OSB Professional Liability Fund

Contract Lawyering: Common Issues and Considerations

women at conference table
November 30, 2020
by Hong Dao

The traditional legal employment model of hiring a full-time lawyer to work as an associate attorney or in-house counsel is not always suitable for certain law firms and organizations. Temporary projects or legal work that have limited duration don’t necessarily call for full-time employment of a lawyer. Some firms and offices may have a long-term need for a full-time lawyer but may not have the budget to hire one at the moment. In those situations, hiring a contract lawyer can provide the firm with needed resources and still be within its budget. Lawyers who are in between jobs or prefer something other than a full-time position can benefit from this contractual arrangement with their extra income and gained experience.

For those new to the world of contract lawyering, the FAQ below will cover some issues and considerations that often come up in this context.

Do contract lawyers need PLF coverage?

Whether a contract lawyer needs PLF coverage depends on the type of work the contract lawyer will do for the hiring firm. If a contract lawyer is hired to do only paralegal-type work, that person may not need PLF coverage. A contract lawyer who goes without PLF coverage must work within the PLF exemption guidelines (see “Law Clerk/Supervised Attorney (not engaged in the private practice of law)”). That person’s work must be reviewed and supervised by the hiring attorney. That contract lawyer is prohibited from engaging in certain activities typically performed by lawyers, such as making strategic decisions on a case; signing pleadings or briefs; attending depositions or making court appearances as the attorney of record; holding himself or herself out as an attorney to any client; and using the title “attorney,” “attorney at law,” or “lawyer” on any correspondence or documents. Also, the hiring firm is prohibited from listing that contract lawyer in the firm name or on firm letterhead as an attorney or firm member.

Without PLF coverage, the contract lawyer is basically working as a glorified paralegal. Because of these limitations, contract lawyers are better off getting PLF coverage. Having malpractice coverage will allow them to take on more independent work and have a bigger role in the matter. Because they are individually covered, they can negotiate a higher rate with the hiring attorney than if they didn’t have PLF coverage.

Do the hiring firms or attorneys need to inform their clients?

Lawyers are required under ORPC 1.4 to disclose to clients that a contract lawyer is working on their case if the contract lawyer is independently handling parts of the case, or if the client will be billed for the contract lawyer’s work. Even when the contract lawyer’s work is supervised and the client is not billed directly for that work, it does not hurt to still get the client’s informed consent. The disclosure and client’s consent can be accomplished via the engagement letter, fee agreement, or a separate document. That document should describe the contracted work to be performed on the client’s matter, explain the risks and alternatives, and otherwise comply with ORPC 1.0(g). (See the PLF website for sample engagement letters and fee agreements.)

Are contract lawyers classified as employees or independent contractors?

Hiring firms and attorneys typically want to classify the contract lawyer as an independent contractor in order to limit their legal liabilities and other obligations owed to employee staff. However, the classification is not determined by the label used by the hiring firm or the contract lawyer, but by various criteria that characterize the working arrangement. The Oregon Employment Department has a helpful chart summarizing the different criteria and tests that certain state agencies use to determine whether a worker is an independent contractor or employee. You can also find additional resources on the IRS website. This PLF inBrief article helps clarify the classification issue, as well as this latest update from the Oregon Supreme Court. It’s important for both hiring attorneys and contract lawyers to understand the lines between employee and independent contract status to avoid misclassification.

How should contract lawyers be compensated?

The compensation is completely up to the hiring firm or attorney and the contract lawyer to agree upon. They may structure compensation based on an hourly rate or on a flat rate per project. Some hiring firms and attorneys may want to know whether they can bill clients a “surcharge” or “markup” in excess of the actual cost to the firm of the contract lawyer’s services, essentially netting the firm a profit on those services. The Oregon State Bar has not published a formal ethics opinion on this issue, but ABA Formal Ethics Opinion 00-420 offers some guidance. This opinion states that a surcharge may be added if: (1) the contract lawyer’s work is billed as legal services and not as costs or expenses; and (2) the surcharge is reasonable and disclosed to clients. For hiring firms who want to bill a surcharge or markup of contract lawyer services, think about how such a charge might look like from the client’s perspective, and consider the possible downside before adopting such a practice. If you do decide to bill clients for such a charge, after weighing the potential costs and benefits, remember that if a claim of ethical misconduct is brought against you, you will probably not be allowed to rely on an advisory opinion as a defense.

What about conflicts of interest?

A contract lawyer is not a member of the hiring firm for conflict purposes. This means that hiring firms and contract lawyers do not have to incorporate each other’s conflict information into their own conflict systems. Instead, contract lawyers should perform their own conflict search on a matter assigned by the hiring firm, and they can work on the matter if there is no conflict with any of their own former or existing clients.

Should the arrangement be put in writing?

It is good practice to put a contract lawyering arrangement in writing to avoid any misunderstanding or miscommunication. The writing doesn’t have to be a formal contract. It can be as simple as a letter of understanding like our sample Contract Project Letter of Understanding. Hiring firms and contract lawyers can modify this sample letter of understanding to suit their individual arrangements. You may consider including additional provisions, such as the extent of the supervision, clarification that payment is not dependent on the client paying the hiring attorney, or any other material terms of the agreement. (See this “Checklist for Contract Lawyers: Issues to Discuss with Your Hiring Attorney” on the PLF website.)

This blog post was adapted from a prior inPractice blog post on this topic by Lee Wachocki, former PLF Practice Management Attorney.