An engagement letter describes the relationship between attorney and client, including the scope of the work to be done and the fee arrangement. Any new law practice should take the time to draft a standard engagement letter that can be modified and used every time the firm takes on a new client.
Engagement letters are also sometimes called fee agreements or retainer agreements. They should be signed by both lawyer and client, either before or shortly after any legal representation begins. After the representation concludes, it’s a good practice to send a disengagement letter that confirms that the attorney-client relationship has ended.
Engagement and disengagement letters reduce misunderstandings that can lead to malpractice claims or complaints to the state bar. One malpractice insurer reported in 2014 that in 65 percent of the malpractice cases it was defending, no retainer letter was ever drafted.
Many state ethics rules and the ABA’s Model Rules of Professional Responsibility require engagement letters in all contingency fee cases. Some states also require engagement letters in other types of representations, particularly if they involve money in excess of a designated amount.
A good engagement letter has several components.
- It identifies both the client and the attorney (or law firm). If third parties are closely involved – such as when a firm is representing a corporation but not its officers or directors – it may be wise to also specify who is not included in the representation.
- It describes the scope of the representation. This should be stated specifically and in language that’s easy to understand, to reduce the chance that a client will misinterpret it. Malpractice insurers say that vague engagement letters that don’t describe or limit the scope of the engagement are one of the key reasons that malpractice claims are filed.
- It explains how the work will be billed and how payment will be made. If the work is billed hourly, the letter should specify the rate or attach a schedule. If it is billed on a flat fee, it should state the fee. If it is billed on a contingency or other basis, it should describe the billing terms. The letter should also describe how payment will be made – either by retainer advanced against fees, or through monthly billing, or by some other method. The letter should explain when payment is due and state the consequences for failing to pay on time.
- The letter should identify the attorney primarily responsible for the matter, and indicate whether work will also be performed by other attorneys or paralegals.
- It should explain how often and by what method the client can expect the lawyer to provide updates on the status of the proceedings. Once you’ve put this information in an engagement letter, however, be sure you have a system in place to ensure you do what you said you would.
- If there is a conflict of interest or potential conflict of interest, the letter should explain how that conflict is being addressed.
- The letter should describe the firm’s document retention policy and advise the client of its obligation to retain documents and files in the event there is litigation.
- You may be able to include an arbitration clause in your engagement letter. Consult your state bar for guidance on this issue. Engagement letters cannot be used to waive a client’s right to pursue a malpractice claim.