“Non-refundable” Retainer Fees: Fact or Fiction?

21 06 2011

If an attorney required you to pay a “non-refundable” retainer fee, would you hire that attorney? Many people do, although there are few situations in which a “non-refundable” fee is appropriate.  An attorney must refund unearned fees, unless those fees fit into the definition of a “true” or “classic” retainer.

The True Retainer: A true retainer is “earned upon receipt” (that is, becomes the property of the attorney immediately), and is not contingent upon the provision of legal services. It is generally not refundable, although it may be refundable where the attorney does not fulfill his end of the bargain, or where the fee is found to be unconscionable. A true retainer must not be placed in a trust account, and must not be billed against.

Advanced Payment Retainer: An advanced payment retainer is intended to compensate an attorney for legal services. If money is not a true retainer, it is most likely an advanced payment retainer. It is paid in advance and billed against as the attorney performs services and/or incurs costs on behalf of the client. This retainer should be placed in a trust account, although there is some indication that it may be permissible to place it in a general account. An advanced payment retainer is always billed against, and any unearned portion is refunded to the client.

Security Retainer: A security retainer may be billed against, although a client who pays a security retainer generally pays bills as they come due. The security retainer is meant to compensate the attorney in the event of non-payment. Therefore, the attorney would send regular bills to the client, but if the client does not pay on time, the attorney may bill against the security retainer. The security retainer should be placed in the attorney’s trust account, and, like an advance payment retainer, must be refunded at the end of the representation if not earned.

It is difficult to determine when a true retainer, which many attorneys refer to as a “non-refundable” retainer, is appropriate. The first step of this analysis is to ask what the attorney is selling in exchange for the true retainer. The attorney must be selling “availability” and not “the performance of a particular legal service” (the definition of an advance payment retainer). Many attorneys wrongfully believe that “availability” means that the attorney will perform immediate legal services. However, availability must be separate from the performance of legal services in order to justify a true retainer.

A proper true retainer situation requires the sale of something other than legal services. There are a number of other items, besides “performance of legal services” that a client may wish to purchase:

  • the attorney’s promise of “availability” for a case that might not occur,
  • the attorney’s promise of “availability” where the client is still considering several attorneys,
  • the attorney’s promise that he or she will never represent a competitor of the client,
  • the attorney’s promise that he will not represent the client’s adversary in a lawsuit,
  • the attorney’s exclusive “availability,” although the attorney would otherwise have the time and ability to represent multiple clients, or
  • the attorney’s promise to be “available” every Monday (for example) to meet with the client and answer questions, although the client doesn’t promise to take advantage of this “availability.”

In all the situations above, the lawyer is selling something to the client that is not accounted for by the attorney’s billing rate. The attorney might be forced to keep a light schedule although the client may not hire him, or to turn down a paying client in order to avoid a “conflict” with a client who has never actually used his services. The client receives a benefit, and the lawyer’s reward is uncertain. In these cases, a true retainer might be justified.