10/ 20/ 2006
by Beth Gaudio, NFIB Legal Foundation
Are you unsure whether you can fire an employee? Unclear about what details to include in a contract with a business partner? Business owners contemplate these legal questions routinely, yet often shun legal consultation to avoid high legal costs. Small businesses wary an attorney's fees might want to consider enrolling in a pre-paid legal plan to handle their legal issues.
Pre-paid plans make legal services affordable to many small-business owners, like Vicki O'Hara, who would otherwise not consider using an attorney for contract reviews or regular phone consultations. "It is a source of comfort, a peace of mind for me," says O'Hara, a trade show organizer in Virginia. "It is like having legal insurance, and it feels great to be able to say ‘I'll have my attorney look at it.' "
Pre-paid legal service plans work much like certain types of health insurance or HMOs. The risk for legal services is spread over a large group of customers. Members of the group pay a monthly or annual fee and have access to an established network of attorneys for advice and service, just as HMO members have access to a network of doctors. But before you sign up, make sure you're aware of the pitfalls and limitations of pre-paid services.
What are the benefits/services offered?
Small-business owners can take advantage of pre-paid plans for preventive legal services. A lawyer can review a document or contract before you sign it, or you can consult with an attorney before suing another party. The services will depend on the provider and the plan you select. There are generally two basic plan types: access or standard plans that provide quick access to an attorney for advice and uncomplicated legal services andcomprehensive or extended plans providing extensive services, such as complex legal advice, legal document drafting and representation in real-estate transactions and negotiations.
A few comprehensive plans purport to cover some or all of the costs involved in litigation. Most trial defense services that are offered will set an hourly limit and may cost an additional premium. Many plans offer reductions in contingency fees for collection matters or personal injury cases. Some plans provide legal support when your business receives notice of an IRS audit. The amount of documents reviewed or hours covered depends on the plan, with most plans charging extra for work performed beyond the plan's limit.
Read the fine print for limitations and exclusions
Look carefully at your business to determine what type of legal services best fit your needs. Pre-paid plans work best for small businesses that have periodic employment or contract questions that can be handled by a simple phone consultation or document review. On the other hand, if you do frequent business with a lawyer, such as regular and lengthy contract reviews, then a pre-paid plan may not cover enough of your legal problems and may not be appropriate. Also, if your business has very few legal issues that arise consistently, then perhaps your business is better off not paying the premium for the plan.
Be careful about extra charges. When considering a pre-paid plan, look carefully at the services included or those offered for reduced rates. The plan may limit the amount of services available at a reduced fee. In addition, many small businesses prefer to maintain a relationship with one lawyer, which may not be possible through the pre-paid plan model, which often uses a different lawyer for each legal matter.
What to ask the plan provider
Be sure to do your research and carefully review all terms and benefits relating to a plan or provider. Ask other businesses who have used such services about the quality of legal work they received. Low fees do not necessarily mean inferior work, but bear in mind, lawyers are not interchangeable. Be sure to ask questions like:
- What are the plan's fees, and what services are offered?
- What services and types of legal representation are not covered?
- What is the charge for additional assistance for services not covered?
- Who will actually be representing you? (names of legal firms and individual attorneys)
- What are the attorneys' levels of experience and expertise?
- Do the attorneys have extensive experience representing small businesses?
- Will you have the choice of attorneys within the plan, and will you be able to change attorneys if you wish?
- Will the same attorney handle your case from beginning to end?
Ultimately, deciding upon whether to have a pre-paid plan or which plan to choose depends on your individual business' needs. While pre-paid plans are not appropriate for every business, in some instances, they can offer access to important legal services at a lower cost.
