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ABA Formal Op. 08-451 Good News for US-based Independent Contract Lawyers and Hiring Attorneys

August 28th, 2008 · 20 Comments


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 US-based independent contract lawyers (i.e., US 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.

(Of course, contract lawyers themselves have been making these arguments for years.)

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 US-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 US-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 US-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 US-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 US-based contract lawyers who do document review through staffing agencies, it can only be a boon to independent US-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.

You can find more information about the ethical issues involved in providing services as a contract lawyer (including the ABA ethics opinions mentioned above, as well ethics opinions issued by state and local bars around the country) in Contract Lawyering Success, an e-book that is part of the LRWP Gold, Platinum and Platinum Plus memberships.

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Tags: Contract Lawyering · Practice Management

20 responses so far ↓

  • Edward Wiest // // Aug 29, 2008 at 9:39 am

    I’ve done contract work where the client paid a low markup. I’ve done de facto contract work where the client paid a high markup (supporting “overhead” at a time when my former full-time employer was continuing to provide me with desk space and benefits). I’ve done contract work where the client paid the full (agreed-to) fee. Whether I work (or will work) on any of these terms, of course, is my choice, depending on the facts and circumstances.

    I _don’t_ like seeing the billing of contract attorney fees as a disbursement proposed as a means of setting an ethically “reasonable” total fee. Even if a subjective definition of “reasonable” short of unconscionability is appropriate, an argument that contract attorney’s fees _must_ be treated as disbursements and the only additional permissible fee is for supervisory services flows from the suggestion that a disbursement-based approach is ethically proper.

    You’re right to say that the significant supervisory burden ABA would impose on buyers of foreign outsourced legal services can only help US contract attorneys. I just wonder if the observation that fees for the supervision of contract attorneys whose own fees are to be treated as disbursements is permissible can be used as a wedge to either drive down US contract lawyer fees or make the use of low-cost offshore services to be supervised by high-priced US attorneys more attractive.

  • Home Office Warrior » Home Office Tips and Hints — The Links // // Sep 8, 2008 at 2:19 pm

    [...] @lisasolomon — Good news for US-based independent contract lawyers and hiring attorneys. [...]

  • The Economic Downturn and Solo/Small Firm Culture « Lawyer On! The Contract Attorney’s Blog // // Oct 23, 2008 at 4:16 pm

    [...] ways in which attorneys are adapting is by cutting costs, outsourcing overflow work, and downsizing to solo practices.  If the current economic trends continue, I believe we will see [...]

  • Recent URLs tagged Staffing - Urlrecorder // // Nov 5, 2008 at 9:01 am

    [...] Recent public urls tagged “staffing” → ABA Formal Op. 08-451 Good News for US-based Independent Contract… [...]

  • Why a Bad Economy is Good News for US-Based Independent Contract Lawyers | Legal Research & Writing Pro Blog // // Nov 26, 2008 at 12:43 pm

    [...] As I noted back in August, independent US-based contract lawyers generally provide unique, individualized services to small firms and solo practitioners, and this work is less subject to commoditization than the document review work for corporations or large firms that forms the majority of legal work that is shipped abroad. Nevertheless, small firms and sole practitioners are no doubt facing at least as much pressure to trim their fees as large firms are experiencing; in fact, the individuals and small companies that comprise the client base of many small firms are likely even more cost-sensitive than the big companies that are represented by BigLaw. [...]

  • The Significance of Carlson v. Xerox for Independent US-Based Contract Lawyers | legalresearchandwritingpro.com // // Jan 28, 2009 at 12:17 am

    [...] court squarely rejected this argument, citing (among other authorities) ABA Formal Op. 08-451 for the proposition that an attorney may bill a contract lawyer’s charges to the client as [...]

