The Ethics of Engaging Contract Attorneys
August 17, 2021
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The 5 Step Framework for Ensuring Ethical Compliance When Utilizing Temp Attorney Services
The ABA’s interpretation of Model Rule 5.4 permits the use of contract attorneys, a reasonable markup on contract attorney hours, and the payment of related fees to staffing and placement agencies. Complying with all other ethics rules and analyzing your jurisdiction’s interpretation of Model Rule 5.4 in regards to contract attorneys and your specific use case is important— particularly for law firms in Texas and Florida.
We’ve created content and resources in the past to address the various ethical concerns around contract attorneys. As we address frequent questions to our support and customer success teams, we now wanted to provide a framework around how to assess and address the ethical concerns of using contract attorneys
Interestingly enough, in the early days of Hire an Esquire, whether contract attorneys were permitted under ethics rules was the most frequent initial question. As our volume of clients has increased significantly over the years we answer more instances of this question, but a much lower percentage of clients ask it. And, it’s more likely to be asked after a contract attorney is retained and billing is being set up rather than at the outset of an engagement.
And it isn’t surprising that lawyers are no longer trying to see an ethical “trapdoor” in the use of contract attorneys. In the last few years, the use of contract attorneys has reached widespread acceptance and most lawyers see contract attorneys being utilized in-house and at large law firms. According to Altman Weil, by 2018, 55% of all law firms and 78.5% of law firms of 250 lawyers or more were engaging contract lawyers.
With this comfort and more ways to connect with contract attorneys, some law firms may be overlooking potential ethical issues with contract lawyers, how they are billed, and how they are connecting with them. To help you navigate the potential missteps, we’ve created a 5 step approach we recommend to ensuring you are complying with all ethics rules in your applicable jurisdictions when utilizing contract lawyers.
1. Review ABA Model Rule 5.4 and the Related Opinions on Contract Attorneys:
ABA Formal Opinion 88-356 interpreting ABA Model Rule 5.4 was written in 1988 and was adopted or is the basis for the majority of jurisdictions’ rules and opinions concerning contract attorneys. The ABA opinion states that a relationship whereby a contract/temporary attorney is hired on an hourly or fixed fee basis, with a percentage of those fees being paid to a recruiting or placement agency is not in violation of the Model Rule, “due primarily to the nature of services provided by the placement agency.”
In other words, paying a staffing and placement agency a fee for their service based on the amount paid to the contract attorney is not in violation of fee sharing rules. Marking up a contract attorney to a law firm’s end client is also permitted. The ABA opinion appears to understand that just like hiring an associate, the use of contract attorneys takes time, management, and overhead by the firm.
To ensure compliance with ethical rules while utilizing the services of contract attorneys, the firm must ensure that:
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The markup on contract attorneys charged to clients is reasonable.
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The attorney retaining the contract attorney and holding the client relationship remains ultimately responsible for the work product and ensuring other rules of professional conduct are followed (see #3 for more depth).
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The law firm bills the client for the contract attorney as a legal fee, not a disbursement.
Some version of this model rule has been adopted by 48 of 50 jurisdictions, but there are nuances. This is why it is important to...
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2. Check Your Jurisdiction Specific Rules and Be Aware of Florida and Texas Nuances:
It is important to always check your jurisdiction’s interpretation and opinions related to Model Rule 5.4 and the use of contract attorneys for any jurisdiction-specific nuances and also to understand how it applies exactly to your unique situation.
As of 2021, Florida and Texas are the two largest legal markets with the most restrictions on billing contract attorneys. While it’s important to read the related opinions, here is a general overview.
Florida Nuances to Contract Attorney Markups:
Florida Bar Ethics Opinion 88-12 does provide for and permit the use of contract attorneys so long as other ethical rules are complied with and adds the additional caveat that the hourly rates of contract attorneys cannot be a straight markup to the client. Their recommendation is the following:
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This problem could be avoided if, instead of receiving a portion or percentage of the fee charged for the participating attorney’s services, the corporation charged its customers a flat fee. By handling the matter in this fashion the participating attorneys would receive 100 percent of the fees being charged for their services and the corporation would receive a completely separate fee for arranging the temporary employment placement.
Another potential option and means of compliance also helps to keep you compliant with employment laws. Hire an Esquire ensures proper compliance and employment classification based on the job parameters you provide to our system. For W-2 employees, you must pay your contractor for all hours worked, not just those that you can bill to the client. While it’s important to factor this into setting your contract attorney budget, this also avoids making the amount paid to the contract attorney a direct function of what is billed to the client.
For Florida law firms, we strongly recommend reviewing Florida Bar Ethics Opinion 88-12 and analyzing how this applies to your unique contract attorney and billing arrangement.
Texas Nuances to Contract Attorney Markups:
The Texas interpretation of Model Rule 5.4 most pertinent to contract attorneys is expressed in Opinion 577 of the Professional Ethics Committee for the State Bar of Texas. This opinion concerns the billing of lawyers who are “in the firm” and lays out a number of factors for when a lawyer would be “in” the firm or a non-law firm lawyer. While in some cases, a contract lawyer could be considered to be “in” the firm if they are integrated into the daily operations, in the majority of contract attorney use cases they are likely to be a non-law firm lawyer.
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A law firm’s billing options for non-law firm attorneys are 1) to disclose the use of contract attorneys on the bill and pass this cost along without a markup or 2) to meet the requirements of rule 1.04(f) regarding fee sharing.
