Why Capping Hourly Fees is Usually a Bad Idea

As flat fees become more popular, one of the ways lawyers often “try out” flat fees is by offering to cap their hourly fees. For example, a lawyer might offer to bill $200 per hour for a small lawsuit, but no more than $10,000, total. This is a rookie mistake. If the lawyer bills 50 or fewer hours, he will merely be paid for his work the same as if there were no cap on fees. But if he bills more than 50 hours, he gets the short end of the stick.

Contrast this with a true flat fee where the lawyer charges $10,000 whether she spends 10, 50 or 100 hours on the representation. If she spends only 10 hours, she has come out ahead. If she bills 50, she has come out even. And if she bills 100, she has gotten the short end of the stick.

Capped Fees Are a Lose-Lose Proposition

With a flat fee, the risk is more or less evenly distributed. The client’s risk is that the lawyer will be more efficient than an estimate based on hours worked. The lawyer’s risk is that she will be less efficient.

With a capped fee, there is no upside for the lawyer. The best-case scenario is they get paid for exactly the hours they worked. The worst-case scenario is that they work more than 50 hours and does not get paid for all that time. The client can’t lose, and the lawyer can’t win. The lawyer can only tie, at best.

With Capped Fees, the Client Always Loses

Ultimately, if the lawyer “loses” in a capped-fee situation, so does the client. A lawyer who blows past the fee cap may start losing interest in a case they are no longer getting paid for, and start looking for an easy way out.

The same thing could happen in a flat-fee scenario, but it is less likely. First, billing flat fees means separating time and value. While time absolutely factors into value, it is not the measure of value. Lawyers who charge flat fees generally give up on tracking time, or at least worry less about time. The concept of “going over” the fee does not really apply.

Second, the lawyer’s upside is also an incentive to find a more efficient way to handle the representation. Assuming a moderate level of legal competence and creativity, a lawyer charging flat fees should be able to come out well ahead of a lawyer billing by the hour, even while delivering greater value to flat-fee clients.

Third, charging flat fees also means carefully defining the scope of representation. If a case blows up in your face, you should be able to go back to your client for more money. That way the fee remains fair to everyone, and nobody gets screwed.

But it also bears repeating that flat fees should just be one tool in your billing toolbox. The point is to deliver greater value to clients and do a better job of aligning incentives. If you cannot do that with a flat fee in a particular matter, don’t use one.

When Capping Your Fees Might Make Sense

One caveat.

Many smart lawyers offer capped fees all the time, and are perfectly happy doing so. But there is an important difference in the way they cap their fees. They are not capping fees as a way of trying out flat fees. They are capping fees as a way of reassuring the client that legal fees will not spiral out of control.

Here is the difference. A lawyer capping fees as a way of trying out flat fees will cap fees at the estimated cost of the representation. If the lawyer and the client believe a Series A financing round should take about 50 hours at $200 per hour, the lawyer will cap their fees at about $10,000 — maybe with a slight cushion, just in case. A lawyer capping fees as a way of reassuring the client will cap the fees at $15,000 or $20,000, instead. In other words, they will pick a safe cap that they area extremely unlikely to run into. It is more like a backstop.

The risk technically remains entirely on the lawyer, but there is a different reward: the client feels reassured, and signs the retainer.

With this one exception, capping fees as a way of trying out flat-fee billing is a pretty bad idea — for lawyers and clients.

Originally published on March 17th, 2017 and updated on July 11th, 2019


  1. Avatar Jonathan Kleiman says:

    If it’s a good enough client, it may be enough to say “I billed you X last year, but here are my hours. You paid X for Y. Congrats. If you want to work together again, it’s going to have to be at least Y-Z, or we can go back to hourly”

    For some businesses, the ability to budget legals is worth a premium.

  2. Avatar Avram E. Frisch says:

    Both capped fees and flat fees are pretty awful for litigation or complex deals that aren’t simple to determine in advance.

    • Avatar Sam Glover says:

      It really does depend on the kind of litigation. I litigated with flat fees for years, and it worked great for me and for my clients. But these were all very similar, predictable cases, and my flat fee did not include trial.