  • Pro Information Center » Blog Archive » Why a Bad Economy is Good News for US-Based Independent Contract Lawyers // // Jan 29, 2009 at 4:00 am

    [...] As I noted back in August, independent US-based contract lawyers generally provide unique, individualized services to small firms and solo practitioners, and this work is less subject to commoditization than the document review work for corporations or large firms that forms the majority of legal work that is shipped abroad. Nevertheless, small firms and sole practitioners are no doubt facing at least as much pressure to trim their fees as large firms are experiencing; in fact, the individuals and small companies that comprise the client base of many small firms are likely even more cost-sensitive than the big companies that are represented by BigLaw. [...]

  • Independent US Contract Lawyer Takes On Foreign LPO |  Freelance Law Firm  // // Nov 2, 2009 at 6:58 pm

    [...] taken a fair amount of heat for pointing out that ABA Formal Op. 08-451, which states (with some important caveats) that foreign legal outsourcing is… because the same principles that allow firms to send legal work overseas also allow law students [...]

  • Christopher B. // // Nov 13, 2009 at 9:36 am

    The essential problem with outsourcing is the shift of liability. If the lawyer or firm were to be sued for ineffective assistance of counsel there will be cross claims galore. The cost of defending such claims would have an impact on the true cost effectiveness of sending this work out. In the end the value costing would eliminate any savings to the clients. And, let’s be completely frank here, this type of outsourcing would only help the big firms with their bloated legal business; it does nothing for the small and mid-size firms.

    An alternative would be to give the consumer a choice of outsourcing for lower costs or having American-trained attorneys working for them. The disclosure would have to be the good, the bad, and the ugly to be fair (none of this half disclosure we have seen in the financial world).

    I am not a fan of outsourcing. That being said, outsourcing is a good thing when it allows more people to afford a bit of “justice.” One of the big problems with outsourcing legal work is that the law is a people business. We interact with our clients; they gain trust in us; and they see that we are indeed working on their case. Clients want to know they are winning or being protected more than they want to know you save them 15% on their car insurance (joke). When their legal work is happening overseas, the client gets none of that, except the discount. Is there value in it, sure. If we took the time to explain completely the nature of legal services to each client I believe most would opt for American representation. If the client knows you understand their case completely and that you take an interest in their welfare, they would likely forego the cost reduction.

    What we need to work on is BigLaw costs, or making more lawyers with exceptional ability cost available. I am a proponent of smaller firms with lower overhead and great lawyers. The salary of a good lawyer doesn’t change, the overhead does. If we look at salary vs. cost, we can see that an attorney who bills $250 an hour and can bill 2000 hours they have grossed $500k. If we are big spenders and take out 50% overhead, we still make out at $250k. And $250 an hour is lower than what BigLaw bills out first years. You could bill higher and see bigger numbers (you just have to know the “sweet spot”). I won’t even go into the quality of life you get back.

    The problem is not having to send more jobs overseas, it is we need to take bake our legal system from big law firms that charge too much for too little too often. I now there are great attorneys who work at big firms, but that is more the exception than the rule. These big firms look for big clients and the people needing justice the most (those under the $100k a year job) go without. The system has been highjacked and it is ransomed to only those with deep pockets.

    Sending legal work overseas will only make big firms more profitable because they will not likely pass this cost savings along to their clients. Our industry will take a hit on its nobility and put even more attorneys out of work, no matter how you spin it.

    This whole idea sounds like a Madoff ponzi scheme idea.

