Does your law firm regularly raise hourly rates for attorneys and paralegal staff? How much notice do you give existing clients of the firm? A newly proposed ethics opinion may mean you need to change how and when you notify clients of increased rates. Importantly, it appears the Ethics Committee may determine that a general notice of periodic rate increases in the client fee agreement is not sufficient under Rule 1.5.
Assume that a law firm includes a statement in its client fee agreement: “Law Firm may in its discretion raise hourly rates for attorneys and staff from time to time.” Although a client may have agreed that the law firm could raise rates in the future, the basis or amount of the increase (or the timing) was not part of the fee agreement, and therefore, the client did not give informed consent to the specific increase. Rule 1.5 requires that a lawyer communicate “the basis or rate of the fee” to the client. A lawyer may renegotiate a fee contract for “good cause” or changed circumstances, but the lawyer may not unilaterally modify rates without reasonable advanced notice of the changed rate or threaten to withdraw “to coerce an additional or higher fee” if the client doesn’t agree to the new rates. See Rule 1.5, Comment [5].
Further, any increase negotiated with the client may not be clearly excessive under Rule 1.5(a). For example, while a 15% rate increase may be permissible, a 50% rate increase may not be under factors listed in Rule 1.5(a). So, how can a lawyer raise rates ethically?
- Include a provision in the fee agreement allowing for rate increases at regular timeframes.
- Give the client advanced notice of the specific increased rate prior to issuing a billing with the new rates. 30 days’ notice should be sufficient.
- Keep in mind that the increased rate cannot be clearly excessive.
- If the client has received general notice of the rate increase in the fee agreement, and then specific notice of an increase prior to it going into effect, then if the client does not object to the rate increase, the lawyer may presume consent and impose the rate increase.
- Though not required by the Rules, you can specify in the fee agreement the timing of any future rate increase and cap the rate increase at a certain dollar amount or percentage. The current draft of the proposed ethics opinion states that if the fee agreement specifies both the timing and the amount of any future rate increases, then so long as the increase is not clearly excessive, the lawyer may ethically bill the client at the increased rate without further notice. Nonetheless, I believe best practice would dictate giving 30 days’ advance notice of the rate increase, even with a specific term in the fee agreement. This additional disclosure helps to manage client expectations.
Finally, if the steps above are followed and a client does not agree to pay the increased hourly rates, a lawyer may only withdraw from representation for nonpayment of the agreed upon increased rate if the lawyer complies with Rule 1.16(b). That is, there must be reasonable advance notice of the intent to withdraw if a client fails to pay, giving the client the opportunity to cure the deficit. Rule 1.16(b)(6).
Keep in mind that this is only a proposed ethics opinion as of the publication of this blog, which means the Ethics Committee could still modify the opinion. I would encourage you to submit any comments for the Ethics Committee to consider prior to its next quarterly meeting in April. For more information, see Proposed 2025 FEO 3 on the State Bar’s website.
