In this Kitchin Legal Blog, I propose a framework to help employees and employers make informed decisions about retaining an employment attorney. Whether one is seeking to hire an attorney to evaluate human resource policies, or interviewing attorneys to prosecute or defend a civil lawsuit, one first should understand the laws governing attorney fee agreements in California. That legal framework can be used prospectively to evaluate the reasonableness of the fees an employment attorney proposes to charge for legal service.
The Framework Governing Attorneys’ Fees
Licensed attorneys in California are required to abide by the California Rules of Professional Conduct of the State Bar of California. These Rules law out a wide range of practice requirements, including those governing how lawyers can charge for their services. (See, State Bar Act, Business and Professions Code §§ 6000 – 6243.)
The rates changed by employment attorneys in California vary substantially, depending a wide range of factors. The location where the attorney practices plays a substantial role in pricing, as does the size of the law firm where the attorney works.
How the fee agreement is structured also depends on whether the attorney will represent the employee or the employer. Will the fees be earned on a contingency or per hour worked?
Contingent Fee Agreements for Employees
Most employment attorneys charge employees on a contingency fee basis for work on civil lawsuits. A contingency fee means that the lawyer is paid only if and when they obtain a recovery for a client (whether by settlement or verdict).
Contingency fees charged by employment attorneys in the San Francisco Bay Area for work on behalf of employees generally are between 33.33% and 40%, although I have seen fee contingencies as high as 50% of gross recovery and as low as 25%.
Business and Professions Code § 6147 sets out specific requirements for contingency fee agreements between an attorney and client. When an lawyer’s right to receive a fee is made to be contingent upon a recovery of money from a defendant, the agreement establishing that right must be in writing and it must identify the contingent fee percentage charged, how the litigation costs will be handled and include a statement that the contingency fee is not set by law but is negotiable between the attorney and client.
In the absence of a written fee agreement that sets out these terms, among others, the attorney will be unable to rely on a verbal agreement to establish how much fees are due. While the attorney may still obtain fees for their services, the amount of fees earned will be based on the court’s decision as to what is “reasonable.” The fees awarded could be lower than the percentage of the recovery fee the client verbally authorized.
Hourly Fees for Employers
Most employment attorneys charge employers on an hourly, or sometimes on a flat fee basis. Hourly fees charged to employers vary even more widely than the contingency fee percentages discussed above. Multi-state law firms that represent large employers often charge $650 per hour or more for litigation partners and as much as $450 per hour for mid-level attorneys. Successful, smaller firms in the Bay Area might charge as low as $350 per hour or upwards of $500 per hour. Although a large firm lawyer is not necessarily a better lawyer than a solo practitioner, larger firms generally have much higher overhead costs. Based on more than 25 years in practice, all I can definitively say about big firm lawyers is that they can be very expensive.
Hourly Fees for Employees
When an employee seeks advice, as opposed to representation in a lawsuit, employment lawyers typically change on an hourly basis, some sort of flat fee or a combination of both. (For example, reviewing an employment offer or proposed severance agreement.)
How Can You Determine if a Proposed Attorneys’ Fee Agreement is Reasonable?
Every licensed member of the California State Bar is prohibited from charging an unconscionable fee. Rule 1.5 of the Rules of Professional Conduct of the State Bar of California tells us that fee agreements must be evaluated “on the basis of all the facts and circumstances existing at the time the agreement is entered into…”
Contingency fee agreements, hourly and flat fee agreements each must be conscionable. “Conscionability” is an evaluative lens we use to determine whether a contract meets certain standards of fairness. When a contract or some term within a contract is unconscionable, we argue that it cannot be enforced. Although a party might agree in a written contract to pay the other party money for a product or service, the contract will not be enforced if the buyer proves the seller misrepresented a material aspect of the product or service. Under such circumstances, a court could find that the contract is unconscionable.
To prove unconscionability, however, the party challenging the contract term must prove that it is both (1) procedurally unconscionable and (2) substantively unconscionable.
Procedural unconscionability occurs when the contract is offered on a take-it-or-leave-it basis (without the ability to negotiate) and the offensive provision is buried in long, complex agreement. A contractual provision drafted by a sophisticated party (like a big company) and used against a weaker, less sophisticated party (a consumer, for example) might be found to be procedural unconscionability.
Substantive unconscionability occurs when the challenged provision is objectively oppressive or overly harsh to one party—generally the weaker party.
Using Conscionability to Evaluate Proposed Fee Agreements
Rule of Professional Conduct 1.5 sets out 13 factors that should be considered in determining whether a fee charged by an employment attorney is conscionable. Anyone seeking to retain an employment attorney can use these factors to evaluate the fee arrangement being offered.
