When is it Acceptable for a Texas Lawyer to Charge a Non-Refundable Fee?
By Laura Popps
The ethical rules around charging, collecting, and handling attorney fees are commonly misunderstood, leading to inadvertent violations. One particular area of confusion is the notion of a “non-refundable” fee. Some attorneys believe that contractually designating fees as “non-refundable” and “earned upon receipt” makes them so, but this is rarely the case. In Texas, there are very few instances when it is appropriate to charge a “non-refundable” legal fee.
Let’s begin by examining how fees are categorized and the terminology that contributes to this confusion.
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Advanced Fees
Advanced fees are any legal fees paid in advance for legal work to be performed in the future. The lawyer takes possession, but not ownership, of the funds to secure payment for legal services that will be performed on the client’s behalf.[1]
Advanced fees are frequently called “deposits” or “retainers.” But this has led to misunderstandings because a true “retainer” is not an advanced fee, nor is it intended to compensate the lawyer for future work. The proper terminology for advanced fees is therefore “advanced fee” or “deposit.
Retainers
The term "retainer" has caused significant confusion in the classification of legal fees. Experts have observed that over time, the word "retainer" has been applied so inconsistently that it has nearly lost all definable meaning.[2]
The core problem lies in the fact that "retainer" is used to refer to two distinct types of fees: one that is correctly considered non-refundable and another that is not.
The True Non-Refundable Retainer
A true non-refundable retainer, also referred to as a “general retainer,”[3] is not an advanced legal fee and in no way is intended to compensate the lawyer for future legal services. A true non-refundable retainer is a fee that is paid solely “to secure the availability of a lawyer’s future services and compensate the lawyer for the preclusion of other employment that results from the acceptance of employment for the client.”[4] If a fee meets these criteria, it is appropriate to deposit it directly into the attorney’s operating account and consider it earned upon receipt.
Any fee that does not meet these criteria must be placed in a lawyer’s trust or IOLTA account until earned.
“It is a disciplinary violation for a lawyer to agree with a client that a fee is non-refundable upon receipt, whether or not it is designated a ‘non-refundable retainer,’ if that fee is not in its entirety a reasonable fee solely for the lawyer’s agreement to accept employment in the matter.”[5]
All Other Fees Labeled as “Retainers”
The term “retainer” is often used loosely to describe any sum of money paid to the lawyer at or near the commencement of representation.[6] This generic designation is meaningless in terms of whether a fee is “non-refundable” or “earned upon receipt.” Again, unless the payment constitutes a true non-refundable retainer, it is not earned until the contracted-for legal services have been performed. It must go into the lawyer’s IOLTA account until that time. A fee is determined by what it is intended to purchase, not by its label.[7]
Flat or Fixed Fees
A flat or fixed fee is a fee “that embraces all work to be done, whether it be relatively simple and of short duration, or complex and protracted.”[8] Flat fees are often paid at the beginning of the representation, prior to any legal work being done. When this occurs, the fee is both an “advanced fee” and a “flat fee.”
Certain practice areas lend themselves to flat fees, such as criminal law or family law. There is nothing wrong with charging flat fees for a representation, and there is nothing wrong with collecting the fee up front. However, in Texas a flat fee is never “earned upon receipt” or “non-refundable.” It doesn't matter what the fee agreement says or what the client is willing to agree to. In Texas, flat fees must remain in trust until earned.[9]
Depending on how the fee agreement is structured, this may be once the legal matter concludes, or once certain milestones within the representation are completed. It is perfectly acceptable to designate these milestones within the fee agreement and to transfer the apportioned funds from trust once they are earned. However, because the disciplinary rules require that fees be reasonable, any extreme front-loading of payments that doesn’t reasonably reflect the work performed may run afoul of the rules.[10]
Conclusion
In Texas there is almost no such thing as an “non-refundable fee.” A true non-refundable retainer is permissible, but it is a rarity, and is highly scrutinized. Any fee intended to compensate for future legal services cannot be classified as "non-refundable" or "earned upon receipt," irrespective of a client's consent.
Laura Popps defends Texas attorneys before the State Bar, advises on legal ethics, and handles criminal appeals. A former prosecutor, Laura has been Board Certified in Criminal Law by the Texas Board of Legal Specialization since 1999. She then served for ten years as Regional Counsel at the State Bar of Texas’ Office of Chief Disciplinary Counsel before founding her own firm.
Laura can be reached at laura@poppslaw.com or (512) 865-5185.
[1] ABA Formal Op. 505 (2023).
[2] Id. (citations omitted).
[3] Ronald D. Rotunda, Legal Ethics: The Lawyer’s Deskbook on Professional Responsibility 175 (2023-2024 ed.).
[4] See Tex. Comm. on Prof’l Ethics, Op. 611 (Sept. 2011).
[5] See Tex. Comm. on Prof’l Ethics, Op. 611 (Sept. 2011) (emphasis added).
[6] ABA Formal Op. 505 (2023).
[7] See id. at n.18 (citations omitted).
[8] ABA Formal Op. 505 (2023).
[9] See Tex. Comm. on Prof’l Ethics, Op. 611 (Sept. 2011). Some jurisdictions authorize lawyers to treat advances as the lawyer’s property upon payment if the client agrees to such in the fee agreement. ABA Formal Op. 505 (2023). Texas is not one of those jurisdictions.
[10] ABA Formal Op. 505 (2023); see Tex. Disciplinary Rule Prof’l Conduct 1.04.