OSB Professional Liability Fund

Considerations for Contract Lawyers and Firms Who Outsource

August 8, 2019
by Lee Wachocki

The gig economy isn’t just for Uber and Lyft drivers.  Many lawyers make ends meet through legal work on a temporary basis, and many firms are willing to outsource discrete legal tasks.  So-called contract work can benefit the contract lawyer, the outsourcing firm, and the client alike, but it also raises practical and ethical concerns that are up to the contract lawyer and outsourcing firm to manage.
 

Client Consent


If a lawyer outside your firm is working on a client’s case and accessing the client’s confidential information, has the arrangement been explained to the client and has the client agreed?  Reasonable minds may differ on what the duties of communication and confidentiality require for particular contract projects, but a client’s informed consent can’t hurt.  A good place to start is a fee agreement that discloses the particulars (or at least the possibility) of working with lawyers outside the firm.  Before a contract project begins, the safe approach is to describe the proposed contract work to the client, explain the risks and alternatives, and obtain the client’s informed consent.  Think about it from the client’s perspective: how would you feel if you learned that a mystery lawyer knows your secrets and has been working on your case without your knowledge?
 

Competence


Outsourcing can save time and improve quality of service for aspects of a case where you lack competence, but only if you select a competent contract lawyer whose work meets your standards and doesn’t require frequent double-checking.  Consider outsourcing if a case calls for expertise in an unfamiliar practice area, a time commitment you can’t meet on your own, or even a task you dislike that will take you away from tasks you enjoy.  Bliss Lawyers, Lawclerk, Montage Legal Group, and Priori Legal are outsourcing services that use their own vetting processes to identify competent contract lawyers in different practice areas.  But be careful not to substitute a service’s judgment for your own.  You have an independent duty to ensure that a contract lawyer is competent, and you don’t want to inadvertently facilitate the unauthorized practice of law.  Confirm that the contract lawyer is licensed to practice in the right jurisdiction, especially if you’ll need them to appear in proceedings, prepare and file documents, or advise clients.
 

Contract


If you’re going to call the arrangement “contract work,” why not reduce it to a writing that spells out important project details?  Feel free to tailor our sample Contract Project Letter of Understanding to your specific situation.  You can supplement the letter of understanding with additional details such as: whether the contract lawyer will have direct contact with the client; limitations on the contract lawyer’s access to the outsourcing firm’s systems, resources, and other client files; the fact that the outsourcing firm has obtained client's consent for the contract project; factors like those outlined in our Checklist for Contract Lawyers (including the contract lawyer’s agreement to run a conflict check); and any other significant aspects of the arrangement.
 

Conflicts


To ensure that the project doesn’t create a conflict of interest, the prudent outsourcing firm will share the names of involved parties and seek confirmation that the contract lawyer: (1) searched their own conflict database for those names; and (2) established that no conflict exists.  Including this conflict check procedure in the letter of understanding is a good first step, but don’t forget to document the fact that a check was run (as well as the results).

A less obvious conflict issue is this: the more a contract lawyer behaves like a member of the outsourcing firm, the more likely the contract lawyer’s conflicts will be imputed to the firm and vice versa.  Is the contract lawyer being held out as a member of the outsourcing firm?  Do they have access to confidential information of firm clients who aren’t related to the contract project?  According to OSB Formal Ethics Op No 2005-50 (revised 2014), lawyers in separate firms who share office space must maintain adequate separation or risk being treated as one firm for conflict-of-interest purposes.  Simple ways for an outsourcing firm to establish separation from the contract lawyer include: leaving the contract lawyer off the firm website and letterhead; granting access to confidential information only as necessary for the task at hand; and restricting exposure to potential sources of confidences, like group or office-wide emails and meetings unrelated to the contract project.


Compensation


Can the outsourcing firm bill the client an additional “surcharge” or “markup” in excess of the actual cost of the contract lawyer’s services?  While there’s no Oregon advisory opinion addressing the issue, ABA Formal Ethics Op No 00-420 and 08-451 suggest that: (1) if the contract lawyer’s services are billed as costs and expenses, the outsourcing firm may not charge more than the actual cost plus a reasonable allocation of overhead directly associated with the contract lawyer (absent an agreement with the client to do otherwise); and (2) if the contract lawyer’s services are billed as legal services, a markup may be permitted if it’s reasonable and disclosed to the client.  Keep in mind that reliance on an advisory opinion is not a defense to a complaint of misconduct.  To understand the distinction between markups for costs and markups for legal services, access BarBooks and read Fee Agreement Compendium §2.4 – Avoiding Undisclosed “Profit Centers.”  Weigh the benefit of a markup against the risk that a client will be upset to see a markup on their bill, and consider how a client might react to an explanation of the markup.

If a fee will be divided between the outsourcing firm and the contract lawyer, ORPC 1.5(d) requires the client’s informed consent and prohibits an excessive total fee.
 

Coverage


Does the nature of the project require that the contract lawyer carry malpractice coverage through the PLF, or can the contract lawyer operate within a coverage exemption?  If PLF coverage is necessary, who will pay for it?  The details of malpractice coverage merit consideration, especially given the limitations posed by certain exemptions.  For example, the exemption for supervised lawyers authorizes a non-PLF-covered lawyer to perform legal research and writing only if the work is reviewed and supervised by a PLF-covered lawyer and the non-PLF-covered lawyer refrains from making strategic decisions, holding himself or herself out as the client’s lawyer, signing pleadings or briefs, making appearances as attorney of record, and more.  The supervised lawyer exemption spares the parties from the cost of PLF coverage, but excessive supervision may work to the outsourcing firm’s disadvantage in the next area of discussion: whether a contract lawyer is an employee or an independent contractor.
 

Classification


Is the contract lawyer an employee or an independent contractor?  This is a complicated question, and the outsourcing firm could expose itself to substantial liability for answering “independent contractor” incorrectly.  The Oregon Employment Department offers a helpful chart summarizing the criteria that various state agencies examine to determine whether a worker is an independent contractor or employee.  The IRS offers a similar collection of resources.  Additionally, Contract Lawyers: Independent Contractors or Employees? is a must-read for any outsourcing firm looking for ways to structure the contract project so that the contract lawyer is correctly classified as an independent contractor.
 

Resources

The Oregon Women Lawyers Contract Lawyer Service offers members a forum to post or view proposed projects.

For an in-depth look at these issues and more, see Heidi O. Strauch, “Choosing a Contract Attorney: Tips for Establishing a Working Relationship,” Oregon State Bar Bulletin (February/March 2011), and Steven D. Hallock, “Contract Lawyers: What place in Oregon’s legal profession?” Oregon State Bar Bulletin (October 2002).