      But yes, if you’re facing a complex matter that isn’t easy to predict in advance, a flat fee might not be the right billing structure (hourly might not, either). Nothing in this post is meant to suggest that flat fees are the be-all and end-all of reinventing the future of law. If I have anything to say about that, it is that using only one fee structure for every matter and being unwilling to consider others is bad for both lawyers and clients.

      Flat fees, hourly fees, contingent fees, unbundled services, fee “menus,” and other billing structures are all worth having in your toolbox. Lawyer should be willing to look further than the billable hour when another fee structure might better allocate risk and align the lawyer’s incentives with the client’s.

      The real mistake is to object “that sounds great, but it wouldn’t work for me.” Many lawyers think that, and it’s rarely true. Flat fee structures can and do work for litigation and complex deals all the time. That doesn’t mean they are the right fit for any particular litigation or complex deal, but flat fees should be in the toolbox, and the lawyer should be willing to think creatively about fees in every case.

      • Avatar Avif says:

        Sam, I totally agree with you on this. I have used all of these at times, but for the complex matters, hourly fees, as noxious as they seem to clients, really generate the best results, at least for me. The advantage of being solo, is that in the right circumstances I can offer the flexibility of alternate arrangements.

    • Avatar CSH says:

      Flat fees are a terrible idea if they do not contain limitations. $X until a trial date is set. $X for an application and one interview. $X for this one petition that does not include appeal.

      Instead lawyers get lazy and just set a flat fee for a case. 200 hours later they’re still working on that $3,000 flat fee. And there’s no way out. Because the client also wants you to appeal to the Supreme Court when he loses his 2 week trial. And since you put “Representation for Case No. 543” two additional appeals are technically still part of Case No. 543.

  3. Avatar Paul Spitz says:

    Even hourly billing is fair and ethical once you remove the billable hours requirement that so many law firms impose on their associates. Without a minimum billable hours requirement, the lawyer is more than likely actually billing his or her time, rather than billing to keep from getting fired.

  4. Avatar Marshall T. says:

    What about paying by the percentage of a settlement?

      • Avatar Marshall T. says:

        This article only talks about caps on fixed amounts–whether it’s on an hourly base or a total set amount. The conclusion is that it’s almost always a bad idea for both parties. This article, however, doesn’t talk about paying a percentage of settlement money in a lawsuit. Should I rather pay my attorney a fixed amount, hourly rate or a percentage?

        • Avatar Sam Glover says:

          Contingent fees are a whole other topic that’s not really related to capping hourly fees. If you want to start a discussion, our forum would be a better place for that: lab.lawyerist.com

        • Avatar Jonathan Kleiman says:

          This is off topic. You’re saying “capped fees might be better if you also get a contingency fee” which is sort of meaningless given that contingency fees alone are often satisfactory

      • Avatar CSH says:

        The only acceptable types of compensation are 1. Contingency, 2. Hourly Billing or 3. Flat Fees for very very specific, task-specific representation on only cookie-cutter tasks. Like drafting a living trust with one grant deed, or an N-545 Petition for a Name Change (where no court appearances are necessary), or criminal representation for a misdemeanor up and until trial setting that does not include a motion to suppress. if you fail to include stop-gaps in your flat fees it means you need to brush up on your business common sense.

  5. Avatar Raj Jha says:

    Well said. There’s no reason to cap a fee. If you’re going to bill hourly (a mistake in and of itself, regardless of your practice area), then if you did the work at least get paid for it. Or, just avoid the entire mess and spend time figuring out how to do flat fees the right way, which has nothing to do with hours – and everything to do with giving real value and getting rewarded (handsomely) for it.

    • Avatar Jonathan Kleiman says:

      I think it’s for the purpose of closing the deal. For solos and small firms, there are lots of tire kickers, and sometimes you have to use your gut to decide what’s needed to close the deal and what is worth it for the money

      • Avatar CSH says:

        Any client that would be sold on a capped retainer will be sold on a flat fee. And if he isn’t sold it means he was never worth it to start with. And the client will start complaining that you have no incentive to keep working on your case and threaten to sue you for malpractice or go tot he State Bar.

    • Avatar CSH says:

      For the most part if you encounetr a client who insists on a cap that’s the sort of client you DO NOT WANT. He’s the arrogant guy who will keep calling you and calling you and insisting that you don’t settle his case and take it to trial. He’s the one who thinks he’s entitled to everything and since he paid you, you should “honor your end of the deal”… i.e. work for free.
      If you absolutely must seal the deal offer a flat fee and LIMIT the scope of your representation. For example, $X until a trial date is set. Make sure you NEVER let litigation spiral out of control.

