When it comes to legal billing, few topics cause more confusion than retainers and flat fees. Between “classic” retainers, advance fee deposits, and “earned upon receipt” flat fees, even experienced attorneys can find themselves unsure what belongs in the IOLTA and what belongs in the operating account.

The distinction matters: mishandling client funds remains one of the most common disciplinary issues in Ohio.

Under Rule 1.15, unearned funds belong to the client and must stay in the trust account until earned. Comingling trust funds with operating funds, even accidentally, breaches the duty of safekeeping client property.

Not All Retainers Are Created Equal

Under Ohio Rule of Professional Conduct 1.5, a lawyer must charge reasonable fees and clearly communicate the basis of those fees in writing. But not all retainers serve the same purpose or are earned in the same way:

• Classic (true) retainers are paid solely to secure the attorney’s availability and may be de minimis. This approach is no longer typical but may inform “subscription” legal representation that we will discuss in a future article.
• Advance fee retainers, the most common type of retainer payment, are payments made in anticipation of future legal work and expenses. As such, the funds are not yet earned and, no matter how small, must be placed in the IOLTA until work is performed.
• Flat fees paid in advance by default are unearned and must be held in trust until earned. In Ohio, however, attorneys are permitted to designate flat fees as “earned on receipt” subject to certain disclosures and requirements. If a flat fee is designated, in writing, as “earned on receipt,” then the funds should properly be deposited in the attorney’s operating account.

Avoiding the “Earned Upon Receipt” Trap

Many attorneys and clients prefer the simplicity of a flat or “earned upon receipt” fee — but this language can create ethical risk if the work isn’t yet complete. If the attorney-client relationship ends early, Rule 1.16(e) requires that any unearned portion be refunded. Failing to do so can turn a billing dispute into a disciplinary problem.

As Ohio Board of Professional Conduct Advisory Opinion 2016-1 makes clear, calling a fee “nonrefundable” or “earned upon receipt” doesn’t automatically make it so. While the designation allows the funds to be immediately deposited into operating, the fee is truly earned only when the client receives the value of what was promised. If the representation is terminated before that work was completed, the client is still entitled to a refund in proportion to the work that was not done.

A safer approach:

1. Define milestones. Link portions of the fee to clear deliverables or stages of representation.
2. Set due dates for payments. State in writing a clear date or timeline when each portion is due from the client.
3. Address refunds upfront. Explain how any unearned balance will be handled if representation ends early.

Transparency at the outset reduces confusion and protects both lawyer and client.

Final Takeaway

Labeling a payment “flat” or “earned upon receipt” doesn’t change the ethical obligation to complete the work to earn the fee. The safest course is clarity: define what’s earned, document when it becomes yours, and keep unearned funds in trust until the work is complete.

A clear, written engagement agreement is your best defense: it protects your client, your firm, and your license.

See related articles:
Withdrawing from Representation (8/31/22)
IOLTA Reminders & Resources (4/6/22)
Flat Fee Agreements (5/6/21)

As always, if you have any questions, we’re here to help. 

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