Billing at Hourly Rate for Intra-Office Communications
Adopted: January 25, 2008
Opinion rules that, to insure honest billing predicated on hourly charges, the lawyer must establish a reasonable hourly rate for his services and for the services of his staff; disclose the basis for the amounts to be charged; avoid wasteful, unnecessary, or redundant procedures; and make certain that the total cost to the client is not clearly excessive.
Inquiry:
Attorney's standard contract for legal services provides that the client will be billed for the lawyer's services on a time-expended basis. Attorney charges $200.00 per hour for his legal services. He bills his paralegal's time at $75.00 per hour and his secretary's time at $50.00 per hour. Intra-office email communications are typically billed to clients in the following manner: Attorney A bills for the time that it takes him to type and send an email to a member of the staff; the staff member (secretary or paralegal) bills for the time expended reading Attorney's email and responding; Attorney bills for the time he spends reading the responsive email. Over the course of several months, the charges to a client for intra-office email communications may be in the hundreds of dollars. May a lawyer bill for both the time that it takes the drafter to write an email and the time that it takes the recipient in the same office to read the same email?
Opinion:
Yes. A lawyer may bill for intra-office communications about a client's matter. For example, a lawyer and a paralegal (or two or more lawyers) who meet to discuss a client's case may both bill for the time expended in the meeting provided the meeting advances the representation of the client and the participation of both billing staff members is necessary. Email communications to instruct, update, or confer with other members of the firm is no different and, on occasion, may involve the expenditure of less time by the participants than an in-person meeting (and, therefore, be less expensive for the client). Nevertheless, to insure honest billing predicated on hourly charges, the lawyer must establish a reasonable hourly rate for his services and for the services of his staff; disclose the basis for the amounts to be charged; avoid wasteful, unnecessary, or redundant procedures; and make certain that the total cost to the client is not clearly excessive.
Establishing a Reasonable Hourly Rate for Services
Rule 1.5 prohibits a lawyer from charging or collecting a clearly excessive fee. The rule includes a non-exclusive list of factors to be considered in determining whether a fee is clearly excessive, including the following:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) the fee customarily charged in the locality for similar legal services;
(3) the amount involved and the results obtained; and
(4) the experience, reputation, and ability of the lawyer or lawyers performing the services. Rule 1.5(a).
The prohibition on charging an excessive fee also applies to the amount charged per hour. When establishing an hourly rate for a lawyer's time or for a staff member's time, the factors set forth in the rule must be considered. In particular, the experience, reputation, and ability of the lawyer or staff member performing the services must be honestly evaluated. If the lawyer or staff member is inexperienced or of modest ability, the hourly rate should so reflect.
With regard to establishing hourly rates for staff members, if a lawyer's hourly rate takes into consideration overhead costs for staff, the lawyer must consider whether the work of a particular staff member advances the legal representation of the client or is so derivative of the lawyer's work that the expense should be subsumed in the lawyer's hourly rate. For example, the services of a typist, filing clerk, receptionist, scheduler, or billing clerk may fall into the latter category.
Disclosing the Basis for the Amounts to be Charged
Rule 1.5(b) provides that "[w]hen the lawyer has not regularly represented the client, the scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation." Although not required by the rule, a written memorandum of the fee arrangement with each client is strongly encouraged particularly when there is the possibility that the client does not understand that hourly charges may include charges for time expended communicating with, instructing, and supervising others, by email communications and otherwise. As noted in the comment to the rule,
[g]enerally, furnishing the client with a simple memorandum or copy of the lawyer's customary fee arrangements will suffice, provided that the writing states the general nature of the legal services to be provided, the basis, rate, or total amount of the fee, and whether and to what extent the client will be responsible for any costs, expenses, or disbursements in the course of the representation. A written statement concerning the terms of the engagement reduces the possibility of misunderstanding.
See also Rule 1.4(b) (lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation). When a particular billing practice may be a subsequent source of misunderstanding, a lawyer should consider disclosing this billing practice at the beginning of the representation and including an explanation in the fee memorandum.
The duty to disclose the basis for the amounts to be charged is "a two-fold duty, including not only an explanation at the beginning of engagement of the basis on which fees and other charges will be billed, but also a sufficient explanation in the statement so that the client may reasonably be expected to understand what fees and other charges the client is actually being billed." ABA Comm. on Ethics and Prof'l Responsibility, Formal Op. 93-379 (1993). "In an engagement in which the client has agreed to compensate the lawyer on the basis of time expended at regular hourly rates, a bill setting out no more than a total dollar figure for unidentified professional services will often be insufficient to tell the client what he or she needs to know in order to understand how the amount was determined." Id. Gerald F. Phillips in Time Bandits: Attempts by Lawyers to Pad Hours Can Often Be Uncovered by a Careful Examination of Billing Statements, 29 W. St. U. L. Rev. 265 (2002), suggests that a lawyer has a duty to disclose the hourly rates of each timekeeper in each billing statement "so that the client may reasonably understand what fee is being billed and how it was calculated." Id. at 274.
Avoiding Wasteful, Unnecessary, or Redundant Procedures
The fiduciary character of the client-lawyer relationship requires a lawyer to act in the client's best interests and to deal fairly with the client. When billing on an hourly basis, fair dealing requires that the lawyer provide an hour's worth of legal services for each hour billed. This means that a lawyer must avoid wasteful, unnecessary, or redundant procedures that do not serve to advance the client's representation. Time padding, or billing a client for time that was not actually expended on a client's matter, and task padding, or billing a client for unnecessary tasks, are both dishonest and unethical. Phillips at 267; Rule 7.1 and Rule 8.4(c). The comment to Rule 1.5 admonishes, "[a] lawyer should not exploit a fee arrangement based primarily on hourly charges by using wasteful procedures." As further noted in ABA Formal Op. 93-379,
continuous toil on or over-staffing a project for the purpose of churning out hours is...not properly considered "earning" one's fees. One job of a lawyer is to expedite the legal process. Model Rule 3.2. Just as a lawyer is expected to discharge a matter on summary judgment rather then proceed to trial if possible, so too is the lawyer expected to complete other projects for a client efficiently.
Whether a bill for intra-office communications or consultations, by email, telephone, or meeting, constitutes task padding or is a fair charge for a service rendered must be evaluated on a case-by-case basis.
Total Cost to the Client May Not Be Clearly Excessive
Rule 1.5 "deals not only with the determination of a reasonable hourly rate, but also with total cost to the client." ABA Formal Op. 93-379. In light of all services rendered and the factors set forth in Rule 1.5(a), the total cost to the client, on whatever basis charged, must not be clearly excessive. If the inclusion of charges at a lawyer's or a staff member's hourly rate for giving or receiving instructions via intra-office email or otherwise renders the total cost to the client clearly excessive, a lawyer should exclude these charges from the client's bill.