“WHETHER THE LAWYER ENGAGED IN FRAUD OR OVERREACHING IN NEGOTIATING OR SETTING THE FEE”
If an attorney charges a 50% contingency fee in a simple overtime wage case, warning bells should go off. The potential client should ask, “why is the percentage so high?” If the answer is something like, “that’s just what we charge,” then it sounds like the lawyer is overreaching or charging too much. But if the lawyer responds that they believe the employer might be forced into bankruptcy during litigation, and that the law firm is therefore subject to substantial additional risk that they might receive no compensation for their work, then the high percentage might be justified as a way of placing extra value on the extraordinary risk they are assuming on your behalf.
In the end, if some term of the proposed fee agreement seems unfair, ask questions. If you think the lawyer is hiding things from you, misrepresenting their experience, charging more than 40% on a contingency fee basis, or charging an hourly fee that seems unjustified, then it would be worthwhile to talk with another attorney.
FACTOR NO. 2
“WHETHER THE LAWYER HAS FAILED TO DISCLOSE MATERIAL FACTS”
Read the contract carefully. Take your time with it. Likely there will be provisions that are not entirely clear to you. Ask questions. Evaluate the answers. Ask more questions. Ask the attorney about their experience, their communication style, and their expectations about how the case will proceed and be resolved.
With respect to costs, it is not possible to accurately predict how much time and effort it will take to resolve a case. Litigation is inherently uncerrtain. But it is possible to make some general predictions about costs of the litigation process. An employment attorney hired to defend an employment lawsuit should be able to ballpark anticipated costs for the potential client. Fees and costs are material terms of the relationship and you should not be shy about asking tough questions about them.
FACTOR NO. 3
“THE AMOUNT OF THE FEE IN PROPORTION TO THE VALUE OF THE SERVICES PERFORMED”
If you are hiring an employment attorney to prosecute claims for damages against an employer, you might ask them if they would consider accepting a lower contingency fee if the case settles within a certain number of days or months. For example, ask them to accept 25% of the gross recovery if the matter is settled within 120 days of the date you sign the agreement. After that date, the fee would increase to 40%. If agreeable, ask the attorney to set establish deadlines for certain events, like a date for sending the employer notice of your intention to bring a lawsuit against them on your behalf and/or demanding a copy of your employment file. Insist on some level of accountability so you can confirm the attorney is using their best efforts to move the claim toward a quick resolution.
Graduated fee agreements can make early settlement a little easier while also preventing an unconscionable windfall to an attorney who was not required to do any real work on the case, but just happened to have an employer on the other side that was highly motivated to settle the claims for a fair value very quickly.
FACTOR NO. 4
“THE RELATIVE SOPHISTICATION OF THE LAWYER AND THE CLIENT”
If this is the first time you have ever been involved in a lawsuit and you are not familiar with the litigation process, it is important for you to gather information about the process. Familiarity with the litigation process will put you in a better position to ask meaningful questions about fees, costs and how the case will be resolved.
FACTOR NO. 5
“THE NOVELTY AND DIFFICULTY OF THE QUESTIONS INVOLVED, AND THE SKILL REQUISITE TO PERFORM THE LEGAL SERVICE PROPERLY”
With respect to awarding attorneys’ fees to a prevailing employee’s attorney, courts tend to award higher hourly rates in group, representative actions and class actions. A case alleging unpaid overtime on behalf of a single employee might justify an award of $450 per hour in the Bay Area for an experienced attorney representing the employee. A class action involving unpaid overtime to 1,000 employees might justify an award of $650 or $750 per hour, or even more!
From the employer’s perspective, hiring an attorney to defend the company against the overtime claim of one employee should cost much less than hiring an attorney to defend the company in a class action case.
Ask the proposed attorney to help you understand the legal issues at stake in the case, the potential value of the claims and/or the strengths of the defenses. Understanding these things will help you evaluate whether it is reasonable to hire a law firm that will staff the case with multiple attorneys and charge huge fees. Oftentimes it makes sense to save money by hiring a smaller firm that can achieve the same results at a much lower cost.
FACTOR NO. 6
“THE LIKELIHOOD, IF APPARENT TO THE CLIENT, THAT THE ACCEPTANCE OF THE PARTICULAR EMPLOYMENT WILL PRECLUDE OTHER EMPLOYMENT BY THE LAWYER”
Unless your case involves incredible complex issues, multi parties and/or the potential for a very high recovery, big and small law firms are unlikely to be overwhelmed by your single case. But you should ask potential attorneys if they anticipate that the prosecution or defense of your case will be a burden on their practice. Do they really have the bandwidth to do all that is required in the case? If you think you are being charged more because the firm is too busy or understaffed to handle your case without affecting their ability to take on other cases, the firm might be too small for the case.
FACTOR NO. 7
“THE AMOUNT INVOLVED AND THE RESULTS OBTAINED”
While this factor is meant to apply retroactively, it can be used to evaluate whether the case is worth pursuing in the first place, or whether the employer should make efforts to settle the claim before incurring substantial fees and costs. A strong wage claim worth $20,000 plus attorneys’ fees can subject an employer to risks of $100,000 or more including attorneys’ fees and costs. It seldom makes sense to invest $100,000 to save $20,000 in the context of employment litigation.
