One of the things that worries people the most about using a business lawyer is that the cost might be confusing and spiral out of control. In this article we tackle the thorny issue of legal fees and look at what you should spend as well as how you might be able to finance it.
Short answer here, yes it can. Let us break it down for you. When you go to a lawyer for advice, if they only point out the risks you currently face they’re only doing half their job. Yes, avoiding that risk can mean not wasting precious time, money and other resources but there’s so much more your lawyer can do for you.
The other half of the job is actually creating value. If a lawyer takes the time and uses their experience to understand your business objectives as well as contributing proactive ideas and solutions to the problems they identify, they’ll add real value.
A good lawyer will identify legal risks and point them out. A great lawyer will add value by giving you a range of options some of which might involve taking a small risk for a larger potential benefit. They’ll look at the bigger picture and help you to achieve your goals. Investing in this relationship might mean spending more but you should get more back from it.
Nobody wants nasty surprises when bills arrive. But it isn’t just as simple as trying to spend as little as possible. You need to be able to balance spending so it is not only within budgets but proportionate to the value you’re getting back.
Charges based on the time spent are unpredictable and won’t encourage lawyers to do things quickly. Fixed fees are predictable and can work well if the work is properly specified but may incentivise corner-cutting.
Whatever pricing model you go for, things need to be transparent. If you’re going for a variable charging approach then estimates need to be provided to allow budgeting either for the whole job or at least the different stages.
If the job is likely to run for more than a couple of months, monthly interim billing can be a good idea. You will be able to see how much work has actually been done in the relevant period, how much progress has been made and, importantly, manage cash flow.
There are many ways lawyers can charge for their services and understanding your priorities in this respect is part of how Ravenna can help you find the right lawyer.
Beware of relying on hourly rates as an indicator of how cheap or expensive a piece of work will be. Hourly rates generally increase the more senior the lawyer is and it might seem logical that you can compare one firm to another, based on these rates. However it isn’t as simple as that. There is no common approach amongst law firms in relation to how rates apply.
What you actually get charged is likely to be different in each firm (and sometimes even each department within the same firm). If you’re trying to budget on an hourly rate basis, the total cost to you will depend not only on the rate itself but also the different individuals, different levels of experience or specialisation and the type of work being done. It will also be influenced by differences in time recording culture (US firms, for example, tend to have lower rates but higher time recorded on files because the US practice is to record every moment of time referable to the case wherever or whenever is occurs), the amount of out-of-hours working expected and the level to which the firm has a culture of discounting time to avoid the cost of the work outweighing its value.
If you’re looking at litigation then there could be a range of flexible options for funding your legal advice. A strong claim, for a large amount, is likely to be attractive to a range of specialist funders and possibly the lawyers themselves.
The basic idea is that for bearing risk and cost of the litigation the funder takes a share of the winnings. It is likely to be a more expensive way of funding it - as the final amount of fees charged may be increased to recognise the additional risk - but it could mean being able to afford otherwise prohibitively costly litigation.
In a conditional fee agreement the lawyer only receives their full fee when certain circumstances occur - usually if a case is won or settled and money is recovered as a result. These are known as “no win, no fee” agreements.
The risk of an adverse costs order against the person bringing a claim can, in some circumstances, be covered by insurance. If the case is won the insurer gets a share, if it is lost the insurer covers the award of costs to the opponent.
The key question you need to ask yourself, before entering into one of these arrangements, is how much can the business take in terms of the financial risk of legal fees. If you decide to fund it yourself without assistance and you win the case, the business will receive a greater proportion of the amount recovered. If you choose a funding option (whether through insurers or through the lawyers themselves) you might have avoided the full cost risk of defeat but you will receive a lower proportion of any sums recovered if you win. There are other issues to consider if you wish to obtain third party funding. Lawyers and insurers are unlikely to agree to fund a case unless they themselves are convinced it will end successfully for the business. So they will assess the prospects of success at every stage and may refuse to act for you (or to continue to act for you) if the case does not pass their internal risk assessment.
These services combine an insurance type benefit combined with support for legal issues that arise sometimes in the form of a helpline or useful precedents available to the business. If a minor problem arises the lack of a cost barrier, for preliminary advice, can help nip problems in the bud. Furthermore, depending on the level of cover on offer, if the employer follows the steps recommended, the benefits can include coverage against not only the costs of a fight but also the award of compensation.
As with any insurance, the premiums can be worth it, if you have one large claim or a series of medium sized claims during the year. This rather depends on the nature of your business.
It works just like any other form of insurance. You pay a monthly or annual fee and in return you are insured against legal expenses subject to certain limitations. If you do need to claim there is usually an excess for you to pay and you will be steered towards the insurer’s panel of lawyers, whose charges may have been negotiated down by the insurer. You may still be able to choose your own lawyer but you may need to pay any excess above the panel lawyer’s rates yourself.
The difficulty in deciding whether this is worthwhile for your business is knowing, in advance, the kind of dispute that might arise and how much it will cost in fees. The amount at stake in money terms and commercially (for example your time and reputation) may dwarf the actual legal costs risk.
Before you consider legal expenses insurance it is worth checking other insurance you might have to see if that has legal expenses as an add-on.
Want to find the right lawyer for your business? Book your free 30-minute consultation with one of our advisors by clicking here. We’ll talk through the options and suggest at least two law firms that we think are a good fit for your business. We aren’t paid any commission and you won’t be under any pressure to work with any law firms we put forward.
