Concerned with the possibility that clients who agree to a flat fee may end up paying more than what they would have paid if they had agreed to be billed by the hour, some jurisdictions have held that flat fees are not "earned" until the work is done and that any unearned portion must be returned to the client. This is consistent with the basic principle that a fee is unreasonable if it is not actually earned. But this view eliminates the distinction between a flat fee and a security retainer and thus the advantage of flat fees as an alternative to hourly billing. (For my previous comments on this go here and here.
I thought of this when I saw a comment by popular blogger Carolyn Elefant on fees which she called Billing Methodologies Don’t Act Unethically. Lawyers Do. In it, she concludes: "So is the flat fee to blame for the gigantic foreclosure mess, just as many have tried to blame the billable hour for unethical overcharges and the demise of biglaw? Of course not. True, the flat fee tempts lawyers to cut corners to keep costs down, just as the billable hour gives lawyers incentive to do unnecessary work to push bills up. But at the end of the day, the problem isn’t the chosen billing methodology, but rather, with the lawyers implementing it. Billing methodologies don’t behave unethically. Sadly, though, many lawyers do." Go here to read her full comment.