I typically rely on a conceptional tool used in settlement negotiations called “BATNA,” which stands for the Best Alternative to a Negotiated Agreement. Thus, for example, if an employer’s best alternative to settling a disputed claim before the litigation process heats up is to face one year or more of very expensive litigation and business disruption, then the client needs to consider whether investing money in attorneys’ fees in excess of the amount demanded is the best alternative. Early settlement and low attorneys’ fees is often the best an employer can hope for in wage and hour cases.
The evaluation of this factor is different for the employee in an employment case. Claims covered by the Fair Employment and Housing Act (discrimination, harassment, retaliation) and certain wage and hour claims (minimum and overtime wage claims, for example), also give the employee the right to their attorneys’ fees if they win. If an employee wins $20,000 at trial, their attorneys could be awarded many times than much in fees and costs after trial.
FACTOR NO. 8
“THE TIME LIMITATIONS IMPOSED BY THE CLIENT OR BY THE CIRCUMSTANCES”
It might be reasonable for an attorney to charge a premium if the client needs immediate action. For example, if a client requires the attorney to set everything else aside to immediately address a time-consuming emergency, then the attorney might ask for a higher hourly rate than they would otherwise charge for the same work. Under these circumstances a higher rate might be very reasonable.
FACTOR NO. 9
“THE NATURE AND LENGTH OF THE PROFESSIONAL RELATIONSHIP WITH THE CLIENT”
Employers who require legal representation on an ongoing basis might be able to negotiate a lower hourly rate for legal services. Insurers who refer employment cases to the same attorneys, for example, often pay fees below market value because of the volume of the work they send to panel counsel.
FACTOR NO. 10
“THE EXPERIENCE, REPUTATION, AND ABILITY OF THE LAWYER OR LAWYERS PERFORMING THE SERVICES”
Experienced, successful employment attorneys build strong reputations in the local legal community, and they are often able to demand a higher fee rate than their less well-known and less experienced colleagues. Again, the more you know about the process and the scope of your legal needs, the easier it will be to evaluate whether you really need to hire the most well-known and expensive firm in town.
Unless you are seeking legal counsel to prosecute or defend very complex and very burdensome cases, it is often not wise to hire a large, multi-national law firm as counsel in employment cases. Big firm lawyers are not better than similarly-experienced small firm lawyers; they are just more expensive.
FACTOR NO. 11
“WHETHER THE FEE IS FIXED OR CONTINGENT”
For employment attorneys, taking a case on a contingency fee basis carries inherent risk. Employee-side lawyers do not get paid until the case is favorably resolved. In exchange for taking on the risk of non-payment in a contingency fee case, successful employees’ attorneys can earn substantial amounts per hour, oftentimes even higher than the employers’ attorneys earn.
FACTOR NO. 12
“THE TIME AND LABOR REQUIRED”
Clearly, if you intend to pay an employment attorney on an hourly basis, the more time the attorney spends working on the case, the higher the fees will be. But, keep in mind the BATNA analysis discussed above: is the work proposed by the prospective employment attorney reasonable given the size of the claim and the likelihood that the employee will prevail on the merits of their case?
From the perspective of the employee who has retained counsel on a contingency fee basis, the amount of time and labor required of the attorney is not as significant because the attorney will only be paid out of a recovery, not out of their pocket.
FACTOR NO. 13
“WHETHER THE CLIENT GAVE INFORMED CONSENT TO THE FEE”
From the perspective of hiring an employment attorney, it is crucial to become knowledgeable about the issues pertaining to the claim, the risks and benefits of different legal strategies and the likelihood that the employment attorney you hire will put you in a better position at the end of the representation than you otherwise would be in. In short, understand the grounds on which you are basing your consent to fees and legal representation.
So, How Much Does It Cost to Hire an Employment Attorney?
For Employees: Generally, it does not cost anything upfront for an employee seeking representation on a contingency fee basis. Fees are due when money is received from the employer and the amount is based on the percentages set out in the fee agreement. At 40%, a $100,000 recovery will consume $40,000 of the total recovery in fees. The client will receive $60,000, minus costs (filing fees, deposition costs and sometimes investigation costs).
For Employers: In the San Francisco Bay Area, count on $350 to $450 an hour for most employment law assignments, including litigation (unless the company hires a big firm that will staff the case with two or three lawyers as a matter of course). Make sure to keep a close tab on the amount of time retained counsel spends on the matter, and keep the concept of BATNA in mind. Are the costs appropriate given the potential value of the claims and the likelihood that the employee will win or lose on their claims? Do you really need to pay more per hour for having a lawyer who is part of a large firm than retaining a smaller, equally experienced firm?
Finally, before interviewing potential legal counsel, do some homework. Go online and research the issues you are facing. Develop a list of questions for the attorney designed to give you the ability to make a reasoned decision about anticipated charges. If you sense that the attorney is not forthcoming, move on to find someone you trust. Continue to ask questions.