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IntroducingUnderstanding Legal Fees

We've all heard that lawyers are expensive, but are they really? Don't let worries about the cost of legal representation prevent you from seeking the help of a skilled lawyer. Clearway is here to help Canadians find great lawyers, affordably. If you have a legal concern, but are delaying finding a lawyer due to cost, the following guide is for you:

Dispensing with the Myths

Watch any movie or TV show portrayal of lawyers and you'll likely fall victim to the Hollywood trope that all lawyers spend their days in tailored clothes and palatial offices, all while running up huge tabs for their well-heeled clients. Unfortunately what makes for great entertainment, has had the disastrous consequence of convincing most people that lawyers are an expensive luxury. Surely other factors have contributed as well, but the damning result is that most people with legitimate legal needs do not seek representation from a qualified lawyer. In fact, a leading study of the legal industry suggests that nearly 70% of all legal matters do not receive legal representation. This is contributing to a huge gap in access to justice that is costing the Canadian public dearly. Don't fall victim to the fallacy -- let Clearway help you find a great lawyer you can afford.

Contrary to popular belief, hiring a lawyer does not put you in the express lane to financial ruin. In fact, the opposite is true. Lawyers are often one of the best investments to help you protect and grow your wealth long-term. Buying a house? A lawyer can help you make sure you're not buying a lemon and that the asset is protected. Getting a divorce? A lawyer will help to protect your interests and ensure assets are split equitably. Injured on the job? A lawyer can help you seek compensation and damages to ensure your finances are protected. The list of ways lawyers add value is extensive, and why the question of affordability is relative. Often the most expensive choice you can make is to not hire a lawyer.

In most cases, lawyers are probably not nearly as expensive as you think. For most high-volume practices that deal in transactional work such as real estate or wills & estates, prices are predictable and may even be guaranteed on a flat-fee basis. For other conventional forms of legal work, you may be charged hourly, but most lawyers can give you a pretty high degree of accuracy in terms of what you'll be billed. If you need to stick to a strict budget, don't hesitate to disclose this to your lawyer so they can calibrate their work to your means. It also never hurts to try and negotiate, as some lawyers may be willing to adjust their fees accordingly. While every lawyer needs to look after their own bottom-line, most lawyers are eager to help so long as they have the skills necessary to help your cause. In general, most lawyers do what they do out of desire to help people, not because legal work is the most lucrative option. Discuss your situation with your lawyer, and you'll likely be able to find a path forward that's both affordable and aligned with your long-term interests.

Other options that help affordabilty include payment plans, and the ability to pay by credit card. While these options aren't always available, many firms are willing to be creative in terms of how they help clients afford their services. Few people have the resources to pay up-front or all at once. Explain your situation and there's a good chance your lawyer will find a way to represent you and accept payment on terms you can afford.

It's true that there are some forms of legal work that tend to be more expensive, but these are far more rare. The cost of such work is usually a reflection of the number of lawyer-hours invested, or the high degree of specialty of the lawyers involved. Examples of this might include complex litigation or a class action, however, most of the truly expensive categories of legal work involve corporations with the means to afford complex legal support. These types of cases seldom impact regular Canadians.

In some ways it's useful to think about legal work like insurance. Like most legal work, insurance policies are affordable and can be serviced over time. None of us relish the cost of paying a few hundred or a few thousand dollars for an insurance policy, but, in general, the cost of having a policy is something we afford to protect ourselves against the worst-case-scenario. The same is true of lawyers. Sometimes the smartest money you can spend is on good legal representation. It might sting a little in the short-term, but in the long run, you'll be glad you did. And remember, it's likely not as expensive as you think.

Where do Legal Fees Come From?

Becoming a lawyer is an expensive proposition. It typically takes 7-10 years to qualify as a lawyer, which includes a 3-5 year undergraduate (Bachelor's) degree, a 2-3 year law degree (LLB or JD), a 1-2 year apprenticeship (Article), and several months studying to pass the Bar exam (knowledge test to gain a legal license). Unless a lawyer is among the few that get recruited by established firms, there are also substantial costs to starting a small legal firm. Building a client base takes time, and there are many other costs like staff and technology to support. All this adds up to several hundred thousand dollars of cost that a lawyer accumulates before making a dollar of revenue. As you might expect, legal fees are structured to ensure that lawyers are able to support the costs of running a firm and paying back the steep costs of becoming a lawyer. In most cases the fees you pay only mean a modest profit for the lawyer, not a windfall. It may also surprise you to learn that most lawyers only bill for approximately 30% of their time. The rest of their time is spent on keeping the firm running, finding new clients, and other non-billable work.

