Tag Archives: Ethics and nonlawyer compensation

California Bar examines proposal that non-lawyers be permitted to provide legal advice and have a financial interest in law firms

Hello everyone and welcome to this Ethics Alert, which will discuss the recent proposals of a State Bar of California task force which would, inter alia, permit legal technicians to offer legal advice and also permit non-lawyers to have a financial interest in law firms.  The proposals were approved by the State Bar Board of Trustees on July 11, 2019.

The proposals were developed by the California Bar’s Task Force on Access Through Innovation of Legal Services.  The task force’s proposals would make sweeping changes by modifying the restrictions on the unauthorized practice of law and ethics rules that prohibit fee sharing with nonlawyers and would also permit legal technicians to provide legal advice and practice law.  The California Bar press release announcing the proposals is here: http://www.calbar.ca.gov/About-Us/News-Events/News-Releases/board-approves-public-comment-on-tech-task-forces-regulatory-reform-options-under-consideration.  The California Bar agenda item with the proposals is here:  http://board.calbar.ca.gov/docs/agendaItem/Public/agendaitem1000024450.pdf

The proposals would permit non-lawyers to provide certain specified legal advice and services, with the appropriate regulation, and permit entities that provide legal or law-related services to be made up of lawyers, nonlawyers or a combination of the two. The regulations would differ depending upon the type of entity, and also permit lawyers to be part of a law firm in which a nonlawyer holds a financial interest.

The task force proposed two alternatives.  The first would include provisions permitting non-lawyers to provide services that assist the lawyers or law firm in providing legal services, and state that the nonlawyers have no power to direct or control the professional judgment of the lawyers. The other would permit lawyers to share fees with non-lawyers as long as the client provides written consent.

The proposals also would also permit state-approved businesses to use legal technology to deliver legal services.  Regulatory standards governing the provider and the technology would be established and client communications with such entities would be covered by attorney-client privilege/confidentiality.

According to the California Bar press release:  “The State Bar Board of Trustees on July 11 authorized a 60-day public comment period for a sweeping set of regulatory reform options for improving access to legal services, developed by the Task Force on Access Through Innovation of Legal Services (ATILS).”

“Beginning next week, the State Bar will seek written comment from consumers, legal service providers, technology experts, and lawyers as vital input for evaluating the options. The Task Force also plans to hold a public hearing to receive oral testimony. The hearing, to take place on August 10, 2019, at the State Bar’s San Francisco office, is timed to coincide with this year’s annual meeting of the American Bar Association.”

Bottom line:  These California Bar proposals have a long way to go before being potentially implemented; however, if they are eventually implemented, California will be another one of the few states which would permit legal technicians to offer legal advice and the only jurisdiction (other than the District of Columbia) to permit nonlawyers to hold a financial interest in law firms.  Stay tuned…

Be careful out there.

Disclaimer:  this e-mail is not an advertisement, does not contain any legal advice, and does not create an attorney/client relationship and the comments herein should not be relied upon by anyone who reads it.

Joseph A. Corsmeier, Esquire

Law Office of Joseph A. Corsmeier, P.A.

29605 U.S. Highway 19 N. Suite 150

Clearwater, Florida 33761

Office (727) 799-1688

Fax     (727) 799-1670

jcorsmeier@jac-law.com

www.jac-law.com

Joseph Corsmeier

about.me/corsmeierethicsblogs

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Filed under 2019 California non-lawyer practice and ownership proposals, Fee sharing with non-lawyer owned firms, joe corsmeier, Joseph Corsmeier, Lawyer ethics, Lawyer Ethics and Professionalism, lawyer fee splitting, Non lawyer compensation, Non-lawyer limited practice of law, Non-lawyer ownership, Non-lawyer practice of law, Non-lawyer practicing law, Uncategorized

Ethical issues and requirements for lawyers in compensating nonlawyer employees

Hello everyone and welcome to this Ethics Alert which will discuss the ethical considerations for lawyers when compensating non-lawyer employees.  State Bar disciplinary rules, including Florida Bar Rule 4-5.4(a), prohibit lawyers from sharing legal fees with nonlawyers.  The Comment to the Florida Bar Rule states, “The provisions of this rule express traditional limitations on sharing fees.  These limitations are to protect the lawyer’s professional independence of judgment….”  Notwithstanding this prohibition, the Bar rules provide for exceptions.

