When was the last time you read your engagement letter line by line, from beginning to end? No, really, when did you do this last? Do you recall the last time you updated your engagement letter? You can answer honestly, because you’re probably reading this in the comfort of your office. Maybe updating your engagement agreement has been at the top of your to-do list for a while. Well, now is as good a time as any.

My general advice to clients and friends is to read your template engagement letter from beginning to end, line by line, at least once a year. If you’re like me, you may have several different types of template engagement letters depending on the client needs, practice area, and payment agreements.

Yes, each template should be thoroughly reviewed at least once a year. But what should you look for as you review and evaluate your engagement letter?

When reviewing your engagement letter template, a lawyer should consider if the engagement letter complies with the California Rules of Professional Conduct (CRPC), Business and Professions Code, and Code of Civil Procedure, which governs contracts. Remember the engagement letter is a contract between the attorney and the client, and therefore the attorney should carefully consider the terms that will guide the attorney-client agreement and bind the attorney to either act or not act within the scope of representation. (See CRPC, rule 1.2.)

CEB and the State Bar of California have sample engagement letters for an attorney to utilize in their practice. These exemplars are meant for an attorney to use as a base, then tailor while considering the lawyer’s or law firm’s individual practice, fee structure, and client needs. Thus, cutting and pasting a CEB or State Bar engagement letter does not satisfy an attorney’s duty of competency or diligence. (See CRPC, rules 1.1 and 1.3.) In determining if a clause is necessary, the attorney should consider if the disclosure is necessary in order to comply with the CRPC or Business and Professions Code, or if the clause is relevant to their practice area.

An example of a required disclosure is the clause disclosing professional liability insurance to a client. (See CRPC, rule 1.4.2.) Rule 1.4.2 requires a lawyer or law firm to disclose if they do or do not carry professional liability insurance. Failure to make this disclosure violates the CRPC. Other examples of required disclosures are fees, billing practices, scope of representation, and consequences for the client’s failure to comply. (See Bus. & Prof. Code, § 6148.) For those who enter into contingency fee agreements, the attorney must with comply Business and Professions Code section 6147.

For attorneys who enter into flat fee agreements and wish to place the fee in their operating account, CRPC, rule 1.15 requires specific disclosures and consent from the client. If the flat fee is less than $1000, the engagement letter must give notice and advise that (1) the attorney is placing the fees in their operating account and (2) the client may direct the attorney to place the fees in trust. Rule 1.15 allows for flat rate fees of more than $1000 to be placed in the operating account, provided that the client gives written informed consent, and the attorney informs the client that they may choose to place the fees in trust. The client must make the decision on their own regarding where they wish to place the flat fee of more than $1,000 — either in trust or in the operating account. The attorney cannot receive consent to place the funds in the operating account without providing the client with the information that the funds may also be placed in trust if the client prefers. Thus, limiting the client’s consent to placing a fee of $5,000 in the operating account does not comply with rule 1.15.

Additionally, another common mistake is including the language “earned upon receipt” or “non-refundable” as it relates to a flat fee. CRPC, rule 1.5(d) limits the use of this contract term to instances in which an attorney entered into a “true retainer,” where a client pays for the attorney’s availability for a specific period of time or for a specific matter, “but not to any extent as compensation for legal services performed or to be performed.” True retainers may be placed in the attorney’s operating account.

A common mistake in drafting an engagement letter is the failure to outline the scope of representation. This is the attorney’s opportunity to clarify what sorts of services the client can expect, and limit or exclude representation that is outside the agreed-upon scope.

A common mistake in family law is to write “representation of the dissolution of marriage” when the attorney verbally explained to the client that they don’t practice in certain jurisdictions, or the agreement was to limit the representation to a particular portion of the dissolution of marriage. When an attorney verbally explains an exclusion of the representation, the attorney should also include that exclusion in the attorney-client agreement.

Another example is agreeing to make a demand for compensation of injuries but failing to advise that the attorney will not automatically agree to represent the client in the civil litigation portion of the representation. For these reasons, better practices recommend that the attorney outline the scope of representation with both inclusionary and exclusionary descriptions of the representation.

Finally, for those representing non-English speakers, Civil Code section 1632 requires that contracts with individuals whose primary language is Spanish, Chinese, Tagalog, Vietnamese, or Korean must be translated, either with a translated version of the contract or through an interpreter. Note that Civil Code section 1632 applies only to these five identified languages, but better practices recommend that where an attorney works with a non-English speaking client, the attorney-client agreement should be translated into their language to obtain fully informed consent.

Please keep in mind this article is not meant to be an exhaustive discussion of considerations when drafting an engagement letter. Rather, it is meant to be used as a broad guide when reviewing your engagement letters, and to encourage attorneys to take the time to review their engagement letters and craft them to reflect the goals of their representation and service offerings. If you’re interested in additional information, CEB has several practice guides to help you draft your engagement letter, including the Fee Agreement Forms Manual and the recently updated California Client Communications Manual.

Mary Grace Guzmán of Guzmán Legal Solutions advises lawyers, law firms, and law students on their professional responsibilities and risk management needs. She also teaches legal ethics and professional responsibility at JFK Law School. She works with lawyers and law firms regarding legal ethics issues such as conflict of interest issues, fee disputes, and advises lawyers and law firms as outside ethics counsel to manage risk. Ms. Guzmán recognizes that a lawyer’s or law firm’s needs are best met by preventing legal ethical issues before they arise or managing an ethical issue once identified.

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