The legal system itself is also subject to fees (court fees, filing fees, processing fees, courier fees, research fees, document production fees, etc.). When you receive your bill for legal services, understand that many of the costs are outside of your lawyer's control and must be passed along to the client. This doesn't mean that the fees are substantial, but they may be a meaningful portion of the amount you're expected to pay. It's always wise to scrutinize your bill and ask questions, but appreciate that some charges may simply be a reflection of the costs associated with accessing the legal system.

Operating a law firm involves significant overhead (operating costs). Some lawyers do all of the work themselves, but it's not uncommon to employ staff to ensure that a lawyer's legal expertise is being used optimally and that you're not paying hourly for a firm's most valuable resource. A secretary may help to coordinate appointments, produce/process paperwork, and keep the firm's operations on track. Some firms also employ other forms of assistance which may include junior lawyers or research assistants. However, it's important to remember that these are not frivolous costs, they're designed to ensure that the most appropriate and cost-effective resource is being deployed in service of your case.

Despite the above costs, this does not mean legal representation is out of reach or unaffordable. Most lawyers endeavor to charge as modestly as possible for their time & costs.

Legal Billing: An Explanation

Retainers & Pre-Payments: When you engage with a lawyer, you may be asked to pay a retainer or make a pre-payment. These are sometimes used interchangeably, but their definition is quite different and worthy of clarification. A "traditional" retainer is meant to be a "price of admission" of sorts. Think of it like a subscription that allows you to access the lawyer's time as needed. Retainers may include a time allotment, but this is not always the case. Often lawyers will use the term "retainer" to describe a pre-payment, which is an advance payment for work to be performed in the future. Pre-payments are standard practice in some firms, and are intended to help firms manage cashflow and ensure income predictability. Often firms wait weeks or months from the time of invoice to the time they receive payment. Pre-payments allow firms to receive a portion of funds up-front to reduce delays from the invoicing process. If your lawyer deals in retainers or pre-payments, don't hesitate to clarify what is meant by the charge. You may also be able to negotiate the fee away, or request that they accept a more nominal amount as pre-payment.

Hourly Billing: A considerable portion of legal work is billed by the hour (or by 1/6th hour increments). Hourly rates vary widely, and are dependent on a variety of factors including the area of law being practiced, the lawyer's legal experience, the size of the law firm, and the level of demand for the lawyer's time. Less experienced lawyers, or lawyers in small markets may charge less than $200/hr, however, more experienced lawyers in high demand may charge more than $500/hr. Recent studies of the legal industry at large put the average hourly rate for a lawyer somewhere near $250/hr. At first blush this may seem steep, but remember that most lawyers have many costs that are factored into their hourly rate and most legal work can be completed with only a few hours of lawyer time invested. Additionally, working with a lawyer on an hourly basis does not mean committing to an open-ended billing situation. Speak to your lawyer about what you can afford, and don't hesitate to set billing thresholds so that you can hold your lawyer accountable to working within your means. While most lawyers should be able to give you a fairly accurate sense of cost (even for hourly work), billing thresholds are a great way of ensuring you remain in control of your legal spend. Some lawyers may also be willing to adjust their rates to better accommodate your situation. Be sure to have a discussion about price before deciding to engage a lawyer; there's no shame or harm in protecting your own bottom line before making a commitment.

Flat-fee Billing: Certain types of predictable or highly-transactional legal work may be offered on a fixed fee basis. Examples of this include real estate conveyances (purchase/sale transaction), formation of a simple corporation, or preparation of a will. Most of these categories of work have a clearly defined series of steps, predictable time investments, and well established fees. Increasingly lawyers are also offering other types of work on a flat-fee basis in response to client demands for cost certainty. In the event your chosen lawyer does not offer a flat-fee option, it never hurts to discuss whether their services can be offered with greater cost certainty. Be sure to discuss your budget and what you can afford before deciding to commit. Some kinds of legal work have unpredictable timelines and may not lend well to a flat-fee billing model, but unless you can afford an open-ended engagement, it's wise to establish some controls that allow you manage your legal budget and keep it within what you can afford to spend.