  • dev chopra // // Jun 29, 2010 at 10:44 pm

    This was saying the obvious
    Anyway it is a WTO requirement and a step in the direction of free economy
    keep it up

  • Lisa Solomon // // Jun 29, 2010 at 11:11 pm

    Thank you so much for your comment, dev. According to your website:

    “KLS categorize and recover’s the information crucial to sustain our client in making any critical decision for Litigation Matters. To take it in a broader perspective, our legal research comprises of different steps of action, which is set in motion with scrutiny of the particulars of a problem and finally wrap up with a solution and statement of the results of the investigation. We expertise in designing our services as required for our client’s need and budget. We sustain in giving high quality and flexible results to satisfy our client’s business obligations. KLS has made a team of expert attorneys on various databases like Westlaw, Pacer, Lexis Nexis and many other, along with analysis of International, Federal, State or Local aspects of Law. ”

    You have helped to prove the point I made in “Independent US Contract Lawyer Takes On Foreign LPO” (http://tinyurl.com/yegbjfz) and “Independent U.S. Contract Lawyer Takes On Foreign LPO: Round 2″ (http://tinyurl.com/2aeen45).

  • Virginia LEO 1850 is Latest Ethics Opinion to Support Legal Outsourcing | legalresearchandwritingpro.com // // Oct 27, 2010 at 10:58 am

    [...] of New York Commission on Professional & Judicial Ethics, Formal Opinion 2006-3 (2006) and ABA Formal Op. 08-451. Interestingly, LEO 1850 cites the New York City Bar opinion, but doesn’t mention Op. 08-451. [...]

  • ABA Ethics 20/20 Discussion Draft on Outsourcing is Good News for Freelance Attorneys | legalresearchandwritingpro.com // // Nov 24, 2010 at 3:42 pm

    [...] Many of these factors are identical to those already noted in Comment 1 to Rule 1.1 (“[1] In determining whether a lawyer employs the requisite knowledge and skill in a particular matter, relevant factors include the relative complexity and specialized nature of the matter, the lawyer’s general experience, the lawyer’s training and experience in the field in question . . . .”). Additionally, Op 08-451 contained similar warnings, and recommended similar disclosures, for firms outsourcing abroad; those warnings and disclosure requirements are discussed in my August 2008 analysis of Op 08-451. [...]

  • Former chief CT ethics regulator is gravely misinformed about legal outsourcing | legalresearchandwritingpro.com // // Jun 25, 2011 at 4:01 pm

    [...] I’ve previously explained, in ABA Op. 08-451, Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support [...]

  • Independent U.S. Contract Lawyer Takes On Foreign LPO: Round 2 | legalresearchandwritingpro.com // // Feb 2, 2012 at 9:39 pm

    [...] Handbook describes ABA Formal Op. 08-451 (Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services) as “the first opinion issued by the ABA regarding legal outsourcing.” However, while [...]

  • Report Accompanying ABA Ethics 20/20 Commission’s New Outsourcing Resolution Suggests Supervision Standard Less Client-Protective than Existing Law | legalresearchandwritingpro.com // // Feb 22, 2012 at 2:52 pm

    [...] duty to appropriately supervise work performed by a nonfirm lawyer. As I explained in my analysis of ABA Formal Op. 08-451, under the current Model Rules, an outsourcing lawyer’s duty to make reasonable efforts to [...]

  • OSB Professional Liability Fund Gives Bad Advice About Working With Contract Lawyers | legalresearchandwritingpro.com // // Oct 15, 2012 at 8:55 pm

    [...] Conduct are similar to the ABA’s Model Rules of Professional Conduct. As I’ve previously explained, in Formal Ops. 00-420 and 08-451, the ABA’s Standing Committee on Ethics and Professional [...]

  • Citigroup Judge: Pay Contract Lawyers What They’re Worth | legalresearchandwritingpro.com // // Aug 3, 2013 at 7:15 pm

    [...] (Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services). As I explained back in 2008, in that opinion, the Committee [...]

  • Iowa Ethics Committee Issues Outsourcing Opinion | legalresearchandwritingpro.com // // Nov 12, 2013 at 11:52 pm

    [...] have issued opinions concerning the use of contract lawyers. In fact, the opinion extensively cites ABA Formal Op. 08-451, Lawyer’s Obligations When Outsourcing Legal and Non-Legal Support Servi…. Strangely, though, the opinion does not cite the more recent revised ABA Model Rules Comments [...]

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