This post is directed toward those of you who fail to accurately record your time on a consistent basis throughout the day, day after day. I know it...
Engagement letters seem to be one of those documents most lawyers intellectually appreciate the value of but often underutilize. This letter simply isn’t in consistent use day to day in many firms and the excuses run the gamut. One that I often hear is “Long-term clients would be offended if we had them sign a fee agreement every time they brought in additional work.” Now I could buy into this rationale if these clients never sued their lawyers. Unfortunately, longstanding clients, life-long friends, and even extended family members will sue if their legal matter goes sideways. In fact, some of our larger losses over the years have come from claims that were brought by such clients.
Other excuses include “They take more time than they're worth, particularly with flat fee work,” “Given our practice areas, there really is no need,” “If I had to write one every time a question came in, I’d never get any work done” or “Our clients know what our rates are.” Yet ironically, it’s the engagement letter that lawyers often hope to rely on as their first line of defense should a disagreement ever arise over the scope of representation. If this letter never gets written, you’ve got a problem should a disagreement ever arise; and it doesn’t matter if the disagreement is in the context of a fee dispute, an ethics complaint, or a malpractice claim. Engagement letters are like buckling your seatbelt. You are taking a necessary step to protect yourself should something unexpected happen down the road.
As the above excuses suggest, too many lawyers appear to view engagement letters as formal documents that read like a contract. While situations often arise where a formal contract is called for, particularly with new clients, engagement letters needn’t always be full of legalese. Before digging into this topic, however, it is important to remember that in the malpractice arena, if there is ever a word-against-word dispute between a lawyer and client, the lawyer will have the tougher row to hoe. Without supporting documentation, statements like “They knew what I was hired to do,” “I only agreed to do this” or “I never agreed to do that” don’t carry the day. Thus, one of the primary goals of an engagement letter, formal or otherwise, is to simply confirm that you and your client are on the same page. You both need to have a clear understanding of what the legal ask is and on whose behalf it is to be done.
Of course, we all need to recognize that memories can be short, including our own. You really don’t want to be in a dispute with a client over what you were or weren’t asked to do. When this type of dispute does arise, some clients will fail to remember that they said they only wanted to pay their lawyer to do certain tasks and not every possible action that might have been indicated. A short engagement letter or confirmation email is a preventative step well worth taking because the documentation confirms your understanding of what the client’s needs are. It’s a way to avoid a potential running with assumptions misstep.
Given this, here are the basics of what should be included in a well-written engagement letter. For all new matters — including new matters brought by existing clients — consider addressing the following issues:
- Identify who is — and when necessary — who is not the client because the issue of not knowing who the client is occurs more often than you'd think. Yes, while in many situations who the client is will be quite clear and that clarity will remain throughout the course of representation, confusion over who the client is can and will arise in a number of practice areas. Always identify the client by name in your engagement letter, particularly when dealing with corporate entities. It can be just as important to similarly document who isn’t your client.
- Set forth the scope of representation. Initially, it’s about clarifying your role in your mind as well as in the mind of your client or clients and there are four things to consider.
- You don’t want the client to view your role as overly broad such that they believe you have agreed to be responsible for any and every legal issue that might arise going forward. For example, if the engagement agreement is in regard to a litigated matter, clarify if it does or doesn’t include the handling of an appeal. Even an agreement to handle a simple real estate matter may end up not being quite so simple. What if the initial deal falls through and your client is now expecting you to review or prepare additional contracts? This is why it is also important to clearly define the parameters of the scope of your representation from the outset.
- Consider what limitations you might want to place on your role. This is particularly important if you are about to take on a limited-scope matter. If there happens to be a work comp component to a personal injury claim and you have no intention of handling that piece, put it in writing! The same would hold true with divorces or with matters where you hope to obtain a large settlement but also have no intention of advising your client as to any tax ramifications that might arise. If you are only being retained to provide a second opinion, document that you have no obligation to file suit on the client’s behalf. Further, where called for, consider documenting that you advised your client to seek the services of someone who can assist them on any issues you won’t be handling. Again, it’s all about documenting that the client was made aware of what you will and will not be doing.
- If the client is cost-conscious to such a degree that you have concerns about the ramifications of the limitations the client is placing on your scope of representation (e.g. taking shortcuts such as having you rely on documents prepared by others, severely limiting the amount of authorized research or discovery, etc.), document that the client has been informed of the legal ramifications of the limitations being placed on your representation as well as the reasons why the client is making such a decision.
- Finally, stay the course when it comes to your role because scope creep can come into play. If you or your client wishes to expand your role further in to the representation; that’s fine. Just be clear in defining and documenting your role expansion with all the above in mind and note that this additional documentation should include the client’s consent.
