When Is It OK to Offer a Reduced Rate or Barter With Clients?
Here are a few parameters for offering a reduced rate or bartering with clients.
All of us are regularly confronted with the question of whether we should offer our services at a reduced rate. To me, an unwavering answer of “no” is not the appropriate reply. But it’s not an easy issue to tackle. There are financial-ramification questions, but also, personal and reputational concerns as well. Mind you, we are not talking about pro bono work here—that’s a separate topic altogether. But the issues overlap, as sometimes a reduced rate or barter can resemble pro bono services.
Over the years, I have developed a framework for handling these questions, with a fairly well-defined set of parameters for deciding when to offer a reduced rate. I don’t reduce my rates for clients with assets and income who are asking me to help them with a business or real estate or family matter, where their need for legal services is voluntary in the sense that they entered into a business or personal relationship by choice. I explain to them that I do a fair amount of pro bono work, as well as unpaid educational presentations, but that I cannot afford to discount the main source of my income. To some extent it’s an easier path for me, as most of the people who come to me for real estate or family law services have assets, if not income as well.
I have three categories of reduced-fee clients:
- Friends and family. I have a fairly wide berth of friends and family, and many of them turn to me for legal help. I try to be sensitive about what is fair game for unpaid chats or generalized discussions, and when things shift into paying work. I need to be careful here, as there is a complex dynamic of exchange and favors that needs to be accounted for. It also blends into the issue of keeping track of time, especially when there are social exchanges as part of a legal consultation appointment. You will need to be attentive to the reactions of your friends and family members, if you do venture into paid work for them, but I think it’s good to carve out this category for a reduced rate. My charge for these clients is typically 50% of my standard hourly rate.
- Nonprofit organizations. I do a fair amount of routine real estate work for nonprofit organizations, and unless I’m on the board or formerly served in that capacity, I can’t simply help all of them for free. My nonprofit rate is about two-thirds of my standard rate, and that seems to work fine for most groups. Occasionally I will agree to provide pro bono services for nonprofits, and when I do, typically it is for a limited number of hours. I strongly encourage every lawyer to do as much pro bono work as they can, but it’s important that you not let your pro bono work displace too much of your paying matters.
- Professional consulting. My professional consulting time mostly involves offering second opinions and coaching work for other lawyers. I typically provide a few hours for free to lawyers who refer a fair amount of work to me—indeed, this has often been some of my best source of referrals. But if the work is getting complicated or requires more than a few hours of time, then I will charge for the time, usually at half my hourly rate.
Each of you needs to think about what your own categories for reduced fee work should be. It depends on the type of legal services that you provide, the types of people who come to you for services, and your own financial situation. I try to be transparent in an appropriate and discreet manner: I make it clear to people that I cannot afford to give away too much of my time, and also, I’m not shy about explaining why those folks who own valuable real estate or have decent incomes are not my pro bono clients.
Bartering With Clients
Bartering with clients is a tricky matter. From a technical standpoint it may be a problem with the IRS, since you are receiving something of value in exchange for providing professional services, without paying taxes on what is in effect a form of income. I always thought it seemed a bit unseemly for a lawyer to openly engage in what some might think is an unlawful act, with the client who is coming to you for legal counsel. This isn’t the forum for any of us to reveal our own past indiscretions, including me, so instead, let me offer some tips if you are considering bartering for your services:
- It’s always better to approach it as an exchange of favors, rather than a literal payment for services. If a friend of yours—even a relatively new friend—is giving you a work of art or helps you paint your house, you might be inclined to offer them a few hours of free legal services. Generosity, even reciprocal generosity, shouldn’t be illegal.
- Even if you don’t keep track of your bartered time, you will need to be thoughtful about setting limits on what you are willing to do, and what you are expecting in exchange.
- Don’t forget that even nonpaying clients are still clients, and all of the rules of professional responsibility apply fully. Make sure to check on potential conflicts of interest, and treat these nonpaying clients in the same high-quality manner as you do your paying ones.
The key is to have a framework in place, rather than leaving these questions to an ad hoc reaction based on the whim of the day or the personality of the client.
Frederick Hertz, an attorney and mediator based in Oakland, has managed his practice for more than 25 years.
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