How Are Attorneys Paid and Is There a Conflict of Interest?
Attorneys are paid in a variety of ways. There is a list of pros and cons you could create for each of these ways. I want to briefly go over a few of the different ways attorneys get paid and some of the good and bad consequences of the various methods. Very broadly speaking, I like to look at attorney billing methods in three distinct categories. There is flat rate, hourly, and contingency billing. Over the years I have used all three types and have even used combinations of the three and other variations.
Hourly Billing for Attorneys
Probably the most common billing method for attorneys is hourly. How this works is pretty simple, for each hour your attorney works you are billed an hourly rate. Hourly rates vary tremendously across areas of practice and geographic regions. I have seen rates as low as $100 per hour and as high as $1,200 per hour for specialty merger and acquisitions attorneys in New York. You might wonder, why would I pay an attorney more per hour if I can get one for $100. Well the reality is, you often get what you pay for. Some attorneys are much faster in terms of work completion and just know the subject matter much better. If I was to hire someone to build a house, I probably wouldn’t necessarily hire the person who charges the least per hour, I would hire the builder who best fits my vision. One major con to an hourly payment method is the fact there is a conflict of interest given the reality that the more work there is the more the attorney can bill. The attorney is incentivized to be really thorough and find more work. By no means am I saying attorneys go out of their way to try and make situations more complicated merely to bill more, rather I am saying there is that built in incentive.
The second billing method is contingency. Contingency billing is essentially such that if the client wins the case, the attorney gets to receive part of the winnings. For example, let’s say you are injured in a car accident and you retain an attorney on a contingency basis. After fighting for you, your attorney ultimately helps obtain $100,000 from the defendant. If your contingency fee was 33%, the attorney would receive $33,000 and you would receive $67,000. Contingency rates can very from around 20% to about 33%. This billing method does align the interests of the client and the interests of the attorney in terms of reducing time spent on the case. It does create an incentive for your attorney to pursue the case in such a way that doesn’t pursue no-cash solutions or factor in your mental wellbeing. Again, I am not saying attorneys aren’t generally helpful, rather there is just this default conflict of interest.
The third method of billing is flat rate. Flat rate billing is when an attorney provides a service at a set price regardless of time spent or the success of the representation. An example of this could be an attorney agrees to write a contract for a client for $500. Regardless whether this work takes one hour or ten hours, the price paid by the client is $500. In my opinion, this type of billing has the least level of conflict of interest. In many cases, this method of billing just simply isn’t possible. In instances where the amount of time and effort need to resolve a situation is unknown or speculative, it is hard for parties to determine a flat rate.
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