Nonrefundable Retainer? Deposit? Neither?

The age-old question: in your contracts, should you structure your payment provisions as a nonrefundable deposit? Retainer? Or does it even matter?

Depending on what state you’re in, it may matter. There isn’t a lot of case law on the subject, simply because case law is set based on litigation, and a judge making a final ruling at the end of the case. The vast majority of cases (as in, over 80% of cases) don’t ever go to court, and those that so get to court typically result in settlement, simply because of the costs involved. So, outside of a tiny handful of photography cases, there aren’t many cases involving this question and the creative world (ironically, the most amount come from the legal world itself, because attorneys work on retainer bases).

That being said, this question can feel like “much ado about nothing”, except for a few very important factors. While I wouldn’t say there’s uniformity in terms of which terminology is preferred, there is uniformity in what a judge looks for in determining if that provision in the contract should be upheld:

Was it clear to the client that:

  1. The deposit or retainer was nonrefundable;

  2. Why it was nonrefundable (do you literally spell this out?); and

  3. Was the amount reasonable?

Therefore, if you ever buy a template from the Creative Law Shop®, you’ll note that in place of a “nonrefundable deposit” or retainer paragraph, we have a lengthy paragraph titled “initial payment”. This helps avoid the situation entirely, giving you the broadest amount of protection available.