If the contract attorney or non-law firm lawyer’s fees are marked up this is considered fee sharing and the requirements of rule 1.04(f) apply and to markup their fees the firm must do the following:
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Ensure proportionality of fees to services performed or joint responsibility for the representation,
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Obtain written client consent to the terms of the fee division, and
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Ensure that the total fee that is not unconscionable under Rule 1.04(a)
In other words, if your firm wishes to utilize contract attorneys in Texas and to mark them up, in addition to compliance with all other Texas disciplinary rules, you should ensure that the fees are reasonable and obtain written client consent to the use of contract attorneys and their markup and clearly define this on the client’s bill.
For Texas law firms wishing to utilize contract attorneys, we recommend reviewing Opinion 577 and additionally checking out the materials from this Texas CLE on law practice management and the use of contract attorneys.
3. Ensure Compliance with All Ethical Rules While Working with Contract Attorneys
The ABA opinion emphasizes that all other rules of professional conduct must be followed when utilizing the services of contract attorneys. In particular, the ABA emphasizes compliance with the following ethical rules that are most likely to be involved in the utilization of contract attorneys.
a. Rule 1.9 Conflict of Interest: Since contract attorneys may have a more varied base of clients and conflicts will be more difficult to manage than employees in your firm. Be sure to do a thorough conflict check and ensure that your contract attorney does so before taking on new projects while working at your firm.
b. Rule 1.6 Confidentiality of Information: Ensure that all client confidentiality concerns are addressed in alignment with this rule, particularly if the contract attorney will be using different systems or means of communication and related protocols than your general firm attorneys which have been structured for compliance with your duty of confidentiality.
c. Rule 7.5(d) Disclosure to Client: If a contract attorney is going to be working independently and more as a local counsel or partner on a case versus working under the supervision of the law firm similar to a staff attorney or associate attorney would be, then a law firm must disclose this and obtain client consent and in the capacity of an associate or staff attorney, you must get consent from your client.
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Further, one issue we have seen but was not anticipated in the ABA opinion on contract attorneys when it was written long ago, is a failure by attorneys to follow rules regarding honesty and fair dealing in the process of retaining and compensating contract attorneys.
Amongst the Preamble to the Model Rules and other rules dealing with honesty and integrity, Model Rule 8.4(c) clearly states that it is professional misconduct to “engage in conduct involving dishonesty, fraud, deceit or misrepresentation;”
An issue we have observed first and second hand is theft of services in the use of contract lawyers. We have found law firms and contract attorneys using our services for connection, vetting, and often an initial guarantee period before then taking the relationship off of our platform and therefore not compensating us for our services as agreed and promised.
Further, the primary way we are alerted to this is when the law firm fails to pay the contract attorney or paralegal they have found via Hire an Esquire. In these situations, the contract attorney or paralegal often comes to us for help with obtaining payment. As we work through the situation to settle this matter, often an attorney at a law firm will engage in further dishonesty and misrepresentation and we learn that they have also engaged in other unethical conduct in their attempts to obtain work product from contract attorneys or paralegals without compensating them. So, in addition to protecting your clients through confidentiality rules, be sure to remain ethical and honest in compensating contract attorneys and the agencies that place them.
4. Check your Client Contracts:
Be sure to review your client contracts to ensure there are no restrictions on the use of contract attorneys. Some large client contracts will prohibit the markup of contract attorneys or define a limit on the markup of contract attorneys. On the flip side, many law firm standard engagement agreements disclose and obtain client approval for the use of contract attorneys and may create and disclose a standard markup based on the rules in their jurisdiction.
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5. Beware of Non-Staffing Agency Staffing Marketplaces
As the popularity and acceptance of contract attorneys grew, so did non-staffing agency lawyer marketplaces— which can present their own thorny ethical issues.
The ABA opinion states that fees to staffing and placement agencies are permitted “due primarily to the nature of services provided by the placement agency.” The services that staffing and placement agencies provide are vetting contractors, providing insurance, payroll, employment, and employment compliance services. The nature of their employment and insurance-related services is very different from that of a mere referral or connection service which state bars tend to regulate closely.
And already in the marketplace, there have been various issues with non-staffing and placement agency lawyer marketplaces.
In one prominent marketplace that was not a staffing agency and connected lawyers to consumers, as well as law firms to contract lawyers, the lawyers registered with the service were given formal warnings by a state bar association for violating fee sharing rules. The same marketplace ultimately shut down before changing ownership due to a civil suit which a judge allowed to proceed for “brazenly” violating bar rules surrounding fee sharing.
Further, other marketplaces that are connecting contract lawyers to law firms disclaim that they are staffing agencies and tend to hinge the ethical compliance of their services around the temporary lawyer only providing paraprofessional services. With this arrangement, if you are not carefully monitoring the work provided to a contract lawyer and ensuring they are not performing only paraprofessional work, you risk violating ethical rules around the unauthorized practice of law.
So, if you are using a service that charges a percentage of the contract attorney wages as compensation for connecting, ensure that they are structured as a staffing and placement agency. And of course, as a reminder, Hire an Esquire is a staffing and placement agency and we vet, insure, and provide employment and compliance services for all of our contract lawyers and paralegals.
We hope this framework gives you a starting point to ensure compliance with your jurisdiction’s ethical rules when engaging contract attorneys.
And, if you are using Hire an Esquire and have a situation or issue, such as a contingency case, where our fee may be an issue, don’t hesitate to reach out to us to discuss a way to structure an arrangement that complies with the ethics scenario for your unique situation and ensures all parties are fairly compensated for the work performed.
As always, Happy Hiring!