Flat fee agreements have become increasingly common in legal practice. A new formal ethics opinion from the State Bar of California provides guidance on the ethical issues that arise when a flat fee representation ends early, the scope of work changes, or the attorney underestimated the amount of work involved.
In Formal Opinion No. 2026-210, the State Bar’s Standing Committee on Professional Responsibility and Conduct addressed several recurring questions about flat fee agreements, including when fees are earned, when refunds are required, and whether lawyers may renegotiate flat fees after a matter becomes more complicated than expected.
Flat Fees Are Still Client Funds Until Earned
One of the opinion’s central themes is that an advance flat fee is not automatically earned simply because it has been paid.
Under California Rule of Professional Conduct 1.15, advance fees generally must be deposited into a client trust account until earned.
The rules permit lawyers to place an advance flat fee into an operating account if specific written disclosures are provided to the client. Even then, however, the opinion emphasizes that the funds remain subject to refund if the agreed legal services are not completed.
That distinction is important because some lawyers mistakenly assume that labeling a fee “flat” or placing it into an operating account means the fee is fully earned immediately. The opinion rejects that view.
The committee explained that, except for a true retainer paid solely to secure a lawyer’s availability, California rules prohibit lawyers from characterizing advance fees as “nonrefundable” or “earned on receipt.”
Clients Can Terminate the Relationship at Any Time
The opinion also highlights a fundamental principle of California law: clients generally have the right to terminate their attorney at any time, with or without cause.
That can create practical complications in flat fee arrangements.
If a client discharges a lawyer before the agreed services are completed, the lawyer cannot simply keep the entire fee. The lawyer must determine what portion of the fee has actually been earned and refund any unearned amount.
Milestones May Help Avoid Disputes
The committee notes that one approach to reduce the potential for later disputes is for lawyers to clearly define milestones in flat fee agreements.
For example, a fee agreement might specify that 25% of the fee is earned when a petition is filed, another portion is earned after a hearing, and the balance is earned when the matter is completed.
This type of milestone approach might be more appropriate than applying an hourly rate analysis after the representation ends, the committee indicated. Hourly recalculations may create unconscionability issues because flat fee agreements are not designed around time spent.
The opinion cautions against front-loading milestones too heavily or creating provisions that undermine the client’s right to terminate the attorney.
What Happens If the Matter Becomes More Complicated?
Another important issue addressed by the Bar’s opinion involves situations where a lawyer underestimated the complexity of the representation. This issue is increasingly likely as flat fee billing expands beyond routine matters into more sophisticated litigation and transactional work.
Lawyers generally assume the risk that a flat fee may ultimately prove less profitable than expected. A lawyer cannot simply increase the fee later because the matter turned out to require more work than anticipated.
However, the opinion does recognize that modifications may sometimes be appropriate, particularly where the client expands the scope of work, unforeseen developments arise, or material facts were not reasonably foreseeable at the outset.
Still, the committee warns that renegotiating a fee agreement during an ongoing representation creates ethical concerns because the client may feel pressured to agree rather than change counsel midstream.
Fee Modifications Require Special Care
Perhaps the most significant practical takeaway from the opinion is its conclusion that lawyers modifying flat fee agreements during an active representation should comply with Rule 1.8.1, California’s rule governing business transactions with clients.
That rule requires, among other things, written disclosures, fairness and reasonableness, advice to the client to seek independent counsel, and informed written consent.
The opinion reasons that a lawyer seeking additional compensation during an ongoing representation may possess significantly greater bargaining power than the client. As a result, fee renegotiations are likely to receive close ethical scrutiny, particularly if the lawyer threatens withdrawal unless the client agrees to pay more.
Practical Guidance for Lawyers
The opinion closes with practical drafting guidance designed to reduce misunderstandings and future fee disputes.
Among other things, the committee recommends that lawyers clearly define the scope of services covered by the flat fee; explain what work falls outside the agreement; identify milestones tied to earned fees; document the client’s authorization for additional work; and maintain clear communication with the client about timelines and expectations.
The committee also suggests that even in flat fee matters, lawyers may benefit from tracking time spent on the matter, in case a later dispute arises regarding the reasonable value of services performed.
Why This Opinion Matters
Although the opinion is advisory and not binding law, it provides important insight into how California ethics regulators are likely to view flat fee disputes. It also reflects the State Bar’s continuing focus on transparency, client protection, and fairness in attorney billing practices.
As flat fee arrangements become more common – including in increasingly sophisticated legal matters – lawyers who use them will need to ensure their fee agreements are carefully drafted and ethically compliant.
For clients, the opinion reinforces an important principle: paying a flat fee in advance does not mean the lawyer has earned the entire amount.
And for lawyers, there is an equally clear message: flat fees may simplify billing, but they do not eliminate ethical obligations surrounding earned fees, refunds, and fairness in the attorney-client relationship.
By Rachelle H. Cohen