Reasonable Fees a Must in Tight Legal Services Market

Consumer focus groups often characterize attorneys as overpriced. Combine that conclusion with a lawyer's frequent arrogance, and the overall experience of purchasing legal services can be disappointing.

A recent study cited in The Economist noted that so called “Big Law” [America’s 250 largest private law firms] shed 8% of its work force over the past two years. Many top-tier law school graduates cannot find work in their chosen field.

Local general practitioners have also seen the effects of a tight market for legal services amidst a glut of service providers. Fortunately for them, appearing before the local magistrate or county trial judge cannot be outsourced to India like an e-discovery document review.

Nevertheless, globalization, digitization, and cloud-based data sourcing are driving fees for all legal services downward. Information is coming to the people at a bit-torrent pace. The client is forcing the attorney to re-think how service is measured and purchased.

Although professional pundits have been forecasting the death of the billable hour for the past two decades, it appears to finally be happening. Value-based alternative fee arrangements such as flat fees, performance contingencies, and multiple transaction discounts, are commonplace among competitive firms.

Survival in such an industry depends on a client-focused approach. Adding value to the client’s case, always important, is now imperative.

No one wants to overspend on a lawyer.  Therefore, prior to hiring an attorney, do some research on the Internet; check the reviews; check the electronic profile.  Your digital due diligence will increase the likelihood that your dollars will be well spent.

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Posted in: attorney,Big Law,law school,lawyer,legal services,The Economist

No Joke: What's the Difference Between a Divorce and a Tatoo?

This blog post combines two posts from the SBM Blog and is the original content of the State Bar of Michigan.

As Michigan lawyers go about the work of convincing our state legislators that a tax on legal services would be a fundamental and costly mistake, we face the same response again and again:  "if we exempt one service we have to exempt them all."  In Georgia, policymakers are also gearing up for a tax on services, and a recent white paper from Georgia's venerable Tax Foundation asks: "Can anyone really keep a straight face while justifying a tax exemption for legal services, tattoos, haircuts, car repair,health club memberships and other common services?"  Well, we can.  In fact, we wonder how serious policymakers can keep a straight face equating legal services with personal grooming and adornment services.Bottom line: government shouldn't tax behavior that is good for society. We're all better off when people get the legal advice they need to secure justice or comply with the law.  Tatoos, not so much.

The original SBM Blog post, above, referenced a related post on the same subject, which is reproduced here for our readers convenient reference:

Unfair, Unwieldy, Unwise, Unethical, and Unconstitutional

The prospect of a Michigan tax on services that extends beyond the 26 services already taxed to include legal services is a growing threat, with a group of business leaders actively pushing the idea, legislation already introduced, and the Governor endorsing a services tax. The State Bar has successfully lobbied in the past against taxing legal services, arguing that a tax on legal services is unfair, unwieldy, unethical, unconstitutional, and, ultimately, unsuccessful. The constitutional problems with a tax on legal services are magnified when legal services to businesses are excluded, as is the case with several of the current proposals. See HB 5527, 5528, and 5529. If you haven’t expressed concern about a tax on legal services to your legislator, now’s the time.  Here’s how to connect.  Here’s the State Bar’s position.

Here's a quick rundown of the arguments.  A tax on legal services is...

Unfair – Most legal services are rendered in circumstances of crisis, stress, or misfortune. People who seek legal assistance in cases involving child support payments, child custody, divorce, death, domestic abuse, end-of-life decisions, or bankruptcy seek them out of necessity, not choice. For this reason, a tax on legal services is aptly labeled a  "misery tax".  

Unwieldy – Determining what fees and services would be subject to the tax and which records would or could be subject to audit would be an administrative nightmare. Among other reasons, attorneys often don't receive payment promptly from their clients, making it a potential administrative burden to reconcile payment with the tax obligation.  Administrative complications were one reason why the only two large states that have adopted such a tax – Florida and Massachusetts – repealed it shortly after it took effect. 

Unethical – Collection of a sales tax on legal services could compromise client confidentiality, imposing the state’s tax collection apparatus into the attorney-client relationship. Law firms do pay taxes under the Michigan Business Tax. 

Unwise – Individuals and businesses seek legal advice to ensure compliance with the law.  Such behavior should be encouraged, not taxed. Further, the tax could be counter-productive, causing clients to seek legal services outside Michigan for intellectual property, federal tax, estate planning, legal service, and encouraging law firms providing such services to relocate outside Michigan, or perform such services at satellite offices. Like medical services, legal services are not discretionary. Taxing legal services is taxing justice. 

Unconstitutional – In addition to constitutional concerns about attorney-client privilege and the taxation of criminal defense, the proposal to exempt one class of clients (business) from taxation while imposing the tax on another class (individuals) raises serious constitutional issues.

Unsuccessful - Two states, Florida and Massachusetts, enacted sales taxes on services but repealed the measures when they proved to be administratively difficult and unpopular.  In the three small states that are said to have a tax on legal services, two also tax physician services and the thrid reports that the tax is not enforced because it is so difficult to calculate and collect.


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Posted in: legal services,State Bar of Michigan,taxation