Most clients expect their lawyer to bill them honestly. But ethical billing involves more than simply refraining from inventing hours.

Texas lawyers are subject to specific professional rules governing the amount of their fees, how fee arrangements are communicated, the treatment of advance payments, contingent fees, expenses, and other financial aspects of the attorney-client relationship. A poorly designed or improperly administered billing arrangement can therefore create more than an unhappy client—it can create an ethical problem.

The principal starting point is Rule 1.04 of the Texas Disciplinary Rules of Professional Conduct, which governs attorneys' fees.

A Texas Lawyer Cannot Charge an Illegal or Unconscionable Fee

Rule 1.04(a) provides that a lawyer may not enter into an arrangement for, charge, or collect an illegal or unconscionable fee.

The Rule defines an unconscionable fee as one for which a competent lawyer could not form a reasonable belief that the fee is reasonable. This is important because client consent does not necessarily end the inquiry. A client agreeing to a fee does not give an attorney unlimited freedom to charge whatever the engagement agreement happens to say.

Rule 1.04(b) identifies several factors relevant to determining whether a fee is reasonable, including:

• the time and labor required;
• the novelty and difficulty of the legal questions;
• the skill required;
• whether accepting the matter will preclude other employment;
• fees customarily charged locally for similar services;
• the amount involved and results obtained;
• time limitations imposed by the circumstances;
• the length and nature of the attorney-client relationship;
• the lawyer's experience, reputation, and ability; and
• whether the fee is fixed or contingent.

There is consequently no universal ethical hourly rate applicable to every Texas attorney. A rate that is entirely reasonable for one lawyer, client, or matter may be difficult to justify under very different circumstances.

Tell the Client How You Are Charging

Billing disputes often begin with different expectations rather than outright dishonesty.

When a lawyer has not regularly represented a client, Rule 1.04(c) requires the basis or rate of the fee to be communicated to the client, preferably in writing, before or within a reasonable time after beginning the representation.

As a practical matter, written fee agreements are enormously useful even when the disciplinary rules do not expressly require a particular arrangement to be in writing.

An engagement agreement can identify the lawyer's hourly rate, the scope of representation, responsibility for expenses, the treatment of advance payments, and circumstances in which additional fees may become necessary.

Clarity at the beginning of the relationship can prevent a remarkably large number of disagreements later.

Accurate Timekeeping Matters

An hourly billing agreement authorizes an attorney to charge for legal services actually performed. It does not authorize an attorney to manufacture time.

Suppose an attorney spends 30 minutes reviewing a document but records 1.0 hour simply because the attorney believes the task was "worth" an hour. That is fundamentally different from establishing an agreed flat fee for the task in advance.

Likewise, an attorney should not bill a client for work that was never performed or intentionally exaggerate the amount of time actually spent performing it.

The ethical problem is not merely that the resulting fee might become excessive. Knowingly false billing may implicate the broader prohibition against conduct involving dishonesty, fraud, deceit, or misrepresentation contained in Rule 8.04 of the Texas Disciplinary Rules of Professional Conduct.

An attorney's invoice is a representation to the client about what the attorney did and what the client owes. It should be treated accordingly.

Expenses Should Also Be Billed Honestly

The same principle applies to expenses.

Texas ethics authorities have specifically considered whether attorneys may mark up expenses charged by third-party vendors. Professional Ethics Opinion 658 explains that, absent disclosure and agreement with the client to the contrary, charging the client more for a third-party expense than the amount actually incurred can violate the disciplinary rules.

Consider a simple example. If a process server charges the law firm $100, describing a $150 charge on the client's bill as a "$150 process-server fee" creates an obvious problem if the additional $50 has not been disclosed and agreed upon.

Transparency matters just as much with expenses as it does with attorney time.

Advance Fees and Trust Accounts Require Special Care

Another recurring source of ethical problems involves money paid before legal services are performed.

Rule 1.14 governs the safekeeping of client property. As a general principle, money belonging to a client must be kept separate from the attorney's own property.

This becomes particularly important with advance fees.

Calling money a "nonrefundable retainer" does not necessarily make it one.

Texas Professional Ethics Opinion 611 distinguishes a true nonrefundable retainer from an advance payment for future legal services. A true retainer compensates an attorney for securing the attorney's availability and the resulting loss of other employment. By contrast, money paid for legal work that has not yet been performed ordinarily remains unearned until the applicable services are performed.

