The billing practices of lawyers can be difficult for their customers to understand. Legal billing is fortunately not quite as inscrutable as health care billing, but the level of potential confusion is high enough in the legal field to warrant some general explanation.
Understanding the difference between costs and fees is an important starting point. These terms are generally interchangeable in everyday usage (although only a stuffy lawyer-type would inquire as to the “fee” for something like a car wash), but they have distinct meanings in your legal bill.
Fees are the charges you incur for the legal work your lawyer performs. For instance, if your lawyer were to draft a contract for you, the time she spends drafting the document she would charge as a fee. The time she spends on the phone talking to you about her work would also be charged as a fee. And so on for all of your lawyer’s work performing law-related tasks like representing you in court, taking depositions, and drafting legal briefs.
Costs are all charges incurred by your lawyer in handling your matter that are not fees. You must pay a small amount in order to file a case in most courts. That is called a “filing fee,” but, confusingly, your lawyer will pass that charge on to you as a cost. Your lawyer might need to hire an expert witness for your case, and payment to that expert witness is a cost. Costs can potentially amount to major charges on your legal bill, and most states (including Arizona) require your lawyer to disclose to you in writing how costs will be handled in your bill. Make sure you inquire about things like copying costs, mileage (if your case might require your lawyer to travel), and postage. Those items can add up.
Costs are generally passed through to the client without markup (although your lawyer may specify differently, which is another reminder to go over carefully how your lawyer will calculate costs). Lawyers generally charge fees in three different ways: on an hourly basis, on a contingency, and by a flat fee.
The flat fee is simple to understand: your lawyer agrees to perform a certain amount of work for you at a specified price – no more and no less. In Arizona, your lawyer is required to show you at the end of your matter how much work he performed and that the flat fee was generally a fair approximation of the work required to represent you.
An hourly fee results in you paying your lawyer for every hour she spends working on your matter at a specified per-hour rate. The rate multiplied by the hours worked results in the total fee.
A contingency fee is an agreement to share in any award to which you might be entitled at the end of your case. This is how personal injury lawyers typically charge their clients; the client agrees to pay the lawyer a percentage of any award. The client is usually responsible for costs no matter the outcome of the case, which is one of the items in the small print of personal-injury-television advertisements in which the lawyer claims to not charge anything unless he “gets you money.” If you lose your contingency-fee case, you might not pay any fees, but you will likely still be out hundreds or thousands of dollars in costs. Having to pay costs is not unique to contingency fee cases, but it is more important to note here because sometimes clients mistakenly believe paying a lawyer on contingency means the client pays nothing out of pocket, which is often not true.
In Arizona, your lawyer must provide you, in writing, an explanation of what he or she will do for you and how you will be charged before your case gets started. Make sure your lawyer does this for you, and ask as many questions as you would like about what the document says. Any lawyer who cannot explain clearly how you will be billed is a lawyer to stay away from. Legal billing can be complicated, but sorting out questions before you hire a lawyer can go a long way to avoiding problems as your legal matter progresses.