Arbitration Clauses Between Attorneys and Their Clients: The Factors to Consider

Client Arbitration Agreements for Resolving Fee Disputes

Arbitration clauses have become “increasingly common in lawyer fee agreements.” Generally speaking, arbitration provisions with clients are more ethically acceptable for resolving fee disputes as opposed to malpractice claims. Several bar associations across the county have established rules encouraging the informal resolution of fee disputes between lawyers and their clients, such as arbitration or mediation procedures. In Comment 19 to Rule 1.04, the Texas Disciplinary Rules of Professional Conduct states that attorneys “should conscientiously consider submitting to” these fee-dispute procedures.

Texas Guidelines on Effectiveness of Client Arbitration Agreements

The Texas Committee on Professional Ethics has noted, however, that the Texas Professional rules “do not specifically address agreements for arbitration of malpractice claims.” At the same time, Rule 1.08(g) provides that “[a] lawyer shall not make an agreement prospectively limiting the lawyer’s ability to a client for malpractice unless [the agreement is] permitted by law and the client is independently represented in making the agreement . . . .” 

As in many states, the Texas Committee has provided that for a client’s arbitration agreement to be effective “the lawyer should explain the significant advantages and disadvantages of binding arbitration to the extent the lawyer reasonably believes is necessary for an informed decision by the client.” The depth of the explanation varies based on the client’s sophistication, education, and experience. At one end of the sliding scale, large business entities that frequently employ outside lawyers may require no explanation. At the other end, individuals and small businesses should be advised of the pros and cons of ARBITRATION v. JUDICIAL PROCEEDINGS based on, at most, eight factors. Whether all eight factors must be addressed also depends upon the arbitration clause.

The Eight Factors of Client Arbitration Agreements

The eight factors to consider are as follows: (i) the cost and time savings, (ii) the waiver of significant rights (primarily the federal and state constitutional rights to a jury trial), (iii) the possible reduced level of discovery, (iv) the relaxed application of the rules of evidence, (v) the loss of the right to a judicial appeal because arbitration decisions can be challenged only on very limited grounds; (vi) the privacy of the arbitration process compared to a public trial; (vii) the method for selecting arbitrators; and (viii) the obligation, if any, of the client to pay some or all of the fees and costs of arbitration, if those expenses could be substantial. 

We discuss these advantages and disadvantages in our post explaining the arbitration process.

Key Takeaways On Using Attorney-Client Arbitration Agreements

  • Arbitration provisions are more ethically acceptable for resolving fee disputes as opposed to malpractice claims;

  • To be effective, attorney-client arbitration provisions must include disclosure of the advantages and disadvantages sufficiently for the specific client to make an informed decision; and

  • There are eight factors to consider in deciding whether to use arbitration clauses.

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