more complex than anticipated. These cover primarily new factual scenarios such as criminal violations by clients and changes in law. “Oops we didn’t realize this was a tough case” is emphatically not a basis for kicking-in hourly billing.

If you too use combined fee agreements, however, there is no cause for panic. In fact, Comment 16 to RPC 1.5 explicitly acknowledges that combined fee agreements are permissible, subject to red tape. Here’s what you need to keep in mind.

• Have a written agreement, signed by the client. As we all (should) know, strict guidelines require flat fees to be explained in a written agreement signed by the client. In a combined agreement, only the flat fee portion of the engagement is required to be in writing. But Comment 16 advises that the lawyer should “consider” putting the “entire arrangement” in writing. The verb “consider” is used in the sense of, “unless you are tired of your bar license you should consider.”
• Explain where the flat-fee ends. This is the tricky part. The combined fee engagement needs to be described precisely so the client knows what’s covered by the flat fee. That’s the case with any flat fee agreement, but extra important where an additional hourly fee will (or may) kick in. At my firm, our fee agreements include a long bulleted list of scenarios. The bulleted format hopefully makes it easy for the client to skim. Also, for some multi-step immigration cases when designate that a particular step is billed on an hourly basis.
• Use separate payment instruments. Payment for a flat fee billing is lawyer-owned property and thus cannot be placed into an IOLTA account. Surprisingly, Comment 16 acknowledges that an attorney may receive payment on a combined fee agreement on a single instrument deposited into an IOLTA account. Doing this seems needlessly risky, however. Best practice would be to separate payment for the flat fee and hourly engagements and to deposit them separately to avoid co-mingling attorney and client-owned funds. At least, you should consider that approach.

[This post first appeared as a guest piece for the Washington State Bar Association’s Side Bar blog]