The Ethics of Contract Legal Services
A Survey of the Ethical Considerations When Hiring Freelance Attorneys
Billing Clients for Freelance Legal Services
Outsourcing work to freelance attorneys has gained in popularity in recent years because it is such an advantageous model in a down economy for all parties involved — the hiring attorney, the working attorney, and the client. Because of its increasing popularity, the American Bar Association has issued several Formal Opinions on the ethical considerations when hiring a freelance attorney. One of the most commonly asked questions about hiring freelance lawyers is whether or not you can profit from their low billable rates. According to the ABA, the answer is yes. This is a significant benefit to hiring freelance lawyers.
In Formal Opinion 00-420 (November 29, 2000), the ABA stated that a hiring attorney can add a “surcharge” to the amount it pays for freelance legal work. “A ‘surcharge’ is made when the retaining lawyer charges the client more for the services of the contract lawyer than the cost incurred by the retaining lawyer for obtaining those services, either directly or through the contract lawyer’s agency or employer; in other words, a surcharge is profit.”
Formal Opinion 00-420 states that freelance work can be billed to the end client either as fees for legal services or as costs. If you opt to bill your client for the services as costs, however, no surcharge is permitted. The ABA also stated that “[t]here is no duty to disclose the surcharge when the work of the contract lawyer is supervised or, absent supervision, when the work of the contract lawyer is adopted as the work of the retaining lawyer.”
The bottom line is that hiring freelance lawyers can increase your profits and expand your practice, all without increasing your overhead.
Disclosure and Client Consent
A common question about utilizing freelance legal services is whether client consent must be obtained when outsourcing legal work to a freelance lawyer. In Formal Opinion 88-356, the American Bar Association Standing Committee on Ethics and Professional Responsibility addressed this exact issue. The conclusion reached by the Committee was that, where a temporary lawyer performs independent work for a client without close supervision by the hiring lawyer, the client must be advised that the temporary lawyer will work on the matter and must consent. Where, however, the temporary lawyer is under the direct supervision of the hiring lawyer, the temporary lawyer’s work does not ordinarily have to be disclosed to the client. Importantly, in Formal Opinion 08-451, the Committee stated: “[W]here the relationship between the firm and individuals performing the services is attenuated, as in a typical outsourcing relationship, no information protected by Rule 1.6 [governing confidential client information] may be revealed without the client’s informed consent.” This is because the implied authorization to share confidential client information within a firm does not extend to outside entitles or individuals.
The ABA Committee clarified that the hiring lawyer does not need to reveal the compensation arrangement with the freelance lawyer to the end client. This is because ABA Model Rule 1.5(e), dealing with fee-splitting, does not apply to the outsourcing of legal services because the gross fee the end client pays the hiring lawyer is not shared by the freelance lawyer. According to the Committee: “The payments to the temporary lawyer are like compensation paid to nonlawyer employees for services and could also include a percentage of firm net profits without violation of the Rules . . . .” ABA Formal Opinion 88-356.
When working with Custom Counsel attorneys, the level of supervision will vary depending on the nature of the project. It is important to keep in mind this guidance by the ABA on when client consent is required. Because Custom Counsel attorneys provide very high quality legal services at attractive rates, clients will be enthusiastic about the proposition of using freelance attorneys to reduce their legal bills.
Supervision of Freelance Attorneys
When you hire Custom Counsel attorneys, you can be sure that they are experienced, talented lawyers who are capable of competently handling whatever tasks they are given. This is important because, according to the American Bar Association, the hiring lawyer remains “ultimately responsible for rending competent legal services to the client.” ABA Formal Opinion 08-451.
As the ABA clearly stated: “The challenge for an outsourcing lawyer is, therefore, to ensure that tasks are delegated to individuals who are competent to perform them, and then to oversee the execution of the project adequately and appropriately.” Id. Under Model Rule 5.1, a supervising lawyer must make “reasonable efforts” to ensure the that work of an attorney under his supervision comports with the Rules. Rule 5.1 also makes clear that supervising lawyers can be held responsible for the unethical actions of the lawyers under him or her if the supervising lawyer ratifies the conduct. A recent lawsuit against McDermott Will & Emery involves a situation where contract lawyers were alleged to have been improperly supervised. This suit highlights the trouble with hiring low wage, inexperienced attorneys to perform huge document review projects. Click here to read more about the suit.
Reading the Model Rule and the ABA Formal Opinion together, the message is clear: hire experienced, high level attorneys like those in Custom Counsel’s network, and, if you choose to work with more inexperienced freelance lawyers, be sure to supervise their work carefully.
ABA Commission on Ethics Clarification
In Resolution 105C, the ABA Commission on Ethics made changes to the commentary to some of the model rules relevant to legal outsourcing. The Commission recognized the “continued growth” of legal outsourcing, and stated that its intent was to clarify a lawyer’s obligations when outsourcing. There are three new comments that are relevant:
Rule 1.1: The comment now indicates that a lawyer should ordinarily obtain informed consent before using contract lawyers, and the lawyer should reasonably believe that hiring the freelancer will contribute to the competent and ethical representation of the client. In determining whether hiring the freelancer is reasonable, one should consider the education and experience of the freelance lawyer, the type of work they will be performing, and the ethical rules in the jurisdiction, among other things.
Rule 5.3: The comment now states that it is permissible to hire nonlawyers outside of your firm, as long as you make reasonable efforts to ensure that the engagement is in line with your ethical obligations.
Rule 5.5: The comment clarifies that you may not engage in outsourcing when it would facilitate the unauthorized practice of law.
These comments highlight the importance of hiring freelance lawyers who are experienced and capable of competently handling your matter. You can feel confident that Custom Counsel’s highly vetted lawyers have the training and expertise to handle your overflow work with the highest level of skill. We can assist you in doing your own due diligence by providing you with resumes and references as you see fit, to ensure you are meeting your ethical obligations when outsourcing legal work.