The distinction has practical consequences. Unearned client funds generally belong in the appropriate trust account rather than the attorney's operating account.

Texas lawyers therefore should not assume that putting the words "nonrefundable" or "earned upon receipt" into an agreement automatically converts payment for future services into the lawyer's property.

Flat Fees Are Not the Same Thing as Nonrefundable Retainers

Flat-fee arrangements are perfectly legitimate, but they create their own accounting questions.

An attorney might agree, for example, to handle a defined legal matter for $5,000 rather than billing by the hour. The fact that the amount of the fee does not depend upon hours worked does not itself make the arrangement improper.

The more difficult question is when the fee becomes earned.

Texas ethics guidance recommends that attorneys carefully define how flat fees are earned. In some matters, an agreement may establish reasonable stages corresponding to work actually performed.

For example, portions of a flat fee might become earned as specified stages of representation are completed, with the remaining unearned funds continuing to be appropriately safeguarded.

Clear drafting is particularly valuable here because disputes become much harder to resolve when the agreement merely says "$5,000 flat fee" without explaining what happens if the representation ends early.

Changing the Fee During Representation Can Be Problematic

Sometimes a matter becomes dramatically more difficult than anyone expected.

Texas ethics authorities recognize that an attorney and client may modify a fee agreement after representation begins. But the attorney-client relationship is a fiduciary relationship, and changing the financial arrangement after the lawyer has already been retained deserves special scrutiny.

Texas Professional Ethics Opinion 679 discusses Texas authority establishing a presumption of unfairness when an attorney and client modify their fee agreement during the attorney-client relationship. The lawyer bears the burden of showing that the modification was fair under the circumstances.

That does not mean a lawyer must handle an unexpectedly massive case for the price originally anticipated regardless of what happens. It does mean that an attorney should not use the client's dependence upon existing counsel as leverage to impose an unfair new fee.

Contingent Fees Have Additional Requirements

Rule 1.04 contains specific requirements for contingent-fee arrangements.

A contingent-fee agreement generally must be in writing and explain how the fee will be calculated. The agreement must address litigation and other expenses and explain whether expenses are deducted before or after calculating the contingent fee.

At the conclusion of a contingent-fee matter, the attorney must provide the client with a written statement explaining the outcome and, when there has been a recovery, the remittance to the client and how it was calculated.

Texas also prohibits certain contingent-fee arrangements altogether, including contingent fees for representing criminal defendants. Other restrictions may apply depending upon the type of representation.

Subscription Legal Services Are Not Exempt From the Rules

Modern billing arrangements do not escape traditional ethical principles merely because they have a new name.

In Professional Ethics Opinion 701, the Professional Ethics Committee considered subscription legal services in which clients pay recurring fees for access to legal services.

The Committee concluded that subscription arrangements can be permissible, but the fee still cannot be unconscionable. The Committee also explained that lawyers may need to reevaluate the arrangement over time. A subscription that was reasonable when established could become problematic if the client rarely uses the services or circumstances materially change.

The opinion also addresses the treatment of subscription payments as client funds and the potential obligation to refund an appropriate portion when a subscription terminates during a payment period.

Ethical Billing Is Mostly About Accuracy and Transparency

The disciplinary rules governing attorney fees can become complicated, particularly with contingent fees, flat fees, retainers, fee sharing, and trust accounts.

But the basic principles are remarkably intuitive.

A lawyer should tell the client what the lawyer is charging. The lawyer should accurately describe work performed and expenses incurred. Fees must not be illegal or unconscionable. Money that still belongs to the client must be properly safeguarded. And unusual billing arrangements should be clearly documented rather than left to assumptions.

A lawyer does not have to be inexpensive to bill ethically. Experienced attorneys may command substantial rates, and difficult matters can generate substantial legal bills.

The important distinction is between a high fee that can reasonably be justified for the legal services provided and a fee generated through deception, undisclosed charges, improper handling of client funds, or an arrangement that the lawyer could not reasonably believe to be reasonable.

For both lawyers and clients, a transparent fee arrangement at the beginning of the representation—and accurate billing throughout it—is one of the simplest ways to prevent the financial side of an attorney-client relationship from becoming a legal problem of its own.

This article provides general information about Texas legal ethics and attorney billing practices. It is not legal advice concerning any particular fee dispute, grievance, or attorney-client relationship.

At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.