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NOTE:
THIS ARTICLE IS BASED ON THE MINNESOTA RULES OF PROFESSIONAL RESPONSIBILITY
I.Contractor Relationships and Billing Issues.
A.Use of Contractors. Solos and small firms work as contract attorneys or hire contractors for a variety of reasons, including:
1.Temporary increase in work. Small firms may become more successful than they anticipated, or get a series of new clients that may not represent a long-term increase in the firm’s work. Contract attorneys, whether very new to the practice (to handle document production or review) or more experienced (to handle court appearances and negotiations), allow the firm to handle increased work without making a decision to hire additional employees.
2.Underemployment. Many practitioners, both new and experienced, can find themselves without enough clients to pay their expenses. Contract work for other firms, particularly firms with whom the lawyer shares office space, helps fill this gap.
3.Experts. Attorneys are often hired on a contract basis to assist another firm with an aspect of a case that requires special expertise, such as patent law, tax, or ethics.
4.Law clerks.Students are often treated as contractors because they can conduct their work at law school or on-line rather than at the firm’s physical offices, and neither the firm nor the clerk seeks the formalities of an employment relationship.
5.Attorneys on leave. Attorneys taking or returning from parental leaves, sick leaves, phasing into retirement, trying out a new relationship with a law firm, etc., will work with a firm on a contract basis. Attorneys in these categories will also often be designated as Of Counsel to the firm, as discussed further below.
B.Billing Issues. Depending on the type of contract relationship, the hiring firm may be ethically bound to charge the client for the contractor’s time in different ways.
1.ABA Formal Op. 00-420 discusses the issue of charging clients for the work of contract lawyers; Formal Op. 93-379 discusses charging for costs and disbursements in general. The guidelines below are taken from these two opinions.
2.Less-skilled, supervision required. A contract lawyer who is hired to work on a discovery document production or review, to conduct legal research, or to prepare rough drafts of briefs, will probably paid a below-market hourly fee for that work. This contractor performs many of the same tasks as a newer associate would perform and probably has to be supervised by a more senior lawyer. In addition, although the firm probably doesn’t want to make the contractor look too much like an employee and attract the attention of the IRS, the firm may need to provide the contractor with office space, a computer and a temporary e-mail address, etc. For this contractor, the firm can charge the client more than the hourly cost of the contract attorney to recoup its direct costs, its indirect costs, and some profit for providing legal services. Essentially, the firm is allowed to “mark up” the fees it pays to the contractor.
a)As long as the contractor’s work is supervised by the hiring firm or lawyer, there is no obligation to disclose the amount of the mark up to the client.
3.More skilled, independent. The other type of contractor is a skilled, independent practitioner who is hired by the firm on behalf of the client to provide a special set of skills. This contract attorney has her own office, her own computer, her own secretarial resources, supervises herself, and bills the law firm for her work. Whether the bill is per diem or flat fee, ABA opinion 00-420 suggests that if the contract lawyer's fee will be billed to the client as a disbursement, it would be improper for the hiring law firm to add a "surcharge" to that bill. Because all fees charged to the client must be reasonable, if the hiring lawyer provides no value-added to the contract lawyer's work, it would not be reasonable to mark up the contract lawyer's fee.
a)The ABA opinion does provide a rationale for a law firm's decision to add a surcharge in this situation; it says that a fee could be charged if the law firm adopts the contract lawyer's work as its own work.
b)There is a significant client-satisfaction aspect to this issue. If the client finds out that the law firm has marked up an expert contract lawyer's fee, the client is likely going to be rather unhappy.
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