I’ll be quick to the point, to the point no fakin’: the Vermont Rules of Professional Conduct do not prohibit non-refundable flat fees. However, Rule 1.5(f) sets out the steps a lawyer must take to treat a non-refundable fee as earned upon receipt.
Here’s a primer.
Very few lawyers charge true retainers. What we’ve come to call a retainer is really, a fee that is a paid in advance. Generally, if a lawyer accepts money from a client for work that has not yet been performed, then bills against that money as work is performed, that’s not a retainer. It’s a fee that the client paid in advance.
In 2005, the Vermont Bar Association’s Professional Responsibility Program issued advisory ethics opinion 2005-4. The Committee advised that a lawyer & client could agree that a fee paid in advance is “earned upon receipt.” The Committee further advised that such fees become the property of the lawyer upon receipt and, therefore, cannot be deposited into the lawyer’s trust account.
In 2009, the Vermont Supreme Court amended Rule 1.5(c), the rule that governs advance fees. Per the Reporter’s Note, the new rule required “deposit in a lawyer’s trust account of any fees or expenses paid in advance, no matter how designated, if the funds are to be applied as compensation for services subsequently rendered or expenses subsequently incurred.” (emphasis added).
The new rule appeared to nullify or overrule that 2005 advisory opinion. That is, “no matter how designated” suggests that a fee designated as “earned upon receipt” must, nevertheless, go into trust until earned.
Confusion reigned. Many lawyers routinely charged “non-refundable” fees and treated them as their own upon receipt. Others charged flat fees, put them in trust, then wondered when the fee became “earned.”
In 2016, the Court adopted the Professional Responsibility Program’s recommendation to amend Rules 1.5 and 1.15(c). As amended, Rule 1.5(f) authorizes lawyers to enter into non-refundable fee agreements under which the fee is earned before any services are rendered. Such fees DO NOT go into trust. Further, the rule requires such fee agreements to be confirmed in writing and to define the scope of services that the client will receive in exchange for the non-refundable fee. Even if labeled nonrefundable, the fee must be reasonable and, further, the new rule prohibits a lawyer from requiring the client to waive the right to challenge the reasonableness of the fee.
In short, if a lawyer complies with Rule 1.5(f), the lawyer may treat a non-refundable fee as earned upon receipt. In that the fee is “earned,” it does not go into trust.
Of course, the rule does not REQUIRE non-refundable fee agreements. At the same time that it amended Rule 1.5(f), the Court also amended Rule 1.15(c). The new rule states that, with the exception of non-refundable fees that comply with Rule 1.5(f), any fee paid in advance must be deposited into trust and remain in trust until earned.
So, lawyers: if you want to treat a fee as yours upon receipt, you must comply with Rule 1.5(f). Otherwise, a fee paid in advance must remain in trust until earned.
Word to your mother.