Florida Bar Rule 4-5.4(a)(4) states that “bonuses may be paid to nonlawyer employees for work performed, and may be based on their extraordinary efforts on a particular case or over a specified time period. Bonus payments shall not be based on cases or clients brought to the lawyer or law firm by the actions of the nonlawyer. A lawyer shall not provide a bonus payment that is calculated as a percentage of legal fees received by the lawyer or law firm…”

In Florida Bar Ethics Op. 02-1 (1/11/02), the lawyer requested an ethics opinion regarding the following question:  “May I bonus a non-lawyer employee based on the number of hours the non-lawyer employee has worked on a case for a particular client?”  The lawyer stated that “I would like to bonus my employees based on their own productivity. I would not be utilizing any portion of the fees received by me for that purpose.”

The opinion concluded:

“Based on the rules and opinion, the inquiring attorney may pay the legal assistant a bonus based on the legal assistant’s extraordinary efforts on a particular case or over a specific period of time. While the number of hours the legal assistant works on a particular case or over a specific period of time is one of several factors that can be considered in determining a bonus for the legal assistant, it is not the sole factor to be considered. It must be remembered that the rule allows a bonus to be paid to a nonlawyer based on “extraordinary efforts” either in a particular case or over a specific time period. A bonus which is solely calculated on the number of hours incurred by the legal assistant on the matter is tantamount to a finding that every single hour incurred was an “extraordinary effort”, and such a finding is very unlikely to be true. Therefore, unless every single hour incurred by the legal assistant was a truly extraordinary effort, it would be impermissible for the inquiring attorney to pay a bonus to his legal assistant calculated in the manner the inquiring attorney has proposed. However, the number of hours incurred by the legal assistant on the particular matter or over a specified time period may be considered by the lawyer as one of the factors in determining the legal assistant’s bonus.” (emphasis added). 

Florida Bar Rule 4-5.4 (b) – Qualified Pension Plans, states that a “lawyer or law firm may include nonlawyer employees in a qualified pension, profit-sharing, or retirement plan, even though the lawyer’s or law firm’s contribution to the plan is based in whole or in part on a profit-sharing arrangement.”

ABA Model Rule 5.4(a)(3) states that: “A lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit sharing arrangement…”  ABA Informal Opinion 1440 also states that a compensation plan proposed for an office administrator which relates to the net profits and business performance of the firm and not to the receipt of particular fees does not violate the model rules.

Other state bar opinions address when nonlawyers can participate in such compensation plans.  New York State Bar Assoc. Ethics Op. 887 (2011) states that a law firm may pay a marketing employee a bonus based on the firm’s profits, the profits of a department, or as a percentage of the marketer’s salary; however, the bonus cannot be based on referrals of specific legal matters or on firm profits that come from cases that the marketer brought to the firm.  District of Columbia Ethics Op. 322 (2004) states that a nonlawyer employee may not be paid a bonus based on fees the firm receives from a specific case or series of related cases, but may be paid a bonus contingent upon the firm’s overall profitability.

Unless there is an exception, lawyers are prohibited from paying nonlawyers a bonus that is based on the referral of specific clients to the firm.  Florida Bar Rule 4-1.17(b) -Payment for Referrals- states that a lawyer “may not give anything of value to a person for recommending the lawyer’s services, except that a lawyer may pay the reasonable cost of advertising permitted by these rules, may pay the usual charges of a lawyer referral service, lawyer directory or other legal service organization, and may purchase a law practice in accordance with rule 4-1.17.”

A lawyer cannot circumvent the Rule by providing non-monetary “gifts” to nonlawyer employees.  Such gifts would most likely be considered to be something “of value” under Florida Bar Rule 4-1.17(b) and would therefore by prohibited under that rule as well. The key issue is whether something “of value” is exchanged for future referrals.

Examples include: Maryland Ethics Op. 2000-35 (2001)- lawyers who participate as panelists in seminars offered by accounting and financial services company, in exchange for referrals, could be interpreted as giving “something of value” to accounting firm; Pennsylvania Bar Association in Op. 2005-81- a lawyer may not give a nonlawyer employee a paid day off for referring a new client to the firm; and Connecticut Informal Ethics Op. 92-24 (1992)- a lawyer may not give indirect benefits, including gifts, to a client who made referrals to a lawyer.

Bottom line:  Lawyers must be aware of the Bar rules governing compensation to non-lawyers in order to fully comply with the rules and avoid an unintentional failure to comply.

Disclaimer:  this e-mail is not an advertisement, does not contain any legal advice, and does not create an attorney/client relationship and the comments herein should not be relied upon by anyone who reads it.

Joseph A. Corsmeier, Esquire

Law Office of Joseph A. Corsmeier, P.A.

29605 U.S. Highway 19, N., Suite 150

Clearwater, Florida 33761

Office (727) 799-1688

Fax     (727) 799-1670

jcorsmeier@jac-law.com

www.jac-law.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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