Other Costs: During your legal search you'll likely need to consult with several lawyers before deciding who to engage. Most lawyers are willing to offer an initial consultation at no cost, however, others may charge a nominal fee as a reflection of the opportunity cost of not doing other billable work. Your case may also be subject to a variety of other charges that are typically costs that the lawyer undertakes on your behalf and need to be recuperated on billing. These may include other legal professionals (junior lawyers, secretaries, paralegals, research assistants etc.) that are assigned to assist with your case. In most cases, lawyers will endeavor to use these resources judiciously, and may do so to avoid using your lawyer's time -- which is often the most expensive resource. You may also be charged for various fees associated with accessing the legal system (court fees, filing fees, etc.), as well as other hard costs like document preparation/duplication (sometimes called "reprographics"). In general you can expect your lawyer's time to make up the majority of your legal invoice, but don't be surprised if you note some of the aforementioned fee categories on your invoice. In most cases, these other costs are simply being passed along to reimburse the firm for costs they've assumed in service of your case.

Reading your Legal Bill

At some point after engaging a lawyer you can expect the arrival of your legal invoice. In some cases your lawyer may wait until work is complete to issue an invoice, others may send an interim invoice to cover charges accrued to-date. In either case, it's not uncommon to have difficulty making sense of your bill. Although lawyers generally make reasonable effort to ensure their bills are detailed and readable, clients sometimes struggle to interpret the content. The following will hopefully help to clarify the content of your invoice:

Service Charges: These are usually a reflection of the time invested in your case. In most circumstances this will be an itemized list of hours (or fractions of hours), and the work that was performed during said time. Most of your "services" charges will likely come from your lawyer, however, you may additionally see service charges from other professionals assigned to your case. Unless your case is being handled on a flat-fee basis, expect the line-items on your invoice to be detailed in a format similar to the following: 1. Professional accountable for the hour(s) billed (may be represented by a name or the initials of the professional) 2. A (somewhat) detailed description of the work perform during the interval in question. 3. The number of hours invested (usually in decimal form i.e. 90 minutes would be 1.5 hours) 4. The hourly rate of the professional in question (i.e. $250/hr) 5. The total which is a simple multiplication of the number of hours invested by the hourly rate (i.e. 1.5 hours x $250/hr = $375.00). In general it's best practice for lawyers to detail each of the discreet service(s) they performed on separate line-items. If your lawyer simply summarizes all charges into a single service line item, it's not unreasonable to ask for a more detailed record of the activities that contributed to your bill.

Fees: These are generally a list of charges hard costs that the lawyer has undertaken on your behalf and needs to recuperate. As previously detailed, these can include costs to access the legal system like court fees, filing fees, and processing fees, among others. Other fees may include document fees (photocopying, printing etc.), legal research fees (lawyers need to pay to use research tools to find relevant legal information), as well as other fees like late payment charges (interest charged on invoices that have been outstanding past their deadline).

Taxes: Unless the services fall into an exempt category, expect to pay tax on some or all of your legal services and fees. Most invoices will include a Subtotal that summarizes the raw cost of the various services and fees, and the Total should reflect the actual amount owing inclusive of taxes. In some cases the tax on certain fees may have already been paid by the lawyer, so the tax computation may not necessarily reflect the tax component of these costs.

If anything on your invoice doesn't make sense, or seems erroneous, be sure to reach out to your lawyer for clarification. As a legal consumer you should fully understand the content of your invoice and agree to all charges. If anything is unclear your lawyer or someone in their firm should be able to help you make sense of things. If any charges genuinely seem out of line, you're wise to raise this with your lawyer. It's not uncommon for lawyers to revise their invoices based on client feedback.

Paying your Legal Bill

Your invoice should detail your payment terms and options. Most legal invoices are "Net 30", meaning payment is expected within 30-days of an invoice being issued, however, some firms may elect to operate with different payment deadlines. Invoices may also detail penalties for late payment. Sometimes this is an interest amount that accrues at a set interval, in other cases late payment may simply be subject to a nominal fee. In the event you are not able to make payment in alignment with the firm's payment terms, don't hesitate to contact your lawyer and inquire about alternative payment options. It's best not to leave your lawyer in the dark wondering when or if they can expect payment. In most cases, if you're not able to meet your current obligations, they'll be happy to structure something that allows them to be properly compensated for their work over a reasonable timeframe.

How to make payment should also be detailed on your invoice. The legal industry unfortunately still receives the majority of payments by check, however, many modern firms are adopting digital payment methods like credit card, ACH, debit, and wire transfer. Let your firm know how you'd prefer to make payment. In most cases they'll find a way to accommodate and help you through the payment process. If you find yourself in the unfortunate situation of having to dig up your checkbook, be sure to remind your lawyer that modern legal consumers expect to pay with digital methods other than check -- we're in the 2020s after all!

Other Legal Billing Questions

We hope the above will help to bring clarity to fees and billing in the legal industry. However, if you still have questions, be sure to reach out to your lawyer or the Clearway team for additional clarification. We're here to help!


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