  6. Avatar Jonathan Kleiman says:

    I’m pretty sure that people who use capped fees are just dressing up their flat fees in BS and intend to bill as close to the cap as possible

  7. Avatar CSH says:

    I don’t understand why people tend to think hourly billing is unfair. It assumes that we justmake up hourly rates and want to spend as much mony as we can. There’s a reason for the amount of the hourly rate. I believe that clients should receive the services they pay for and attorneys should be paid for the services they render. Right?

    How many of you would go to your doctor and say “Doctor I feel there’s a pain in my chest. Now before we start, I will pay you $2,000. if the procedures and diagnostics take less than $2,000, I am entitled to a refund. If they exceed $2,000, you are stuck working on my open heart surgery for free.”

    It’s because clients are demanding it and weak-kneed lawyers are giving in and it’s becoming commonplace because lawyers are afraid that fi they do not cave in, they will not make money. Far from it. We just have to hold lawyers accountable for the hours they report. That used to be the norm. Now clients distrust lawyers so much they’re demanding caps and lawyers are caving in to get business. It’s an insult to the profession.

    • Avatar CSH says:

      Alternatively all of my attorney client agreements contain the language “Attorney(s) and Client(s) agree that attorney’s fees are not capped” and sometimes, for eample if the client was talking flat fees “Attorney(s) and Client(s) agree that this is not a non-refundable flat fee agreement”.

      We had a client who refused to pay his bill because he insisted that “this was a flat fee agreement” even though the contract did not say it was. With that language in the agreement, fee arbitration would not side with the client who makes things up.

      • Avatar Sam Glover says:

        Just be aware that in some states you cannot call a fee “non-refundable,” because it’s not really true if you don’t do the work you said you would do.

        • Avatar CSH says:

          Well exactly. In California there’s no such thing as a non-refundable fee unless it’s a true retainer. So I almost never agree to flat fees because they just end up becoming capped retainers if questioned at fee arbitration.

          Some attorneys know this and pray their clients don’t call their bluff. I never give out flat fees unless it is a single-task based representation where if challenged I would have already completed the work if converted to an hourly retainer which it always is.

  8. Avatar CONfused says:

    I am not a lawyer. I might be a client.

    Assume I want to file a 1983 suit against the state. I have limited income and limited resources. I hope to never file more than this one suit. When a lawyer is unwilling to give me a cost I have no idea what I will face for billed charges. If I expect to pay $10k and it comes in at $17k that may be far beyond my ability to pay. Lawyers may think that $10k is peanuts but many of us find it a large amount of money.

    If I hire a mechanic to fix my car he gives me a solid estimate. Often I get a guaranteed price. An experienced lawyer should also know what it takes and price their service accordingly.

    • Sam Glover Sam G. says:

      Experienced lawyers often can quote a flat/fixed fee for their services. And if they can reliably quote a flat fee, they probably should. But a flat fee is not the same as a capped hourly fee.

      More importantly, a 1983 action is a poor example of a case where a lawyer can or should quote a flat fee. First, because it will probably be a contingent fee. Second, because major litigation is often the least predictable kind of legal representation. Quoting a flat fee for an estate plan is easy. Quoting a flat fee for litigation that could settle tomorrow or could take dozens of depositions and several years, a trial, and an appeal to resolve is a pretty difficult proposition. You can do it, but making it fair to everyone (say, with an a la carte fee menu that breaks up the litigation into stages and includes provisions for changes in circumstances) means the total cost still won’t be set in stone.

  9. Avatar The Atomic Esquire says:

    I use capped hourly fees in my domestic practice in lieu of flat fees for things agreed divorces. This is primarily for ethical reasons. In the state where I’m barred, it is unethical to have fractional flat fees: That is, you can’t fractionally earn them as the work is done, but only when the task is completed. Unless you have a written fee agreement authorizing such, of course. But I do a lot of handshake fee agreement, so capped hourly gives me the upside of both hourly work and flat fees.

    (Whether I should be doing as much work on the basis of handshake fee agreements, of course, is another matter entirely.)

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