By Rachelle Cohen

Articles are provided regularly by LACBA’s longstanding Professional Responsibility and Ethics Committee

With increased inflation this past year, most lawyers and law firms likely are experiencing higher costs in operating their law practices.  As with all businesses, you might be considering whether to pass increased costs on to your clients through higher hourly fees.  Although you generally may set your fees at what the market will bear, below are some ethical considerations to keep in mind.  References below to rules will be to the California Rules of Professional Conduct.

Does the Fee Agreement Allow Increases?

If you are considering raising your hourly rates with an existing client, you first should review the fee agreement with the client. The sample hourly retainer agreement available at the State Bar’s website provides: “The rates on this schedule are subject to change on 30 days written notice to Client.”  It is common for lawyers to include in a retainer agreement a provision to allow for rate changes, and if there is a notice period, or time period within which rates can be changed, such as at the beginning of a new calendar year, the lawyer should abide by the agreement.  If the retainer agreement does not address rate changes, the client would need to agree to rate changes.  See Severson & Werson v. Bolinger, (1991) 235 Cal. App. 3d 1569 (where court held that law firm could not unilaterally increase its rates where its retainer agreement was not clear that hourly rates could be increased).[1] 

Could the Increase Be Unconscionable?

Although you and your client generally may agree to any hourly rate, there are ethical limits on the rate even if the client is inclined to agree.  Rule 1.5(a) prohibits a lawyer from charging an unconscionable or illegal fee.  Unconscionability has been described as a fee that is “so exorbitant and wholly disproportionate to the services performed as to shock the conscience.” Bushman v. State Bar, (1974) 11 Cal. 3d 558, 563.  Unconscionability can also be based on dishonesty or overreaching by the attorney.  See Herrscher v. State Bar, (1934) 4 Cal.2d 399, 403; Los Angeles County Bar Ethics Op. 526 (2015). Rule 1.5(b) sets out factors to determine whether a fee is unconscionable, one of which is whether the client gave informed written consent to the fee.[2]  Although the hourly fee increase might not be unconscionable by itself, if the retainer agreement doesn’t allow for the rate increase the firm is proposing to implement and the client doesn’t agree to the rate increase, the fee could be found to be unconscionable under the Rule 1.5 factors.[3]  See Los Angeles County Bar Assn. Op. 479 (1994) (“Where a law firm has an on-going relationship with a client, with prior consent to certain fee arrangements, any unilateral change in the fee agreement, which results in an increase of the fee charged to the client, can raise the issue of unconscionability, absent the informed consent of the client to the changes.”).

What if Client Does Not Agree to Pay Higher Rates?

If an existing client does not agree to the lawyer’s higher rates, the lawyer might be inclined to terminate the relationship with the client.  Under rule 1.16(b), a lawyer has the right to withdraw from representing a client who breaches a material term of an agreement with the lawyer or if the client’s conduct makes it unreasonably difficult for the lawyer to carry out the representation effectively.  It is hard to see that a refusal to renegotiate rates by itself would permit permissive withdrawal, although if the retainer agreement allows for rate increases, the client’s refusal to abide by reasonable rate increases could be a material breach.  Even if a lawyer can withdraw, under rule 1.16(c), the lawyer must seek permission of a tribunal if that is required in the matter, and under rule 1.16(d), the lawyer must take reasonable steps to avoid reasonably foreseeable prejudice to the rights of the client.  Therefore, any lawyer who is permitted to terminate a representation under rule 1.16(b) must consider whether the termination will prejudice the client and, if so, what steps can be taken to reasonably avoid that.  This might mean that the lawyer must continue the representation until those steps can be taken.  For example, if a brief in a litigation matter is due in a few days, the client likely would not be able to retain another lawyer in time to file the brief.

Although you may increase your hourly fees so long as the fee rate is not unconscionable, you should take care before charging increased hourly rates to current clients.  Lawyers need to be mindful of what the fee agreement allows and of the duties to current clients.

Rachelle Cohen is a partner at Kehr, Schiff, Crane & Cohen LLP in Los Angeles, and is the Chair of the LACBA Professional Responsibility and Ethics Committee and a member of and former Vice-Chair of the California Lawyers Association Ethics Committee. The views expressed are her own.