On Monday, the American Bar Association’s Standing Committee on Ethics and Professional Responsibility released Formal Op. 08-451, entitled Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services. Although press coverage of the opinion has focused on its impact on the overseas legal outsourcing industry and the reaction here in the United States from contract lawyers who work through agencies doing document review, the opinion will have a significant positive impact on the small, but growing, group of U.S.-based independent contract lawyers (i.e., U.S. lawyers who work as “freelancers” directly for other lawyers, without going through staffing agencies), as well as on lawyers who use—or who have thought of using—contract lawyers.
Benefits of Using Contract Lawyers
The opinion begins by listing the many types of work that law firms can outsource, from purely ministerial tasks (such as photocopying) to projects requiring substantive legal knowledge (such as the preparation of a 50-state survey of the law on a particular issue). It segues into a discussion of the benefits of outsourcing, noting that
[o]utsourcing affords lawyers the ability to reduce their costs and often the costs to the client to the extent that the individuals or entities providing the outsourced services can do so at lower rates than the lawyer’s own staff. In addition, the availability of lawyers and nonlawyers to perform discrete tasks may, in some circumstances, allow for the provision of labor-intensive legal services by lawyers who do not otherwise maintain the needed human resources on an ongoing basis.
The opinion then gives a clear, ringing ethical endorsement to the use of contract lawyers: “There is nothing unethical about a lawyer outsourcing legal…services, provided the outsourcing lawyer renders legal services to the client with the ‘legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation,’ as required by [Model] Rule 1.1.”
Ensuring Adequate Supervision and Confidentiality, and Avoiding Conflict
The opinion points out that the ethical responsibility of an outsourcing lawyer to make reasonable efforts to ensure that the contract lawyer conforms to the Rules of Professional Conduct is no different from the responsibility of a lawyer supervising the work of another attorney who is employed by the supervising lawyer’s firm.
The opinion next identifies some areas of concern that outsourcing lawyers should address, including data security and, of course, the credentials of the individuals providing contract legal services. It raises additional issues relating to foreign lawyers, including whether the system of legal education under which the lawyers were trained is comparable to that in the United States; whether the foreign lawyers are subject to a professional regulatory system that inculcates core values similar to those in the United States; the “legal landscape” of the nation to which the services are being outsourced (and, specifically, whether personal property, including documents, may be susceptible to seizure in judicial or administrative proceedings notwithstanding claims of client confidentiality); and whether the judicial system of the target country will provide prompt and effective remedies to avert prejudice to the client in the event of a dispute between the service provider and the outsourcing lawyer.
The ABA’s flagging of these concerns is good news for independent U.S.-based contract lawyers. Outsourcing lawyers who hire contract lawyers directly don’t have to worry about the quality of a staffing agency’s due diligence, since they have done their own due diligence. And hiring lawyers who are U.S.-trained and based avoids the issues that arise when hiring foreign lawyers.
The opinion touches on other ethical concerns that the ABA addressed in two earlier opinions on the same subject, ABA Formal Op. 88-356 (Temporary Lawyers) and ABA Formal Op. 00-420 (Surcharge to Client for Use of a Contract Lawyer). First, it discusses whether the hiring attorney must disclose the use of a contract lawyer (yes, if the contract lawyer is to perform independent work for the outsourcing lawyer without the “close supervision” of the outsourcing lawyer or another lawyer associated with the outsourcing lawyer’s firm). Second, it advises outsourcing lawyers to recognize and minimize the risk of inadvertent or advertent disclosures of confidential information by the contract lawyer.
Op. 08-451 Reaffirms that it is Perfectly Ethical for Outsourcing Attorneys to Earn a Profit on Services Provided by Contract Lawyers
The ABA saved the best for (almost) last:
…the fees charged by the outsourcing lawyer must be reasonable and otherwise comply with the requirements of Rule 1.5. In Formal Opinion No. 00-420, we concluded that a law firm that engaged a contract lawyer could add a surcharge to the cost paid by the billing lawyer provided the total charge represented a reasonable fee for the services provided to the client. This is not substantively different from the manner in which a conventional firm bills for the services of its lawyers. The firm pays a lawyer a salary, provides him with employment benefits, incurs office space and other overhead costs to support him, and also earns a profit from his services; the client generally is not informed of the details of the financial relationship between the law firm and the lawyer. Likewise, the lawyer is not obligated to inform the client how much the firm is paying a contract lawyer; the restraint is the overarching requirement that the fee charged for the services not be unreasonable.
The opinion then states that no markup is permitted if the firm decides to pass the cost of hiring a contract lawyer through to the client as a disbursement. So, the lesson is clear: if you want to realize a profit from the work performed by a contract lawyer, bill the contract lawyer’s services as a legal fee, not as a disbursement. It’s that simple.
The opinion closes with reassurance for the many contract lawyers who perform work for attorneys located in jurisdictions where the contract lawyer is not admitted, explaining that, ordinarily, an individual who is not admitted to practice law in a particular jurisdiction may work for a lawyer who is so admitted, provided that the lawyer remains responsible for the work being performed and that the contract lawyer is not held out as being a duly admitted lawyer.
Conclusion: Op. 08-451 Should Raise the Profile of Independent U.S.-Based Contract Lawyers and Assuage the Concerns of Hiring Attorneys
The ABA’s position on outsourcing in Op. 08-451 is consistent with the favorable position it took in Ops. 88-356 and 00-420. The vast majority of state and local bar associations have followed the earlier opinions in whole or part, and I expect that they will follow Op. 08-451 as well.
Independent U.S.-based contract lawyers generally provide unique, individualized services (such as substantive legal research and writing) to small firms and solo practitioners. This type of work is less subject to commoditization than document review work for corporations or large firms, and it’s this commoditized work that forms the majority of legal work that is shipped abroad. Thus, while Op. 08-451 may represent a threat to U.S.-based contract lawyers who do document review through staffing agencies, it can only be a boon to independent U.S.-based contract lawyers. And because it explains the benefits of using contract lawyers, analogizes contract lawyers to associates (but without the overhead), and and clearly states that it is ethical to earn a profit on the work performed by contract lawyers, it should ease concerns about the use of contract lawyers that are no doubt on the minds of many attorneys who could benefit from outsourcing.