If the client happens to be a new client, you should also address the following topics in some detail. If the client is simply bringing additional work to the firm, address these issues as you deem necessary.
- Discuss the rate or basis of the fee, when or how the rate may change, how frequently invoices will be sent, when payment is expected, and who will be responsible for paying. Detail how advances will be handled and what costs and expenses the client will be responsible for and when. If the total fee will not be known until the work is completed, provide an estimate. Depending upon the type of matter involved, you might also discuss the conditions under which additional work will be accepted and how the fee will be impacted by any such request.
If a retainer is paid upfront, define when legal fees will be considered earned and set forth the client’s funding obligations if the retainer is to be an evergreen retainer. For contingency fee matters, state the method by which the fee is to be determined, including setting forth the percentage or percentages that shall accrue to you in the event of settlement, trial, or appeal.
- Identify any conflict issues involved and discuss and fully disclose the legal ramifications to the client if the client elects to proceed with the representation in spite of the conflict. With significant conflict issues, also consider advising the client to seek outside legal advice about the ramifications of agreeing to move forward with the conflict in play.
- Clarify any obligations the client will have such as the necessity of cooperating with you, timely responding to requests, timely providing necessary documents, preserving data, etc.
Beyond these basics, a more formal engagement letter can also be used to inform the client about a few additional administrative issues. Consider setting forth the types of payments you accept and the terms or conditions of using various payment methods, when and how money will be withdrawn from the trust account, how work on the matter will proceed, how and when phone calls will be returned, how fee disputes will be addressed, the consequences of late payments or a complete failure to pay, how and when the representation will end, and/or the specifics of your file retention destruction policy. Getting out in front of these expectations also helps you set and maintain healthy boundaries with your clients.
For flat fee in-and-out work or with long-term or repeat clients, a more relaxed letter can often take care of documenting the engagement. These letters can be as simple as a confirmation email reiterating your intake meeting notes, a “thanks for stopping by” note, or a slightly more formal letter of clarification. Regardless, write to your audience. The idea here isn’t to write a CYA letter, but to confirm that everyone is on the same page. Memories can be short, and if there is no written documentation problems may arise down the road. Even though they are informal, these letters should still focus on the basics. At a minimum clarify and confirm who the client is, what the scope of the representation is, the cost or fee to be charged, and any other critical information. Lawyers who do this well often use this more informal engagement letter as a way to start to drive new matters forward simply by including an additional statement or two that sets forth what will happen next.
While the items discussed thus far are the building blocks of an engagement letter, there are other issues worth addressing. For example, there are a host of issues being created by clients who are participating in social media. Fortunately, some of these issues can and should be addressed in an engagement document, formal or otherwise. While the specific issues you might want to address will continue to change and evolve over time, it helps to come at the problem by remembering what it means to be an attorney — think legal advisor.
Some clients may have no idea what the term “attorney-client privilege” actually means, so they’ll have no understanding of the legal ramifications were it to be lost. What would happen if a client posted a copy of an email from you to their Facebook page, tweeted status updates every time they heard from you, or regularly communicated with you using their work email address? You are the lawyer and given the realities of how people communicate in today’s world, you would be well advised to address such issues with the client at the beginning of representation. A perfect place to do this would be in an engagement letter. Topics you should consider addressing include the responsible use of email; perhaps limiting or completely curtailing the client’s participation in social media during the course of representation; avoiding communication via employer-owned devices including smart phones, computers, and tablets; and the advisability of changing passwords on personal accounts in order to prevent unauthorized access by an opposing party.
Taken together, my hope is the above thoughts lend enough support for engagement letters to warrant their consistent use on all new matters, not just with new clients. Set the excuses aside. Now, allow me to leave you with one final thought. Who has hired who? There is real value in taking the time to acknowledge and honor your clients by saying thank you for bringing new work to your firm and doing this in a professional and informative way. Try doing so in a well-drafted engagement letter that not only sets forth the terms and conditions of your representation but more importantly creates a road map of what lies ahead. This can be a great way to make sure the attorney-client relationship starts out on the right foot.
Authored by: Mark Bassingthwaighte, Risk Manager
Since 1998, Mark Bassingthwaighte, Esq. has been a Risk Manager with ALPS, an attorney’s professional liability insurance carrier. In his tenure with the company, Mr. Bassingthwaighte has conducted over 1200 law firm risk management assessment visits, presented over 600 continuing legal education seminars throughout the United States, and written extensively on risk management, ethics, and technology. Mr. Bassingthwaighte is a member of the State Bar of Montana as well as the American Bar Association where he currently sits on the ABA Center for Professional Responsibility’s Conference Planning Committee. He received his J.D. from Drake University Law School.
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