The New York State Bar Association regularly publishes answers to ethics questions it receives from lawyers. And recently, it addressed the following inquiry:
FACTS:
The inquirer proposes to include language in an engagement letter that will fix a “minimum fee” for drafting and finalizing a separation and severance agreement between the inquirer’s client and the client’s employer. That minimum fee equates to a fixed number of hours of the inquirer’s time at a stated hourly rate, and the client would agree to pay for any additional time required to complete the matter at that same rate. The engagement letter will also expressly advise the client that the minimum fee shall be due and owing even if the inquirer expends fewer hours than the fixed number of hours covered by the letter.
QUESTION:
Does the financial obligation imposed by the inquirer upon the client in the engagement letter constitute a prohibited “nonrefundable fee?”
RESPONSE:
After a detailed analysis of the governing law, the State Bar’s Committee on Professional Ethics concluded that: “A lawyer may charge a minimum fee to provide a defined legal service provided (a) the service is performed as agreed; (b) the engagement letter provides in plain language how the minimum fee will be calculated and the circumstances under which it will be ‘incurred’; and (c) the minimum fee is reasonable and not excessive and was therefore fully ‘earned.’”
But in the absence of any facts addressing these elements, the Committee could not specifically opine as to whether the inquirer's proposed arrangement satisfied the governing standards or constituted a "nonrefundable fee," which is not permitted in the State of New York.
To view the full text of the analysis, please click here: OPINION 1245