The Five Cs of Hybrid Fee Agreements | Oregon Law Practice Management

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Oregon Law Practice

Management
Practice Management Tips for Oregon Lawyers

The Five Cs of Hybrid

Fee Agreements
Posted on 07/07/2014
Call it a hybrid fee agreement (HFA) or an alternative fee agreement (AFA).
Lawyers are looking for creative ways to appeal to clients who are resisting the
traditional hourly rate approach.
Employment Law HFA
Consider the employment law case that is less than a slam dunk. You could put
in many hours only to see no fee. Ah, the life of a contingent fee practitioner.
Or is it? One creative lawyer decided to offer his client a hybrid fee arrangement:
a reduced hourly rate of $100 per hour with a 25% contingent kicker in the event
of a recovery. (Lower than the going contingent rate of 33%.) If the client
agrees, and your fee agreement passes the test below, there is nothing wrong
with such an arrangement.
Family Law HFA
Among family law practitioners who are forbidden to take a contingent fee a
popular hybrid fee arrangement incorporates a flat fee earned upon receipt with
an hourly rate that kicks in at a specific stage. The flat fee compensates the

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lawyer for work done in the early stages of a case: initial consultation; file
opening; drafting and finalizing the Petition for Dissolution (or preparing a
response); serving the opposing party; drafting and serving the first request for
production of documents. The flat fee could encompass additional services
each lawyer can determine where the cut-off should be but charging a flat fee
for time spent from the first consultation through initial discovery is predictable
and easy to do. Again, if the client agrees and your fee agreement passes the
test below, this is a perfectly fine arrangement.
Does your HFA or AFA Pass the Test?
Every fee agreement must satisfy the 5 Cs test:
Clarity
Completeness
Compliant
Common sense
Cant be excessive
Clarity
If a fee agreement is ambiguous, it must be construed against the lawyer. Cf.
OSB Formal Ethics Op No 2005-15. Oregon State Bar (OSB) Formal Ethics
Opinion No. 2005-124.
If you decide to experiment with your fee agreements, strive to be as clear as
possible. With the employment law scenario, the main challenge is the math.
Conceptually the idea is pretty clear. With the family law scenario, the number
one problem is failing to explain what the client is buying with the initial flat fee
earned upon receipt. Just how far does the $1,000 initial payment go and when
does the $200 per hour rate kick in?
Completeness
Consider all possibilities. A good example in the employment law context: if you
have the right to recover attorneys fees, address this in your agreement. See
OSB Formal Ethics Opinion No. 2005-69 [Attorney fee awards are the property

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of the client unless the terms of the fee agreement expressly provided that
Lawyer was entitled to the greater of the fee computed thereunder or the courtawarded amount.] Fee agreements should address all conceivable outcomes.
Compliant
If your client is entering into a contingent fee agreement, he or she must execute
the Oregon State Bar Model Explanation of Contingent Fee Agreement before
signing an agreement with you. If you are charging a flat fee earned upon
receipt, read and comply fully with Oregon RPC 1.5, Oregon RPC 1.15, and OSB
Formal Ethics Opinion 2005-151 (Revised 2011). May I also suggest reviewing this
excellent article: Helen Hierschbiel, Alternative Pricing Models: Whats in a
Fee?, Oregon State Bar Bulletin (November 2011). Practice Tip: flat fee earned
upon receipt fee agreements must include special disclosure language set out
in Oregon RPC 1.5.
Common Sense
Dont torture yourself or the client trying to figure out the math of your hybrid fee
agreement. Once youve developed a sample, run it by your next door neighbor
or another lay person. Ideally, run it by several nonlawyer friends. Does it make
sense to them? If not, go back to the drawing board. Remember: If a fee
agreement is ambiguous, it must be construed against the lawyer. Cf. OSB
Formal Ethics Op No 2005-15. Oregon State Bar (OSB) Formal Ethics Opinion
No. 2005-124.
Cant be Excessive
The Oregon State Bar Legal Ethics Committee has also said that split
contingent/hourly fee agreements do not automatically violate the rules of
professional conduct. See OSB Formal Ethics Opinion No. 2005-54. However,
the committee cautions lawyers that a fee that appears to be lawful at the outset,
may turn out to be clearly excessive in the end. Helen Hierschbiel, Alternative
Pricing Models: Whats in a Fee?, Oregon State Bar Bulletin (November 2011).
All fees are subject to a look-back at the end of the case. The employment law
HFA is more likely to be challenged than the family law HFA. In the employment
law scenario, tabulate the total hourly fees charged to the client and your

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contingent fee share of the recovery. Add the two together. Do these exceed
the standard contingent rate of one-third? If they do, you may be on perilous
ground. Helens article, Alternative Pricing Models: Whats in a Fee? discusses all
the factors that go into gauging the reasonableness of a fee.
Parting Thoughts
Developing HFAs or AFAs that are ethically compliant and legally enforceable
can be done dont get discouraged. In fact, the ABA Law Practice Division
(ABA LPD) will soon release Alternative Fees for Business Lawyers and Their
Clients. If you are an Oregon lawyer and want this book (who wouldnt?) but do
not belong to the ABA, use the Professional Liability Fund discount code at
checkout to save money: OSBPLF.
All Rights Reserved [2014] Beverly Michaelis

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This entry was posted in Ethics, Fees, Financial Management and tagged
Alternative Fee Agreement, Beverly Michaelis, Collections, Fees, Finances,
Hybrid Fee Agreement, Oregon law practice management by beverlym.
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[http://oregonlawpracticemanagement.com/2014/07/07/the-five-cs-of-hybridfee-agreements/] .
4 THOUGHTS ON THE FIVE CS OF HYBRID FEE AGREEMENTS

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WSBA
on 07/07/2014 at 2:57 pm said:

Reblogged this on NWSidebar and commented:

From the Oregon Law Practice Management Blog. As always,
Washington attorneys must comply with the Washington RPCs.

beverlym
on 07/07/2014 at 5:08 pm said:

Thanks for the reblog!

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