Obedience school for lawyers: a consumer's guide to hiring, firing and negotiating with a lawyer - includes related articles on prepaid legal plans and on legal resources - Tutorial

Home Office Computing,  Feb, 1993  by Wesley J. Smith

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Americans don't like lawyers. Unfortunately, we need them. This is especially true if you own your own business, thanks to complicated laws, government red tape, and the proliferation of lawsuits.

Why don't Americans like lawyers? (1) Lawyers are expensive. Depending on your locale, you may pay anywhere from $125 to $250 per hour for an attorney's services. (2) Lawyers make people uncomfortable, sitting in their high-backed office chairs, behind huge mahogany desks and beneath a dozen framed diplomas. (3) A few lawyers are incompetent, unethical, or both, and thus many people are afraid of being victimized.

With so much to worry about, it's no wonder that hiring a lawyer can make the most fearless business-person feel like the Cowardly Lion. But just as the Wizard of Oz was no one to fear, merely an ordinary man standing behind a curtain, a lawyer should not be viewed with awe or loathing but simply as an entrepreneur with a specialized service to sell--a service you might someday need.

Failing to retain an attorney when you need one can get you into a lot of trouble. Los Angeles trial lawyer Harold Greenberg tells the story of a client he represented in a lawsuit over the purchase of a small business: "My client had purchased a phone-order stationery supply business. The man tried to save money by negotiating the deal himself without using a business lawyer to assist him. This turned out to be a terrible and costly mistake.

"Because the man was not sophisticated in the legalities of a business purchase, he failed to insist that the phone number remain with the business. Worse, he didn't put a 'non-competition clause' into the contract, which would have prevented the seller from going into the same business in the same locale. As soon as the seller had collected his money, he opened a competing phone-order business using the old business phone number. Naturally, customers reached the seller's new business instead of the old business that my client had purchased--and he quickly went broke.

"It was only after the damage was done and my client's house was in foreclosure that he came to see me. We brought a lawsuit that cost him thousands of dollars in legal fees and years of his time. All of this heartache and expense could have been avoided if only he had paid for legal advice when he was negotiating the purchase."

CHOOSING A LAWYER

When and under what circumstances should you hire a lawyer? "It's a real dilemma for entrepreneurs," says David Voight, director of the Small Business Center for the U.S. Chamber of Commerce. "On one hand, they don't want to get into trouble because they didn't hire a lawyer; on the other hand, they don't want to absorb an unnecessary expense."

Voight lists several times in an entrepreneur's life when a lawyer should definitely be hired:

When buying or selling a business; anytime you are negotiating a business contract involving significant money, time, or effort; whenever a real conflict arises in a business relationship; if you think you need a lawyer, you probably do.

"Just any lawyer won't do," says Lionel Allan, chair of the Small Business Committee of the American Bar Association. "Like doctors, lawyers are increasingly becoming specialized. A small-business person should look for a business lawyer who can give practical business advice but can also advise about business legalities such as leases and contract negotiations."

Finding the names of good general business lawyers (or any other kind you may need) isn't difficult. Some potential referral resources are satisfied clients, other lawyers, community contacts, local service organizations, and bar associations.

The number one criterion, of course, is a lawyer's legal ability. But you also want a lawyer you can trust and can talk to, and who has enough perspective to step back from a tough issue and look at it from all sides. Throughout the course of your legal problem, you will be faced with making choices--to sue or not to sue, to sign a deal or let it pass, to go public with a stock offering or remain a closely held company. There is rarely one fight answer to these dilemmas. Your lawyer's job is to present you with options, explain the consequences of each choice, give a recommendation, and allow you to decide what to do. If he or she cannot do this, you may have the wrong lawyer.

UNDERSTANDING LEGAL FEES

Before hiring a lawyer, make sure you understand how you will be billed. Lawyers bill clients in four basic ways: the contingency fee, the flat fee, the statutory fee, and the hourly fee. In a contingency fee, you pay the lawyer an agreed-upon percentage of the money a lawsuit makes. A statutory fee is one that is set by law or by a judge. A flat fee means an attorney agrees to perform a specified service for an agreed-upon price. However, most business attorneys charge by the hour. If your lawyer charges $200 per hour and he speaks to you on the phone for 12 minutes, you will be billed $40.

The legendary movie mogul Samuel Goldwyn once said, "An oral contract ain't worth the paper it's written on." Mr. Goldwyn was right: Never hire a lawyer based on an oral agreement. Insist on a written contract--called a retainer agreement--that specifically defines how you are to be charged. Most attorneys ask you to sign preprinted retainer agreements. Here's what to look for when reading the agreement: