What is a Retainer Agreement?
In general, a retainer letter or agreement confirms the terms of engagement of your professional services. It sets out the scope of services to be performed, billing matters, and your authority to act. It is the contract between you and your client.
Discuss the topics to be covered in the retainer agreement early in the client relationship, preferably at the first meeting. If you decide to accept the client’s case, you should send the client a retainer agreement detailing what was discussed at the initial meeting and setting out the essential terms of the relationship. Always ask them to sign the agreement.
Never pressure a potential client to sign a retainer agreement at your initial meeting. If, after review, a potential client refuses to sign a retainer agreement, then send a non-engagement letter.
In some situations, such as a contingent fee agreement, you should inform the client that they may want another lawyer to review the agreement.
What Purpose Does a Retainer Agreement Serve?
In most cases, your retainer agreement will require the client to give you a specific financial retainer for the purpose of performing a specific task. A retainer agreement, including a financial retainer, serves several valuable purposes:
- It turns the client’s mind to the issue of fees and, specifically, to the fact that the services you perform are professional services that require payment. In this regard, bear in mind that it is essential to discuss fees with clients. According to the commentary to Section 3.6-1 of the Code of Professional Conduct:
- A lawyer should provide to the client in writing, before or within a reasonable time after commencing a representation, as much information regarding fees and disbursements, and interest, as is reasonable and practical in the circumstances, including the basis on which fees will be determined.
- It gives you some assurance that at least some payment will be received for the services you perform.
- It sets out what services you will and will not perform.
- It confirms your authority to act on the client’s behalf.
- It outlines how your services are to be billed, including frequency of billing, disbursements, applicable taxes, etc.
- It confirms crucial information you discussed with the client at the first meeting.
- It lets the client know that you are not representing him or her until the retainer agreement is executed and returned to you.
- It provides a mechanism for replenishing a financial retainer and alerts the client to the methods by which the lawyer-client relationship may or will be terminated.
- If there is a dispute about matters such as the scope of your services, a retainer letter or agreement provides valuable evidence about the intended terms of your relationship.
It is important to remember that in the absence of a written agreement, uncertainty as to the scope of the retainer will be construed in the client’s favour. See Griffiths v Evans,  1 W.L.R. 1424,  2 All E.R. 1364 (CA); Ross, Barrett and Scott v Simanic et al. (1997), 1997 CanLII 2931 (NS SC), aff’d (1998), 1998 NSCA 45; Ellyn Barristers v Stone,  OJ No 1242, aff’d 2007 ONCA 565; and John v MacDonald, 2015 ONSC 4850.
These cases are provided for reference only and are not required reading.
What Content Should A Retainer Agreement Include?
When drafting a retainer agreement, keep in mind that it should be as short as the circumstances will allow, clear and easy to understand, and flexible enough to account for the particulars of the client’s situation. Although it is not wise to try to apply a single retainer template to all types of situations, the retainer letter or agreement should include this information:
- Effect. The retainer does not begin until the letter or agreement is executed, returned to the lawyer, and a financial retainer is paid.
- Remember that even though a retainer has not taken effect you still have an obligation to act to preserve a client’s interests.
- Client’s identity. The identity of your client, including confirmation of the individual from whom you take instructions. This is particularly important if your client is an organization, as opposed to an individual.
- Authority to Act. You need authority to act, including authority for delegates, agents, experts, and other parties where required.
- Scope of Services. The scope of services to be performed, or not performed, as applicable.
- Financial Retainer. If you have received a financial retainer from your client, explain how the retainer works, when it can be released from trust, and when it will need to be replenished.
- Fees. An explanation for how fees will be calculated, what disbursements will be charged, and what taxes will be added to fees and disbursements. Set out the consequences for non-payment (e.g. not working on the file, terminating the retainer, etc.)
- Invoices. Timelines for when you will send invoices and your expectation for payment.
- Interest. If interest is charged on overdue bills, explain how it is calculated.
- Be mindful of Section 3.6-1 of the Code, which states:
- A lawyer must not charge or accept a fee or disbursement, including interest, unless it is fair and reasonable and has been disclosed in a timely fashion. In establishing a rate of interest, it is advisable to consider current and comparable rates of interest. In Balfour Moss LLP v Huerto, 2011 SKQB 63, the Court of Queen’s Bench for Saskatchewan was called upon to consider whether the rate of interest applied to a client account was reasonable. The court noted its difficulty in considering the issue in absence of evidence as to the “what the going rate of interest was at [the relevant time], commercial or otherwise, or for that matter at any time.” See also Rychjohn Investments Ltd. v Hunter, 1979 CanLII 2414 (SK QB) where the court determined the rate of interest by comparison to bank borrowing rates.
- Further, make sure that:
- your interest provisions do not trigger the criminal rate of interest section of the Criminal Code – which they shouldn’t, if they are fair and reasonable; and
- any interest charged is expressed as an annualized rate to comply with the Canada Interest Act.
- Timelines. Where appropriate, timelines for when events will occur or are likely to occur.
- Communication. The method and frequency of communication with the client (e.g., you will strive to return phone calls in a timely manner, but the nature of your practice means you will not necessarily be able to return calls the same day, etc.).
- Instructions. Confirm the client’s instructions to you as well as critical instructions provided to the client at the initial meeting and crucial steps that need to be taken and by whom.
- Don’t let your client think you are going to take certain steps if you are not.
- If your client must undertake certain steps, ensure they are aware of them and the potential consequences for not meeting their obligations.
- Withdrawal and Termination. Terms under which the entire retainer will be terminated, whether by you or the client.
- Note the rules regarding withdrawal of services in the Code.
- Independent Review. Advise your client that they are free to have another lawyer review the letter, as it forms the contract between you and the client.
- Changes in the Retainer. Advise your client what type of events or occurrences could cause changes in the retainer or when an additional retainer may be required (e.g. a new retainer is required for new matters). Files can evolve over time, particularly over the course of a long engagement.
Want more information?
For more information, feel free to listen to the Law Society of Ontario podcast Engagement Letters and Retainers (8m24s).